<PAGE>
As Filed With the Securities and Exchange Commission on February 8, 1996
Registration No. 2-87336
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 21 [X]
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
------------------------------------------
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, MD 21202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
135 East Baltimore Street
Baltimore, MD 21202
---------------------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ 75 days after filing pursuant to paragraph (a)
X on April 10, 1996 pursuant to paragraph (a) of Rule 485.
_____
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities Amount Being Proposed Maximum Proposed Maximunm Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Shares of
Common Stock 2,296,133 shares $15.56 $100(1)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Registrant has calculated the maximum aggregate offering price pursuant to
Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act") for its
fiscal year ended December 31, 1995. Registrant had actual aggregate
redemptions of 7,803,574 shares for its fiscal year ended December 31, 1995,
has used 5,526,078 of available redemptions for reductions pursuant to Rule
24f-2(c) under the 1940 Act and has previously used no available redemptions
for reductions pursuant to Rule 24e-2(a) of the 1940 Act during the current
year. Registrant elects to use redemptions in the aggregate amount of
2,277,496 shares for reductions in its current amendment.
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Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended December 31,
1995 was filed with the Commission on February 8, 1996.
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
February 8, 1996
Cross Reference Sheet
<TABLE>
<CAPTION>
Items Required by Form N-1A
- ---------------------------
<S> <C> <C>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub Advisor; Distributor;
Custodian; Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund Performance *
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Fund
Item 8. Redemption or Repurchase How to Redeem Shares
Item 9. Pending Legal Proceedings **
</TABLE>
- ------------------
* Information required by Item 5A with respect to the Fund's Class A Shares
is contained in the Fund's latest Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B Information Required in a Statement
- ------ of Additional Information
-----------------------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objectives,
Policies and Risk
Considerations
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Holders Control Persons and
of Securities Principal Holders of
Securities
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent,
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares;
Semi-Annual Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C Other Information
- ------ -----------------
Part C contains the information required by the items
contained therein under the items set forth in the form.
<PAGE>
LOGO
FLAG INVESTORS
TELEPHONE INCOME FUND, INC.
(Class A and Class B Shares)
This mutual fund (the "Fund") is designed to provide:
1. A professionally managed portfolio consisting primarily of income-
producing common stock, securities convertible thereto and debt
obligations of companies in the telephone industry; and
2. The objective of current income and long-term growth of capital without
undue risk.
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated , 1996 has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference. It is available upon request and without charge by
calling the Fund at (800) 767-FLAG.
Shares of the Fund are available through Alex. Brown & Sons Incorporated
("Alex. Brown") as well as Participating Dealers and Shareholder Servicing
Agents. This Prospectus relates to Class A and Class B Shares of the Fund.
The separate classes provide investors with alternatives as to sales load and
Fund expenses. (See "How to Invest in the Fund.")
- -------------------------------------------------------------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
PROSPECTUS
<PAGE>
FLAG INVESTORS
TELEPHONE INCOME FUND, INC.
(Class A and Class B Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fee Table ......................................... 2
2. Financial Highlights .............................. 3
3. Investment Program ................................ 7
4. Investment Restrictions ........................... 10
5. How to Invest in the Fund ......................... 11
6. How to Redeem Shares .............................. 18
7. Telephone Transactions ............................ 19
8. Dividends and Taxes ............................... 21
9. Management of the Fund ............................ 22
10. Investment Advisor and Sub-Advisor ................ 23
11. Distributor ....................................... 25
12. Custodian, Transfer Agent, Accounting Services .... 26
13. Performance Information ........................... 27
14. General Information ............................... 28
</TABLE>
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No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the Fund or
by its distributor in any jurisdiction in which such offering may not
lawfully be made. Shares may be offered only to residents of those states in
which such shares are eligible for purchase.
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1
<PAGE>
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1. FEE TABLE
...............................................................................
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ......................... 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None None
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower) ........... None* 4.00%**
</TABLE>
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ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fees ......................................... .72% .72%
12b-1 Fees .............................................. .25% .75%
Other Expenses (including a .25% shareholder servicing
fee for Class B Shares) ................................ .22% .47%***
------- ---------
Total Fund Operating Expenses ........................... 1.19% 1.94%
======= =========
</TABLE>
- -------------------------------------------------------------------------------
* Purchases of $1 million or more of Class A Shares are not subject to an
initial sales charge, however, a contingent deferred sales charge of .50%
will be imposed on such purchases in the event of redemption within 24
months following such purchase. (See "How to Invest in the Fund--Offering
Price.")
** A declining contingent deferred sales charge will be imposed on
redemptions of Class B Shares made within six years of purchase. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Invest in the Fund -- Class B Shares.")
*** A portion of the shareholder servicing fee is allocated to member firms
of the National Association of Securities Dealers, Inc. and qualified
banks for continued personal service by such members to investors in
Class B Shares, such as responding to shareholder inquiries, quoting net
asset values, providing current marketing materials and attending to
other shareholder matters.
Example:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period: 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
Class A Shares ............................... $57 $82 $109 $192
Class B Shares ............................... $60 $93 $130 $206*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class
B expenses and four years of Class A expenses.
2
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on the
same investment, assuming no redemption: ... 1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares ............................. $20 $63 $110 $206*
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class
B expenses and four years of Class A expenses.
The Expenses and Example should not be considered a representation of
future expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases shares of either class through a financial institution
may be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund--Offering Price", "Investment Advisor and Sub-Advisor" and
"Distributor.") The Expenses and Example appearing in the tables above have
been restated to reflect current fees.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges or no sales charge at all. (See "How to Invest in the Fund--Class A
Shares.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules").
- -------------------------------------------------------------------------------
2. FINANCIAL HIGHLIGHTS
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the year ended December 31, 1995 and the report
thereon of Coopers & Lybrand L.L.P. are included in the Statement of
Additional Information. Additional performance information is contained in
the Fund's Annual Report for the fiscal year ended December 31, 1995 which
can be obtained at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR)*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 12.30 $ 13.70 $ 12.20
---------- ---------- ----------
Income from Investment Operations:
Net investment income 0.40 0.41 0.42
Net realized and unrealized
gain/(loss) on investments 3.58 (1.27) 1.78
---------- ---------- ----------
Total from Investment Operations 3.98 (0.86) 2.20
Less Distributions:
Dividends from net investment income
and short-term gains (0.41) (0.44) (0.42)
Distributions from net realized long-
term gains (1.00) (0.10) (0.28)
---------- ---------- ----------
Total distributions (1.41) (0.54) (0.70)
---------- ---------- ----------
Net asset value at end of year $ 14.87 $ 12.30 $ 13.70
========== ========== ==========
Total Return *** 33.44% (6.32)% 18.12%
Ratios to Average Net Assets:
Expenses 0.93%(2) 0.92(2) 0.92%(2)
Net investment income 2.85%(3) 3.14(3) 3.12%(3)
Supplemental Data:
Net assets at end of year (000) $492,454 $435,805 $469,163
Portfolio turnover rate 24% 23% 14%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1992 1991 1990 1989**(1) 1988** 1987** 1986**
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 11.28 $ 9.57 $ 10.98 $ 8.24 $ 7.50 $ 7.84 $ 8.02
---------- ---------- ---------- ---------- ---------- --------- ---------
Income from Investment Operations:
Net investment income 0.42 0.45 0.46 0.52 0.46 0.43 0.49
Net realized and unrealized
gain/(loss) on investments 0.93 1.74 (1.29) 3.38 0.97 (0.30) 1.42
---------- ---------- ---------- ---------- ---------- --------- ---------
Total from Investment Operations 1.35 2.19 (0.83) 3.90 1.43 0.13 1.91
Less Distributions:
Dividends from net investment income
and short-term gains (0.42) (0.46) (0.45) (0.52) (0.46) (0.42) (0.54)
Distributions from net realized long-
term gains (0.01) (0.02) (0.13) (0.64) (0.23) (0.05) (1.55)
---------- ---------- ---------- ---------- ---------- --------- ---------
Total Distributions (0.43) (0.48) (0.58) (1.16) (0.69) (0.47) (2.09)
---------- ---------- ---------- ---------- ---------- --------- ---------
Net asset value at end of year $ 12.20 $ 11.28 $ 9.57 $ 10.98 $ 8.24 $ 7.50 $ 7.84
========== ========== ========== ========== ========== ========= =========
Total Return *** 12.35% 23.08% (7.55%) 48.86% 19.90% 1.51% 24.81%
Ratios to Average Net Assets:
Expenses 0.92%(2) 0.92%(2) 0.92%(2) 0.93%(2) 0.92% 0.88% 0.87%
Net investment income 3.81%(3) 4.38%(3) 4.54%(3) 4.41%(3) 5.35% 5.37% 5.58%
Supplemental Data:
Net assets at end of year (000) $ 307,641 $ 238,571 $ 177,963 $ 162,449 $102,483 $94,650 $99,584
Portfolio turnover rate 6% 7% 2% 27% 11% 4% 30%
</TABLE>
- ------
* Computed based upon average shares outstanding.
** Restated for two-for-one stock split, effected in the form of a stock
dividend to shareholders of record on October 27, 1989.
*** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Investment Company Capital Corp. became Investment Advisor to the Fund on
January 19, 1989.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been .99%, .99%, .98%, 1.07%, 1.17%, 1.13% and 1.07%
for the years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990 and
1989, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 2.79%, 3.07%, 3.06%, 3.66%, 4.13%,
4.32% and 4.28% for the years ended December 31, 1995, 1994, 1993, 1992,
1991, 1990 and 1989, respectively.
5
<PAGE>
(FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period from
January 3, 1995**
through
December 31, 1995
-------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of
period $12.28
Income from Investment Operations:
Net investment income 0.30
Net realized and unrealized
gain/(loss) on investments 3.56
-------------------
Total from Investment Operations 3.86
Less distributions:
Dividends from net investment income
and short-term gains (0.31)
Distributions from net realized long-
term gains (1.00)
-------------------
Total Distributions (1.31)
-------------------
Net asset value at end of period $14.83
===================
Total Return *** 32.42%
Ratios to Average Net Assets:
Expenses(2) 1.70%(1)
Net investment income(3) 2.13%(1)
Supplemental Data:
Net assets at end of period (000) $7,504
Portfolio turnover rate 24%
</TABLE>
- ------
* Computed based upon average shares outstanding.
** Commencement of operations.
*** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Annualized.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 1.74% (annualized) for the period ended December
31, 1995.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 2.09% (annualized) for the period
ended December 31, 1995.
6
<PAGE>
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3. INVESTMENT PROGRAM
...............................................................................
INVESTMENT OBJECTIVE, POLICIES
AND RISK CONSIDERATIONS
The Fund's investment objective is to seek current income and long-term
growth of capital without undue risk. In seeking this objective, the Fund
invests primarily in income-producing common stock, securities convertible
thereto and debt obligations of companies in the telephone industry and, to a
lesser degree, in other income-producing securities (including debt obligations)
of issuers in other industries. There can be no assurance that the Fund's
investment objective will be met. The Fund's investment objective may be changed
only by the affirmative vote of a majority of the outstanding shares of the
Fund. Concentration in the telephone industry will subject the Fund to the risks
associated with that industry (e.g., regulatory and technological change) and
may result in greater fluctuation in the Fund's net asset value than is
experienced in less concentrated portfolios. In light of the relatively limited
number of telephone companies, the Fund will be non-diversified for purposes of
the Investment Company Act of 1940 (the "Investment Company Act").
The Fund's investment advisors believe that investing in a portfolio of
securities of companies in the telephone industry affords an attractive
opportunity for achieving the Fund's investment objective. The telephone
industry comprises many well capitalized companies which have demonstrated
stable, profitable growth. Significant technological and regulatory changes have
for some time been stimulating new services while certain unit costs are
declining. Extensive changes in telecommunications law, which became effective
on , 1996, are likely to stimulate further rapid changes in the telephone
industry, as well as the telecommunications industry generally. The new
legislation will allow existing telephone companies, both local and
long-distance, to expand into each other's business as well as into other
telecommunications businesses, but will also permit other telecommunications
firms to enter the telephone business. In addition, the legislation enlarges the
scope of permitted affiliations between traditional telephone companies and
other telecommunications companies. The Fund's investment advisors believe that
because the telephone industry is a focal point in the development of the
information age, both for personal and for data communications, it provides new
opportunities for earnings and dividend growth. At the same time, these
developments pose challenges to companies in the telecommunications industry
with attendant risks.
Under normal market conditions at least 65% of the Fund's total assets
will be invested in income-producing common stock, securities convertible
thereto and debt obligations of companies in the telephone industry. The Fund
may purchase American Depository Receipts ("ADRs"), which are U.S. exchange
listed interests in securities of foreign companies. ADRs include American
Depositary Shares and New York Shares and may be "sponsored" or "unsponsored."
7
<PAGE>
Sponsored ADRs are established jointly by a depositary (typically a U.S.
financial institution) and the underlying issuer, whereas unsponsored ADRs may
be established by a depositary without participation by the underlying issuer.
The Fund may invest some portion of its assets in other income-producing
securities, including money market instruments and other debt obligations, of
issuers in other industries, when doing so is deemed appropriate in order to
help the Fund achieve its investment objective. The circumstances under which
the Fund will invest in such securities include, but are not limited to,
occasions when telephone industry securities that satisfy the Fund's criteria of
stability and potential for long-term growth are not available. Depending on the
circumstances, the Fund may temporarily and for defensive purposes invest up to
100% of its net assets in such other income-producing securities.
In general, the Fund will invest in investment grade debt obligations that
are rated, at the time of purchase, BBB or higher by Standard and Poor's
Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, determined to be of comparable quality by the
Fund's investment advisors, under criteria approved by the Fund's Board of
Directors. Investment grade securities are generally thought to provide the
highest credit quality and the smallest risk of default, although securities
rated BBB by S&P or Baa by Moody's have speculative characteristics. The
value of debt securities changes as interest rates fluctuate. A decrease in
interest rates will generally result in an increase in the value of the
securities while an increase in interest rates will generally result in a
decrease in the value of the securities. Such changes in the value of
portfolio securities will not affect interest income from these securities
but will be reflected in the Fund's net asset value. In the event any
security owned by the Fund is downgraded, the Fund's investment advisors will
review the situation and take appropriate action with regard to the security.
Up to 10% of the Fund's assets may be invested in lower quality debt
oligations (securities rated BB or lower by S&P or Ba or lower by Moody's).
(See "Investments in Non-Investment Grade Securities" below.)
...............................................................................
INVESTMENTS IN NON-INVESTMENT GRADE SECURITIES
Where deemed appropriate by the Fund's investment advisors, the Fund may
invest up to 10% of its total assets (measured at the time of the investment)
in lower quality debt obligations (securities rated BB or lower by S&P or Ba
or lower by Moody's and unrated securities of comparable quality). Securities
that were rated BBB/Baa or higher at the time of purchase but are
subsequently downgraded to BB/Ba or lower will be included in the 10%
category. If such a downgrade causes the 10% limit to be exceeded, the Fund will
8
<PAGE>
be precluded from investing further in debt obligations that are below
investment grade but will not be automatically required to sell any such
securities. The advisors will review the situation and take appropriate action.
Lower rated debt obligations, also known as "junk bonds," are considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. Yields and market values of these bonds will
fluctuate over time reflecting changing interest rates and the market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value,
regardless of prevailing interest rates. Accordingly, adverse economic
developments, including a recession or substantial period of rising interest
rates, may disrupt the high yield bond market, affecting both the value and
liquidity of such bonds. An economic downturn could adversely affect the ability
of issuers of such bonds to make payments of principal and interest to a greater
extent than issuers of higher rated bonds might be affected. Securities in the
lowest rating category that the Fund may purchase (securities rated C by either
S&P or Moody's) may present a particular risk of default, or may be in default
or arrears in the payment of principal and interest. The ratings categories of
S&P and Moody's are described more fully in the Appendix to the Statement of
Additional Information.
The table below provides a summary of ratings assigned by S&P to debt
obligations in the Fund's portfolio. These figures are dollar-weighted
averages of month-end portfolio holdings during the fiscal year ended
December 31, 1995, presented as a percentage of total investments. These
percentages are historical and are not necessarily indicative of the quality
of current or future portfolio holdings, which may vary.
S&P
Rating Average
------ -------
A 1.17%
BBB .37%
BB .52%
B .26%
Unrated 0.00%
...............................................................................
INVESTMENTS IN REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed creditworthy under guidelines approved by the Directors.
9
<PAGE>
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a debt security, and the seller agrees to
repurchase the obligation at a future time and set price, usually not more than
7 days from the date of purchase, thereby determining the yield during the
purchaser's holding period. The value of the underlying securities will be at
least equal at all times to the total amount of the repurchase agreement
obligation, including the interest factor. The underlying securities, which in
the case of the Fund will be U.S. Government securities only, may have
maturities exceeding one year. If the seller defaults on its obligation to
repurchase the underlying instrument, the Fund could experience loss due to
delay in liquidating the collateral and to adverse market action.
...............................................................................
OTHER INVESTMENTS
The Fund has the right to lend portfolio securities to recognized
institutional borrowers on a fully collateralized basis. The Fund may also
write covered call options if each such option is traded on a national
securities exchange (and may purchase calls in related closing transactions).
To date the Fund has not lent portfolio securities. The Fund may also invest
in securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A Securities") that have been determined to
be liquid by the Advisors under standards approved by the Fund's Board of
Directors, and may invest up to 10% of its net assets in Rule 144A Securities
that are illiquid (See "Investment Restrictions" in the Statement of
Additional Information). Rule 144A Securities may become illiquid if
qualified institutional buyers are not interested in acquiring the
securities.
- -------------------------------------------------------------------------------
4. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will
not:
1) Invest less than 65% of the value of its total assets in the telephone
industry, except as described in this Prospectus (otherwise the Fund will
not concentrate more than 25% of its total assets in securities of issuers
in any industry);
10
<PAGE>
2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer; or
3) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase securities
for investment.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
- -------------------------------------------------------------------------------
5. HOW TO INVEST IN THE FUND
Class A Shares and Class B Shares may be purchased from Alex. Brown, 135
East Baltimore Street, Baltimore, Maryland 21202, through any securities
dealer which has entered into a dealer agreement with Alex. Brown
("Participating Dealers") or through any financial institution which has
entered into a Shareholder Servicing Agreement with the Fund ("Shareholder
Servicing Agents"). Shares of either class may also be purchased by
completing the Application Form attached to this Prospectus and returning it,
together with payment of the purchase price (including any applicable
front-end sales charge), to the address shown on the Application Form.
Participating Dealers or Shareholder Servicing Agents and their investment
representatives may receive different levels of compensation depending on
which class of shares they sell.
The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and
other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the combination of sales
charge and distribution fee on Class A Shares is more favorable than the
combination of distribution/service fees and contingent deferred sales charge
on Class B Shares. In almost all cases, investors planning to purchase
$100,000 or more of Fund shares will pay lower aggregate charges and expenses
by purchasing Class A Shares. Accordingly, the Fund will not accept purchases
for Class B Shares in excess of $100,000 per account. (See "Fee Table.")
The minimum initial investment in shares of either class is $2,000, except
that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
11
<PAGE>
investment must be at least $100 per class, except that the minimum
subsequent investment under the Fund's Automatic Investing Plan is $250 for
quarterly investments and $100 for monthly investments. (See "Purchases
Through Automatic Investing Plan" below.) There is no minimum investment
requirement for qualified retirement plans (i.e., 401(k) plans or pension and
profit sharing plans). IRA accounts are, however, subject to the $2,000
minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts. Orders for purchases of shares are
accepted on any day on which the New York Stock Exchange is open for business
("Business Day"). The Fund reserves the right to suspend the sale of shares
at any time at the discretion of Alex. Brown and the Fund's investment
advisors. Purchase orders for shares will be executed at a per share purchase
price equal to the net asset value next determined after receipt of the
purchase order plus any applicable front-end sales charge (the "Offering
Price") on the date such net asset value is determined (the "Purchase Date").
Purchases made by mail must be accompanied by payment of the Offering Price.
Purchases made through Alex. Brown or a Participating Dealer or Shareholder
Servicing Agent must be in accordance with such entity's payment procedures.
Alex. Brown may, in its sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing all assets held by the Fund, deducting all liabilities, including
liabilities attributable to that specific class, and dividing the resulting
amount by the number of then outstanding shares of the class. For this
purpose, portfolio securities are given their market value where feasible. If
a portfolio security is traded on a national exchange or on an automated
dealer quotation system, such as NASDAQ, on the valuation date, the last
quoted sale price is generally used. Options are valued at the last reported
sale price, or if no sales are reported, at the average of the last reported
bid and asked prices. Securities or other assets for which market quotations
are not readily available are valued at their fair value as determined in
good faith under procedures established from time to time and monitored by
the Fund's Board of Directors. Debt obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined
by the Fund's Board of Directors. Because of differences in
distribution/service fees between the classes of shares, the net asset value
per share of the classes differs at times.
12
<PAGE>
...............................................................................
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which for Class A Shares
includes a sales charge which is calculated as a percentage of the Offering
Price and for Class B Shares is net asset value.
...............................................................................
CLASS A SHARES
The sales charge on Class A Shares, which decreases as the amount of
purchase increases, is shown below:
<TABLE>
<CAPTION>
Sales Charge
as Percentage of Dealer
----------------------------- Retention
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 ..... 4.50% 4.71% 4.00%
$50,000 - $ 99,999 ..... 3.50% 3.63% 3.00%
$100,000 - $249,999 ..... 2.50% 2.56% 2.00%
$250,000 - $499,999 ..... 2.00% 2.04% 1.50%
$500,000 - $999,999 ..... 1.50% 1.52% 1.25%
$1,000,000 and over ..... None* None* None*
- -------------------------------------------------------------------------------
</TABLE>
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) Alex. Brown may make payments to dealers in the
amount of .50% of the Offering Price.
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
accumulation. In addition, an investor may obtain reduced sales charges as
set forth above through a right of accumulation of purchases of Class A
Shares and purchases of shares of other Flag Investors funds with the same
sales charge and purchases of shares of Flag Investors Intermediate-Term
Income Fund, Inc. and Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. (the "Intermediate Funds"). The applicable sales charge will be
determined based on the total of (a) the shareholder's current purchase plus
(b) an amount equal to the then current net asset value or cost, whichever is
higher, of all Class A Shares and of all Flag Investors shares described
above and any Flag Investors Class D shares held by the shareholder. To
obtain the reduced sales charge through a right of accumulation, the
shareholder must provide Alex. Brown, either directly or through a
Participating Dealer or Shareholder Servicing Agent, as applicable, with
sufficient information to verify that the shareholder has such a right. The
Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.
13
<PAGE>
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Letter of Intent is 5% of the full amount. Shares
purchased with the first 5% of the full amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not invested. Such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. When the full
amount indicated has been purchased, the escrowed shares will be released. An
investor who wishes to enter into a Letter of Intent in conjunction with an
investment in Class A Shares may do so by completing the appropriate section
of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge will be imposed on such investments in the event of a redemption
within 24 months following the purchase, at the rate of .50% on the lesser of
the value of the shares redeemed or the total cost of such shares. No
contingent deferred sales charge will be imposed on purchases of $3 million
or more of Class A Shares redeemed within 24 months of purchase if the
Participating Dealer and Alex. Brown have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
shares not subject to such charge are the first redeemed followed by other
shares held for the longest period of time.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing Class A
14
<PAGE>
Shares on behalf of their fiduciary and advisory clients, provided such clients
have paid an account management fee for these services (investors may be charged
a fee if they effect transactions in Fund shares through a broker or agent);
(ii) qualified retirement plans; (iii) participants in a Flag Investors fund
payroll savings plan program; (iv) investors who have redeemed Class A Shares,
or shares of any other mutual fund in the Flag Investors family of funds with
the same sales charges, or who have redeemed shares of the Intermediate Funds
which they had held for at least 24 months prior to redemption, in an amount
that is not more than the total redemption proceeds, provided that the purchase
is within 90 days after the redemption; and (v) current or retired Directors of
the Fund and directors and employees (and their immediate families) of Alex.
Brown, Participating Dealers and their respective affiliates.
...............................................................................
CLASS B SHARES
No sales charge will be payable at the time of purchase of Class B Shares.
However, a contingent deferred sales charge will be imposed on certain Class
B Shares redeemed within six years of purchase. The charge is assessed on an
amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. Accordingly, the contingent
deferred sales charge will not be applied to dollar amounts representing an
increase in the net asset values above the initial purchase price of the
shares being redeemed. In addition, no charge is assessed on redemptions of
Class B Shares derived from reinvestment of dividends or capital gains
distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first
of any Class B Shares in the shareholder's account that represent reinvested
dividends and distributions and second of Class B Shares held the longest
during the six year period. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
payment for the purchase of Class B Shares until the redemption of such
shares (the "holding period"). For purposes of determining this holding
period, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the contingent deferred sales charge.
15
<PAGE>
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
- ------------------------------------------------------------------
First ................. 4.0%
Second ................ 4.0%
Third ................. 3.0%
Fourth ................ 3.0%
Fifth ................. 2.0%
Sixth ................. 1.0%
Thereafter ............ None*
- ------------------------------------------------------------------
* As described more fully below, Class B Shares automatically convert to
Class A Shares six years after the beginning of the calendar month in which
the purchase order is accepted.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder; or (ii) to the extent
that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who
has attained the age of 70 1/2. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the
name of an individual person, (b) as a joint tenancy with rights of
survivorship, (c) as community property or (d) in the name of a minor child
under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder, or
his or her representative, must notify the Fund's transfer agent (the
"Transfer Agent") prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. For information on the
imposition and waiver of the contingent deferred sales charge, contact the
Transfer Agent at (800) 553-8080.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the purchase order for Class B Shares is
accepted, such Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution and service fees.
Such conversion will be on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or other charge.
The conversion is not a taxable event to the shareholder.
For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in the shareholder's account
will be considered to be held in a separate sub-account. Each time any Class
B Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares.
16
<PAGE>
Class B Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
...............................................................................
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Fund shares of the same class.
Except as provided below, shares issued pursuant to this offer will not be
subject to the sales charges described above or any other charge.
Shareholders of the Intermediate Funds may exchange into Class A Shares upon
payment of the difference in sales charges, as applicable, except that the
exchange will be made at net asset value if the shares of such funds have
been held for more than 24 months. Shareholders of Flag Investors Cash
Reserve Prime Class A Shares may exchange into Class A Shares upon payment of
the difference in sales charges, as applicable, or into Class B Shares at net
asset value, subject to any applicable contingent deferred sales charge.
When a shareholder acquires Fund shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time). Exchange requests received after 4:00 p.m. (Eastern Time) will be
effected on the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund, who have
paid a sales charge may exchange shares of such fund for an equal dollar
amount of Class A Shares by submitting to Alex. Brown or a Participating
Dealer the proceeds of the redemption of such shares, together with evidence
of the payment of a sales charge and the source of such proceeds. Shares
issued pursuant to this offer will not be subject to the sales charge
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.) The exchange
privilege may be exercised only in those states where the class of shares of
17
<PAGE>
such other funds may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate this offer of exchange at any time on 60 days' prior written
notice to shareholders.
...............................................................................
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase either Class A Shares or Class B Shares regularly
by means of an Automatic Investing Plan with a pre-authorized check drawn on
their checking accounts. Under this plan, the shareholder may elect to have a
specified amount invested monthly or quarterly in either Class A Shares or Class
B Shares. The amount specified will be withdrawn from the shareholder's checking
account using the pre-authorized check and will be invested in the class of
shares selected by the shareholder at the applicable Offering Price determined
on the date the amount is available for investment. Participation in the
Automatic Investing Plan may be discontinued either by the Fund or the
shareholder upon 30 days' prior written notice to the other party. A shareholder
who wishes to enroll in the Automatic Investing Plan or who wishes to obtain
additional purchase information may do so by completing the appropriate section
of the Application Form attached to this Prospectus.
- -------------------------------------------------------------------------------
6. HOW TO REDEEM SHARES
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem shares of either class by
telephone (in amounts up to $50,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per share (reduced by any
applicable contingent deferred sales charge) next determined after receipt of
the order (or, if stock certificates have been issued for the shares to be
redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) will be effected at
the net asset value next determined on the following Business Day. Payment
for redeemed shares will be made by check and will be mailed within seven
days after receipt of a duly authorized telephone redemption request or of a
redemption order fully completed and, as applicable, accompanied by the
documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;
18
<PAGE>
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency or savings
association;
3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of shares will be paid on
the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' notice.
...............................................................................
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed
monthly or quarterly under the Fund's Systematic Withdrawal Plan. Such
payments are drawn from income dividends, and to the extent necessary, from
share redemptions (which would be a return of principal and, if reflecting a
gain, would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of shares. In addition, Class B Shares may be subject to a
contingent deferred sales charge upon redemption. (See "How to Invest in the
Fund -- Class B Shares.") A shareholder who wishes to participate in the
Fund's Systematic Withdrawal Plan may do so by completing the appropriate
section of the Application Form attached to this Prospectus.
- -------------------------------------------------------------------------------
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
19
<PAGE>
$50,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent, Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred
sales charge on redemptions) as next determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are followed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund -- Purchases by Exchange" and "How
to Redeem Shares.")
20
<PAGE>
- -------------------------------------------------------------------------------
8. DIVIDENDS AND TAXES
...............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The
Fund will attempt to pay dividends that are consistent in amount with its
taxable net investment company income and reserves the right, with the
approval of the Directors, to pay dividends that constitute a return of
capital which could cause a decrease in a shareholder's tax basis in shares.
The Fund normally will distribute to shareholders any net capital gains on an
annual basis.
Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Fund shares at net asset
value. Shareholders may elect to terminate automatic reinvestment by giving
written notice to the Transfer Agent (see "Custodian, Transfer Agent,
Accounting Services"), either directly or through any Participating Dealer or
Shareholder Servicing Agent, at least five days before the next date on which
dividends or distributions will be paid.
...............................................................................
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, generally will be subject to income
tax on the amounts so distributed, regardless of whether such distributions
are paid in cash or reinvested in additional shares.
21
<PAGE>
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time a shareholder has held the shares. All other income distributions will
be taxed to shareholders as ordinary income. Corporate shareholders may be
entitled to the dividends received deduction on a portion of dividends
received from the Fund. Shareholders will be advised annually as to the tax
status of all distributions.
The sale, exchange or redemption of shares is a taxable event for the
shareholder.
Ordinarily, shareholders will include all dividends declared by the Fund
in income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund on December 31 of the year in which the
dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
Shareholders are advised to consult with their tax advisors concerning the
application of the rules described above to their particular circumstances
and the application of state and local taxes to an investment in the Fund.
- -------------------------------------------------------------------------------
9. MANAGEMENT OF THE FUND
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's officers, to the Fund's investment advisor, Investment Company
Capital Corp. ("ICC"), to its sub-advisor, Alex. Brown Investment Management
("ABIM"), and to the Fund's distributor, Alex. Brown. Four Directors and all
of the officers of the Fund are officers or employees of ICC, ABIM or Alex.
Brown. The other Directors of the Fund have no affiliation with ICC, ABIM or
Alex. Brown.
22
<PAGE>
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*W. James Price Chairman Bruce E. Behrens President
*Richard T. Hale Director J. Dorsey Brown, III Executive Vice President
*Charles W. Cole, Jr. Director Hobart C. Buppert, II Vice President
James J. Cunnane Director Lee S. Owen Vice President
John F. Kroeger Director Edward J. Veilleux Vice President
Louis E. Levy Director Gary V. Fearnow Vice President
Eugene J. McDonald Director Brian C. Nelson Vice President and
*Rebecca W. Rimel Director Secretary
*Truman T. Semans Director Liam D. Burke Vice President
Carl W. Vogt Director Joseph A. Finelli Treasurer
Harry Woolf Director Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
*Messrs. Price, Cole, Hale and Semans are, and Ms. Rimel may be, Directors
who are "interested persons" of the Fund within the meaning of Section
2(a)(19) under the Investment Company Act.
- -------------------------------------------------------------------------------
10. INVESTMENT ADVISOR AND SUB-ADVISOR
ICC is the Fund's investment advisor and ABIM is the Fund's sub-advisor.
ICC is also the investment advisor to, and Alex. Brown acts as distributor
for other mutual funds in the Flag Investors family of funds and Alex. Brown
Cash Reserve Fund, Inc., which funds had approximately $3.9 billion of net
assets as of December 31, 1995. ABIM is a registered investment advisor with
approximately $4.1 billion under management as of December 31, 1995.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ICC delegates to ABIM certain of its duties,
provided that ICC continues to supervise the performance of ABIM and report
thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to Alex. Brown, provided that compensation to Alex.
Brown on each transaction is reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other broker-dealers
in connection with comparable transactions involving similar securities
during a comparable period of time. In addition, consistent with NASD Rules,
and subject to seeking the most favorable price and execution available and
such other policies as the Board may determine, ABIM may consider services in
connection with the sale of shares as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
23
<PAGE>
As compensation for its services, ICC is entitled to receive a fee from
the Fund, calculated daily and payable monthly, at the annual rate of .85% of
the first $100 million of the Fund's average daily net assets, .75% of the
next $100 million of the Fund's average daily net assets, .70% of the next
$100 million of the Fund's average daily net assets, .65% of the next $200
million of the Fund's average daily net assets, .58% of the next $500 million
of the Fund's average daily net assets, .53% of the next $500 million of the
Fund's average daily net assets, and .50% of that portion of the Fund's
average daily net assets in excess of $1.5 billion. ICC may from time to time
voluntarily waive a portion of its fee to improve performance. As
compensation for its services, ABIM is entitled to receive a fee from ICC
payable from its advisory fee, calculated daily and payable monthly, at the
annual rate of .60% of the first $100 million of the Fund's average daily net
assets, .55% of the next $100 million of the Fund's average daily net assets,
.50% of the next $100 million of the Fund's average daily net assets, .45% of
the next $200 million of the Fund's average daily net assets, .40% of the
next $500 million of the Fund's average daily net assets, .37% of the next
$500 million of the Fund's average daily net assets, and .35% of that portion
of the Fund's average daily net assets in excess of $1.5 billion.
ICC is a wholly-owned subsidiary of Alex. Brown, the Fund's distributor.
Buppert, Behrens & Owen, Inc., a company organized and owned by three
employees of ABIM, owns a 49% limited partnership interest and a 1% general
partnership interest in ABIM. Alex. Brown owns a 1% general partnership
interest in ABIM and Alex. Brown Incorporated owns the remaining 49% limited
partnership interest. The address of both ICC and ABIM is 135 East Baltimore
Street, Baltimore, Maryland 21202.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
...............................................................................
PORTFOLIO MANAGERS
Messrs. Bruce E. Behrens, the Fund's President, and Hobart C. Buppert, II,
a Vice President of the Fund, have shared primary responsibility for managing
the Fund's assets since inception.
Bruce E. Behrens -- 28 Years Investment Experience
Mr. Behrens has been a Vice President of ABIM since 1981. Prior to joining
ABIM, Mr. Behrens was a Senior Vice President and Principal of Corbyn
Associates from 1978 to 1981 and a Vice President at Investment Counselors of
Maryland from 1972 to 1978. Prior thereto, he was a Security Analyst at
Citibank from 1968 to 1972. Mr. Behrens received his B.A. from Denison
24
<PAGE>
University in 1966 and an M.B.A. from the University of Michigan in 1968. He is
a member and past President of the Baltimore Security Analysts Society and a
member of the Financial Analysts Federation.
Hobart C. Buppert, II -- 24 Years Investment Experience
Mr. Buppert has been a Vice President of ABIM since 1980. Prior to joining
ABIM, Mr. Buppert worked as a Portfolio Manager for T. Rowe Price Associates
from 1976 to 1980 and as a Portfolio Manager and Research Analyst for the
Equitable Trust Company from 1972 to 1976. Mr. Buppert received his B.A and
M.B.A. degrees from Loyola College in 1970 and 1974, respectively. He is a
member of the Baltimore Security Analysts Society and the Financial Analysts
Federation.
- -------------------------------------------------------------------------------
11. DISTRIBUTOR
Alex. Brown acts as distributor of the Class A Shares and the Class B
Shares. Alex. Brown is an investment banking firm which offers a broad range
of investment services to individual, institutional, corporate and municipal
clients. It is a wholly-owned subsidiary of Alex. Brown Incorporated which
has engaged directly and through subsidiaries and affiliates in the
investment business since 1800. Alex. Brown is a member of the New York Stock
Exchange and other leading securities exchanges. Headquartered in Baltimore,
Maryland, Alex. Brown has offices throughout the United States and, through
subsidiaries, maintains offices in London, England, Geneva, Switzerland and
Tokyo, Japan.
The Fund has adopted two separate Distribution Agreements and related
Plans of Distribution, one with respect to the Class A Shares and one with
respect to the Class B Shares (the "Plans") pursuant to Rule 12b-1 under the
Investment Company Act. In addition, the Fund may enter into Shareholder
Servicing Agreements with certain financial institutions, such as banks, to
act as Shareholder Servicing Agents, pursuant to which Alex. Brown will
allocate a portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
impose separate fees in connection with these services and investors should
review this Prospectus in conjunction with any such institution's fee
schedule. In addition, financial institutions may be required to register as
dealers pursuant to state securities laws. Amounts allocated to Participating
Dealers and Shareholder Servicing Agents may not exceed amounts payable to
Alex. Brown under the Plans with respect to shares held by or on behalf of
customers of such entity.
25
<PAGE>
As compensation for providing distribution services for the Class A Shares
for the fiscal year ended December 31, 1995, Alex. Brown received a fee equal
to .25% of the average daily net assets of the Class A Shares.
As compensation for providing distribution and shareholder services for
the Class B Shares for the fiscal year ended December 31, 1995, Alex. Brown
received a distribution fee equal to .75% of the Class B Shares' average
daily net assets and a shareholder servicing fee equal to .25% of the Class B
Shares' average daily net assets. The distribution fee is used to compensate
Alex. Brown for its services and expenses in distributing the Class B Shares.
The shareholder servicing fee is used to compensate Alex. Brown,
Participating Dealers and Shareholder Servicing Agents for services provided
and expenses incurred in maintaining shareholder accounts, responding to
shareholder inquiries and providing information on their investments.
Payments under the Plans are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is
less than .25% of the average daily net assets invested in Class A Shares or
in connection with the sale of the Class B Shares is less than .75% of the
average daily net assets invested in Class B Shares for any period, the
unexpended portion of the distribution fees may be retained as profit by
Alex. Brown. Alex. Brown will from time to time and from its own resources
pay or allow additional discounts or promotional incentives in the form of
cash or other compensation (including merchandise or travel) to Participating
Dealers.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
- -------------------------------------------------------------------------------
12. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking
association with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080), is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services to the Fund for the fiscal year ended December
31, 1995, ICC received a fee equal to .15% of the Fund's average daily net
assets. (See the Statement of Additional Information.) ICC also serves as the
Fund's investment advisor.
26
<PAGE>
- -------------------------------------------------------------------------------
13. PERFORMANCE INFORMATION
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares redeemed at the end of the specified period covered by the total return
figure, over one, five and ten year periods or, if such periods have not yet
elapsed, shorter periods corresponding to the life of the Fund. Such total
return quotations will be computed by finding the average annual compounded
rates of return over such periods that would equate an assumed initial
investment of $1,000 to the ending redeemable value, net of the maximum sales
charge and other fees, according to the required standardized calculation. The
standardized calculation is required by the SEC to provide consistency and
comparability in investment company advertising and is not equivalent to a yield
calculation. If the Fund compares its performance to other funds or to relevant
indices, its performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield. For these purposes, the performance of the Fund, as well as the
performance of such investment companies or indices, may not reflect sales
charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90 day U.S.
Treasury bills, the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barrons, Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which shares may be purchased, although not included in
calculations of performance, will reduce performance results.
27
<PAGE>
Although expenses for Class B Shares may be higher than those for Class A
Shares, the performance of Class B Shares may be higher than the performance
of Class A Shares after giving effect to the impact of the sales charges and
distribution/service fees applicable to each class of shares.
- -------------------------------------------------------------------------------
14. GENERAL INFORMATION
...............................................................................
CAPITAL SHARES
The Fund reorganized as a Maryland corporation on January 19, 1989,
pursuant to an Agreement and Plan of Reorganization and Liquidation approved
by shareholders on December 6, 1988. The Fund is authorized to issue 70
million shares of capital stock, with a par value of $.001 per share. Shares
of the Fund have equal rights with respect to voting. Voting rights are not
cumulative, so the holders of more than 50% of the outstanding shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In the event of liquidation or dissolution of the
Fund, each share would be entitled to its portion of the Fund's assets after
all debts and expenses have been paid. The fiscal year end of the Fund is
December 31.
The Board of Directors is authorized to establish additional "series" of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
Shares offered by this Prospectus have been designated: "Flag Investors
Telephone Income Fund Class A Shares" and "Flag Investors Telephone Income
Fund Class B Shares." The Board has no present intention of establishing any
additional series of the Fund but the Fund does have another class of shares
in addition to the Shares offered hereby, "Flag Investors Telephone Income
Fund Class D Shares," which are not currently being offered. Different
classes of the Fund may be offered to certain investors and holders of such
shares may be entitled to certain exchange privileges not offered to Class A
or Class B Shares. All classes of the Fund share a common investment
objective, portfolio of investments and advisory fee, but the classes may
have different distribution/service fees or sales load structures and,
accordingly, performance may differ.
...............................................................................
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders, but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
28
<PAGE>
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.
...............................................................................
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
...............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact Alex.
Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
29
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Telephone Income
Fund, Inc." and mail with this application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Telephone Income Fund, Inc.
For assistance in completing this application please call: 1-800-553-8080
8:30 a.m. to 5:30 p.m., Eastern Time, Monday-Friday
To open an IRA account, call 1-800-767-3524 to request an IRA application
I wish to purchase the following class of shares of the Fund, in the amount
indicated below: Please check the applicable box and indicate amount
of purchase.
/ / Class A Shares (4.5% maximum initial sales charge)
in the amount of $____________________
/ / Class B Shares (4.0% maximum contingent deferred sales charge)
in the amount of $____________________
The minimum initial purchase is $2,000, except that the minimum initial purchase
for shareholders of any other Flag Investors Fund or class is $500 and the
minimum initial purchase for participants in the Fund's Automatic Investing Plan
is $250 per class. Each subsequent purchase requires a $100 minimum per class,
except that the minimum subsequent purchase under the Fund's Automatic Investing
Plan is $250 for quarterly purchases and $100 for monthly purchases. The maximum
investment in Class B Shares is $100,000 per account. The Fund reserves the
right not to accept checks for more than $50,000 that are not certified or bank
checks.
- -----------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: _____________________________________
INDIVIDUAL OR JOINT TENANT
- -----------------------------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- -----------------------------------------------------------------
Name of Corporation, Trust or Partnership
- ------------------------------- ------------------------------
Tax ID Number Date of Trust
- -----------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -----------------------------------------------------------------
For the Benefit of
GIFTS TO MINORS
- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------------------------
Social Security Number of Minor
under the ____________________ Uniform Gifts to Minors Act
State of Residence
MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
______________________________________________________________________________
<PAGE>
LETTER OF INTENT (CLASS A SHARES ONLY) (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares, as shown below, in an
aggregate amount at least equal to:
| | $50,000 | | $100,000 | | $250,000 | | $500,000 | | $1,000,000
________________________________________________________________________________
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the Flag Investors Fund(s) set forth below (except
Class B shares) to be applied for a reduced sales charge. List the Account
numbers of other Flag Investors Funds that you or your immediate family (spouse
and children under 21) already own that qualify for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the same class of
the Fund at no sales charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
- -----------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $_______ in Class A Shares or $_______ in Class B Shares
for me, on a monthly or quarterly basis, on or about the 20th of each month
or if quarterly, the 20th of January, April, July and October, and to draw a
bank draft in payment of the investment against my checking account. (Bank
drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one):
[ ] Monthly ($100 minimum per class)
[ ] Quarterly ($250 minimum per class)
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
- -----------------------------------------------------------------------------
Depositor's Signature Date
- -----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
- -----------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of _______, 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $______ from Class A Shares and/or $______ from Class B Shares
that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 per class.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
______________________________________________________________________________
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: ___________________________ Bank Account No: ___________________
Address: ___________________________ Bank Account Name: ___________________
_______________________________________________________________________________
<PAGE>
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated 1996. Unless the
box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:
- -----------------------------------------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- -----------------------------------------------------------------------------
Signature Date
- -----------------------------------------------------------------------------
Signature (if joint acct., both must sign) Date
- -----------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ___________________ Dealer Code: _________________________
Dealer's Address: ___________________ Branch Code: _________________________
____________________
Representative: ____________________ Rep. No. _________________________
<PAGE>
Flag Investors Telephone Income Fund, Inc.
P.O. Box 514
Baltimore, MD 21203
- ----------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 2139
BALTO., MD
- ----------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
(Class A and Class B Shares)
135 E. Baltimore Street
Baltimore, Maryland 21202
--------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS, WHICH MAY BE OBTAINED FROM ANY
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING OR CALLING ALEX. BROWN & SONS
INCORPORATED, 135 EAST BALTIMORE ST., BALTIMORE,
MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated: __________, 1996
Relating to the Prospectus Dated: _________, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History......................... 1
2. Investment Objective and Policies....................... 2
3. Valuation of Shares and Redemption...................... 7
4. Federal Tax Treatment of Dividends and Distributions.... 8
5. Management of the Fund.................................. 11
6. Investment Advisory and Other Services.................. 16
7. Distribution of Fund Shares............................. 17
8. Brokerage............................................... 21
9. Capital Stock........................................... 22
10. Semi-Annual Reports..................................... 23
11. Custodian, Transfer Agent, Accounting Services.......... 23
12. Independent Accountants................................. 24
13. Performance Information................................. 24
14. Control Persons and Principal Holders of Securities..... 26
15. Financial Statements ................................... 26
Appendix................................................ A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Telephone Income Fund, Inc. (the "Fund") is an
open-end management investment company that was originally designed to provide
both convenience and professional investment management to shareholders of the
former American Telephone and Telegraph Company ("AT&T") after AT&T's
divestiture and reorganization in January 1984.
Under the rules and regulations of the Securities and Exchange
Commission (the "SEC"), all mutual funds are required to furnish prospective
investors with certain information concerning the activities of the company
being considered for investment. The Fund currently offers two classes of
shares: Flag Investors Telephone Income Fund Class A Shares and Flag Investors
Telephone Income Fund Class B Shares. As used herein, the "Fund" refers to Flag
Investors Telephone Income Fund, Inc. and specific references to either class of
the Fund's shares will be made using the name of such class. Important
information concerning the Fund is included in the Fund's Prospectus which may
be obtained without charge from Alex. Brown & Sons Incorporated ("Alex. Brown"),
135 East Baltimore Street, Baltimore, Maryland 21202 (telephone (800) 767-FLAG)
or from Participating Dealers that offer shares of the respective classes of the
Fund ("Shares") to prospective investors. Prospectuses may also be obtained from
Shareholder Servicing Agents. Some of the information required to be in this
Statement of Additional Information is also included in the Fund's current
Prospectus. To avoid unnecessary repetition, references are made to related
sections of the Prospectus. In addition, the Prospectus and this Statement of
Additional Information omit certain information about the Fund and its business
that is contained in the Registration Statement respecting the Fund and its
Shares filed with the SEC. Copies of the Registration Statement as filed,
including such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Fund was organized as a Maryland corporation on October
18, 1983. Shares of the Fund were sold by Alex. Brown and other broker-dealers
in an offering that commenced on December 7, 1983. On January 18, 1984, the Fund
effected a tax-free exchange of five of its Shares for each share of AT&T common
stock that had previously been transmitted to the Fund by exchanging
shareholders. The Fund collected the distributed shares of the regional
telephone companies created by AT&T's divestiture and undertook an investment
program consistent with the Fund's investment objectives. (See Prospectus -
"Investment Program"). On May 20, 1985, the Fund reorganized as a Massachusetts
business trust and on January 19, 1989, it reorganized as a Maryland corporation
pursuant to an Agreement and Plan of Reorganization and Liquidation approved by
shareholders on December 6, 1988. The Fund commenced offering the Flag Investors
Telephone Income Fund Class B Shares on January 3, 1995.
For the period from April 6, 1993 through November 18, 1994,
the Fund offered another class of shares: Flag Investors Telephone Income Fund
Class D Shares, which were known at the time as Flag Investors Telephone Income
Fund Class B Shares and were reclassified as Flag Investors Telephone Income
Fund Class D Shares on November 18, 1994. Shares of that class are not currently
being offered although shares remain outstanding.
Under a license agreement dated January 19, 1989 between the
Fund and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund
the "Flag Investors" name and logo but retains rights to that name and logo,
including the right to permit other investment companies to use them.
-1-
<PAGE>
2. INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income and
long-term growth of capital without undue risk. In seeking this objective, the
Fund invests primarily in income-producing common stock, securities convertible
thereto and debt obligations of companies in the telephone industry. The Fund's
investment advisor, Investment Company Capital Corp. ("ICC") and sub-advisor,
Alex. Brown Investment Management ("ABIM"), collectively, (the "Advisors")
believe that investing in a portfolio of securities of companies in the
telephone industry affords an attractive opportunity for achieving this
investment objective. There can be no assurance, however, that the Fund's
investment objective will be achieved. The Fund was rated the number-one equity
income fund by Lipper Analytical Services, Inc. for the ten-year period ended
December 31, 1995. Morningstar Mutual Fund Advisory Services assigned the Fund a
four star rating as of December 31, 1995.
The Fund may also invest under certain circumstances,
described in the Prospectus, in income-producing securities (including debt
obligations) of issuers in other industries and may enter into repurchase
agreements, may loan portfolio securities, and may write covered call options.
In general, the Fund will invest in investment grade debt obligations that are
rated, at the time of purchase, BBB or higher by Standard & Poor's Ratings Group
("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"). Up to
10% of the Fund's assets may be invested in lower quality debt obligations
(securities rated BB or lower by S&P or Ba or lower by Moody's). (See "Below
Investment Grade Securities" below.) The ratings categories of S&P and Moody's
are described more fully in Appendix A.
Below Investment Grade Securities
The Fund may purchase debt obligations that carry ratings
lower than those assigned to investment grade bonds by Moody's or S&P, or that
are unrated if such bonds, in the Advisors' judgment, meet the quality criteria
established by the Board of Directors. These bonds are generally known as "junk
bonds." These securities may trade at substantial discounts from their face
values. Accordingly, if the Fund is successful in meeting its objectives,
investors may receive a total return consisting not only of income dividends
but, to a lesser extent, capital gain distributions. Appendix A to this
Statement of Additional Information sets forth a description of the S&P and
Moody's rating categories, which indicate the rating agency's opinion as to the
probability of timely payment of interest and principal. These ratings range in
descending order of quality from AAA to D (though the Fund will not purchase
securities rated, at the time of purchase below C), in the case of S&P, and from
Aaa to C, in the case of Moody's. Generally, securities which are rated lower
than BBB by S&P or Baa by Moody's are described as below investment grade.
Securities rated lower than investment grade may be of a predominantly
speculative character and their future cannot be considered well-assured. The
issuer's ability to make timely payments of principal and interest may be
subject to material contingencies. Securities in the lowest rating categories
may be unable to make timely interest or principal payments and may be in
default and in arrears in interest and principal payments.
The following summarizes the Moody's and S&P definitions for
speculative grade debt obligations in which the Fund may invest. Bonds which are
rated Ba by Moody's are judged to have speculative elements; their future cannot
be considered well-assured; and protection of interest and principal payments
may be very moderate, and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class. Bonds rated B generally lack characteristics of the desirable investment
and the assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small. Caa rated bonds
-2-
<PAGE>
are of poor standing and may be in default or may have elements of danger with
respect to principal or interest. Bonds rated Ca represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings. Bonds rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. In the case of S&P, BB rated bonds have less near-term
vulnerability to default than other speculative issues but face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating. B rated bonds have a
greater vulnerability to default than BB rated bonds but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating. CCC rated bonds have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating CI is reserved for income bonds on which no interest
is being paid.
Ratings of S&P and Moody's represent their opinions of the
quality of bonds and other debt securities they undertake to rate at the time of
issuance. However, these ratings are not absolute standards of quality and may
not reflect changes in an issuer's creditworthiness. Accordingly, the Advisors
do not rely exclusively on ratings issued by S&P or Moody's in selecting
portfolio securities but supplement such ratings with independent and ongoing
review of credit quality. In addition, the total return the Fund may earn from
investments in high yield securities will be significantly affected not only by
credit quality but by fluctuations in the markets in which such securities are
traded. Accordingly, selection and supervision by the Advisors of investments in
lower rated securities involves continuous analysis of individual issuers,
general business conditions, activities in the high yield bond market and other
factors. The analysis of issuers may include, among other things, historic and
current financial conditions, strength of management, responsiveness to business
conditions, credit standing and current and anticipated results of operations.
Analysis of general business conditions and other factors may include
anticipated changes in economic activity in interest rates, the availability of
new investment opportunities and the economic outlook for specific industries.
Investing in higher yield, lower rated bonds entails
substantially greater risk than investing in investment grade bonds, including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of high yield bonds will fluctuate over
time, reflecting not only changing interest rates but the bond market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value
due to heightened concern over credit quality, regardless of prevailing interest
rates. In adverse economic conditions, the liquidity of the secondary market for
junk bonds may be significantly reduced. In addition, adverse economic
developments could disrupt the high yield market, affecting both price and
liquidity, and could also affect the ability of issuers to repay principal and
interest, thereby leading to a default rate higher than has been the case
historically. Even under normal conditions, the market for junk bonds may be
less liquid than the market for investment grade corporate bonds. There are
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fewer securities dealers in the high yield market and purchasers of high yield
bonds are concentrated among a smaller group of securities dealers and
institutional investors. In periods of reduced market liquidity, the market for
junk bonds may become more volatile and there may be significant disparities in
the prices quoted for high yield securities by various dealers. Under conditions
of increased volatility and reduced liquidity, it would become more difficult
for the Fund to value its portfolio securities accurately because there might be
less reliable, objective data available.
Finally, prices for high yield bonds may be affected by
legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high yield bonds.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic
banks or broker-dealers deemed to be creditworthy by ICC and ABIM, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, usually not more than seven days from the date of
purchase, thereby determining the yield during the purchaser's holding period.
The value of underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. The
Fund makes payment for such securities only upon physical delivery or evidence
of book entry transfer to the account of a custodian, sub-custodian, or bank
acting as agent. The underlying securities, which in the case of the Fund are
securities of the U.S. Government only, may have maturity dates exceeding one
year. The Fund does not bear the risk of a decline in value of the underlying
securities unless the seller defaults under its repurchase obligation. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
the Fund could experience both delays in liquidating the underlying securities
and loss including: (a) possible decline in the value of the underlying security
during the period during which the Fund seeks to enforce its rights thereto, (b)
possible subnormal levels of income and lack of access to income during this
period, and (c) expenses of enforcing its rights.
Lending of Portfolio Securities
The Fund may lend portfolio securities to Board-approved
brokers or dealers in corporate or government securities, banks or other
recognized institutional borrowers of securities, provided that the borrower
maintains cash or equivalent collateral or a letter of credit in the Fund's
favor of not less than 100% of the market value of the securities loaned by
marking to market daily. While the portfolio securities are on loan, the Fund
receives from the borrower an amount equal to any dividend or interest paid on
such securities. The Fund may invest the cash collateral to generate additional
income or it may by agreement with the borrower receive interest income from the
borrower. Either the Fund or the borrower may terminate the loan at any time.
The Fund may pay reasonable administrative and custodial fees in connection with
a loan and may agree to pay a portion of interest generated on the Fund's
investment of the cash or equivalent collateral to the borrower or placing
broker. The Fund has no current intention of lending more than 5% of its
portfolio securities.
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Covered Call Options
In an attempt to earn additional income, and as a means of
protecting the Fund's assets against market declines, the Fund may, to a limited
extent, write covered call option contracts on certain of its securities and
purchase call options for the purpose of terminating its outstanding obligations
with respect to securities upon which call option contracts have been written.
When the Fund writes a call option on securities which it
owns, it gives the purchaser of the option the right to buy the securities at
the price specified in the option (the "Exercise Price") at any time prior to
the expiration of the option. In the strategy to be employed by the Fund, the
Exercise Price, plus the option premium paid by the purchaser, is almost always
greater than the market price of the underlying security at the time the option
is written. If any option is exercised, the Fund will realize the long-term or
short-term gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received.
By writing a covered option, the Fund may forego, in exchange for the net
premium, the opportunity to profit from an increase in value of the underlying
security above the Exercise Price. Thus, options will be written when ICC and
ABIM believe the security should be held for the long term but expects no
appreciation or only moderate appreciation within the option period. The Fund
also may write covered options on securities that have a current value above the
original purchase price but which, if then sold, would not normally qualify for
a long-term capital gains treatment. Such activities will normally take place
during periods when market volatility is expected to be high.
Only call options which are traded on a national securities
exchange will be written. Call options are issued by the Options Clearing
Corporation, which also serves as the clearing house for transactions with
respect to options. The price of a call option is paid to the writer without
refund on expiration or exercise, and no portion of the price is retained by The
Options Clearing Corporation or the exchanges listed above. Writers and
purchasers of options pay the transaction costs, which may include commissions
charged or incurred in connection with such option transactions.
The Fund may write options contracts on its securities up to
an amount not in excess of 20% of the value of its net assets at the time such
options are written. The Fund will not sell the securities against which options
have been written (uncover the options) until after the option period has
expired, the option has been exercised or a closing purchase has been executed.
Call options may be purchased by the Fund, but only to
terminate an obligation as a writer of a call option. This is accomplished by
making a closing purchase transaction, that is, the purchase of a call option on
the same security with the same Exercise Price and expiration date as specified
in the call option which had been written previously. A closing purchase
transaction with respect to calls traded on a national securities exchange has
the effect of extinguishing the obligation of a writer. Although the cost to the
Fund of such a transaction may be greater than the net premium received by the
Fund upon writing the original option, the Directors believe that it is
appropriate for the Fund to have the ability to make closing purchase
transactions in order to prevent its portfolio securities from being purchased
pursuant to the exercise of a call. ICC and ABIM may also permit the call option
to be exercised. A profit or loss from a closing purchase transaction will be
realized depending on whether the amount paid to purchase a call to close a
position is less or more than the amount received from writing the call. A
profit or loss from an option exercised will be realized depending upon whether
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the cost of the stock sold through the exercise, minus the premium received on
the option, is less or more than the proceeds of the exercise.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
and state regulatory limitations. The investment restrictions recited below are
in addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. The percentage limitations contained in
these restrictions apply at the time of purchase of securities. Accordingly, the
Fund will not:
1. Invest in real estate or mortgages on real estate;
2. Purchase or sell commodities or commodities contracts;
3. Borrow in order to increase income; however, the Fund may
borrow on a temporary basis amounts up to 10% of its assets to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. The Fund will not purchase additional securities when
borrowings exceed 5% of its total assets;
4. Act as an underwriter of securities within the meaning of
the U.S. federal securities laws except insofar as it might be deemed to be
an underwriter upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities;
5. Issue senior securities;
6. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies, and may
loan portfolio securities and enter into repurchase agreements as described in
this Registration Statement;
7. Effect short sales of securities;
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
9. Purchase participations or other interests in oil, gas or
other mineral exploration or development programs; or
10. Invest more than 10% of the value of its net assets in
illiquid securities (as defined under federal and state securities laws),
including repurchase agreements with remaining maturities in excess of seven
days.
The following are investment restrictions that may be changed
by a vote of the majority of the Board of Directors. The Fund will not:
1. Purchase any securities of unseasoned issuers which have
been in operation directly or through predecessors for less than three years;
2. Invest in shares of any other investment company registered
under the Investment Company Act of 1940, other than in connection with a
merger, consolidation, reorganization or acquisition of assets;
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3. Purchase or retain the securities of any issuer if to the
knowledge of the Fund any officer or Director of the Fund or its investment
advisor owns beneficially more than .5% of the outstanding securities of such
issuer and together they own beneficially more than 5% of the securities of such
issuer;
4. Invest in companies for the purpose of exercising
management or control;
5. Invest in puts or calls or any combination thereof, except
that the Fund may write covered call options and may enter into related closing
transactions in accordance with its investment objectives and policies; or
6. Invest in warrants if as a result more than 2% of the value
of the Fund's net assets would be invested in warrants which are not listed on a
recognized stock exchange, or more than 5% of the Fund's net assets would be
invested in warrants regardless of whether listed on such exchange.
7. Invest in real estate limited partnerships or oil, gas or
mineral leases.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined once daily as of
4:00 p.m. (Eastern Time) each day on which the New York Stock Exchange is open
for business ("Business Day"). The New York Stock Exchange is open for business
on all weekdays except for the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
For the purpose of determining the price at which Shares are
redeemed, the net asset value per Share is calculated by valuing all securities
held by the Fund, deducting the Fund's actual and accrued liabilities (including
liability for dividends declared), and dividing the resulting amount by the
number of outstanding Shares. To determine the net asset value per Share of
either class, the net asset value calculated as described above will be further
adjusted to reflect the pro rata portion of income and expenses attributable to
that class. For this purpose, portfolio securities will be given their market
value where feasible. If a portfolio security is traded on a national securities
exchange or on an automated dealer quotation system, such as NASDAQ, on the
valuation date, the last quoted sale price will generally be used. Options are
valued at the last reported sale price, or if no sales are reported at the
average of the last reported bid and asked prices. Securities or other assets
for which market quotations are not readily available are valued by appraisal at
their fair value so determined in good faith by ICC and ABIM under procedures
established and monitored by the Board of Directors. Short-term obligations with
maturities of 60 days or less will be valued at amortized cost, which
constitutes fair value as determined by the Directors.
Redemption
The Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
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closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC so that valuation of the net assets of
the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by
check as described in the Prospectus. However, if the Board of Directors
determines that it would be in the best interests of the remaining shareholders
of the Fund to make payment of the redemption price in whole or in part by a
distribution in kind of readily marketable securities from the portfolio of the
Fund in lieu of cash, in conformity with applicable rules of the SEC, the Fund
will make such distributions in kind. If Shares are redeemed in kind, the
redeeming shareholder will incur brokerage costs in later converting the assets
into cash. The method of valuing portfolio securities is described under
"Valuation of Shares," and such valuation will be made as of the same time the
redemption price is determined. The Fund, however, has elected to be governed by
Rule 18f-1 under the Investment Company Act of 1940, as amended (the "1940 Act")
pursuant to which the Fund is obligated to redeem Shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be, and has been, taxed as a regulated
investment company ("RIC") under Subchapter M of the Code. However, in order to
qualify as a RIC for any taxable year, the Fund must generally derive at least
90% of its gross income from dividends, interest, certain payments with respect
to securities loans, and gains from the sale or other disposition of stock,
securities, or foreign currencies and other income (including, but not limited
to gains from options, futures or forward contracts) derived with respect to its
business of investing in stocks, securities or currencies (the "Income
Requirement"). In addition, the Fund generally must derive less than 30% of its
gross income from gains on the sale or other disposition of certain investments
held for less than three months, including stock or securities (as defined in
Section 2(a)(36) of the 1940 Act); foreign currencies (or options, futures, or
forward contracts on foreign currencies) that are not directly related to the
Fund's principal business of investing in stock or securities (or options and
futures with respect to stocks or securities); and options, futures or forward
contracts (other than options, futures,or forward contracts on foreign
currencies) (the "Short-Short Gain Test").
To the extent that the Fund is able and chooses to identify
and designate offsetting positions (e.g., options that the Fund has written and
the securities covered by such options) as "hedges," increases and decreases
in the value of such positions will be netted for the purposes of determining
whether the Short-Short Gain Test has been satisfied. The Short-Short Gain
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Test will not prevent the Fund from disposing of investments at a loss, since
the recognition of a loss before the expiration of the three-month holding
period is disregarded.
In addition, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must consist of cash
and cash items, U.S. government securities, securities of other RICs, and
securities of other issuers (as to which the Fund has not invested more than 5%
of the value of its total assets in securities of any such issuer and as to
which the Fund does not hold more than 10% of the outstanding voting securities
of any such issuer), and no more than 25% of the value of its total assets may
be invested in the securities of any one issuer (other than U.S. government
securities and securities of other RICs), or in two or more issuers which the
Fund controls and which are engaged in the same, similar or related trades or
businesses (the "Asset Diversification Test"). The Fund will not lose its status
as a RIC if it fails to meet the Asset Diversification Test solely as a result
of a fluctuation in value of portfolio assets not attributable to a purchase.
The Fund may curtail its investments in certain securities where the application
thereto of the Asset Diversification Test is uncertain.
Under Subchapter M, the Fund is exempt from federal income tax
on its net investment income and capital gains which it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short term
capital gains over net long term capital losses) for the year (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. The Distribution Requirement for any year may be waived if a RIC
establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax.
Although the Fund intends to distribute substantially all of
its net investment income and capital gains for any taxable year, the Fund will
be subject to federal income taxation to the extent any such income or gains are
not distributed.
If for any taxable year, the Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate income tax rates without any deduction for distributions to
shareholders, and all such distributions generally will be taxable to
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the 70% dividends received deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be
taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in additional Shares. The Fund
anticipates that it will distribute substantially all of its investment company
taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gain") for each taxable year. However, the Fund expects to distribute
substantially all of its net capital gains each year. If such gains are
distributed as a capital gains distribution, they are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
held the Shares, whether or not such gains were recognized by the Fund prior to
the date on which a shareholder acquired Fund Shares and whether or not the
distribution was paid in cash or reinvested in Shares. Conversely, if the Fund
elects to retain its net capital gains, it will be taxed thereon (except to the
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extent of any available capital loss carryovers) at the applicable corporate
capital gains tax rate. In this event, it is expected that the Fund also will
elect to have shareholders treated as having received a distribution of such
gains, with the result that shareholders will be required to report such gains
on their returns as long-term capital gains, will receive a tax credit for their
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65% of such gains.
Generally, gain or loss on the sale or exchange of a Share
will be a capital gain or loss which will be long-term if the Share has been
held for more than one year and otherwise will be short-term. However, a
shareholder who realizes a loss on the sale, exchange or redemption of a Share
held for six months or less and has previously received a capital gains
distribution with respect to the Share (or has included in income any
undistributed net capital gains of the Fund with respect to such Share) must
treat the loss as a long-term capital loss to the extent of the amount of the
prior capital gains distribution (or any undistributed net capital gains of the
Fund with respect to such Share which have been included in the shareholder's
income). In addition, any loss realized on a sale or other disposition of Shares
will be disallowed to the extent an investor repurchases (or enters into a
contract or option to repurchase) Shares within a period of 61 days (beginning
30 days before and ending 30 days after the disposition of the Shares).
Investors should particularly note that this loss disallowance rule will apply
to Shares received through the reinvestment of dividends during the 61-day
period.
Investors should be careful to consider the tax implications
of purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend or distribution received, even though the net
asset value per Share on the date of such purchase may have reflected the amount
of such forthcoming dividend or distribution.
In the case of corporate shareholders, Fund distributions
(other than capital gains distributions) generally qualify for the 70% dividends
received deduction to the extent of the gross amount of certain qualifying
dividends received by the Fund for the year. Generally, a dividend will be
treated as a qualifying dividend if it has been received from a domestic
corporation. For purposes of the alternative minimum tax and the environmental
tax, corporate shareholders generally will be required to take the full amount
of any dividend received from the Fund into account in determining their
adjusted current earnings for purposes of computing "alternative minimum taxable
income."
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of distributions payable to any
shareholder who (1) has provided either an incorrect taxpayer identification
number or no number at all, (2) is subject to backup withholding by the Service
for failure to properly report the receipt of interest or dividend income, or
(3) who has failed to certify to the Fund that such shareholder is not subject
to backup withholding.
The Fund will provide a statement annually to shareholders as
to the federal income tax status of distributions paid (or deemed to be paid) by
the Fund during the year.
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a nondeductible 4% federal excise tax on RICs
that do not distribute in each calendar year an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
(the excess of long and short-term capital gain over long and short-term capital
loss) for the one-year period ending on October 31 of such calendar year. The
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excise tax is imposed on the undistributed part of this required distribution.
In addition, the balance of such income must be distributed during the next
calendar year to avoid liability for the excise tax in that year. For the
foregoing purposes, an investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
The Fund intends to make sufficient distributions of its
ordinary income and capital gain net income prior to the end of each calendar
year to avoid liability for excise tax. However, investors should note that in
certain circumstances the Fund may be required to liquidate portfolio
investments in order to make sufficient distributions to avoid excise tax
liability, and in addition, that the liquidation of investments in such
circumstances may affect the ability of the Fund to satisfy the Short-Short Gain
Test.
Rules of state and local taxation of dividend and capital
gains distributions from regulated investment companies often differ from the
rules for federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is 135 East Baltimore Street, Baltimore, Maryland
21202.
*W. JAMES PRICE, Chairman and Director (10/6/24)
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida
33435-3342. Director, Boca Research, Inc. (computer peripherals);
Managing Director Emeritus, Alex. Brown & Sons Incorporated; Formerly,
Director, CSX Corporation (transportation and natural resources
company), and PHH Corporation (business services).
*CHARLES W. COLE, JR., Director (11/11/35)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Director, Provident Bankshares Corporation and
Provident Bank of Maryland; Formerly, President, Chief Executive
Officer, Chief Administrative Officer and Director, First Maryland
Bancorp, The First National Bank of Maryland and First Omni Bank;
Formerly, Director, York Bank and Trust Company.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice President and Chief Financial Officer, General
Dynamics Corporation (defense), 1989-1993 and Director, The Arch Fund
(mutual fund).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered
Financial Analyst.
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JOHN F. KROEGER, Director (8/11/24)
P.O. Box 464, 24875 Swan Road-Martingham, St. Michaels, Maryland 21663.
Director/Trustee, AIM Funds; Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm) and General Manager, Shell Oil
Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); 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.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and health care).
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Formerly, Vice
Chairman, Alex. Brown Incorporated.
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, PA 19103-7017; President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice
President, The Glenmede Trust Company; Formerly, Executive Director,
The Pew Charitable Trusts.
CARL W. VOGT, Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 2004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Formerly, Chairman, National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak) and Member, Aviation
System Capacity Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and
Family Health International (non-profit research and education);
Trustee, Reed College (education); Director, Research America
(non-profit medical research); Formerly, Trustee, Rockefeller
Foundation and Director, Merrill Lynch Cluster C Funds (mutual funds).
BRUCE E. BEHRENS, President (4/20/44)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Treasurer, Buppert,
Behrens & Owen, Inc.
J. DORSEY BROWN, III, Executive Vice President (8/26/39)
Managing Director, Alex. Brown & Sons Incorporated; Currently, Chief
Executive Officer and Formerly, General Partner, Alex. Brown Investment
Management.
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HOBART C. BUPPERT, II, Vice President (8/1/46)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor) 1984-Present; President, Buppert,
Behrens & Owen, Inc., 1987-Present.
LEE S. OWEN, Vice President (10/27/47)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Secretary, Buppert,
Behrens & Owen, Inc.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; President, Investment
Company Capital Corp. (registered investment advisor); Vice President,
Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated; Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
BRIAN C. NELSON, Vice President and Secretary (7/31/59)
Vice President, Alex. Brown & Sons Incorporated, Investment Company
Capital Corp. (registered investment advisor) and Armata Financial
Corp. (registered broker-dealer); Assistant Secretary, The Glenmede
Fund, Inc. and The Glenmede Portfolios (mutual funds).
LIAM D. BURKE, Vice President (12/27/55)
Telecommunications Analyst, Alex. Brown Investment Management, October
1994-Present; Formerly, Telecommunications Analyst, Ferris, Baker
Watts, Inc. (brokerage firm), May 1992-October 1994 and Managing
Director, Frey and Co. (investment banking), October 1989-May 1992.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September
1995-Present; Treasurer, The Glenmede Fund, Inc. and The Glenmede
Portfolios (mutual funds), December 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (mutual funds)
and Vice President, Delaware Management Company, Inc., 1980-August
1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student, 1989-1991.
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* Messrs. Price, Cole, Hale and Semans are, and Ms. Rimel may be,
directors who are "interested persons," as defined in the 1940 Act.
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 or its affiliates. There are currently 12
funds in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc.
fund complex (the "Fund Complex"). Mr. Price serves as a Director of seven funds
in the Fund Complex. Mr. Cole serves as a Director of four funds in the Fund
Complex. Mr. Hale serves as President and Director of one fund and as a Director
of each of the other funds in the Fund Complex. Mr. Semans serves as a Director
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<PAGE>
of eight funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy, McDonald and
Woolf serve as Directors of each fund in the Fund Complex. Ms. Rimel serves as a
Director of six funds in the Fund Complex. Mr. Vogt serves as a Director of five
funds in the Fund Complex. Mr. Behrens serves as President of one fund and Vice
President of two funds in the Fund Complex. Mr. Brown serves as President of one
fund and Executive Vice President of two funds in the Fund Complex. Mr. Buppert
serves as Executive Vice President of one fund and Vice President of two funds
in the Fund Complex and Mr. Owen serves as President of one fund, Executive Vice
President of one fund and Vice President of one fund in the Fund Complex. Mr.
Fearnow serves as Vice President of 10 funds in the Fund Complex. Mr. Veilleux
serves as Executive Vice President of one fund and as Vice President of 11 funds
in the Fund Complex. Mr. Burke serves as Vice President of one fund in the Fund
Complex. Mr. Nelson serves as Vice President and Secretary, Mr. Finelli serves
as Treasurer and Ms. DePrine serves as Assistant Secretary, respectively, of
each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have
had normal brokerage transactions with, Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of Alex. Brown or Alex. Brown Incorporated may be considered to have
received remuneration indirectly. As compensation for his or her services as
director, each Director who is not an "interested person" of the Fund (as
defined in the 1940 Act) (a "Non-Interested Director") and Ms. Rimel, 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 all Flag Investors/ISI Funds and Alex. Brown Cash
Reserve Fund, Inc., for which he or she serves. In addition, the Chairman of the
Fund Complex's Audit Committee receives an aggregate annual fee from the Fund
Complex. Payment of such fees and expenses is allocated among all such funds
described above in direct proportion to their relative net assets. For the
fiscal year ended December 31, 1995, Non-Interested Directors' fees attributable
to the assets of the Fund totalled $29,209.84.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Compensation From the Fund
Aggregate Compensation From the Fund and Fund Complex Paid to Directors
in the Fiscal Year Ended in the Fiscal Year Ended
Name of Person, Position+ December 31, 1995 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*W. James Price, Chairman $0 $0
*Robert S. Killebrew, Jr., Director
and Vice President** $0 $0
*Truman T. Semans, Director $0 $0
James J. Cunnane, Director $4,402(1) $39,000 for service on 13
Boards(2) in the Fund Complex
N. Bruce Hannay, Director*** $4,402(1) $39,000 for service on 13
Boards(2) in the Fund Complex
John F. Kroeger, Director $5,000 $44,425 for service on 13
Boards(2) in the Fund Complex
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Compensation From the Fund
Aggregate Compensation From the Fund and Fund Complex Paid to Directors
in the Fiscal Year Ended in the Fiscal Year Ended
Name of Person, Position+ December 31, 1995 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Louis E. Levy, Director $4,402 $39,000 for service on 13
Boards(2) in the Fund Complex
Eugene J. McDonald, Director $4,402(1) $39,000 for service on 13
Boards(2) in the Fund Complex
Harry Woolf, Director $4,402(1) $39,000 for service on 13
Boards(2) in the Fund Complex
</TABLE>
- ------------
+ Messrs. Hale, Cole and Vogt and Ms. Rimel were elected to the Board at a
special meeting of Directors held on April __, 1996.
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired, effective ________________.
*** Retired, effective January 31, 1996.
(1) Of amounts paid to Messrs. Cunnane, Hannay, McDonald and Woolf, all of
such amounts has been deferred pursuant to a deferred compensation plan,
except Mr. Hannay who deferred $3,197.
(2) One of these funds ceased operations on May 17, 1995.
The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of five years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she served. The Retirement Plan is
unfunded and unvested. Messrs. Kroeger and Woolf have qualified but have not yet
received benefits. The Fund has two Participants, a Director who retired
effective December 31, 1994, and a Director who retired effective January 31,
1996 who have qualified for the Retirement Plan and each of whom will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Such fee
is allocated to each fund in the Fund Complex based upon the relative net assets
of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from
the Fund is permitted to defer a minimum of 50%, or up to all, of his or her
annual compensation pursuant to a Deferred Compensation Plan.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
significantly restricts the personal investing activities of all employees of
ICC and the directors and officers of Alex. Brown. As described below, the Code
of Ethics imposes additional, more onerous, restrictions on the Fund's
investment personnel, including the portfolio managers and employees who execute
or help execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any
director or officer of Alex. Brown, and all Non-Interested Directors, preclear
any personal securities investments (with limited exceptions, such as
non-volitional purchases or purchases which are part of an automatic dividend
reinvestment plan). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to the
proposed investment. The substantive restrictions applicable to investment
personnel include a ban on acquiring any securities in an initial public
offering, a prohibition from profiting on short-term trading in securities and
preclearance of the acquisition of securities in private placements.
Furthermore, the Code of Ethics provides for trading "blackout periods" that
prohibit trading by investment personnel and certain other employees within
periods of trading by the Fund in the same security.
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<PAGE>
6. INVESTMENT ADVISORY AND OTHER SERVICES
On April ___, 1996, the shareholders of the Fund approved an
Investment Advisory Agreement between the Fund and ICC and a Sub-Advisory
Agreement among the Fund, ICC and ABIM, both of which contracts are described in
greater detail below. ICC, the investment advisor, is a wholly owned subsidiary
of Alex Brown, the Fund's distributor. ICC is also the investment advisor to
Flag Investors Value Builder Fund, Inc. and Flag Investors Equity Partners Fund,
Inc. (for which funds ABIM serves as the sub-advisor), Alex. Brown Cash Reserve
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Intermediate-Term Income Fund, Inc., Flag
Investors Maryland Intermediate Tax Free Income Fund, Inc., and Flag Investors
Real Estate Securities Fund, Inc., which are also distributed by Alex. Brown.
Prior to January 19, 1989, ABIM served as the Fund's investment advisor pursuant
to investment advisory agreements dated May 16, 1985 and September 17, 1987.
Buppert, Behrens & Owens, Inc., a company organized and owned by three employees
of ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. Alex. Brown holds a 1% general partnership interest in ABIM
and Alex. Brown Incorporated owns the remaining 49% limited partnership
interest. ABIM is a registered investment advisor and has under management as of
December 31, 1995 approximately $4.1 billion, including the assets of the Fund
and the assets of ABIM's other clients.
Under the Investment Advisory Agreement, ICC obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. ICC has delegated this
responsibility to ABIM. Any investment program undertaken by ICC or ABIM will at
all times be subject to policies and control of the Fund's Board of Directors.
ICC will provide the Fund with office space for managing its affairs, with the
services of required executive personnel and with certain clerical and
bookkeeping services and facilities. These services are provided by ICC without
reimbursement by the Fund for any costs. Neither ICC nor ABIM shall be liable to
the Fund or its shareholders for any act or omission by ICC or ABIM or any
losses sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty. The
services of ICC and ABIM to the Fund are not exclusive and ICC and ABIM are free
to render similar services to others.
As compensation for its services, ICC is entitled to receive a
fee from the Fund, calculated daily and paid monthly, at the annual rate of .85%
of the first $100 million of the Fund's average daily net assets, .75% of the
next $100 million of the Fund's average daily net assets, .70% of the next $100
million of the Fund's average daily net assets, .65% of the next $200 million of
the Fund's average daily net assets, .58% of the next $500 million of the Fund's
average daily net assets, .53% of the next $500 million of the Fund's average
daily net assets and .50% of that portion of the Fund's average daily net assets
exceeding $1.5 billion. As compensation for its services, ABIM is entitled to
receive a fee from ICC, payable from its advisory fee, calculated daily and paid
monthly, at the annual rate of .60% of the first $100 million of the Fund's
average daily net assets, .55% of the next $100 million of the Fund's average
daily net assets, .50% of the next $100 million of the Fund's average daily net
assets, .45% of the next $200 million of the Fund's average daily net assets,
.40% of the next $500 million of the Fund's average daily net assets, .37% of
the next $500 million of the Fund's average daily net assets, and .35% of that
portion of the Fund's average daily net assets exceeding $1.5 billion.
ICC has agreed to reduce its aggregate fees on a monthly basis
for any fiscal year to the extent required so that the amount of the ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) paid or incurred by the Fund for such fiscal
year does not exceed the expense limitations applicable to the Fund imposed by
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<PAGE>
the securities laws or regulations of the states in which the Fund's Shares are
registered or qualified for sale as such limitations may be raised or lowered
from time to time. Currently, the most restrictive of such expense limitations
requires ICC to reduce its fees to the extent required so that ordinary expenses
of the Fund (excluding brokerage commissions, interest, taxes, and extraordinary
expenses such as legal claims, liabilities, litigation costs and indemnification
related thereto) do not exceed 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of the Fund's average
daily net assets and 1.5% of the Fund's average daily net assets in excess of
$100 million. In addition, if required to do so by any applicable state
securities laws or regulations, ICC will reimburse the Fund to the extent
required to prevent the expense limitations of any state law or regulation from
being exceeded. ABIM has agreed to reduce its aggregate fees for any fiscal year
in an amount proportionate to the amount by which ICC's fees may be reduced as
described above.
Each of the Investment Advisory Agreement and the Sub-Advisory
Agreement has an initial term of two years and will continue in effect from year
to year thereafter if such continuance is specifically approved at least
annually by the Fund's Board of Directors, including a majority of the
Non-Interested Directors who have no direct or indirect financial interest in
such agreements, by votes cast in person at a meeting called for such purpose,
and by a vote of a majority of the outstanding Shares. The Fund or ICC may
terminate the Investment Advisory Agreement on sixty days' written notice
without penalty. The Investment Advisory Agreement will terminate automatically
in the event of assignment. The Sub-Advisory Agreement has similar termination
provisions. Prior to April __, 1996, ICC served as the Fund's investment advisor
and ABIM served as the Fund's sub-advisor pursuant to agreements approved by
shareholders on December 6, 1988. For the fiscal years ended December 31, 1995,
December 31, 1994 and December 31, 1993, the Fund paid ICC fees (net of fee
waivers) of $2,297,474, $2,244,515 and $1,892,883, respectively, and ICC paid
ABIM from the fees it received, fees in the amount of $1,541,505, $1,533,375 and
$1,289,934, respectively. Absent such fee waivers, the Class A Shares' Total
Operating Expenses would have been .99%, .99% and .98%, respectively, of its
average net assets. Absent fee waivers for the fiscal period from January 3,
1995 (commencement of operation) through December 31, 1995, the Class B Shares'
Total Operating Expenses would have been 1.74% of its average net assets. Absent
fee waivers, for the years ended December 31, 1995 and December 31, 1994 and for
the period from April 6, 1993 through December 31, 1993, the Class D Shares'
Total Operating Expenses would have been 1.34%, 1.34% and 1.31%, respectively,
of its average net assets. Such voluntary fee waivers were discontinued on
October 6, 1995.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. See "Custodian, Transfer
Agent, Accounting Services."
7. DISTRIBUTION OF FUND SHARES
The Distribution Agreements provide that Alex. Brown has the
exclusive right to distribute the related class of Flag Investors Telephone
Income Fund Shares either directly or through other broker-dealers and further
provide that Alex. Brown will: (a) solicit and receive orders for the purchase
of Shares, (b) accept or reject such orders on behalf of the Fund in accordance
with the Fund's currently effective prospectus and transmit such orders as are
accepted to the Fund's transfer agent as promptly as possible, (c) receive
requests for redemptions and transmit such redemption requests to the Fund's
transfer agent as promptly as possible, and (d) respond to inquiries from
shareholders concerning the status of their accounts and the operations of the
Fund. Alex. Brown has not undertaken to sell any specific number of Shares. The
Distribution Agreements further provide that, in connection with the
distribution of Shares, Alex. Brown will be responsible for all of the
promotional expenses. The services provided by Alex. Brown to the Fund are not
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<PAGE>
exclusive, and Alex. Brown is free to provide similar services to others. Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such broker-dealers
have agreed to process investor purchase and redemption orders and respond to
inquiries from Fund shareholders concerning the status of their accounts and the
operations of the Fund.
As compensation for providing distribution services as described
above, the Fund will pay Alex. Brown for the Flag Investors Class A Shares, an
annual fee, paid monthly equal to .25% of the average daily net assets of the
Class A Shares. As compensation for providing distribution services as described
above for the Flag Investors Class B Shares, the Fund will pay Alex. Brown, an
annual fee, paid monthly, equal to .75% of the average daily net assets of the
Class B Shares. With respect to the Class A Shares, Alex. Brown expects to
allocate most of its annual distribution fee to its investment representatives
and up to all of its fee to Participating Dealers. With respect to the Class B
Shares, Alex. Brown expects to retain the entire distribution fee as
reimbursement for front-end payments to its investment representatives and to
Participating Dealers.
As compensation for providing distribution services for the Class
A Shares in the fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993, Alex. Brown received from the Fund aggregate commissions and
fees in the amount of $1,153,794, $1,155,931 and $973,525, respectively. For the
same periods, Alex. Brown paid from the fees it received $448,990, $470,275 and
$259,204 to its investment representatives as compensation and $691,339,
$652,516 and $485,886 to Participating Dealers as compensation. In addition, in
the fiscal year ended December 31, 1995, Alex. Brown incurred expenses on the
Class A Shares of $_____ for advertising and $_____ for printing and mailing
prospectuses to prospective investors. As compensation for providing
distribution services for the Class B Shares for the period from January 3, 1995
(commencement of operations) through December 31, 1995, Alex. Brown received
from the Fund aggregate 12b-1 fees in the amount of $35,130 and from such
amounts paid $_____ for advertising and $_____ for printing and mailing
prospectuses to prospective investors.
In addition, with respect to the Class B Shares, the Fund will
pay Alex. Brown a shareholder servicing fee at an annual rate of .25% of the
average daily net assets of the Class B Shares. (See the Prospectus.) Alex.
Brown expects to allocate most of its shareholder servicing fee to its
investment representatives or to Participating Dealers. For the period from
January 3, 1995 through December 31, 1995, such fees totalled $8,879.75 and
Alex. Brown paid from such amounts $2,356 to its investment representatives and
$6,398 to Participating Dealers.
For the period April 6, 1993 through November 18, 1994 the Fund
offered the Flag Investors Telephone Income Fund Class D Shares of the Fund
(which were known at such time as the Flag Investors Telephone Income Fund Class
B Shares.) Some Class D Shares remain outstanding. As compensation for providing
distribution services for the Class D Shares for the fiscal years ended December
31, 1995 and for the period from April 6, 1993 through December 31, 1993, Alex.
Brown received from the Fund aggregate commissions and fees in the amount of
$189,406, $185,856 and $39,490 and paid from such fees it received $29,730,
$6,785 and $0 to its investment representatives as compensation and $103,634,
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<PAGE>
$20,377 and $0 to Participating Dealers as compensation. In the fiscal year
ended December 31, 1995, Alex. Brown incurred expenses on the Class D Shares of
$_____ for _____ [insert any expenses].
Pursuant to Rule 12b-1 under the 1940 Act, which provides that
investment companies may pay distribution expenses, directly or indirectly, only
pursuant to a plan adopted by the investment company's board of directors and
approved by its shareholders, the Fund has adopted a Plan of Distribution for
each of its classes of Shares (the "Plans"). Under the Plans, the Fund pays a
fee to Alex. Brown for distribution and other shareholder servicing assistance
as set forth in the Distribution Agreements, and Alex. Brown is authorized to
make payments out of its fees to its investment representatives and to
participating broker-dealers. Each Distribution Agreement has an initial term of
two years. The Distribution Agreements and the Plans encompassed therein will
remain in effect from year to year as specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of a
majority of the Non-Interested Directors, by votes cast in person at a meeting
called for such purpose. The Distribution Agreements including the Plans and
forms of Sub-Distribution Agreements, were most recently approved by the Fund's
Board of Directors, including a majority of the Non-Interested Directors, on
September 26, 1995.
In approving the Plans, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreements without the approval of the shareholders of the
Fund. The Plans may be terminated at any time and the Distribution Agreements
may be terminated at any time upon sixty days' notice, in either case without
penalty, by the vote of a majority of the Fund's Non-Interested Directors or by
a vote of a majority of the outstanding class of Shares (as defined under
"Capital Stock"). Any Sub-Distribution Agreement may be terminated in the same
manner at any time. The Distribution Agreements and any Sub-Distribution
Agreements shall automatically terminate in the event of assignment.
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plans to Alex. Brown pursuant to
the Distribution Agreements and to broker-dealers pursuant to Sub-Distribution
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the Plans, the selection and
nomination of the Fund's Non-Interested Directors shall be committed to the
discretion of the Non-Interested Directors then in office.
In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown will allocate a
portion of its distribution fee as compensation for such financial institutions'
ongoing shareholder services. Although banking laws and regulations prohibit
banks from distributing shares of open-end investment companies such as the
Fund, according to interpretations by various bank regulatory authorities,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as the shareholder servicing capacities described
above. Should future legislative, judicial or administrative action prohibit or
restrict the activities of the Shareholder Servicing Agents in connection with
the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection with
these services and investors should review the Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee schedule.
In addition, state securities laws on this issue may differ from the
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<PAGE>
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Plans. Payments under the Plan are made as described above regardless of
Alex. Brown's actual cost of providing distribution services and may be used to
pay Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is less
than .25% of the Class A Shares' average daily net assets for any period or in
connection with the sale of the Class B Shares is less than .75% of the Class B
Shares' average daily net assets for any period, the unexpended portion of the
distribution fee may be retained by Alex. Brown. The Plans do not provide for
any charges to the Fund for excess amounts expended by Alex. Brown and, if
either Plan is terminated in accordance with its terms, the obligation of the
Fund to make payments to Alex. Brown pursuant to the Plan will cease and the
Fund will not be required to make any payments past the date the related
Distribution Agreement terminates.
In the fiscal years ended December 31, 1995, December 31, 1994
and December 31, 1993, Alex. Brown received sales commissions on the Class A
Shares of $_____, $______ and $_____ and from such amounts retained $_____,
$_____ and $_____ for each such year, respectively. In the fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993, Alex. Brown received
contingent deferred sales loads on the Class B Shares of $_____, $_____ and
$_____ and from such amounts retained $_____, $_____ and $_____ for each such
year, respectively.
Except as described elsewhere, the Fund pays or causes to be paid
all continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of 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; 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 proxy statements and reports to shareholders; fees and travel expenses
of Directors and 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 Shares; fees and expenses of legal counsel,
including counsel to the Non-Interested Directors, and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including Officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly assumed by Alex.
Brown, ICC or ABIM.
The address of Alex. Brown is 135 East Baltimore Street,
Baltimore, Maryland 21202.
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<PAGE>
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for
the Fund, for the broker-dealer selection and for negotiation of commission
rates, subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a commission
for their services. Brokerage commissions are subject to negotiation between
ABIM and the broker-dealers. ABIM may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with
a principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.
If Alex. Brown is participating in an underwriting or selling
group, the Fund may not buy portfolio securities from the group except in
accordance with rules of the SEC. The Fund believes that the limitation will not
affect its ability to carry out its present investment objective.
ABIM's primary consideration in effecting securities transactions
is to obtain best price and execution of orders on an overall basis. As
described below, however, ABIM may, in its discretion, effect transactions with
dealers that furnish statistical, research or other information or services
which are deemed by ABIM to be beneficial to the Fund's investment program.
Certain research services furnished by broker-dealers may be useful to ABIM with
clients other than the Fund. Similarly, any research services received by ABIM
through placement of portfolio transactions of other clients may be of value to
ABIM in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to ABIM
by a broker-dealer. ABIM is of the opinion that because the material must be
analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ABIM's research and analysis.
Therefore, it may tend to benefit the Fund by improving ABIM's investment
advice. ABIM's policy is to pay a broker-dealer higher commissions for
particular transactions than might be charged if a different broker-dealer had
been chosen when, in ABIM's opinion, this policy furthers the overall objective
of obtaining best price and execution. Subject to periodic review by the Fund's
Board of Directors, ABIM is also authorized to pay broker-dealers other than
Alex. Brown higher commissions on brokerage transactions for the Fund in order
to secure research and investment services described above. The allocation of
orders among broker-dealers and the commission rates paid by the Fund will be
reviewed periodically by the Board.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization the Board adopted certain
policies and procedures incorporating the standards of Rule 17e-1 under the 1940
Act which requires that the commissions paid Alex. Brown must be "reasonable and
fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." Rule 17e-1 also contains
requirements for the review of such transactions by the Board of Directors and
requires ICC and ABIM to furnish reports and to maintain records in connection
with such reviews. The Distribution Agreement between Alex. Brown and the Fund
does not provide for any reduction in the distribution fee to be received by
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Alex. Brown from the Fund as a result of profits resulting from brokerage
commissions on transactions of the Fund effected through Alex. Brown.
ABIM manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ABIM. ABIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
During the fiscal years ended December 31, 1995, December 31,
1994 and December 31, 1993, Alex. Brown directed $288,166,553, $208,696,174 and
$119,892,648, respectively, of transactions to broker-dealers and paid
$386,539, $254,895 and $257,703, respectively, to broker-dealers in related
commissions because of research services provided. In the fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993, the Fund paid Alex.
Brown brokerage commissions in the aggregate amount of $0, $7,000 and
$5,600, which represented 0%, 2.7% and 2.2% of the Fund's aggregate brokerage
commissions for the respective periods and which were paid on transactions that
represented 0%, 1.8% and 2.3% of the aggregate dollar amount of transactions
that incurred commissions paid by the Fund during the respective periods. The
Fund is required to identify any securities of its "regular brokers or dealers"
(as such term is defined in the Investment Company Act) which the Fund has
acquired during its most recent fiscal year. As of December 31, 1995, the Fund
held a 5.70% repurchase agreement issued by Goldman Sachs & Co. valued at
$2,543,435. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
9. CAPITAL STOCK
Under the Fund's Articles of Incorporation, the Fund has 70
million authorized Shares of common stock, with a par value of $.001 per share.
The Board of Directors may increase or decrease the number of authorized Shares
without shareholder approval. On October 11, 1989, the Fund declared a two for
one stock dividend payable to shareholders of record on October 27, 1989.
The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of Shares by the Directors
at any time. The Fund currently has one Series and the Board has designated
three classes of Shares: Flag Investors Telephone Income Fund Class A Shares,
Flag Investors Telephone Income Fund Class B Shares and Flag Investors Telephone
Income Fund Class D Shares. The Flag Investors Telephone Income Fund Class D
Shares are not currently being offered. In the event separate series are
established, all Shares of the Fund, regardless of series or class, would have
equal rights with respect to voting, except that with respect to any matter
affecting the rights of the holders of a particular series or class, the holders
of each series or class would vote separately. In general, each such series
would be managed separately and shareholders of each series would have an
undivided interest in the net assets of that series. For tax purposes, the
series would be treated as separate entities. Generally, each class of Shares
issued by a particular series would be identical to every other class and
-22-
<PAGE>
expenses of the Fund (other than 12b-1 fees) are prorated between all classes
of a series based upon the relative net assets of each class. Any matters
affecting any class exclusively would be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund. There are no preemptive,
conversion or exchange rights applicable to any of the Shares. The issued and
outstanding Shares are fully paid and non-assessable. In the event of
liquidation or dissolution of the Fund, each Share is entitled to its portion of
the Fund's assets (or the assets allocated to a separate series of shares if
there is more than one series) after all debts and expenses have been paid.
As used in this Statement of Additional Information, the term
"majority of the outstanding shares" means the vote of the lesser of (i) 67% or
more of the shares present at a meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (ii) more than 50% of
the outstanding shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements.
11. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, has been retained to act as
custodian of the Fund's investments. PNC Bank receives such compensation from
the Fund for its services as Custodian as may be agreed to from time to time by
PNC Bank and the Fund. Investment Company Capital Corp., 135 East Baltimore
Street, Baltimore, Maryland 21202, has been retained to act as transfer and
dividend disbursing agent. As compensation for providing these services, the
Fund pays ICC up to $10.12 per account per year, plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended December 31, 1995, such fees totalled $550,000.
ICC also provides certain accounting services to the Fund under a
Master Services Agreement effective January 1, 1994, between the Fund and ICC.
As compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Net Assets Incremental Accounting Services Fee
------------------ -----------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
-23-
<PAGE>
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services under the Master Services Agreement: express delivery services,
independent pricing and storage.
As compensation for providing accounting services for the
fiscal year ended December 31, 1995, ICC received fees of $113,878.
ICC also serves as the Fund's investment advisor.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P. whose report thereon appears elsewhere herein, and have been
included herein in reliance upon the report of such firm of accountants given on
their authority as experts in accounting and auditing. Coopers & Lybrand L.L.P.
has offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(l + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5,
or 10 year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date the Fund (or a
class or series) commenced operations (provided such date is subsequent to the
date the registration statement became effective). In calculating the ending
redeemable value, the maximum sales load (for the Flag Investors Telephone
-24-
<PAGE>
Income Fund Class A Shares 4.5% and for the Flag Investors Telephone Income Fund
Class B Shares, 4.0% for the one year period, 2.0% for the five year period and
no sales charge thereafter) is deducted from the initial $1,000 payment and all
dividends and distributions by the Fund are assumed to have been reinvested at
net asset value as described in the prospectus on the reinvestment dates during
the period. "T" in the formula above is calculated by finding the average annual
compounded rate of return over the period that would equate an assumed initial
payment of $1,000 to the ending redeemable value. Any sales loads that might in
the future be made applicable at the time to reinvestments would be included as
would any recurring account charges that might be imposed by the Fund.
The Fund may also from time to time include in such advertising total return
figures that are not calculated according to the formula set forth above in
order to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or Morningstar Inc., or with the performance of the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90 day U.S.
Treasury bills, the Standard and Poor's 500 Stock Index or the Dow Industrial
Average, the Fund calculates its aggregate and average annual total return for
the specified periods of time by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. For this alternative computation, the Fund
assumes that the $10,000 invested in Shares is net of all sales charges (as
distinguished from the computation required by the SEC where the $1,000 payment
is reduced by sales charges before being invested in Shares). The Fund will,
however, disclose the maximum sales charges and will also disclose that the
performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules, and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
Calculated according to the SEC rules, for the one year period
ended December 31, 1995, the ending redeemable value of a hypothetical $1,000
payment for the Flag Investors Class A Shares was $1,274 resulting in an annual
total return for such class equal to 27.43%. For the five year period ended
December 31, 1995, the ending redeemable value of a hypothetical $1,000 payment
for the Flag Investors Class A Shares was $1,950, resulting in an average annual
total return for such class of 14.29%. For the ten year period ended December
31, 1995, the ending redeemable value of a hypothetical $1,000 payment for the
Flag Investors Class A Shares was $4,076, resulting in an average annual total
return for such shares equal to 15.09%.
Calculated according to the SEC rules for the period from January
3, 1995 (commencement of operations) through December 31, 1995, the ending
redeemable value of a hypothetical $1,000 payment for the Flag Investors Class B
Shares was $1,292, resulting in an aggregate total return for such shares equal
to 28.42%.
Calculated according to SEC rules for the one year period ended
December 31, 1995, the ending redeemable value of a hypothetical $1,000 payment
for the Flag Investors Class D Shares was $1,296, resulting in an annual total
return for such shares equal to 29.91%. For the period from April 6, 1993
(commencement of operations of such class) to the end of the Fund's fiscal year
on December 31, 1995, the ending redeemable value of a hypothetical $1,000
payment for the Flag Investors Class D Shares was $1,314, resulting in an
average annual total return for such shares equal to 10.57%.
-25-
<PAGE>
Calculated according to the alternative computation, which assumes
no sales charges and reinvestment of all distributions, for the one year period
ended December 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in Flag Investors Class A Shares was $13,344, resulting in an annual
total return equal to 33.44%. For the five-year period ended December 31, 1995,
the ending redeemable value of a hypothetical $10,000 investment in Flag
Investors Class A Shares was $20,417, resulting in a total return equal to
104.17% and an average annual total return equal to 15.34%. For the ten year
period ended December 31, 1995, the ending redeemable value of a hypothetical
$10,000 investment in Flag Investors Class A Shares was $42,681 resulting in a
total return equal to 326.81% and an average annual total return equal to
15.62%.
Calculated according to the alternative computation for the period
from January 3, 1995 (commencement of operations) through December 31, 1995, the
ending redeemable value of a hypothetical $10,000 investment in Flag Investors
Class B Shares was $13,242, resulting in an aggregate return equal to 32.42%.
Calculated according to the alternative computation for the one
year period ended December 31, 1995, the ending redeemable value of a
hypothetical $10,000 investment in Flag Investors Class D Shares was $13,291,
resulting in an average total return equal to 32.91%. For the period from April
6, 1993 (commencement of operations of such class) to December 31, 1995, the
ending redeemable value of a hypothetical $10,000 investment in Flag Investors
Class D Shares was $13,475, resulting in a total return equal to 34.75% and an
average annual total return for such shares equal to 11.49%.
The Fund's annual portfolio turnover rate (the lesser of the value
of the purchases or sales for the year divided by the average monthly market
value of the portfolio during the year, excluding U.S. Government and short-term
securities) may vary from year to year, as well as within a year, depending on
market conditions. The Fund's portfolio turnover rates in fiscal years 1995 and
1994 were 24% and 23%, respectively.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 11, 1996, to Fund management's knowledge, the
following persons held beneficially or of record 5% or more of the Fund's
outstanding shares:
Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland 21202 owned of record 28.56% of the Fund's outstanding Class
A Shares, 22.24% of the Fund's outstanding Class B Shares and 18.75% of the
Fund's outstanding Class D Shares. As of such date, Alex. Brown owned
beneficially less than 1% of such shares.
As of January 11, 1996, the Directors and officers as a group owned
less than 1% of the Fund's total outstanding shares.
15. FINANCIAL STATEMENTS
See next page.
-26-
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets December 31, 1995
<S> <C>
Shares/
Par Market Value
(000) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
TELEPHONE INDUSTRY: 83.0%
Common Stock: 80.7%
220,408 AirTouch Communications Inc.* $ 6,226,526
659,224 AT&T Corp. 42,684,754
394,000 Ameritech Corp. 23,246,000
400,000 BCE Inc. 13,800,000
262,008 Bell Atlantic Corp. 17,521,785
330,964 BellSouth Corp. 14,396,934
366,428 BlackBox Corp.* 6,000,259
320,500 BroadBand Technologies* 5,208,125
115,000 Cellstar Corp.* 2,990,000
625,800 Cincinnati Bell Inc. 21,746,550
150,000 Compania Telefonica National de Espana ADS 6,281,250
200,000 DSC Communications Corp.* 7,375,000
1,122,400 Frontier Corp. 33,672,000
214,700 General Instrument Corp. 5,018,612
887,320 GTE Corp. 39,042,080
210,000 MFS Communications* 11,182,500
420,000 Motorola Inc. 23,940,000
150,000 Octel Communications Corp.* 4,837,500
156,000 Orbital Sciences Corp.* 1,989,000
900,408 Pacific Telesis Group 30,276,219
325,000 QUALCOMM Inc.* 13,975,000
859,106 SBC Communications Inc. 49,398,595
690,000 Southern New England Telecommunications Corp. 27,427,500
500,000 Telefonos de Mexico SA ADS 15,937,500
124,000 Vodafone Group PLC ADR 4,371,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stock (Cost $282,175,040) 428,544,689
- ---------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock: 2.1%
207,800 LCI International Inc., 5% Cvt Pfd 11,117,300
- ---------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Cost $6,138,548) 11,117,300
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds: 0.2%
$1,000 Orbital Sciences Corp., 6.75%, 3/1/03 1,065,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $1,259,443) 1,065,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Telephone Industry (Cost $289,573,031) 440,726,989
<PAGE>
NON-TELEPHONE INDUSTRY: 16.0%
Common Stock: 11.1%
626,900 Alexander Haagen Properties $ 7,679,525
242,956 Conseco Inc. 15,215,119
179,600 DeBartolo Realty Corporation 2,334,800
109,000 General Growth Properties 2,261,750
145,000 Meditrust SBI 5,056,875
200,000 Nationwide Health Properties Inc. 8,400,000
200,000 Philip Morris Cos., Inc. 18,100,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stock (Cost $35,502,588) 59,048,069
- ---------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock: 3.6%
246,000 American Express, 6.25% Cvt Pfd 13,653,000
100,000 Conseco Inc., 6.5% Series D Cvt Pfd 5,300,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Cost $14,295,500) 18,953,000
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds: 1.3%
$5,000 HMH Properties, 9.50%, 5/15/05 5,125,000
2,000 Philip Morris Cos., Inc., Deb., 8.75%, 12/1/96 2,057,500
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $6,903,103) 7,182,500
- ---------------------------------------------------------------------------------------------------------------------------
Total Non-Telephone Industry (Cost $56,701,191) 85,183,569
REPURCHASE AGREEMENT: 0.5%
$2,493 Goldman Sachs & Co., 5.70%
Dated 12/29/95, to be repurchased on 1/2/96, collateralized by
U.S. Treasury Notes with a market value of $2,543,435.
(Cost $2,493,000) 2,493,000
- ---------------------------------------------------------------------------------------------------------------------------
<PAGE>
Total Investments in Securities: 99.5%
(Cost $348,767,222)** $528,403,558
Other Assets in Excess of Liabilities, Net: 0.5% 2,871,367
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: 100.0% $531,274,925
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per:
Class A Share
($492,453,558 / 33,120,036 shares outstanding) $14.87(1)
Class B Share
($7,504,388 / 505,908 shares outstanding) $14.83(2)
Class D Share
($31,316,979 / 2,105,445 shares outstanding) $14.87(3)
Maximum Offering Price Per:
Class A Share
($14.87 / .955) $15.57
Class B Share $14.83
</TABLE>
* Non-income producing security.
** Aggregate cost for federal tax purposes was $345,969,173.
1 Redemption value is $14.87.
2 Redemption value is $14.24 following 4.00% maximum contingent deferred sales
charge.
3 Redemption value is $14.72 following 1.00% maximum contingent
deferred sales charge.
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
INVESTMENT INCOME (NOTE A):
Dividends $ 16,903,886
Interest 2,093,131
Other income 19,502
Less:Foreign taxes withheld (242,692)
Total income 18,773,827
EXPENSES:
Investment advisory fee (Note B) 2,584,817
Distribution fees (Note B) 1,378,330
Transfer agent fees (Note B) 550,000
Printing and postage 144,435
Accounting fee (Note B) 113,878
Legal 59,397
Custodian fee 56,745
Registration fees 51,428
Directors' fees 26,712
Audit 25,999
Miscellaneous 24,527
Insurance 18,230
Total expenses 5,034,498
Less:Fees waived (Note B) (287,343)
Net expenses 4,747,155
Net investment income 14,026,672
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions 35,372,071*
Change in unrealized appreciation of investments 93,655,306
Net gain on investments 129,027,377
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $143,054,049
- ------------------------------------------------------------------------------
*Net realized gain for federal tax purposes was $36,106,029.
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 14,026,672 $ 15,367,428
Net gain from security transactions 35,372,071 4,980,639
Change in unrealized appreciation/(depreciation)
of investments 93,655,306 (52,606,757)
Net increase/(decrease) in net assets resulting from operations 143,054,049 (32,258,690)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (13,188,618) (14,498,099)
Class B Shares (71,352) --
Class D Shares (766,702) (869,329)
Net realized short-term gains:
Class A Shares (594,281) (1,380,369)
Class B Shares (6,947) --
Class D Shares (39,689) (207,441)
Net realized long-term gains:
Class A Shares (31,183,490) (3,302,412)
Class B Shares (411,017) --
Class D Shares (2,033,414) (243,429)
Total distributions (48,295,510) (20,501,079)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 35,420,420 74,463,764
Value of shares issued in reinvestment of dividends 40,313,196 14,926,479
Cost of shares repurchased (106,718,217) (61,773,728)
Increase/(decrease) in net assets derived from
capital share transactions (30,984,601) 27,616,515
Total increase/(decrease) in net assets 63,773,938 (25,143,254)
NET ASSETS:
Beginning of year 467,500,987 492,644,241
End of year $ 531,274,925 $467,500,987
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(For a share outstanding throughout each year)*
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 12.30 $ 13.70 $ 12.20 $ 11.28 $ 9.57
Income from Investment Operations:
Net investment income 0.40 0.41 0.42 0.42 0.45
Net realized and unrealized gain/(loss)
on investments 3.58 (1.27) 1.78 0.93 1.74
Total from Investment Operations 3.98 (0.86) 2.20 1.35 2.19
Less Distributions:
Dividends from net investment income
and short-term gains (0.41) (0.44) (0.42) (0.42) (0.46)
Distributions from net realized
long-term gains (1.00) (0.10) (0.28) (0.01) (0.02)
Total distributions (1.41) (0.54) (0.70) (0.43) (0.48)
Net asset value at end of year $ 14.87 $ 12.30 $ 13.70 $ 12.20 $ 11.28
Total Return 33.44% (6.32)% 18.12% 12.35% 23.08%
Ratios to Average Net Assets:
Expenses(1) 0.93% 0.92% 0.92% 0.92% 0.92%
Net investment income(2) 2.85% 3.14% 3.12% 3.81% 4.38%
Supplemental Data:
Net assets at end of year (000) $492,454 $435,805 $469,163 $307,641 $238,571
Portfolio turnover rate 24% 23% 14% 6% 7%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Computed based upon average shares outstanding.
1 Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 0.99%, 0.99%, 0.98%, 1.07% and 1.17% for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
2 Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 2.79%, 3.07%, 3.06%, 3.66% and
4.13% for the years ended December 31, 1995, 1994, 1993, 1992 and 1991,
respectively.
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(For a share outstanding throughout the period)*
<TABLE>
<CAPTION>
For the Period
January 3, 1995**
through
December 31, 1995
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $12.28
Income from Investment Operations:
Net investment income 0.30
Net realized and unrealized gain/(loss) on investments 3.56
Total from Investment Operations 3.86
Less Distributions:
Dividends from net investment income and short-term gains (0.31)
Distribution from net realized long-term gains (1.00)
Total distributions (1.31)
Net asset value at end of period $14.83
Total Return 32.42%
Ratios to Average Net Assets:
Expenses(2) 1.70%(1)
Net investment income(3) 2.13%(1)
Supplemental Data:
Net assets at end of period (000) $7,504
Portfolio turnover rate 24%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Computed based upon average shares outstanding.
**Commencement of operations.
1 Annualized.
2 Without the waiver of advisory fees (Note B), the ratio of
expenses to average net assets would have been 1.74% (annualized) for the
period ended December 31, 1995.
3 Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 2.09% (annualized) for the
period ended December 31, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS -- CLASS D SHARES
(For a share outstanding throughout each period)*
<TABLE>
<CAPTION>
For the Period
For the Year Ended April 6, 1993**
December 31 through
1995 1994 December 31, 1993
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.30 $ 13.67 $ 13.21
Income from Investment Operations:
Net investment income 0.34 0.37 0.25
Net realized and unrealized gain/(loss) on investments 3.58 (1.20) 0.80
Total from Investment Operations 3.92 (0.83) 1.05
Less Distributions:
Dividends from net investment income and short-term gains (0.35) (0.42) (0.31)
Distribution in excess of net investment income -- (0.02) --
Distribution from net realized long-term gains (1.00) (0.10) (0.28)
Total distributions (1.35) (0.54) (0.59)
Net asset value at end of period $ 14.87 $ 12.30 $ 13.67
Total Return 32.91% (6.13)% 8.01%
Ratios to Average Net Assets:
Expenses(2) 1.28% 1.27% 1.27%(1)
Net investment income(3) 2.50% 2.81% 2.73%(1)
Supplemental Data:
Net assets at end of period (000) $31,317 $31,696 $23,481
Portfolio turnover rate 24% 23% 14%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Computed based upon average shares outstanding.
**Commencement of operations.
1 Annualized.
2 Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 1.34%, 1.34% and 1.31% for the years
ended December 31, 1995, 1994 and the period ended December 31, 1993.
3 Without the waiver of advisory fees (Note B), the ratio of net
investment income to average net assets would have been 2.44%, 2.74%
and 1.98% for the years ended December 31, 1995, 1994 and the period ended
December 31, 1993.
See accompanying Notes to Financial Statements.
Notes to Financial Statements
<PAGE>
A. Significant Accounting Policies - Flag Investors Telephone Income Fund, Inc.
("the Fund") is organized as a Maryland corporation and commenced operations on
January 18, 1984 (the exchange date) when investors received five shares of the
Fund in a tax-free exchange for each share of American Telephone & Telegraph
Company (AT&T), with rights to the divested Regional Bell Operating Companies
attached. The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company. On April 6, 1993, the
Fund began offering Class D Shares (formerly Class B Shares). The Class A and
Class D Shares each have different sales loads and distribution fees. Beginning
November 18, 1994, Class D Shares were no longer available for sale; however,
existing shareholders may reinvest their dividends. On January 3, 1995, the Fund
began offering Class B Shares. Class B Shares have no initial sales charge but
are subject to a contingent deferred sales charge on certain shares redeemed
within six years of purchase.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Security Valuation - Portfolio securities that are listed on a National
Securities Exchange are valued on the basis of their last price or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices. Unlisted securities held by the Fund are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost.
Repurchase Agreements - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a tri-party repurchase
agreement, will be required on a daily basis to maintain the value of the
securities subject to the agreement at not less than the repurchase price.
The agreement is conditioned upon the collateral being deposited under the
Federal Reserve book-entry system.
Federal Income Taxes - No provision is made for federal income taxes as it
is the Fund's intention to continue to qualify as a regulated investment
company and to continue to make requisite distributions to the shareholders
that will be sufficient to relieve it from all or substantially all federal
income and excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
Distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles. Accordingly,
periodic reclassifications are made within the Fund's capital accounts to
reflect income and capital gains available for distribution under income tax
regulations.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes. Cost for
financial reporting purposes includes the value of the securities received
in the exchange. For income tax purposes, the tax cost is the basis of the
AT&T shares in the hands of the exchanging AT&T shareholders at the date of
exchange. Interest income is recorded on an accrual basis; dividend income
is recorded on the ex-dividend date.
<PAGE>
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown &Sons
Incorporated ("Alex. Brown"), is the Fund's investment advisor and Alex. Brown
Investment Management ("ABIM") is the Fund's sub-advisor. As compensation for
its advisory services, ICC receives from the Fund an annual fee, calculated
daily and paid monthly, at the annual rate of 0.65% of the first $100 million of
the Fund's average daily net assets; 0.55% of the Fund's average daily net
assets in excess of $100 million but not exceeding $200 million; 0.50% of the
Fund's average daily net assets in excess of $200 million but not exceeding $300
million; and 0.45% of the Fund's average daily net assets in excess of $300
million.
As compensation for its sub-advisory services, ABIMreceives a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly, at an
annual rate of 0.40% of the first $100 million of the Fund's average daily
net assets; 0.35% of the Fund's average daily net assets in excess of $100
million but not exceeding $200 million; 0.30% of the Fund's average daily
net assets in excess of $200 million but not exceeding $300 million; and
0.25% of the Fund's average daily net assets over $300 million.
Through October 6, 1995, ICC had agreed to reduce its aggregate fees so that
ordinary expenses of the Fund for any fiscal year did not exceed 0.92% of
average daily net assets of Class A Shares, 1.67% of Class B Shares and
1.27% of Class D Shares.For the period January 1, 1995 through October 6,
1995, ICC voluntarily waived $287,343 in fees.
Effective October 7, 1995, ICC is no longer waiving fees.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC received $550,000 for
transfer agent services for the year ended December 31, 1995.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, based upon the Fund's average
daily net assets. ICC received $113,878 for accounting services for the year
ended December 31, 1995.
As compensation for providing distribution services, Alex. Brown receives
from the Fund an annual fee, calculated daily and paid monthly, at an annual
rate equal to 0.25% of the Fund's average daily net assets of Class A
Shares, 1.00% (includes 0.25% shareholder servicing fee) of the average
daily net assets of Class B Shares and 0.60% of the average daily net assets
of Class D Shares. For the year ended December 31, 1995, distribution fees
aggregated $1,378,330 of which $1,153,794, $35,130 and $189,406 were
attributable to Class A Shares, Class B Shares and Class D Shares,
respectively. Alex. Brown received no commissions on security transactions
from the Fund for the year ended December 31, 1995.
Flag Investors/ISI Fund complex has adopted a retirement plan for eligible
Directors. The actuarially computed pension expense for the year ended
December 31, 1995 was approximately $15,000.
<PAGE>
C. Capital Share Transactions - The Fund is authorized to issue up to 70 million
shares of capital stock (60 million Class A Shares, 5 million Class B Shares, 3
million Class D Shares and 2 million undesignated), par value $.001 per share,
all of which are designated as common stock. Transactions in shares of the Fund
were as follows:
Class A Shares
For the Year Ended
December 31,
1995 1994
Shares sold 2,145,785 4,615,066
Shares issued to share-
holders on reinvest-
ment of dividends 2,674,624 1,088,372
Shares redeemed (7,132,553) (4,517,710)
Net increase/(decrease)
in shares
outstanding (2,312,144) 1,185,728
Proceeds from sale
of shares $ 28,720,184 $ 60,821,115
Value of reinvested
dividends 37,305,866 13,849,565
Cost of shares
redeemed (97,427,131) (58,534,367)
Net increase/(decrease)
from capital share
transactions $(31,401,081) $ 16,136,313
Class B Shares
For the
Period
January 3, 1995*
through
December 31, 1995
Shares sold 489,011
Shares issued to shareholders
on reinvestment
of dividends 32,826
Shares redeemed (15,929)
Net increase in shares
outstanding 505,908
Proceeds from sale
of shares $6,700,236
Value of reinvested
dividends 458,760
Cost of shares redeemed (229,177)
Net increase from
capital share
transactions $6,929,819
- ------------------------------------------------------------------------------
*Commencement of operations.
<PAGE>
Class D Shares
For the Year Ended
December 31,
1995 1994
Shares sold -- 1,028,832
Shares issued to share-
holders on reinvest-
ment of dividends 183,832 84,910
Shares redeemed (655,092) (254,327)
Net increase/(decrease)
in shares
outstanding (471,260) 859,415
Proceeds from sale
of shares $ -- $13,642,649
Value of reinvested
dividends 2,548,570 1,076,914
Cost of shares
redeemed (9,061,909) (3,239,361)
Net increase/(decrease)
from capital share
transactions $(6,513,339) $11,480,202
D. Investment Transactions - Purchases and sales of investment securities,
other than short-term obligations and U.S. government securities,
aggregated $114,577,349 and $176,205,901, respectively, for the year ended
December 31, 1995. There were no purchases or sales of U.S. Government
obligations.
At December 31, 1995, net unrealized appreciation for all securities in
which there is an excess of value over tax cost was $182,434,385 of
which $194,645,463 related to appreciated securities and $12,211,078
related to depreciated securities.
E. Net Assets - At December 31, 1995, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $314,341,690
Flag Investors Class B Shares 6,929,820
Flag Investors Class D Shares 28,926,870
Undistributed net realized gain
from security transactions 1,440,208
Unrealized appreciation of
investments 179,636,337
$531,274,925
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Flag
Investors Telephone Income Fund, Inc.
We have audited the accompanying statement of net assets of Flag Investors
Telephone Income Fund, Inc. as of December 31, 1995 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Flag
Investors Telephone Income Fund, Inc. as of December 31, 1995, the results of
its operations for the year then ended, the changes in its net assets and its
financial highlights for each of the respective periods in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
January 26, 1996
<PAGE>
APPENDIX A
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C -- Regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
CI -- Reserved for income bonds on which no interest is being
paid.
D -- In payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the Aaa bonds because
margins of protection may not be as large as in the case of Aaa securities, or
the fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A-1
<PAGE>
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE>
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
- Financial Highlights for the fiscal years ended December 31,
1985 through December 31, 1995
- Statement of Net Assets as of December 31, 1995
- Statement of Operations for the fiscal year ended December
31, 1995
- Statement of Changes in Net Assets for the fiscal years
ended December 31, 1995 and December 31, 1994
- Notes to the Financial Statements
- Report of Independent Accountants
(2) All required financial statements are included in Parts A
and B hereof. All other financial statements and schedules
are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation;(1)
(b) Articles Supplementary, as filed with the Maryland
Department of Assessments and Taxation on September 13,
1990;(1)
(c) Articles Supplementary, as filed with the Maryland
Department of Assessments and Taxation on December 27,
1993;(1)
(d) Articles Supplementary, as filed with the Maryland
Department of Assessments and Taxation on November 18,
1994;(1)
(2) By-Laws;(1)
(3) None;
(4) (a) Specimen Security;(2)
(b) Specimen Security with respect to the Flag Investors
Telephone Income Fund Class D Shares;(2)
(c) Specimen Security with respect to Flag Investors
Telephone Income Fund Class B Shares;(2)
<PAGE>
(5) (a) Form of Proposed Amended Investment Advisory
Agreement between Registrant and Investment Company
Capital Corp;(1)
(b) Form of Proposed Amended Sub-Advisory Agreement among
Registrant, Investment Company Capital Corp. and Alex.
Brown Investment Management;(1)
(c) Investment Advisory Agreement between Registrant and
Flag Investors Management Corp (now known as Investment
Company Capital Corp.);(1)
(d) Sub-Advisory Agreement among Registrant, Flag Investors
Management Corp. (now known as Investment Company
Capital Corp.) and Alex. Brown Investment Management;
(1)
(6) (a) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated;(1)
(b) Form of Sub-Distribution Agreement between Alex. Brown
& Sons Incorporated and Participating Broker-Dealers;
(3)
(c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents;(1)
(d) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to the Flag
Investors Telephone Income Fund Class D Shares;(1)
(e) Form of Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to the
Flag Investors Telephone Income Fund Class B Shares;(1)
(7) None;
(8) (a) Custodian Agreement between Registrant and Provident
National Bank as in effect from January 19, 1989;(1)
(b) Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for
the provision of Accounting and Transfer Agency
Services;(1)
(9) Group Purchase Plan Application;(1)
(10) Opinion of counsel;(1)
(11) (a) Consent of Coopers & Lybrand L.L.P.;(1)
(b) Consents to being named as Director;(1)
-2-
<PAGE>
(12) None;
(13) Subscription Agreement re: initial $100,000 capital;(1)
(14) None;
(15) (a) Distribution Plan;(1)
(b) Distribution Plan with respect to the Flag Investors
Telephone Income Fund Class D Shares;(1)
(c) Distribution Plan with respect to the Flag Investors
Telephone Income Fund Class B Shares;(1)
(16) Schedule of Computation of Performance Quotations
(unaudited);(1)
(18) Rule 18f-3 Plan;(1)
(24) (a) Powers of Attorney;(1)
(b) Power of Attorney for James J. Cunnane.(3)
(27) Financial Data Schedule.(1)
- ------------------
1 Filed herewith.
2 Incorporated by reference to Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (Registration No. 2-87336), filed with
the Securities and Exchange Commission on October 28, 1994.
3 Incorporated by reference to Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A (Registration No. 2-87336), filed with
the Securities and Exchange Commission via EDGAR on April 26, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
-3-
<PAGE>
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
The following information is given as of January 11, 1996:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Common Stock
Class A 25,518
Class B 602
Class D 2,472
Item 27. Indemnification.
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of Directors of
the Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation law.
Section 3. No provision of this Article VIII shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
-4-
<PAGE>
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event of a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in
connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant,
and each director, officer or partner of any such investment advisor,
is or has been, at any time during the past two fiscal years, engaged
for his own account or in the capacity of director, officer, employee,
partner or trustee.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, and no
partner of Alex. Brown Investment Management, the Registrant's
sub-advisor, has engaged in any other business, profession, vocation
or employment of a substantial nature other than that of the business
of investment management and, through affiliates, investment banking.
Item 29. Principal Underwriters.
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex.
Brown Cash Reserve Fund, Inc., Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Total Return U.S. Treasury Fund Shares of Total Return U.S.
Treasury Fund, Inc., Flag Investors Managed Municipal Fund Shares
of Managed Municipal Fund, Inc., Flag Investors Intermediate-Term
Income Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag
Investors Maryland Intermediate Tax Free Income Fund, Inc., Flag
Investors Real Estate Securities Fund, Inc. and Flag Investors
Equity Partners Fund, Inc., all registered open-end management
investment companies.
-5-
<PAGE>
<TABLE>
<CAPTION>
(b)
Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ ----------------------- -----------------
<S> <C> <C>
Alvin B. Krongard Chief Executive None
Officer, Director
and Chairman
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer None
and Treasurer
Robert F. Price Secretary and General None
Counsel
</TABLE>
- ---------------------
* 135 East Baltimore Street
Baltimore, MD 21202
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to
be maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the
Rules [17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the names and
address of each person maintaining physical possession of each such account,
book or other document.
Investment Company Capital Corp., Registrant's investment
advisor, transfer agent and dividend disbursing agent, 135 E.
Baltimore Street, Baltimore, Maryland 21202, maintains physical
possession of each such account, book or other document of the Fund,
except for those maintained by the Registrant's custodian, PNC Bank,
Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania 19113.
Item 31. Management Services.
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
See Exhibit 8.
-6-
<PAGE>
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting Registrant at (800)
767-3524.
-7-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 19 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland on the 7th day of February, 1996.
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Bruce E. Behrens
------------------------------------
Bruce E. Behrens, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
*/s/ W. James Price Chairman and February 7, 1996
- -------------------------- Director
W. James Price Date
*/s/ Robert S. Killebrew Director February 7, 1996
- --------------------------
Robert S. Killebrew Date
*/s/ Truman T. Semans Director February 7, 1996
- --------------------------
Truman T. Semans Date
*/s/ James J. Cunnane Director February 7, 1996
- --------------------------
James J. Cunnane Date
*/s/ John F. Kroeger Director February 7, 1996
- --------------------------
John F. Kroeger Date
*/s/ Louis E. Levy Director February 7, 1996
- --------------------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director February 7, 1996
- --------------------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director February 7, 1996
- --------------------------
Harry Woolf Date
/s/ Bruce E. Behrens President February 7, 1996
- --------------------------
Bruce E. Behrens Date
/s/ Joseph A. Finelli Chief Financial February 7, 1996
- -------------------------- and Accounting
Joseph A. Finelli Officer Date
*By: /s/ Brian C. Nelson
---------------------
Brian C. Nelson
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
EDGAR
Exhibit
Number Description
-------- -----------
Ex-99.B (1) (a) Registrant's Articles of Incorporation, filed
herewith.
Ex-99.B (1) (b) Registrant's Articles Supplementary, as
filed with the Maryland Department of Assessments
and Taxation on September 13, 1990, filed herewith.
Ex-99.B (1) (c) Registrant's Articles Supplementary, as
filed with the Maryland Department of Assessments
and Taxation on December 27, 1993, filed herewith.
Ex-99.B (1) (d) Registrant's Articles Supplementary, as filed with
the Maryland Department of Assessments and Taxation
on November 18, 1994, filed herewith.
Ex-99.B (2) Registrant's By-Laws, filed herewith.
(3) None.
(4) (a) Registrant's Specimen Security with respect to Flag
Investors Telephone Income Fund Class A Shares is
hereby incorporated by reference to Post-Effective
Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (Registration No. 2-87336),
filed with the Securities and Exchange Commission
on October 28, 1994.
(4) (b) Registrant's Specimen Security with respect to the
Flag Investors Telephone Income Fund Class D Shares
is hereby incorporated by reference to
Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (Registration
No. 2-87336), filed with the Securities and
Exchange Commission on October 28, 1994.
(4) (c) Registrant's Specimen Security with respect to the
Flag Investors Telephone Income Fund Class B Shares
is hereby incorporated by reference to
Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (Registration
No. 2-87336), filed with the Securities and
Exchange Commission on October 28, 1994.
Ex-99.B (5) (a) Form of Proposed Amended Investment Advisory
Agreement between Registrant and Investment Company
Capital Corp., filed herewith.
Ex-99.B (5) (b) Form of Proposed Amended Sub-Advisory Agreement
among Registrant, Investment Company Capital Corp.
and Alex. Brown Investment Management, filed
herewith.
Ex-99.B (5) (c) Investment Advisory Agreement between Registrant
and Flag Investor's Management Corp. (now known as
Investment Company Capital Corp.), filed herewith.
Ex-99.B (5) (d) Sub-Advisory Agreement among Registrant, Flag
Investors Management Corp. (now known as Investment
Company Capital Corp.) and Alex. Brown Investment
Management, filed herewith.
Ex-99.B (6) (a) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated, filed herewith.
(6) (b) Registrant's Form of Sub-Distribution Agreement
between Alex. Brown & Sons Incorporated and
Participating Broker-Dealers is hereby incorporated
by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A
(Registration No. 2-87336), filed with the
Securities and Exchange Commission via EDGAR on
April 26, 1995.
<PAGE>
Ex-99.B (6) (c) Registrant's Form of Shareholder Servicing
Agreement between Registrant and Shareholder
Servicing Agents, filed herewith.
Ex-99.B (6) (d) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to the Flag
Investors Telephone Income Fund Class D Shares,
filed herewith.
Ex-99.B (6) (e) Form of Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated with respect to
the Flag Investors Telephone Income Fund Class B
Shares, filed herewith.
(7) None.
Ex-99.B (8) (a) Custodian Agreement between Registrant and
Provident National Bank, filed herewith.
Ex-99.B (8) (b) Master Services Agreement between Registrant and
Investment Company Capital Corp., with Appendices
for the provision of Accounting and Transfer Agency
Services, filed herewith.
Ex-99.B (9) Registrant's Group Purchase Plan Application, filed
herewith.
Ex-99.B (10) Opinion of Counsel, filed herewith.
Ex-99.B (11) (a) Consent of Coopers & Lybrand L.L.P., filed
herewith.
EX-99.B (11) (b) Consent to being named as Director, filed
herewith.
(12) None.
Ex-99.B (13) Subscription Agreement re: initial $100,000 capital, filed
herewith.
(14) None.
Ex-99.B (15) (a) Registrant's Distribution Plan, filed herewith.
Ex-99.B (15) (b) Registrant's Distribution Plan with
respect to the Flag Investors Telephone Income Fund
Class D Shares, filed herewith.
Ex-99.B (15) (c) Registrant's Distribution Plan with respect to the
Flag Investors Telephone Income Fund Class B
Shares, filed herewith.
Ex-99.B (16) Schedule of Computation of Performance Quotations
(unaudited), filed herewith.
Ex-99.B (18) Rule 18f-3 Plan, filed herewith.
Ex-99.B (24) (a) Powers of Attorney, filed herewith.
(24) (b) Power of Attorney for James J. Cunnane is hereby
incorporated by reference to Post-Effective
Amendment No. 18 to Registrant's Registration
Statement or Form N-1A (Registration No. 2-87336),
filed with the Securities and Exchange Commission
via EDGAR on April 26, 1995.
Ex-27 Financial Data Schedule, filed herewith.
<PAGE>
EX-99.B(1)(a)
ARTICLES OF INCORPORATION
OF
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLE I
THE UNDERSIGNED, Edward J. Veilleux, whose post office address
is 135 East Baltimore Street, Baltimore, Maryland, 21202, being at least
eighteen years of age, does hereby act as an incorporator, under and by virtue
of the General Laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
ARTICLE II
The name of the Corporation is:
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLE III
The purpose for which the Corporation is formed is to act as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in
securities and other investments including assets in cash.
(2) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law.
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(3) To redeem, purchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the Charter of the
Corporation.
(4) To enter into a written contract or contracts with any
person or persons providing for a delegation of the management (of all or part
of this Corporation's securities portfolios) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors of the Corporation. Any such contract or
contracts may be made with any person even though such person may be an officer,
other employee, director or shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer, other employee,
director or stockholder may be interested.
(5) To enter into a written contract or contracts appointing
one or more underwriters, distributors or agents for the sale of the shares of
the Corporation on such terms and conditions as the Board of Directors of the
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or stockholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
stockholder may be interested.
(6) To enter into a written contract or contracts employing
such custodian or custodians for the safekeeping of the property of the
Corporation and of its shares, such dividend disbursing agent or agents, and
such transfer agent or agents and registrar or registrars for its shares, and
such agent or agents for accounting and other administrative services on such
terms and conditions as the Board of Directors of the Corporation may deem
reasonable and proper for the conduct of the affairs of the Corporation, and to
pay the fees and disbursements of such custodians, dividend disbursing agents,
transfer agents, registrars and accounting and administrative services agents
out of the income and/or any other property of the Corporation. Notwithstanding
any other provisions of the Charter or the By-Laws of the Corporation, the Board
of Directors of the Corporation may cause any or all of the property of the
Corporation to be transferred to, or to be acquired and held in the name of, a
custodian so appointed or any nominee or nominees of this Corporation or nominee
or nominees of such custodian satisfactory to the Board of Directors of the
Corporation.
(7) To employ the same person, partnership (general or
limited), association, trust or corporation in any multiple capacity under
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Sections (4), (5) and (6) of this Article, who may receive compensation from the
Corporation in as many capacities in which such person, partnership (general or
limited), association, trust or corporation shall serve the Corporation.
(8) To do any and all such further acts or things and to
exercise any and all such further powers or rights as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of the purposes stated in Article III
hereof.
The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the
Corporation in the State of Maryland is c/o Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in this State is Edward J. Veilleux, a citizen of this State,
who resides there, and the post office address of the resident agent is 135 East
Baltimore Street, Baltimore, Maryland 21202.
ARTICLE VI
(1) The total number of shares of capital stock which the
Corporation shall have the authority to issue in twenty million shares, of the
par value of 1 mil ($.001) per share and of the aggregate par value of twenty
thousand dollars ($20,000), all of which shares are designated Common Stock.
Unless otherwise prohibited by law, so long as the Corporation is registered as
an open-end investment company under the 1940 Act, the Board of Directors of the
Corporation shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the number of shares
of capital stock, or the number of shares of capital stock of any class or
series, that the Corporation has authority to issue.
(2) Any fractional share shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
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<PAGE>
(3) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the Charter and the By-Laws
of the Corporation. All shares issued pursuant to the Charter of the Corporation
for which the price or consideration fixed thereon shall have been paid shall be
deemed to be fully paid and non-assessable.
(4) The Board of Directors of the Corporation shall have
authority to classify and reclassify any authorized but unissued shares of
capital stock from time to time by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of the capital stock; provided that the Board of Directors of the
Corporation shall not classify or reclassify any of such shares into any class
or series of stock which is prior to any class or series of capital stock then
outstanding with respect to rights upon the liquidation, dissolution or winding
up of the affairs of, or upon any distribution of the general assets of, the
Corporation, except that there may be variations so fixed and determined among
different series and classes as to investment objectives, purchase price, right
of redemption, special rights as to dividends, and in liquidation, with respect
to assets belonging to a particular series or class, voting powers and
conversion rights. Subject to the provisions of Section 6 of this Article VI and
applicable law, the power of the Board of Directors of the Corporation to
classify or reclassify any of the shares of capital stock shall include, without
limitation, authority to classify or reclassify any such stock into a class or
classes of capital stock and to divide and classify shares of any class into one
or more series of such class, by determining, fixing or altering one or more of
the following:
(A) The distinctive designation of such class or
series and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of such class
or series, the number of shares of any class or series may be decreased
by the Board of Directors of the Corporation in connection with any
classification or reclassification of unissued shares and the number of
shares of such class or series may be increased by the Board of
Directors of the Corporation in connection with any such classification
or reclassification, and any shares of any class or series which have
been redeemed, purchased or otherwise acquired by the Corporation shall
remain part of the authorized capital stock and be subject to
classification and reclassification as provided herein.
(B) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall be
payable on shares of such class or series.
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<PAGE>
(C) Whether or not shares of such class or series
shall have voting rights in addition to any general voting rights
provided by law and the Charter of the Corporation and, if so, the
terms of such additional voting rights.
(D) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of the
affairs, or upon any distribution of the assets, of the Corporation.
(E) Any other rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.
(5) The Board of Directors of the Corporation shall have
authority to issue from time to time shares of capital stock, whether now or
hereafter authorized, for such consideration as the Board of Directors of the
Corporation may deem advisable, subject to such limitations as may be set forth
in the Charter or the By-Laws of the Corporation or in the Maryland General
Corporation Law.
(6) No holder of stock of the Corporation shall, as such
holder, have any preemptive right to purchase or subscribe for any shares of the
capital stock of the Corporation or any other security of the Corporation which
it may issue or sell (whether out of the number of shares authorized by the
Charter of the Corporation, or out of any shares of the capital stock of the
Corporation acquired by it after the issue thereof, or otherwise) other than
such right, if any, as the Board of Directors of the Corporation, in its
discretion, may determine.
(7) Shares of Common Stock of the Corporation shall have the
following preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption:
(A) Assets Belonging to a Class. All consideration
received by the Corporation for the issue or sale of stock of any class
of Common Stock, together with all assets in which such consideration
is invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of shares of Common Stock with respect
to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Corporation.
Such consideration, assets, income, earnings, profits and proceeds
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<PAGE>
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of
such proceeds in whatever form, are herein referred to as "assets
belonging to" such class. Any assets, income, earnings, profits, and
proceeds thereof, funds or payments which are not readily attributable
to any particular class shall be allocable among any one or more of the
classes in such manner and on such basis as the Board of Directors of
the Corporation, in its sole discretion, shall deem fair and equitable.
(B) Liabilities Belonging to a Class. The assets
belonging to any class of Common Stock shall be charged with the
liabilities in respect of such class, and shall also be charged with
such class's share of the general liabilities of the Corporation
determined as hereinafter provided. The determination of the Board of
Directors of the Corporation shall be conclusive as to the amount of
such liabilities, including the amount of accrued expenses and
reserves; as to any allocation of the same to a given class; and as to
whether the same are allocable to one or more classes. The liabilities
so allocated to a class are herein referred to as "liabilities
belonging to" such class. Any liabilities which are not readily
attributable to any particular class shall be allocable among any one
or more of the classes in such manner and on such basis as the Board of
Directors of the Corporation, in its sole discretion, shall deem fair
and equitable.
(C) Dividends and Distributions. Shares of each class
of Common Stock shall be entitled to such dividends and distributions,
in stock or in cash or both, as may be declared from time to time by
the Board of Directors of the Corporation, acting in its sole
discretion, with respect to such class, provided, however, that
dividends and distributions on shares of a class of Common Stock shall
be paid only out of the lawfully available "assets belonging to such
class" as such phrase is defined in Section 6(A) of this Article VI.
(D) Liquidating Dividends and Distributions. In the
event of the liquidation or dissolution of the Corporation,
stockholders of each class of Common Stock shall be entitled to
receive, as a class, out of the assets of the Corporation available for
distribution to stockholders, but other than general assets not
belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the stockholders of any
class of Common Stock shall be distributed among such stockholders in
proportion to the number of shares of such class held by them and
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<PAGE>
recorded on the books of the Corporation. In the event that there are
any general assets not belonging to any particular class of stock and
available for distribution, such distribution shall be made to the
holders of stock of all classes of Common Stock in proportion to the
asset value of the respective classes of Common Stock determined as
hereinafter provided.
(E) Voting. Each stockholder of each class of Common
Stock shall be entitled to one vote for each share of Common Stock,
irrespective of the class, then standing in his name on the books of
the Corporation, and on any matter submitted to a vote of stockholders,
all shares of Common Stock then issued and outstanding and entitled to
vote shall be voted in the aggregate and not by class except that: (i)
when expressly required by law, shares of Common Stock shall be voted
by individual class and (ii) only shares of Common Stock of the
respective class or classes affected by a matter shall be entitled to
vote on such matter. At all meetings of the stockholders, the holders
of one-third of the shares of stock of the Corporation entitled to vote
at the meeting, present in person or by proxy, shall constitute a
quorum for the transaction of any business, except as otherwise
provided by statute or by the Charter of the Corporation. In the
absence of a quorum, no business may be transacted, except that the
holders of a majority of the shares of stock present in person or by
proxy and entitled to vote may adjourn the meeting from time to time,
without notice other than announcement at the meeting, except as
otherwise required by the By-Laws of the Corporation, until the holders
of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present, any business
may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy,
of holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws of the
State of Maryland, the 1940 Act, or any other applicable statute, the
Charter or the By-Laws of the Corporation, for action upon any given
matter shall not prevent action at such meeting upon any other matter
or matters which may properly come before the meeting, if there shall
be present at the meeting, in person or by proxy, holders of the number
of shares of stock of the Corporation required for action in respect of
such other matter or matters.
(F) Redemption. To the extent the Corporation has
funds or other property legally available therefor, each holder of
shares of Common Stock of the Corporation shall be entitled to require
the Corporation to redeem all or any part of the shares of Common Stock
of the Corporation standing in the name of such holder on the books of
the Corporation, and all shares of Common Stock issued by the
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<PAGE>
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may
be determined by the Board of Directors of the Corporation in
accordance with the provisions hereof, subject to the right of the
Board of Directors of the Corporation to suspend the right of
redemption of shares of Common Stock of the Corporation or postpone the
date of payment of such redemption price in accordance with provisions
of applicable law. Without limiting the generality of the foregoing,
the Corporation shall, to the extent permitted by applicable law, have
the right at any time to redeem the shares owned by any holder of
Common Stock of the Corporation (i) if such redemption is, in the
opinion of the Board of Directors of the Corporation, desirable in
order to prevent the Corporation from being deemed a "personal holding
company" within the meaning of the Internal Revenue Code, as now or
hereafter in force, (ii) if the value of such shares in the account
maintained by the Corporation or its transfer agent for any class of
Common Stock is less than $500.00 (Five Hundred Dollars) provided,
however, that each stockholder shall be notified that the value of his
account is less than $500.00 and allowed sixty (60) days to make
additional purchases of shares before such redemption is processed by
the Corporation or (iii) if the net income with respect to any
particular class of Common Stock should be negative or it should
otherwise be appropriate to carry out the Corporation's
responsibilities under the 1940 Act, in each case subject to such
further terms and conditions as the Board of Directors of the
Corporation may from time to time adopt. The redemption price of shares
of Common Stock of the Corporation shall, except as otherwise provided
in this Section 6(F), be the net asset value thereof as determined by
the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption
fee or other charge, if any, as may be fixed by resolution of the Board
of Directors of the Corporation. Payment of the redemption price shall
be made in cash by the Corporation at such time and in such manner as
may be determined from time to time by the Board of Directors of the
Corporation unless, in the opinion of the Board of Directors of the
Corporation, which shall be conclusive, conditions exist which make
payment wholly in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by securities or other
property included in the assets belonging or allocable to the class of
the shares redemption of which is being sought, the value of which
shall be determined as provided herein.
(G) Conversion or Exchange. Each holder of any class
of Common Stock of the Corporation, who either surrenders his share
certificate in good delivery form to the Corporation or, if the shares
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<PAGE>
in question are not represented by certificates, delivers to the
Corporation a written request in good order signed by the stockholder,
shall, subject to such procedures as may be established by the Board of
Directors of the Corporation, be entitled to convert or exchange the
shares in question on the basis hereinafter set forth, into shares of
stock of any other class of the Corporation. The Corporation shall
determine the net asset value, as provided herein, of the shares to be
converted and may deduct therefrom a conversion or exchange cost, in an
amount determined within the discretion of the Board of Directors of
the Corporation. Within five (5) business days after such surrender and
payment of any conversion or exchange cost, the Corporation shall issue
to the stockholder such number of shares of stock of the class desired
as, taken at the net asset value thereof determined as provided herein
in the same manner and at the same time as that of the shares
surrendered, shall equal the net asset value of the shares surrendered,
less any conversion or exchange cost as aforesaid. Any amount
representing a fraction of a share may be paid in cash at the option of
the Corporation. Any conversion or exchange cost may be paid and/or
assigned by the Corporation to the underwriter and/or to any other
entity, as it may elect.
(H) Restrictions on Transferability. If, in the
opinion of the Board of Directors of the Corporation, concentration in
the ownership of shares of Common Stock might cause the Corporation to
be deemed a personal holding company within the meaning of the Internal
Revenue Code, as now or hereafter in force, the Corporation may at any
time and from time to time refuse to give effect on the books of the
Corporation to any transfer or transfers of any share or shares of
Common Stock in an effort to prevent such personal holding company
status.
ARTICLE VII
The number of directors of the Corporation shall be seven (7),
which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than three (3) except for any period during
which shares of the Corporation are held by less than three stockholders. The
names of the directors who shall act until the directors are elected by the
Corporation's stockholders or until their successors are duly elected and
qualify are:
W. James Price Harry Woolf
Alonzo G. Decker, Jr. Truman T. Semans
N. Bruce Hannay Robert S. Killebrew
John F. Kroeger
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ARTICLE VIII
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to its
officers to the same extent as to its directors and to such further extent as is
consistent with law. The Board of Directors of the Corporation may make further
provision for indemnification of directors, officers, employees and agents in
the By-Laws of the Corporation or by resolution or agreement to the fullest
extent permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may expand, any
right of any person under this Article VIII based on any event, omission or
proceeding prior to such amendment.
ARTICLE IX
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practices by or
pursuant to the direction of the Board of Directors of the Corporation, as to
the amount of assets, obligations or liabilities of the Corporation, as to the
amount of net income of the Corporation from dividends and interest for any
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period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged or shall be then or thereafter required to be paid or
discharged), as to the value of any security owned by the Corporation or as to
any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board of
Directors of the Corporation as to whether any transaction constitutes a
purchase of securities on "margin", a sale of securities "short", or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of the Charter of the Corporation shall be effective (i)
to require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the 1940 Act, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (ii) to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE X
The duration of this Corporation shall be perpetual.
ARTICLE XI
(1) The Corporation reserves the right from time to time to
make any amendments to its Charter which may now or hereafter be authorized by
law, including any amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding stock by
classification, reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
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majority of the aggregate number of the votes entitled to be cast thereon by a
vote at a meeting or by the unanimous written consent of the Directors of the
Corporation as provided in the Corporation's By-Laws.
(2) Notwithstanding any provision of the General Laws of the
State of Maryland requiring any action to be taken or authorized by the
affirmative vote of a greater proportion than the majority of the total number
of shares of any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding of that class of
stock entitled to vote thereon, except as otherwise provided in the Charter of
the Corporation.
(3) So long as permitted by Maryland law, the books of the
Corporation may be kept outside of the State of Maryland at such place or places
as may be designated from time to time by the Board of Directors of the
Corporation or in the By-Laws of the Corporation.
(4) In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of Directors of the
Corporation is expressly authorized:
(A) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the By-Laws of the
Corporation to the stockholders, and except as otherwise required by
the 1940 Act.
(B) From time to time to determine whether and to
what extent and at what times and places and under what conditions and
regulations the books and accounts of the Corporation, or any of them
other than the stock ledger, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any
account or book or document of the Corporation, except as conferred by
law or authorized by resolution of the Board of Directors or of the
stockholders of the Corporation.
(C) Without the assent or vote of the stockholders,
to authorize the issuance from time to time of shares of the stock of
any class of the Corporation, whether now or hereafter authorized, for
such consideration as the Board of Directors of the Corporation may
deem advisable.
(D) Without the assent or vote of the stockholders,
to authorize and issue obligations of the Corporation, secured and
unsecured, as the Board of Directors may determine, and to authorize
and cause to be executed mortgages and liens upon the property of the
Corporation, real and personal.
-12-
<PAGE>
(E) Notwithstanding anything in the Charter of the
Corporation to the contrary, to establish in its absolute discretion
the basis or method for determining the value of the assets belonging
to any class, and the net asset value of each share of any class of the
Corporation for purposes of sales, redemptions, repurchases of shares
or otherwise.
(F) To determine in accordance with generally
accepted accounting principles and practices what constitutes net
profits, earnings, surplus or net assets in excess of capital, and to
determine what accounting periods shall be used by the Corporation for
any purpose, whether annual or any other period, including daily; to
set apart out of any funds of the Corporation such reserves for such
purposes as it shall determine and to abolish the same; to declare and
pay any dividends and distributions in cash, securities or other
property from surplus or any funds legally available therefor, at such
intervals (which may be as frequently as daily) or on such other
periodic basis, as it shall determine; to declare such dividends or
distributions by means of a formula or other method of determination,
at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for
dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations
thereof; and to provide for the payment of declared dividends on a date
earlier or later than the specified payment date in the case of
stockholders of the Corporation redeeming their entire ownership of
shares of any class of the Corporation.
(G) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board of
Directors of the Corporation is authorized to exercise all such powers
and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of Maryland law,
the Charter and the By-Laws of the Corporation.
-13-
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of FLAG
INVESTORS TELEPHONE INCOME FUND, INC. hereby executes the foregoing Charter and
acknowledges the same to be his act on the 4th day of November, 1988.
/s/ Edward J. Veilleux
----------------------------------
Edward J. Veilleux
Incorporator
WITNESS:
- --------------------------
-14-
<PAGE>
EX-99.B(1)(b)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS TELEPHONE INCOME FUND, INC., having its
principal office in the City of Baltimore, certifies that:
FIRST: The total number of shares of capital stock which
the Corporation shall have the authority to issue is forty
(40) million shares, of the par value of 1 mil ($.001) per
share and of the aggregate par value of forty thousand dollars
($40,000), all of which shares are designated Common Stock.
Unless otherwise prohibited by law, so long as the Corporation
is registered as an open-end investment company under the 1940
Act, the Board of Directors of the Corporation shall have the
power and authority, without the approval of the holders of
any outstanding shares, to increase or decrease the number of
shares of capital stock of any class or series that the
Corporation has authority to issue.
SECOND: Immediately before the increase the Corporation
was authorized to issue twenty (20) million shares, of the par
value of 1 mil ($.001) per share and of the aggregate par
value of twenty thousand dollars ($20,000), all of which
shares were designated Common Stock. As increased, the
Corporation is authorized to issue a total of forty (40)
million shares of Common Stock, par value $.001, having an
aggregate par value of $40,000.
<PAGE>
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940,
as amended.
IN WITNESS WHEREOF, Flag Investors Telephone Income Fund, Inc.
has caused these Articles Supplementary to be executed by one of its
Vice-Presidents and its corporate seal to be affixed and attested by its
Secretary on this 31st day of July, 1990. The Vice-President of the Corporation
who signed these Article Supplementary acknowledges them to be the act of the
Corporation and states under the penalties for perjury that to the best of his
knowledge, information and belief the matters and facts relating to approval
hereof are true in all material respects.
[CORPORATE SEAL]
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------------------
Vice-President
Attest: /s/ Brian C. Nelson
-------------------
Secretary
-2-
<PAGE>
EX-99.B(1)(c)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS TELEPHONE INCOME FUND, INC. having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of common stock which
the Corporation shall have the authority to issue from forty million
(40,000,000) shares of Common Stock, par value $.001 per share, having
an aggregate par value of $40,000.00, designated Common Stock, to
seventy million (70,000,000) shares of Common Stock, par value $.001
per share, having an aggregate par value of $70,000.00, of which sixty
million (60,000,000) shares are designated "Flag Investors Telephone
Income Fund Class A Shares" (the "Class A Shares"), five million
(5,000,000) shares are designated "Flag Investors Telephone Income Fund
Class B Shares" (the "Class B Shares") and five million (5,000,000)
shares remain undesignated.
SECOND: Immediately before the increase in authorized shares
and the designation of the Class A Shares and Class B Shares pursuant
to these Articles Supplementary, the Corporation was authorized to
issue forty million (40,000,000) shares of Common Stock, par value
$.001 per share, having an aggregate par value of $40,000.00, of which
forty million (40,000,000) shares were designated Common Stock in the
Corporation's Articles of Incorporation, but which, out of authorized
but unissued shares, had been designated (i) Flag Investors Telephone
Income Fund Shares and renamed Flag Investors Telephone Income Fund
Class A Shares; and (ii) Flag Investors Telephone Income Fund Class B
Shares, respectively, by the Corporation's Board of Directors as
authorized in the Corporation's Articles of Incorporation.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940,
as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Telephone Income Fund, Inc.
has caused these Articles Supplementary to be executed by one of its
Vice-Presidents and its corporate seal to be affixed and attested by its
Secretary on this 15th day of December 1993.
[CORPORATE SEAL]
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Edward J. Veilleux
---------------------------------------
Vice-President
Attest: /s/ Brian C. Nelson
-------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS TELEPHONE
INCOME FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
-----------------------------------------
Edward J. Veilleux
<PAGE>
EX-99.B(1)(d)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS TELEPHONE INCOME FUND, INC. (the
"Corporation") having its principal office in the City of
Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution designating the Corporation's classified seventy million (70,000,000)
shares of Common Stock, par value $.001 per share, having an aggregate value of
$70,000.00, as follows: sixty million (60,000,000) shares are designated "Flag
Investors Telephone Income Fund Class A Shares" (the "Class A Shares"), five
million (5,000,000) shares are designated "Flag Investors Telephone Income Fund
Class B Shares" (the "Class B Shares"), three million (3,000,000) shares are
designated "Flag Investors Telephone Income Fund Class D Shares" (the "Class D
Shares") and two million (2,000,000) shares remain undesignated.
SECOND: Immediately before the designation of the Class D
Shares pursuant to these Articles Supplementary, the Corporation was authorized
to issue seventy million (70,000,000) shares of Common Stock, par value $.001
per share, having an aggregate par value of $70,000.00, of which sixty million
<PAGE>
(60,000,000) shares were designated "Flag Investors Telephone Income Fund Class
A Shares", five million (5,000,000) shares were designated "Flag Investors
Telephone Income Fund Class B Shares" and five million (5,000,000) shares
remained undesignated.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as
amended.
IN WITNESS WHEREOF, Flag Investors Telephone Income Fund, Inc.
has caused these Articles Supplementary to be executed by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary on
this 17th day of November 1994.
[CORPORATE SEAL]
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Edward J. Veilleux
----------------------------------------
Vice President
Attest: /s/ Brian C. Nelson
---------------------
Secretary
-2-
<PAGE>
The undersigned, Vice President of FLAG INVESTORS TELEPHONE
INCOME FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
----------------------------
Edward J. Veilleux
-3-
<PAGE>
EX-99.B(2)
BY-LAWS
OF
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Stockholder Meetings. The Corporation may, but
shall not be required to, hold a regular meeting of stockholders in any year in
which the Corporation is not required, under the Investment Company Act of 1940,
as amended (the "1940 Act"), to submit for stockholder approval (i) the election
of directors), (ii) any contract with an investment adviser or principal
underwriter (as such terms are defined in the 1940 Act) that the Corporation
enters into or any renewal or amendment thereof, or (iii) the selection of the
Corporation's independent public accountants. If stockholder approval is
required for any of the purposes in (i) through (iii) above, the regular meeting
shall be held, at which stockholders shall vote on the proposal necessitating
such meeting and shall transact any other business as may properly be brought
before the meeting. Regular meetings of stockholders, if any, shall be held on
such day during the month of June and at such time as shall be designated by the
Board of Directors and stated in the notice of the meeting.
<PAGE>
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Charter or the
Corporation may be called for any purpose or purposes by a majority of the Board
of Directors or the President, and shall be called by the President or Secretary
on the written request of the stockholders as provided by the Maryland General
Corporation Law. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by stockholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
(12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the stockholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the stockholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each stockholder entitled to vote at
such meeting and to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of stockholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of stockholders shall be
deemed waived by any stockholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a signed waiver
of notice which is filed with the records of the meeting. A meeting of
stockholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting of
stockholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of stockholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each stockholder.
-2-
<PAGE>
Section 5. Organization. At each meeting of the stockholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the stockholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each stockholder entitled to vote at any meeting
of stockholders may authorize another person or persons to act for him by a
proxy signed by such stockholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is permitted by law.
Except as otherwise provided by statute, the Charter or the Corporation or these
By-Laws, any corporate action to be taken by vote of the stockholders shall be
authorized by a majority of the total votes cast at a meeting of stockholders at
which a quorum is present by the holders of shares present in person or
represented by proxy and entitled to vote on such action, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
-3-
<PAGE>
Section 7. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any stockholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 8. Consent of Stockholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law or by the Charter
of the Corporation or these By-Laws.
-4-
<PAGE>
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
Section 3. Election and Term of Directors. Directors shall be
elected by majority vote of a quorum cast by written ballot at the regular
meeting of stockholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the stockholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the stockholders of the Corporation. In the event that at any
-5-
<PAGE>
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of stockholders and until his successor is elected and qualifies. A
Director elected by the stockholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the
Board may be held with notice at such times and places as may be
determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
-6-
<PAGE>
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
-7-
<PAGE>
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the stockholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
----------
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
(a) recommend to stockholders any action requiring
authorization of stockholders pursuant to statute or the Charter;
-8-
<PAGE>
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or issue
capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require stockholder approval.
Section 4. General. One-third, but not less than two members,
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence of disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
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delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
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Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
stockholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
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Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
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ARTICLE VI
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
stockholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been stockholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
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rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of stockholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
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herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
----
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
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ARTICLE X
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the stockholders in
accordance with the provisions of the 1940 Act.
ARTICLE XII
Annual Statements
-----------------
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
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each stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
-----------------------------------------
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as such statutes are now or hereafter in force.
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Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, the 1933 Act and
the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or
repealed at any annual meeting of the stockholders or at any special meeting of
the stockholders at which a quorum is present or represented, provided that
notice of the proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be amended, altered or
repealed by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board of Directors.
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EX-99.B(5)(a)
FORM OF
AMENDED INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of the ____ day of _______, 1996 by
and between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation
(the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter an agreement
to provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors. The Advisor shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its services as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of the State of Maryland on November 4, 1988 and
all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein
called the "Articles of Incorporation");
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(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving
this Agreement;
(d) The Fund's Notification of Registration Filed
Pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on October 21, 1983;
(e) The Fund's Registration Statement on Form N-1 under
the Securities Act of 1933, as amended (the "1933 Act") (File No.
2-87336) and under the 1940 Act as filed with the SEC on October 21,
1983 relating to the shares of the Fund, and all amendments thereto;
and
(f) The Fund's most recent prospectus (such prospectus,
as presently in effect and all amendments and supplements thereto are
herein called "Prospectus").
The Fund will furnish the Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Investment Advisor. In carrying out its
obligations under Section I hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment
objective and policies of the Fund;
(c) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items
for the Fund's principal office;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
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domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio;
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(g) take all actions necessary to carry into effect the
Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer and
dividend disbursing agent;
(i) provide the Fund with such administrative and
clerical services for the maintenance of certain shareholder records,
as are deemed advisable by the Fund's Board of Directors; and,
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns,
reports to the Fund's shareholders and reports to and filings with the
SEC and state Blue Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor
is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting a security transaction will be
execution at the most favorable price. In performing this function the Advisor
shall comply with applicable policies established by the Board of Directors and
shall provide the Board of Directors with such reports as the Board of Directors
may require in order to monitor the Fund's portfolio transaction activities. In
certain instances the Advisor may make purchases of underwritten issues at
prices which include underwriting fees. In selecting a broker-dealer to execute
each particular transaction, the Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Directors may determine, the Advisor shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
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broker-dealer that provides brokerage and research services to the Advisor an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker-dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms of either
that particular transaction or the Advisor's overall responsibilities with
respect to the Fund. The Advisor is further authorized to allocate the orders
placed by it on behalf of the Fund to such broker-dealers who also provide
research or statistical material or other services to the Fund or the Advisor.
Such allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocation regularly to the Board
of Directors of the Fund, indicating the broker-dealers to whom such allocations
have been made and the basis therefor.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the Directors
may determine, the Advisor may consider services in connection with the sale of
shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other account of the
Advisor is considered at or about the same time, transactions in such securities
will be allocated among the accounts in a manner deemed equitable by the
Advisor. Alex. Brown and the Advisor may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
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5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement, as
well as any other activities undertaken by the Advisor on behalf of the Fund
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of state and
federal law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall furnish, at its expense and
without cost to the Fund, the services of and one or more officers of
the Fund, to the extent that such officers may be required by the Fund
for the proper conduct of its affairs.
(b) The Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: payments
to the Fund's distributor under the Fund's plan of distribution; the
charges and expenses of any registrar, any custodian or depository
appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable
to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the costs and 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
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of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in shares
or in cash; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent
certified public accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on
Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
and shareholders of the Fund, 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) The Advisor may, but shall not be under any duty
to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such
services will be performed on behalf of the Fund and the Advisor's
charge in rendering such services may be billed monthly to the Fund,
subject to examination by the Fund's independent certified public
accountants. Payment or assumption by the Advisor of any Fund expense
that the Advisor is not required to pay or assume under this Agreement
shall not relieve the Advisor of any of its obligations to the Fund nor
obligate the Advisor to pay or assume any similar Fund expenses on any
subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual rate of: .85% of the first $100 million of the Fund's
average daily net assets, .75% of the next $100 million of the Fund's average
daily net assets, .70% of the next $100 million of the Fund's average daily net
assets,
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<PAGE>
.65% of the next $200 million of the Fund's average daily net assets, .58% of
the next $500 million of the Fund's average daily net assets, .53% of the next
$500 million of the Fund's average daily net assets, and .50% of that portion of
the Fund's average daily net assets in excess of $1.5 billion.
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. Subject to the provisions of Section 10 hereof, payment of the Advisor's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by Section 10 hereof.
10. Expense Limitation. In the event the operating expenses of
the Fund, including all investment advisory and administrative fees, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by the securities laws or
regulations thereunder of any state in which the Fund's shares are qualified for
sale, as such limitations may be raised or lowered from time to time, the
Advisor shall reduce its investment advisory fee to the extent of its share of
such excess expenses and, if required pursuant to any such laws or regulations,
will reimburse the Fund for its share of annual operating expenses in excess of
any expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amounts of any interest, taxes, brokerage
commissions and extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Fund. Such reduction, if any, shall be computed
and accrued daily, shall be settled on a monthly basis and shall be based upon
the expense limitation applicable to the Fund.
11. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve 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.
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<PAGE>
12. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall continue in force and effect, subject to Section 14
hereof, for two years from the date hereof.
13. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated, without the
payment of any penalty, by the Fund upon a vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in Section 2(a)(42) of the 1940 Act) or by the Advisor, upon 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 (as defined in Section 2(a)(4) of the 1940 Act).
15. 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.
16. 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 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. 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
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<PAGE>
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 the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
By:
- -------------------------------- -----------------------------------
Asst. Secretary Vice President and Secretary
Attest: INVESTMENT COMPANY CAPITAL
CORP.
By:
- -------------------------------- -----------------------------------
Asst. Secretary
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<PAGE>
EX-99.B(5)(b)
FORM OF
AMENDED SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the ____ day of _______, 1996 by
and among FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation
(the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), and ALEX. BROWN INVESTMENT MANAGEMENT, a Maryland limited
partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on November 4, 1988 and all
amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein
called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
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<PAGE>
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on October 21, 1983;
(e) The Fund's Registration Statement on Form N-1 under
the Securities Act of 1933, as amended (the "1933 Act") (File No.
2-87336) and under the 1940 Act as filed with the SEC on October 21,
1983 relating to the shares of the Fund, and all amendments thereto;
and
(f) The Fund's most recent prospectus (such prospectus,
as presently in effect and all amendments and supplements thereto are
herein called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section I hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of
Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to
the Fund's Board of Directors;
(c) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
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<PAGE>
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the Directors
may determine, the Sub-Advisor may consider services in connection with the sale
of shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
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<PAGE>
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other accounts of the
Sub-Advisor is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Sub-Advisor. Alex. Brown and the Sub-Advisor may combine such transactions,
in accordance with applicable laws and regulations, in order to obtain the best
net price and most favorable execution.
The Fund will not deal with the Sub-Advisor or Alex. Brown in
any transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provision of the By-Laws; and
(e) any other applicable provisions of state and federal
law.
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<PAGE>
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and
without cost to the Fund, the services of the President and certain
Vice Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under Section 3 hereof to place orders for the purchase and
sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: payments
to the Advisor under the Investment Advisory Agreement between the Fund
and the Advisor, payments to the Fund's distributor under the Fund's
plan of distribution; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of
its cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
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 certified
public accountants, in connection with any matter relating to the Fund;
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<PAGE>
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: .60% of the first $100 million of
the Fund's average daily net assets, .55% of the next $100 million of the Fund's
average daily net assets, .50% of the next $100 million of the Fund's average
daily net assets, .45% of the next $200 million of the Fund's average daily net
assets, .40% of the next $500 million of the Fund's average daily net assets,
.37% of the next $500 million of the Fund's average daily net assets, and .35%
of that portion of the Fund's average daily net assets in excess of $1.5
billion. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Subject to the
provisions of Section 10 hereof, payment of the Sub-Advisor's compensation for
the preceding month shall be made as promptly as possible after completion of
the computations contemplated in Section 10 hereof.
9. Delegation of Responsibilities. The Sub-Advisor may, but
shall not be under any duty to, perform services on behalf of the Fund which are
not required by this Agreement upon the request of the Fund's Board of
Directors. Such services will be performed on behalf of the Fund and the
Sub-Advisor's charges in rendering such services will be billed monthly to the
Fund, subject to examination by the Fund's independent certified public
accountants. Payment or assumption by the Sub-Advisor of any Fund expense that
the Sub-Advisor is not required to pay or assume under this Agreement shall not
relieve the Sub-Advisor of any of its obligations to the Fund nor obligate the
Sub-Advisor to pay or assume any similar Fund expenses on any subsequent
occasions.
10. Expense Limitation. If, for any fiscal year of the Fund,
the amount of the fee which the Advisor would otherwise receive from the Fund
pursuant to the Investment Advisory Agreement between the Fund and the Advisor
is reduced pursuant to the expense limitation provisions of the Investment
Advisory Agreement, the fee which the Sub-Advisor would otherwise receive from
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<PAGE>
the Advisor pursuant to Section 8 of this Agreement shall also be reduced
proportionately. For example, if the Advisor's fee from the Fund is reduced by
1/3, the Sub-Advisor's fee from the Advisor will also be reduced by 1/3. Such
reduction shall be deducted from the monthly fee otherwise payable to the Sub-
Advisor by the Advisor and, if such amount should exceed such monthly fee, the
Sub-Advisor agrees to repay the Advisor such amount of its fee previously
received with respect to such fiscal year as may be required to make up the
deficiency no later than the last day of the following month. In no event will
the Sub-Advisor be required to reimburse the Advisor for any amount in excess
of the fee it receives pursuant to this Agreement during the fiscal year of the
Fund in which the reimbursement is required.
11. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 13
hereof, for two years from the date hereof.
12. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
14. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
-7-
<PAGE>
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Advisor may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or partners of the Sub-Advisor to the extent permitted by law; and that
the partners of the Sub-Advisor are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
15. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the Sub-
Advisor shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor, of the Advisor and of the Fund for this purpose shall be 135 East
Baltimore Street, Baltimore, Maryland 21202.
17. 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. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
By:
- -------------------------------- -----------------------------------
Vice President and Secretary
Attest: INVESTMENT COMPANY CAPITAL
CORP.
By:
- -------------------------------- -----------------------------------
Attest: ALEX. BROWN INVESTMENT
MANAGEMENT
By Alex. Brown & Sons
Incorporated, Its General
Partner
By:
- -------------------------------- -----------------------------------
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<PAGE>
EX-99.B(5)(c)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 19th day of January, 1989 by
and between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation
(the "Fund"), and FLAG INVESTORS MANAGEMENT CORP., a Maryland corporation (the
"Advisor").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter an agreement
to provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors. The Advisor shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its services as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of the State of Maryland on November 4, 1988 and
all amendments thereto (such Articles of Incorporation, as presently
in effect and as they shall from time to time be amended, are herein
called the "Articles of Incorporation");
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<PAGE>
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to
time be amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors
and shareholders authorizing the appointment of the Advisor
and approving this Agreement;
(d) The Fund's Notification of Registration Filed
Pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on October 21, 1983;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
2-87336) and under the 1940 Act as filed with the SEC on October 21,
1983 relating to the shares of the Fund, and all amendments thereto;
and
(f) The Fund's most recent prospectus (such
prospectus, as presently in effect and all amendments and supplements
thereto are herein called "Prospectus").
The Fund will furnish the Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Investment Advisor. In carrying out its
obligations under Section I hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for
the purchases and sales of securities, consistent with the investment
objective and policies of the Fund;
(c) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items
for the Fund's principal office;
-2-
<PAGE>
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio;
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(g) take all actions necessary to carry into effect
the Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer
and dividend disbursing agent;
(i) provide the Fund with such administrative and
clerical services for the maintenance of certain shareholder records,
as are deemed advisable by the Fund's Board of Directors; and,
(j) arrange, but not pay for, the periodic updating
of prospectuses and supplements thereto, proxy material, tax returns,
reports to the Fund's shareholders and reports to and filings with the
SEC and state Blue Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor
is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting a security transaction will be
execution at the most favorable price. In performing this function the Advisor
shall comply with applicable policies established by the Board of Directors and
shall provide the Board of Directors with such reports as the Board of Directors
may require in order to monitor the Fund's portfolio transaction activities. In
certain instances the Advisor may make purchases of underwritten issues at
prices which include underwriting fees. In selecting a broker-dealer to execute
each particular transaction, the Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
-3-
<PAGE>
justified by other aspects of the portfolio execution, services offered. Subject
to such policies as the Board of Directors may determine, the Advisor shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker-dealer that provides brokerage and research services to the Advisor an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker-dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms of either
that particular transaction or the Advisor's overall responsibilities with
respect to the Fund. The Advisor is further authorized to allocate the orders
placed by it on behalf of the Fund to such broker-dealers who also provide
research or statistical material or other services to the Fund or the Advisor.
Such allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocation regularly to the Board
of Directors of the Fund, indicating the broker-dealers to whom such allocations
have been made and the basis therefor.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the Directors
may determine, the Advisor may consider services in connection with the sale of
shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other account of the
Advisor is considered at or about the same time, transactions in such securities
will be allocated among the accounts in a manner deemed equitable by the
Advisor. Alex. Brown and the Advisor may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution.
-4-
<PAGE>
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement, as
well as any other activities undertaken by the Advisor on behalf of the Fund
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and
any rules and regulations adopted thereunder;
(b) the provisions of the Registration Statement
of the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of state and
federal law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall furnish, at its expense and
without cost to the Fund, the services of and one or more officers of
the Fund, to the extent that such officers may be required by the Fund
for the proper conduct of its affairs.
(b) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian
or depository appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the costs and expenses
of engraving or printing of certificates representing shares of the
-5-
<PAGE>
Fund; all costs and expenses in connection with the registration and
maintenance of registration of the Fund and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and
reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any
outside service used for pricing of the Fund's shares; charges and
expenses of legal counsel, including counsel to the Directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the
Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Directors) of
the Fund which inure to its benefit; extraordinary expenses (including
but not limited to, legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and
costs of the Fund's operation unless otherwise explicitly provided
herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
and shareholders of the Fund, 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 parties acknowledge that Alex. Brown Investment
Management, a Maryland limited partnership (the "Sub-Advisor") has
acted as the Fund's investment advisor prior to the date of this
Agreement, and that pursuant to a Sub-Advisory Agreement of even date
herewith (the "Sub-Advisory Agreement") the Sub-Advisor continues to
provide certain advisory services to the Fund. The Advisor shall
supervise the Sub-Advisor's performance under the Sub-Advisory
Agreement and shall report regularly thereon to the Fund's Board of
Directors, but shall not be responsible for the Sub-Advisor's
performance under the Sub-Advisory Agreement.
(b) The Advisor may, but shall not be under any
duty to, perform services on behalf of the Fund which are
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<PAGE>
not required by this Agreement upon the request of the Fund's Board of
Directors. Such services will be performed on behalf of the Fund and
the Advisor's charge in rendering such services may be billed monthly
to the Fund, subject to examination by the Fund's independent certified
public accountants. Payment or assumption by the Advisor of any Fund
expense that the Advisor is not required to pay or assume under this
Agreement shall not relieve the Advisor of any of its obligations to
the Fund nor obligate the Advisor to pay or assume any similar Fund
expenses on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual rate of: .65% of the first $100 million of the Fund's
average daily net assets, .55% of the Fund's average daily net assets in excess
of $100 million but not exceeding $200 million, .50% of the Fund's average daily
net assets in excess of $200 million but not exceeding $300 million, and .45% of
the Fund's average daily net assets exceeding $300 million.
Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for 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. Subject to the provisions of Section 10 hereof, payment of the Advisor's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by Section 10 hereof.
10. Expense Limitation. In the event the operating expenses of
the Fund, including all investment advisory and administrative fees, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by the securities laws or
regulations thereunder of any state in which the Fund's shares are qualified for
sale, as such limitations may be raised or lowered from time to time, the
Advisor shall reduce its investment advisory fee to the extent of its share of
such excess expenses and, if required pursuant to any such laws or regulations,
will reimburse the Fund for its share of annual operating expenses in excess of
any expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amounts of any interest, taxes, brokerage
commissions and extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Fund. Such reduction, if any, shall be computed
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<PAGE>
and accrued daily, shall be settled on a monthly basis and shall be based upon
the expense limitation applicable to the Fund.
11. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve 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.
12. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall continue in force and effect, subject to Section
14 hereof, for two years from the date hereof.
13. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated, without the
payment of any penalty, by the Fund upon a vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in Section 2(a)(42) of the 1940 Act) or by the Advisor, upon 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 (as defined in Section 2(a)(4) of the 1940 Act).
15. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and
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<PAGE>
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.
16. 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 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. 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 the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
/s/ Brenda L. Bowers By: /s/ Brian C. Nelson
- -------------------------------- --------------------------------
Secretary Vice President and Secretary
Attest: FLAG INVESTORS MANAGEMENT
CORP.
/s/ Brenda L. Bowers By: /s/ Edward J. Veilleux
- -------------------------------- --------------------------------
Secretary
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<PAGE>
EX-99.B(5)(d)
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 19th day of January, 1989 by
and among FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation
(the "Fund"), FLAG INVESTORS MANAGEMENT CORP., a Maryland corporation (the
"Advisor"), and ALEX. BROWN INVESTMENT MANAGEMENT, a Maryland limited
partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of the State of Maryland on November 4, 1988 and
all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein
called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to
time be amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on October 21, 1983;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
2-87336) and under the 1940 Act as filed with the SEC on October 21,
1983 relating to the shares of the Fund, and all amendments thereto;
and
<PAGE>
(f) The Fund's most recent prospectus (such
prospectus, as presently in effect and all amendments and supplements
thereto are herein called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section I hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
<PAGE>
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the Directors
may determine, the Sub-Advisor may consider services in connection with the sale
of shares of the Fund as a factor in the selection of broker-dealers to
execute portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other accounts of the
Sub-Advisor is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Sub-Advisor. Alex. Brown and the Sub-Advisor may combine such transactions,
in accordance with applicable laws and regulations, in order to obtain the best
net price and most favorable execution.
The Fund will not deal with the Sub-Advisor or Alex. Brown in
any transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provision of the By-Laws; and
(e) any other applicable provisions of state and
federal law.
<PAGE>
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and
without cost to the Fund, the services of the President and certain
Vice Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry out
its obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement between
the Fund and the Advisor, payments to the Fund's distributor under the
Fund's plan of distribution; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
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 certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: .40% of the first $100 million of
the Fund's average daily net assets, .35% of the Fund's average daily net assets
in excess of $100 million but not exceeding $200 million, .30% of the Fund's
average daily net assets in excess of $200 million but not exceeding $300
million, and .25% of the Fund's average daily net assets in excess of $300
million. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Subject to the
provisions of Section 10 hereof, payment of the Sub-Advisor's compensation for
the preceding month shall be made as promptly as possible after completion of
the computations contemplated in Section 10 hereof.
<PAGE>
9. Delegation of Responsibilities. The Sub-Advisor may, but
shall not be under any duty to, perform services on behalf of the Fund which are
not required by this Agreement upon the request of the Fund's Board of
Directors. Such services will be performed on behalf of the Fund and the
Sub-Advisor's charges in rendering such services will be billed monthly to the
Fund, subject to examination by the Fund's independent certified public
accountants. Payment or assumption by the Sub-Advisor of any Fund expense that
the Sub-Advisor is not required to pay or assume under this Agreement shall not
relieve the Sub-Advisor of any of its obligations to the Fund nor obligate the
Sub-Advisor to pay or assume any similar Fund expenses on any subsequent
occasions.
10. Expense Limitation. If, for any fiscal year of the Fund,
the amount of the fee which the Advisor would otherwise receive from the Fund
pursuant to the Investment Advisory Agreement between the Fund and the Advisor
is reduced pursuant to the expense limitation provisions of the Investment
Advisory Agreement, the fee which the Sub-Advisor would otherwise receive from
the Advisor pursuant to Section 8 of this Agreement shall also be reduced
proportionately. For example, if the Advisor's fee from the Fund is reduced by
1/3, the Sub-Advisor's fee from the Advisor will also be reduced by 1/3. Such
reduction shall be deducted from the monthly fee otherwise payable to the
Sub-Advisor by the Advisor and, if such amount should exceed such monthly fee,
the Sub-Advisor agrees to repay the Advisor such amount of its fee previously
received with respect to such fiscal year as may be required to make up the
deficiency no later than the last day of the following month. In no event will
the Sub-Advisor be required to reimburse the Advisor for any amount in excess of
the fee it receives pursuant to this Agreement during the fiscal year of the
Fund in which the reimbursement is required.
11. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 13
hereof, for two years from the date hereof.
12. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii)
by the vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
<PAGE>
14. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Advisor may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or partners of the Sub-Advisor to the extent permitted by law; and that
the partners of the Sub-Advisor are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
15. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor, of the Advisor and of the Fund for this purpose shall be 135 East
Baltimore Street, Baltimore, Maryland 21202.
17. 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. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
/s/ Brenda L. Bowers By: /s/ Brian C. Nelson
- -------------------------- --------------------------------
Vice President and Secretary
Attest: FLAG INVESTORS MANAGEMENT CORP.
/s/ Brenda L. Bowers By: /s/ Edward J. Veilleux
- ------------------------- --------------------------------
Attest: ALEX. BROWN INVESTMENT
MANAGEMENT
By Alex. Brown & Sons
Incorporated, Its General
Partner
/s/ Brenda L. Bowers By: /s/ J. Dorsey Brown III
- ----------------------------- ------------------------------------
<PAGE>
EX-99.B(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 19th day of January, 1989 by and
between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland Corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, on January 18, 1989 the Fund succeeded to the
Registration Statement of Flag Investors Telephone Income Trust as an open-end,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the shares of Common Stock of the Fund (the "Shares")
and Alex. Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 5 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints Alex. Brown as
Distributor for the Shares for the period and on the terms set forth in this
Agreement. Alex. Brown accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of Maryland on November 4, 1988 and all amendments
thereto;
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) Post-Effective Amendment No. 9 under the
Securities Act of 1933 (the "1933 Act") and Post-Effective Amendment No. 11
under the 1940 Act to the Fund's Registration Statement on Form N-1A (File No.
2-87336) as filed with the Securities and Exchange Commission (the "SEC") on
November 18, 1988 relating to the Shares; and
(e) The Fund's most recent prospectus (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
<PAGE>
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. In carrying out its obligations hereunder, Alex.
Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares; and
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown on behalf of the Fund pursuant hereto, shall at all
times be subject to any directives of the Board of Directors of the Fund. The
Board of Directors may agree, on behalf of the Fund, to amendments to this
Agreement, provided that the Fund must obtain the prior approval of the
shareholders of the Fund to any such amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act and any amendments or supplements
thereto;
(c) the provisions of the Articles of Incorporation
of the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and
Federal law.
<PAGE>
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out its obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
"Non-Interested" Directors (within the meaning of Section 2(a)(19) of the 1940
Act) or 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 Non-Interested Directors and of independent accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown'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
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund nor obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasion.
9. Compensation. For the services to be rendered and the
expenses to be assumed by Alex. Brown the Fund shall pay to Alex. Brown,
compensation at the annual rate of .25% of the average daily net assets of the
Fund. Except as hereinafter set forth, continuing 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 calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
<PAGE>
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Participating Dealer Agreements. Alex. Brown may enter
into participating dealer agreements (the "Participating Dealer Agreements")
with any securities dealer who is registered under the Securities Exchange Act
of 1934 and who is a member in good standing of the NASD, who may wish to act as
a Participating Dealer in connection with the proposed offering. All
Participating Dealer Agreements shall be in substantially the form of the
agreement attached hereto as Exhibit "A". For processing Fund shareholders'
redemption orders, responding to inquiries from Fund shareholders concerning the
status of their accounts and the operations of the Fund and communicating with
the Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers or employees of Alex. Brown to the extent permitted by law; and that
the directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Non-Interested Directors who do not have a financial interest in the operation
of this Agreement, by votes cast in person at a meeting specifically called for
such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Non-Interested Directors who do not have a financial interest in
the operation of this Agreement, (iii) by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act)
or (iv) by Alex. Brown. The notice provided for herein may be waived by either
party. This Agreement shall automatically terminate in the event of its
assignment (as that term is defined in Section 2(a)(4) of the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
<PAGE>
16. 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 both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. 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 the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
Attest: /s/ Brenda L. Bowers By /s/ Brian C. Nelson
-------------------------- --------------------------------
Vice President and Secretary
[SEAL] ALEX. BROWN & SONS
INCORPORATED
Attest: /s/ Brenda L. Bowers By /s/ Edward J. Veilleux
-------------------------- --------------------------------
<PAGE>
EX-99.B(6)(c)
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SHAREHOLDER SERVICING AGREEMENT
_________________, 19__
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
with you concerning the provision of support services to your clients and
customers ("Customers") who may from time to time beneficially own shares of our
common stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. You hereby
represent that such fees are not unreasonable or excessive. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records
required by law relating to transactions in Shares and, upon our request,
promptly make such of these records available to us as we may reasonably request
in connection with our operations, and (ii) promptly notify us if you experience
any difficulty in maintaining the records described in the foregoing clauses in
an accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be a part of the space, equipment
and facilities currently used in your business, or any personnel employed by
you) as may be reasonably necessary or beneficial in order to provide the
aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees,
agents or assignees are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees, agents or assignees
regarding your responsibilities hereunder or the purchase, redemption, transfer
or registration of Shares by or on behalf of Customers. You and your employees
will, upon request, be available during normal business hours to consult with us
or our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee (as we may determine from time to
time in writing) computed as a percentage of the average daily net assets of the
Customers' Shares held of record by you from time to time, which fee will be
computed daily and payable no less often than annually. For purposes of
determining the fees payable under this Section 5, the average daily net assets
of the Customers' Shares will be computed in the manner specified in our
registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us or by our distributor, at any time upon notice to
you. Further, we may, in our discretion and without notice, suspend or withdraw
the sale of Shares, including the sale of such shares to you for the account of
any Customer or Customers.
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
shall otherwise cooperate with us and our designees (including, without
limitation, any auditors designated by us), in connection with the preparation
of reports to our Board of Directors concerning this Agreement and the monies
paid or payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the event
of its assignment, as that term is defined in the Investment Company Act of
1940, as amended.
Section 9. This Agreement will be construed in accordance with
the laws of the State of Maryland.
Section 10. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to you,
at the address specified by you after your signature below:
Flag Investors Family of Funds
135 East Baltimore Street
Baltimore, Maryland 21202
Attention: Edward J. Veilleux
-2-
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to us, at the address set forth in Section 10 above.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
Date: __________________ By: ______________________________________
Authorized Officer
Confirmed and Accepted:
Firm Name: _______________________________
By: _______________________________
Address: _______________________________
_______________________________
Date: _______________________________
-3-
<PAGE>
EX-99.B(6)(d)
(Class D Shares)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ___ day of __________________,
1993, by and between FLAG INVESTORS TELEPHONE INCOME FUND, INC.,
a Maryland corporation (the "Fund"), and Alex. Brown & Sons
Incorporated, a Maryland corporation ("Alex. Brown").
W I T N E S S E T H
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 Fund wishes to appoint Alex. Brown as the
exclusive distributor of the class of shares of the Fund known as the Flag
Investors Class B Shares (the "Shares") and Alex. Brown wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises, and of other
good and valuable consideration by each of the parties hereto to the other party
paid, and of the agreements, covenants and obligations herein contained, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as the exclusive
distributor of the Shares for the period and on the terms set forth in this
Agreement. Alex. Brown accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies, properly certified or authenticated, of each of the following:
-1-
<PAGE>
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of Maryland on November 4, 1988 and all amendments
thereto;
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section B(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on October 21,
1983;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No. 2-87336)
and under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on October 21, 1983 relating to the Fund and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown agrees that all
solicitations for subscriptions for Shares shall be made in accordance with
Fund's Articles of Incorporation and By-Laws, and its then current Registration
Statement, Prospectus and Statement of Additional Information, and shall not at
any time or in any manner violate any provisions of the laws of the United
States or of any state or other jurisdiction which solicitations are then being
made. In carrying out its obligations hereunder, Alex. Brown shall undertake the
following actions and responsibilities:
(a) receive orders for purchase of Shares, accept or
reject such orders on behalf of the Fund in accordance with the currently
effective Prospectus for the Shares and the Fund's Statement of Additional
Information and transmit such orders as are so accepted to the Fund's transfer
agent as promptly as possible;
(b) receive requests for redemption from holders of
Shares and transmit such redemption requests to the Fund's transfer agent as
promptly as possible;
-2-
<PAGE>
(c) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(d) provide to the Fund's Treasurer, at least quarterly,
a written report of the amounts expended in connection with all distribution
services rendered pursuant to this Agreement, including an explanation of the
purposes for which such expenditures were made; and
(e) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect the distribution of the Shares
and perform such other administrative duties with respect to the Shares as the
Fund's Board of Directors may require.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any of the Shares. The Fund shall not sell any
of the Shares except through Alex. Brown and securities dealers who have valid
Sub-Distribution Agreements with Alex. Brown. Notwithstanding the provisions of
the foregoing sentence the Fund may issue its Shares at their net asset value to
any shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that any such amendment that would provide for a
material increase in the amount expended by the Fund must be approved by the
shareholders of the Fund before becoming effective.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation
of the Fund;
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<PAGE>
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and
federal law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering;
(c) the Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and its shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); the expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or members of any advisory board or
committee other than such directors or member who are "interested persons", of
the Fund (as defined in Section 2(a)(19) of the 1940 Act); all expenses incident
to the payment of any dividend, distribution, withdrawal or redemption, whether
in Shares or in cash; charges and expenses of any outside service used for
pricing of the Fund's Shares; charges and expenses of legal counsel, including
-4-
<PAGE>
counsel to the directors of the Fund who are not "interested persons" of the
Fund (as defined in Section 2(a)(19) of the 1940 Act), and of independent
accountants, in connection with any matter relating to the Fund; a portion of
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Directors. Such services will
be performed on behalf of the Fund and Alex. Brown's charges in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .60% of the average daily net assets of the Shares of the
Fund. Except as hereinafter set forth, continuing compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month
compensation for the part of the month during which this Agreement is in effect
shall be prorated in a manner consistent with the calculations of the fees as
set forth above.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
sub-distribution agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Act of 1934 and a
member in good standing of the NASD, who may wish to act as a Participating
Dealer in connection with the proposed offering. All Sub-Distribution Agreements
-5-
<PAGE>
shall be in substantially the form of the agreement attached hereto as Exhibit
"A". For processing Fund shareholders' redemption orders, responding to the
inquiries from Fund shareholders concerning the status of their accounts and the
operations of the Fund and communicating with the Fund, its transfer agent and
Alex. Brown, Alex. Brown may pay each such Participating Dealer an amount not to
exceed that portion of the compensation paid to Alex. Brown hereunder that is
attributable to accounts of Fund shareholders who are customers of such
Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that officers or
directors of Alex. Brown may serve as officers or directors of the Fund, and
that officers or directors of the Fund may serve as officers or directors of
Alex. Brown to the extent permitted by law; and that officers or directors of
Alex. Brown are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers or directors of any other firm or corporation, including other
investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or by the
vote of a majority of the outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in Section
2(a)(19) of the 1940 Act) and who do not have a financial interest in the
operation of this Agreement, by votes cast in person at a meeting specifically
called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in Section 2(a)(19) of the 1940 Act) and who do not have a financial
interest in the operation of this Agreement, (iii) by vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act) or (iv) by Alex. Brown. The notice provided for herein may be waived by
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<PAGE>
each party. This Agreement shall automatically terminate in the event of its
assignment as defined in Section 2(a)(4) of the 1940 Act.
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other parties at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, the addresses of the Fund and Alex.
Brown are as follows:
If to Alex. Brown:
------------------
Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, MD 21202
If to the Fund:
---------------
Flag Investors Telephone Income Fund, Inc.
135 E. Baltimore Avenue
Baltimore, Maryland 21202
17. 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 the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rules, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS TELEPHONE INCOME
FUND, INC.
Attest:/s/ Brian C. Nelson By /s/ Edward J. Veilleux
------------------- ----------------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:/s/ Brian C. Nelson By /s/ Richard T. Hale
------------------- ----------------------------
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<PAGE>
EX-99.B(6)(e)
New Class B Shares
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 30th day of December, 1994,
by and between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland
corporation (the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland
corporation ("Alex. Brown").
W I T N E S S E T H
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 Fund wishes to appoint Alex. Brown as the
exclusive distributor of the class of shares of the Fund known as the Flag
Investors Class B Shares (the "Shares") and Alex. Brown wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein
and of other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as
Distributor for the Shares for the period and on the terms set forth in this
Agreement. The Fund may from time to time issue separate series or classes of
its shares of common stock, or classify and reclassify shares of such series as
classes, and the appointment effected hereby shall constitute appointment for
the distribution of such additional series and classes unless the parties shall
otherwise agree in writing. Alex. Brown accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex.
Brown with copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed
with the Secretary of State of Maryland on November 4, 1988 and all amendments
thereto (the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors
and shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on October 21,
1983;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No. 2-87336)
and under the 1940 Act as filed with the SEC on October 21, 1983 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the
Shares (such prospectus and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund
the benefit of its best judgment, efforts and facilities in rendering its
services as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's
shareholders concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions
deemed necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund
with quarterly reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the
exclusive distributor of the Shares. It is mutually understood and agreed that
Alex. Brown does not undertake to sell all or any specific portion of the
Shares. The Fund shall not sell any of the Shares except through Alex. Brown and
securities dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution
activities undertaken by Alex. Brown pursuant to this Agreement, as well as any
other activities undertaken by Alex. Brown on behalf of the Fund pursuant
hereto, shall at all times be subject to any directives of the Board of
Directors of the Fund. The Board of Directors may agree, on behalf of the Fund,
to amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result in
a material increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, Alex. Brown shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and
any rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement
of the Fund under the 1933 Act and the 1940 Act and any amendments and
supplements thereto;
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<PAGE>
(c) the provisions of the Articles of
Incorporation of the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to Federal, State or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel) except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or 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 Shares; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), and of independent accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but
shall be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown'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
-3-
<PAGE>
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .75% of the average daily net assets of the shares of the
Fund. Except as hereinafter set forth, continuing 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 calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service
fee (as such term is defined in the NASD Rules of Fair Practice) equal to .25%
of the average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The
Fund acknowledges that Alex. Brown may compensate its investment representatives
for opening accounts, processing investor letters of transmittals and
applications and withdrawal and redemption orders, responding to inquiries from
Fund shareholders concerning the status of their accounts and the operations of
the Fund, and communicating with the Fund and its transfer agent on behalf of
the Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter
into Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the
Fund are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become
effective at the close of business on the date hereof and shall remain in force
and effect for an initial term of two years and from year to year thereafter,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii)
by the vote of a majority of the outstanding voting securities (as defined in
the 1940 Act), and
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<PAGE>
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any
time, on sixty (60) days' written notice to the other party without the payment
of any penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
16. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. 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 parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. 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 the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS TELEPHONE INCOME
FUND, INC.
Attest: /s/ Brian C. Nelson By /s/ Edward J. Veilleux
----------------------- --------------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Brian C. Nelson By /s/ Richard T. Hale
----------------------- --------------------------------------
Title:
-5-
<PAGE>
EX-99.B(8)(a)
CUSTODIAN AGREEMENT
THIS AGREEMENT is made as of January 19, 1989 by and between
FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation (the "Fund"),
and PROVIDENT NATIONAL BANK, a national banking association ("Provident").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain Provident to serve as the
Fund's custodian and Provident is willing to serve as the Fund's custodian;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Provident to act as
custodian of the portfolio securities, cash and other property belonging to the
Fund for the period and on the terms set forth in this Agreement. Provident
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 21 of this Agreement.
Provident agrees to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. The Fund may from time to time
-1-
<PAGE>
issue separate series, classes or classify and reclassify shares of such series
or class. Provident shall identify to each such series or class property
belonging to such series or class and in such reports, confirmations and notices
to the Fund called for under this Agreement shall identify the series or class
to which such report, confirmation or notice pertains.
2. Delivery of Documents. The Fund has furnished Provident
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of Provident as custodian of the portfolio
securities, cash and other property belonging to the Fund and approving this
Agreement;
(b) Appendix A identifying and containing the
signatures of the Fund's officers and/or other persons authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of the Fund;
(c) The Fund's Articles of Incorporation filed with
the Department of Assessments and Taxation of the State of Maryland on November
4, 1988 and all amendments thereto (such Articles of Incorporation, as presently
in effect and as they shall from time to time be amended, are herein called the
"Charter");
(d) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
-2-
<PAGE>
(e) The Investment Advisory Agreement between Flag
Investment Management Corp. (the "Advisor") and the Fund dated as of January 19,
1989 (the "Advisory Agreement");
(f) The Sub-Advisory Agreement between Alex. Brown
Investment Management and the Fund dated as of January 19, 1989 (the
"Sub-Advisory Agreement");
(g) The Distribution Agreement between the Fund and
Alex. Brown dated as of January 19, 1989 (the "Distribution Agreement");
(h) The Transfer Agency Agreement between Provident
Financial Processing Corporation (the "Transfer Agent") and the Fund dated as of
January 19, 1989 (the "Transfer Agency Agreement");
(i) The Administration and Accounting Services
Agreement between Provident Financial Processing Corporation and the Fund dated
as of January 19, 1989 (the "Accounting Services Agreement");
(j) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as
filed with the Securities and Exchange Commission ("SEC") on October 21, 1983;
(k) The Fund's most recent Registration Statement on
Form N-1A under the Securities Act of 1933, as amended ("the 1933 Act") (File
No. 2-87336) and under the 1940 Act as filed with the SEC on November 18, 1988
relating to shares of the Fund's Common Stock, $.001 par value ("Shares"), and
all amendments thereto;
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<PAGE>
(l) The Fund's most recent prospectus or prospectuses
relating to Shares (such prospectus or prospectuses, as presently in effect and
all amendments and supplements thereto are herein called the "Prospectus"); and
(m) Before the Fund engages in any transactions
regulated by the Commodity Futures Trading Commission ("CFTC"), a copy of either
(i) a filed notice of eligibility to claim the exclusion from the definition of
"commodity pool operator" contained in Section 2(a)(1)(A) of the Commodity
Exchange Act ("CEA") that is provided in Rule 4.5 under the CEA, together with
all supplements as are required by the CFTC, or (ii) a letter which has been
granted the Fund by the CFTC which states that the Fund will not be treated as a
"pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii)
a letter which has been granted the Fund by the CFTC which states that the CFTC
will not take any enforcement action if the Fund does not register as a
"commodity pool operator."
The Fund will furnish Provident from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
3. Definitions.
(a) "Authorized Person". As used in this Agreement,
the term "Authorized Person" means any of the officers of the Fund and any other
person, whether or not any such person is an officer or employee of the Fund,
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<PAGE>
duly authorized by the Board of Directors of the Fund to give Oral and Written
Instructions on behalf of the Fund and listed on the Certificate annexed hereto
as Appendix A or any amendment thereto as may be received by Provident from time
to time.
(b) "Book-Entry System". As used in this Agreement,
the term "Book-Entry System" means the Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees and any book-entry system maintained by a
clearing agency registered with the SEC under Section 17A of the Securities
Exchange Act of 1934 (the "1934 Act").
(c) "Oral Instructions". As used in this Agreement,
the term "Oral Instructions" means oral instructions actually received by
Provident from an Authorized Person or from a person reasonably believed by
Provident to be an Authorized Person. The Fund agrees to deliver to Provident,
at the time and in the manner specified in Paragraph 8(b) of this Agreement,
Written Instructions confirming Oral Instructions.
(d) "Property". The term "Property", as used in this
Agreement, means:
(i) any and all securities and other
property which the Fund may from time to time deposit, or cause to be
deposited, with Provident or which Provident may from time to time hold
for the Fund;
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<PAGE>
(ii) all income in respect of any of such
securities or other property;
(iii) all proceeds of the sale of any of
such securities or other property; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by Provident from time to time
from or on behalf of the Fund.
(e) "Written Instructions". As used in this
Agreement, the term "Written Instructions" means written instructions delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device, and
received by Provident and signed by an Authorized Person.
4. Delivery and Registration of the Property. The Fund will
deliver or cause to be delivered to Provident all securities and all moneys
owned by it, including cash received for the issuance of its Shares, at any time
during the period of this Agreement. Provident will not be responsible for such
securities and such moneys until actually received by it. All securities
delivered to Provident (other than in bearer form) shall be registered in the
name of the Fund or in the name of a nominee of the Fund or in the name of
Provident or in the name of any nominee of Provident (with or without indication
of fiduciary status), or in the name of any sub-custodian or any nominee of any
such sub-custodian appointed pursuant to Paragraph 6 hereof or shall be properly
endorsed and in form for transfer satisfactory to Provident.
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<PAGE>
5. Receipt and Disbursement of Money.
(a) Provident shall open and maintain a separate
custodial account or accounts in the name of the Fund, subject only to draft or
order by Provident acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund. Provident shall make
payments of cash to, or for the account of, the Fund from such cash only (i) for
the purchase of securities for the Fund's portfolio as provided in Paragraph 13
hereof; (ii) upon receipt of Written Instructions, for the payment of interest,
dividends, taxes, administration, accounting, distribution, advisory or
sub-advisory fees or expenses which are to be borne by the Fund under the terms
of this Agreement, the Advisory Agreement, the Sub-Advisory Agreement, the
Accounting Services Agreement, the Transfer Agency Agreement and the
Distribution Agreement; (iii) upon receipt of Written Instructions, for payments
in connection with the conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or to be delivered to Provident; (iv) to a
sub-custodian pursuant to Paragraph 6 hereof; (v) for the redemption of Fund
Shares; (vi) for payment of the amount of dividends received in respect of
securities sold short; or (vii) upon receipt of Written Instructions, for other
proper Fund purposes. No payment pursuant to (i) above shall be made unless
Provident has received a copy of the broker's or dealer's confirmation or the
payee's invoice, as appropriate.
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<PAGE>
(b) Provident is hereby authorized to endorse and
collect all checks, drafts, negotiable instruments or other orders for the
payment of money received as custodian for the account of the Fund.
6. Receipt of Securities.
(a) Except as provided by Paragraph 7 hereof,
Provident shall hold and physically segregate in a separate account,
identifiable at all times from those of any other persons, firms, or
corporations, all securities and non-cash property received by it for the
account of the Fund. All such securities and non-cash property are to be held or
disposed of by Provident for the Fund pursuant to the terms of this Agreement.
In the absence of Written Instructions accompanied by a certified resolution of
the Fund's Board of Directors authorizing the transaction, Provident shall have
no power or authority to withdraw, deliver, assign, hypothecate, pledge or
otherwise dispose of any such securities and investments except in accordance
with the express terms provided for in this Agreement. In no case may any
Director, officer, employee or agent of the Fund withdraw any securities. In
connection with its duties under this Paragraph 6, Provident may, at its own
expense, enter into sub-custodian agreements with other banks or trust companies
for the receipt of certain securities and cash to be held by Provident for the
account of the Fund pursuant to this Agreement; provided that each such bank or
trust company has an aggregate capital, surplus and undivided profits, as shown
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<PAGE>
by its last published report, of not less than one million dollars ($1,000,000)
for a Provident subsidiary or affiliate, or of not less than twenty million
dollars ($20,000,000) if such bank or trust company is not a Provident
subsidiary or affiliate and that in either case such bank or trust company
agrees with Provident to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. Provident shall remain responsible
for the performance of all of its duties under this Agreement and shall hold the
Fund harmless from the acts and omissions, under the standards of care provided
for herein, of any bank or trust company that it might choose pursuant to this
Paragraph 6.
(b) Where securities are transferred to an account of
the Fund established pursuant to Paragraph 7 hereof, Provident shall also by
book-entry or otherwise identify as belonging to the Fund the quantity of
securities in a fungible bulk of securities registered in the name of Provident
(or its nominee) or shown in Provident's account on the books of the Book-Entry
System. At least monthly and from time to time, Provident shall furnish the Fund
with a detailed statement of the Property held for the Fund under this
Agreement.
7. Use of Book-Entry System. The Fund shall deliver to
Provident certified resolutions of the Board of Directors of the Fund approving,
authorizing and instructing Provident on a continuous and on-going basis until
instructed to the contrary by Oral or Written Instructions actually received by
Provident (a) to deposit in the Book-Entry System all securities belonging to
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the Fund eligible for deposit therein and (b) to utilize the Book-Entry System
to the extent possible in connection with settlements of purchases and sales of
securities by the Fund, and deliveries and returns of securities loaned, subject
to repurchase agreements or used as collateral in connection with borrowings.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in
the Book-Entry System will at all times be segregated from any assets and cash
controlled by Provident in other than a fiduciary or custodian capacity but may
be commingled with other assets held in such capacities. Provident and its
sub-custodian, if any, will pay out money only upon receipt of securities and
will deliver securities only upon the receipt of money.
(b) All books and records maintained by Provident
which relate to the Fund's participation in the Book-Entry System will at all
times during Provident's regular business hours be open to the inspection of the
Fund's duly authorized employees or agents, and the Fund will be furnished with
all information in respect of the services rendered to it as it may require.
(c) Provident will provide the Fund with copies of
any report obtained by Provident on the system of internal accounting control of
the Book-Entry System promptly after receipt of such a report by Provident.
Provident will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
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<PAGE>
8. Instructions Consistent with Charter, etc.
(a) Unless otherwise provided in this Agreement,
Provident shall act only upon Oral and Written Instructions. Although Provident
may know of the provisions of the Charter and By-Laws of the Fund, Provident may
assume that any Oral or Written Instructions received hereunder are not in any
way inconsistent with any provisions of such Charter or By-Laws or any vote,
resolution or proceeding of the Shareholders, or of the Board of Directors, or
of any committee thereof.
(b) Provident shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by Provident
pursuant to this Agreement. The Fund agrees to forward to Provident Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Provident by the close of business of the same day
that such Oral Instructions are given to Provident. The Fund agrees that the
fact that such confirming Written Instructions are not received by Provident
shall in no way affect the validity of the transactions or enforceability of the
transactions authorized by the Fund by giving Oral Instructions. The Fund agrees
that Provident shall incur no liability to the Fund in acting upon Oral
Instructions given to Provident hereunder concerning such transactions provided
such instructions reasonably appear to have been received from an Authorized
Person.
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<PAGE>
9. Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, Provident is authorized to take the following
actions:
(a) Collection of Income and Other Payments.
Provident shall:
(i) collect and receive for the account of
the Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, bond coupons, option
premiums and similar items, included or to be included in the Property,
and promptly advise the Fund of such receipt and shall credit such
income, as collected, to the Fund's custodian account;
(ii) endorse and deposit for collection, in
the name of the Fund, checks, drafts, and negotiable instruments or
other orders for the payment of money on the same day as received;
(iii) receive and hold for the account of
the Fund all securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other rearrangement
or distribution of rights or similar securities issued with respect to
any portfolio securities belonging to the Fund held by Provident
hereunder;
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<PAGE>
(iv) present for payment and collect the
amount payable upon all securities which may mature or be called,
redeemed, or retired, or otherwise become payable on the date such
securities become payable; and
(v) take any action which may be necessary
and proper in connection with the collection and receipt of such income
and other payments and the endorsement for collection of checks,
drafts, and other negotiable instruments as described in Paragraph 24
of this Agreement.
(b) Miscellaneous Transactions. Provident is
authorized to deliver or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following cases:
(i) for examination by a broker selling for
the account of the Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or
temporary securities for definitive securities; and
(iii) for transfer of securities into the
name of the Fund or Provident or nominee of either, or for exchange of
securities for a different number of bonds, certificates, or other
evidence, representing the same aggregate face amount or number of
units bearing the same interest rate, maturity date and call
provisions, if any; provided that, in any such case, the new securities
are to be delivered to Provident.
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<PAGE>
10. Transactions Requiring Instructions. Upon receipt of Oral
or Written Instructions and not otherwise, Provident, directly or through the
use of the Book-Entry System, shall:
(a) execute and deliver to such persons as may be
designated in such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the authority of the
Fund as owner of any securities may be exercised;
(b) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer, merger,
consolidation or recapitalization of any corporation, or the exercise
of any conversion privilege;
(c) deliver any securities held for the Fund to any
protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any corporation, and receive and
hold under the terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) make such transfers or exchanges of the assets of
the Fund and take such other steps as shall be stated in said Oral or
Written Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation
or recapitalization of the Fund;
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<PAGE>
(e) release securities belonging to the Fund to any
bank or trust company for the purpose of pledge or hypothecation to
secure any loan incurred by the Fund; provided, however, that
securities shall be released only upon payment to Provident of the
monies borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and
repay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing the loan;
(f) release and deliver securities owned by the Fund
in connection with any repurchase agreement entered into on behalf of
the Fund, but only on receipt of payment therefor; and pay out moneys
of the Fund in connection with such repurchase agreements, but only
upon the delivery of the securities; and
(g) otherwise transfer, exchange or deliver
securities in accordance with Oral or Written Instructions.
11. Segregated Accounts.
(a) Provident shall upon receipt of Written or Oral
Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities in the Book-Entry
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<PAGE>
System (i) for the purposes of compliance by the Fund with the procedures
required by a securities or option exchange, providing such procedures comply
with the 1940 Act and Release No. 10666 or any subsequent release or releases of
the SEC relating to the maintenance of segregated accounts by registered
investment companies, and (ii) for other proper corporate purposes, but only, in
the case of clause (ii), upon receipt of Written Instructions.
(b) Provident may enter into separate custodial
agreements with various futures commission merchants ("FCMs") that the Fund uses
(each an "FCM Agreement"), pursuant to which the Fund's margin deposits in any
transactions involving futures contracts and options on futures contracts will
be held by Provident in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and the Fund ("FCM Contract"), SEC rules governing
such segregated accounts, CFTC rules and the rules of the applicable commodities
exchange. Such FCM Agreements shall only be entered into upon receipt of Written
Instructions from the Fund which state that (i) a customer agreement between the
FCM and the Fund has been entered into; and (ii) the Fund is in compliance with
all the rules and regulations of the CFTC. Transfers of initial margin shall be
made into an FCM Account only upon Written Instructions; transfers of premium
and variation margin may be made into an FCM Account pursuant to Oral
Instructions. Transfers of funds from an FCM Account to the FCM for which
Provident holds such an account may only occur upon certification by the FCM to
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Provident that pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give Provident such instruction have been
satisfied.
12. Dividends and Distributions. The Fund shall furnish
Provident with appropriate evidence of action by the Fund's Board of Directors
declaring and authorizing the payment of any dividends and distributions. Upon
receipt by Provident of Written Instructions with respect to dividends and
distributions declared by the Fund's Board of Directors and payable to
Shareholders who have elected in the proper manner to receive their
distributions or dividends in cash, and in conformance with procedures mutually
agreed upon by Provident, the Fund, and the Fund's Transfer Agent, Provident
shall pay to the Fund's Transfer Agent, as agent for the Shareholders, an amount
to the amount indicated in said Written Instructions as payable by the Fund to
such Shareholders for distribution in cash by the Transfer Agent to such
Shareholders. In lieu of paying the Fund's Transfer Agent cash dividends and
distributions, Provident may arrange for the direct payment of cash dividends
and distributions to Shareholders by Provident in accordance with such
procedures and controls as are mutually agreed upon from time to time by and
among the Fund, Provident and the Fund's Transfer Agent.
In accordance with the Prospectus, the Internal Revenue Code
and regulations promulgated thereunder, and with such procedures and controls as
are mutually agreed upon from time to time by and among the Fund, Provident and
the Fund's Transfer Agent, Provident shall arrange for the establishment of IRA
custodian accounts for such Shareholders holding Shares through IRA accounts.
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<PAGE>
13. Purchases of Securities. Promptly after each decision to
purchase securities by the Advisor, the Fund, through the Advisor, shall deliver
to Provident Oral Instructions specifying with respect to each such purchase:
(a) the name of the issuer and the title of the securities, (b) the number of
shares or the principal amount purchased and accrued interest, if any, (c) the
date of purchase and settlement, (d) the purchase price per unit, (e) the total
amount payable upon such purchase and (f) the name of the person from whom or
the broker through whom the purchase was made. Provident shall upon receipt of
securities purchased by or for the Fund pay out of the moneys held for the
account of the Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral Instructions.
14. Sales of Securities. Promptly after each decision to sell
securities by the Advisor or exercise of an option written by the Fund, the
Fund, through the Advisor, shall deliver to Provident Oral Instructions,
specifying with respect to each such sale: (a) the name of the issuer and the
title of the security, (b) the number of shares or principal amount sold, and
accrued interest, if any, (c) the date of sale, (d) the sale price per unit, (e)
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<PAGE>
the total amount payable to the Fund upon such sale, and (f) the name of the
broker through whom or the person to whom the sale was made. Provident shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Oral Instructions. Subject to the foregoing, Provident may accept
payment in such form as shall be satisfactory to it, and may deliver securities
and arrange for payment in accordance with the customs prevailing among dealers
in securities.
15. Records. The books and records pertaining to the Fund
which are in the possession of Provident shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act
and other applicable securities laws and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during Provident's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by Provident to
the Fund or the Fund's authorized representative at the Fund's expense.
16. Reports.
(a) Provident shall furnish the Fund the following
reports:
(i) such periodic and special reports as the
Fund may reasonably request;
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<PAGE>
(ii) a monthly statement summarizing all
transactions and entries for the account of the Fund, listing the
portfolio securities belonging to the Fund with the adjusted average
cost of each issue and the market value at the end of such month, and
stating the cash account of the Fund including disbursements;
(iii) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(iv) such other information as may be agreed
upon from time to time between the Fund and Provident.
(b) Provident shall transmit promptly to the Fund any
proxy statement, proxy materials, notice of a call or conversion or similar
communications received by it as Custodian of the Property.
17. Cooperation with Accountants. Provident shall cooperate
with the Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required from time to time by the
Fund.
18. Confidentiality. Provident agrees on behalf of itself and
its employees to treat confidentially all records and other information relative
to the Fund and its prior, present, or potential Shareholders, except, after
prior notification to and approval in writing by the Fund, which approval shall
not be unreasonably withheld and may not be withheld where Provident may be
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<PAGE>
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 Fund.
19. Right to Receive Advice.
(a) Advice of Fund. If Provident shall be in doubt as
to any action to be taken or omitted by it, it may request, and shall receive,
from the Fund directions or advice, including Oral or Written Instructions where
appropriate.
(b) Advice of Counsel. If Provident shall be in doubt
as to any question of law involved in any action to be taken or omitted by
Provident, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Advisor, the Fund or Provident, at the
option of Provident).
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Provident
pursuant to subparagraph (a) of this paragraph and advice received by Provident
pursuant to subparagraph (b) of this paragraph, Provident shall be entitled to
rely on and follow the advice received pursuant to the latter provision alone.
(d) Protection of Provident. Provident shall be
protected in any action or inaction which it takes in reliance on any
directions, advice or Oral or Written Instructions received pursuant to
subparagraphs (a) or (b) of this paragraph which Provident, after receipt of any
such directions, advice or Oral or Written Instructions, in good faith believes
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<PAGE>
to be consistent with such directions, advice or Oral or Written Instructions,
as the case may be. However, nothing in this paragraph shall be construed as
imposing upon Provident any obligation (i) to seek such directions, advice or
Oral or Written Instructions, or (ii) to act in accordance with such directions,
advice or Oral or Written Instructions when received, unless, under the terms of
another provision of this Agreement, the same is a condition to Provident's
properly taking or omitting to take such action. Nothing in this subsection
shall excuse Provident when an action or omission on the part of Provident
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by Provident of any duties or obligations under this Agreement.
20. Compliance with Governmental Rules and Regulations.
Provident undertakes to comply with all applicable requirements of the 1933 Act,
the 1934 Act, the 1940 Act, the CEA, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by Provident hereunder.
21. Compensation. As compensation for the services rendered by
Provident during the term of this Agreement, the Fund will pay to Provident
monthly fees that shall be agreed upon from time to time in writing by Provident
and the Fund.
22. Indemnification. The Fund, as sole owner of the Property,
agrees to indemnify and hold harmless Provident and its nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including without
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limitation, liabilities arising under the 1933 Act, the 1934 Act, the 1940 Act,
the CEA, and any state and foreign securities and blue sky laws, all as or to be
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly (a) from the
fact that securities included in the Property are registered in the name of any
such nominee or (b) without limiting the generality of the foregoing clause (a)
from any action or thing which Provident takes or does or omits to take or do
(i) at the request or on the direction of or in reliance on the advice of the
Fund or (ii) upon Oral or Written Instructions, provided, that neither Provident
nor any of its nominees shall be indemnified against any liability to the Fund
or to its Shareholders (or any expenses incident to such liability) arising out
of Provident's or such nominee's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties or responsibilities specifically described
in this Agreement. In the event of any advance of cash for any purpose made by
Provident resulting from Oral or Written Instructions of the Fund, or in the
event that Provident or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the account of the Fund shall be security
therefor.
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<PAGE>
23. Responsibility of Provident. Provident shall be under no
duty to take any action on behalf of the Fund except as specifically set forth
herein or as may be specifically agreed to by Provident in writing. In the
performance of its duties hereunder, Provident shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy and completeness of all services
performed under this Agreement. Provident shall be responsible for its own
negligent failure to perform its duties under this Agreement, but to the extent
that duties, obligations and responsibilities are not expressly set forth in
this Agreement, Provident shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith or gross negligence on the part of
Provident or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, Provident in connection with its duties under
this Agreement shall not be under any duty or obligation to inquire into and
shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, if
any, and which Provident reasonably believes to be genuine; (b) the validity or
invalidity of the issuance of any securities included or to be included in the
Property, the legality or illegality of the purchase of such securities, or the
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<PAGE>
propriety or impropriety of the amount paid therefor; (c) the legality or
illegality of the sale (or exchange) of any Property or the propriety or
impropriety of the amount for which such Property is sold (or exchanged); or (d)
delays or errors or loss of data occurring by reason of circumstances beyond
Provident's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply, nor shall Provident be under any
duty or obligation to ascertain whether any Property at any time delivered to or
held by Provident may properly be held by or for the Fund. Provident expressly
disclaims all responsibility for consequential damages, including but not
limited to any that may result from performance or non-performance of any duty
or obligation whether express or implied in this Agreement, and also expressly
disclaims any express or implied warranty of products or services provided in
connection with this Agreement.
24. Collections. All collections of monies or other property
in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by Provident) shall be at the sole risk of the
Fund. In any case in which Provident does not receive any payment due the Fund
within a reasonable time after Provident has made proper demands for the same,
it shall so notify the Fund in writing, including copies of all demand letters,
any written responses thereto, and memoranda of all oral responses thereto and
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<PAGE>
to telephonic demands, and await instructions from the Fund. Provident shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. Provident shall also notify the Fund as soon as
reasonably practicable whenever income due on securities is not collected in due
course.
25. Duration and Termination. This Agreement shall continue
until termination by the Fund or by Provident in either case on sixty (60) days
written notice. Upon any termination of this Agreement, pending appointment of a
successor to Provident or vote of the Shareholders of the Fund to dissolve or to
function without a custodian of its cash, securities or other property,
Provident shall not deliver cash, securities or other property of the Fund to
the Fund, but may deliver them to a bank or trust company of its own selection,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000) as a
custodian for the Fund to be held under terms similar to those of this
Agreement, provided, however, that Provident shall not be required to make any
such delivery or payment until full payment shall have been made by the Fund of
all liabilities constituting a charge on or against the properties of the Fund
then held by Provident or on or against Provident and until full payment shall
have been made to Provident of all of its fees, compensation, costs and
expenses.
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<PAGE>
26. Notices. All notices and other communications, including
Written Instructions (collectively referred to as "Notice" or "Notices" in this
paragraph), hereunder shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices shall be addressed (a) if to
Provident at Provident's address, Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for the attention of
the Custodian Services Department (or its successor); (b) if to the Fund, at the
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. If the location of the sender of a Notice and the address of the
addressee thereof are, at the time of sending, more than 100 miles apart, the
Notice may be sent by first-class mail, in which case it shall be deemed to have
been given five days after it is sent, or if sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been given
immediately, and, if the location of the sender of a Notice and the address of
the addressee thereof are, at the time of sending, not more than 100 miles
apart, the Notice may be sent by first-class mail, in which case it shall be
deemed to have been given three days after it is sent, or if sent by messenger,
it shall be deemed to have been given on the day it is delivered, or if sent by
confirming telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately. All postage, cable, telegram, telex and
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<PAGE>
facsimile sending device charges arising from the sending of a Notice hereunder
shall be paid by the sender.
27. Further Actions. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
28. Amendments. This Agreement or any part hereof may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
29. Delegation. On thirty (30) days prior written notice to
the Fund, Provident may assign its rights and delegate its duties hereunder to
any wholly-owned direct or indirect subsidiary of Provident National Bank or PNC
Financial Corp, provided that (i) the delegate agrees with Provident to comply
with all relevant provisions of the 1940 Act; and (ii) Provident and such
delegate shall promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation,
including (without limitation) the capabilities of the delegate.
30. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
31. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
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<PAGE>
that the parties hereto may embody in one or more separate documents their
agreement, if any, with respect to delegated and/or Oral Instructions. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law. 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 and shall inure to the benefit of the parties hereto
and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
[SEAL] FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
Attest: /s/ Brian C. Nelson By /s/ Edward J. Veilleux
----------------------- ----------------------------
[SEAL] PROVIDENT NATIONAL BANK
Attest: /s/ Seener Alridge By /s/ A. Plambeck
----------------------- ----------------------------
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<PAGE>
INDEX
Paragraph Page
--------- ----
1. Appointment............................................................ 1
2. Delivery of Documents.................................................. 2
3. Definitions............................................................ 4
4. Delivery and Registration of the Property.............................. 6
5. Receipt and Disbursement of Money...................................... 7
6. Receipt of Securities.................................................. 8
7. Use of Book-Entry System............................................... 9
8. Instructions Consistent with Charter, etc.............................. 11
9. Transactions Not Requiring Instructions................................ 12
10. Transactions Requiring Instructions.................................... 14
11. Segregated Accounts.................................................... 15
12. Dividends and Distributions............................................ 17
13. Purchases of Securities................................................ 18
14. Sales of Securities.................................................... 18
15. Records................................................................ 19
16. Reports................................................................ 19
17. Cooperation with Accountants........................................... 20
18. Confidentiality........................................................ 20
19. Right to Receive Advice................................................ 21
20. Compliance with Governmental Rules and Regulations..................... 22
21. Compensation........................................................... 22
22. Indemnification........................................................ 22
23. Responsibility of Provident............................................ 24
24. Collections............................................................ 25
25. Duration and Termination............................................... 26
26. Notices................................................................ 27
27. Further Actions........................................................ 28
28. Amendments............................................................. 28
29. Delegation............................................................. 28
30. Counterparts........................................................... 28
31. Miscellaneous.......................................................... 28
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<PAGE>
EX-99.B(8)(b)
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the first day of January, 1994
by and between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland
corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation ("ICC").
W I T N E S S E T H:
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 Fund desires to retain ICC to provide certain
services on behalf of the Fund, as set forth in the Appendices to this
Agreement, and ICC is willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints ICC to perform such
services and to serve such functions on behalf of the Fund as set forth in the
Appendices to this Agreement, on the terms set forth in this Agreement and the
Appendices hereto. ICC accepts such appointment and agrees to furnish such
services and serve such functions. The Fund may have currently outstanding one
or more series or classes of its shares of common stock, par value $.001 per
share ("Shares") and may from time to time hereafter issue separate series or
classes of its Shares or classify and reclassify Shares of any series or class,
and the appointment effected hereby shall constitute appointment for the
provision of services with respect to all existing series and classes and any
additional series and classes unless the parties shall otherwise agree in
writing.
2. Delivery of Documents. The Fund has furnished ICC with
copies properly certified or authenticated of the following documents and will
furnish ICC from time to time with copies, properly certified or authenticated,
of all amendments of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of ICC to act in such capacities on behalf of the
Fund as set forth in the Appendices to this Agreement, and the entering into of
this Agreement by the Fund;
(b) The Fund's Articles of Incorporation and all
amendments thereto (the "Charter") and the Fund's By-Laws and all amendments
thereto (the "By-Laws");
(c) The Fund's most recent Registration Statement on
Form N-1A under the Securities Act of 1933, as amended (the "1933 Act") and
under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") relating to the Shares; and
(d) Copies of the Fund's most recent prospectus or
prospectuses, including amendments and supplements thereto (collectively, the
"Prospectus").
3. Services to be Provided; Fees. During the term of this
Agreement, ICC shall perform the services and act in such capacities on behalf
of the Fund as set forth herein and in the Appendices to this Agreement. For the
services performed by ICC for the Fund, the Fund will compensate ICC in such
amounts as may be agreed to from time to time by the parties in writing.
<PAGE>
4. Records. The books and records pertaining to the Fund which
are in the possession of ICC shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by ICC to the Fund
or the Fund's authorized representative at the Fund's expense.
5. Cooperation With Accountants. In addition to any
obligations set forth in an Appendix hereto, ICC shall cooperate with the Fund's
independent accountants and shall take all reasonable actions in the performance
of its obligations under this Agreement to ensure that the necessary information
is made available to such accountants for the expression of such accountants'
opinion of the Fund's financial statements or otherwise, as such may be required
by the Fund from time to time.
6. Compliance with Governmental Rules and Regulations. The
Fund assumes full responsibility for insuring that the Fund complies with all
applicable requirements of the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction. ICC undertakes to comply with all
applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act, the
Commodities Exchange Act (if applicable), and all laws, rules and regulations of
governmental authorities having jurisdiction with respect to the performance by
ICC of its duties under this Agreement, including the Appendices hereto.
7. Expenses.
(a) ICC shall bear all expenses of its employees and
overhead incurred in connection with its duties under this Agreement and shall
pay all salaries and fees of the Fund's directors and officers who are employees
of ICC.
(b) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor, administrator and distributor; the charges and
expenses of any registrar, any custodian or depositary appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
stock transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and corporate fees payable by the Fund
to federal, state or other governmental agencies; the cost and expense of
engraving or printing of stock certificates representing Shares; all costs and
expenses in connection with maintenance of registration of the Fund and its
Shares with the SEC and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of directors or members of any
advisory board or committee other than such directors or members who are
"interested persons" of the Fund (as defined in the 1940 Act); all expenses
incident to the payment of any dividend, distribution, withdrawal or redemption,
whether in Shares or in cash; charges and expenses of any outside service used
for pricing of the Shares; charges and expenses of legal counsel, including
counsel to the directors of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in connection
with any matter relating to the Fund; a portion of 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.
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<PAGE>
8. Liability; Indemnification. Neither ICC nor any of its
officers, directors or employees shall be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement, including the Appendices hereto, relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its or their part in
the performance of, or from reckless disregard by it or them of, its or their
obligations and duties under this Agreement. The Fund agrees to indemnify and
hold harmless ICC and its nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the 1933 Act, the 1934 Act, the 1940 Act, and any state and
foreign securities and blue sky laws, all as currently in existence or as
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which ICC takes or does or omits to take or do at the request or
on the direction of or in reliance on the advice of the Fund; provided, that
neither ICC nor any of its nominees shall be indemnified against any liability
to the Fund or to its shareholders (or any expenses incident to such liability)
arising out of ICC's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement.
Notwithstanding anything else in this Agreement or any Appendix hereto to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer as a
consequence of ICC's performance of the services provided in this Agreement or
any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by ICC in writing. In the performance of its
duties hereunder, ICC shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement, but ICC shall not be
liable for any act or omission which does not constitute willful misfeasance,
bad faith or gross negligence on the part of ICC or reckless disregard by ICC of
its duties under this Agreement. Notwithstanding anything in this Agreement to
the contrary, ICC shall have no liability to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not
to be deemed exclusive and ICC shall be free to render accounting or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that directors, officers or employees of
ICC may serve as directors or officers of the Fund, and that directors or
officers of the Fund may serve as directors, officers and employees of ICC to
the extent permitted by law; and that directors, officers and employees of I CC
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
11. Notice. Any notice or other communication required to be
given pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, to the Fund at 135 E. Baltimore
Street, Baltimore, Maryland 21202, Attention: Brian C. Nelson, or to ICC at
135 E. Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Edward J.
Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the
date first above written and shall remain in force until terminated. This
Agreement, or any Appendix hereto, may be terminated at any time without the
payment of any penalty, by either party hereto on sixty (60) days' written
notice to the other party.
(b) This Agreement shall be construed in accordance
with the laws of the State of Maryland.
-3-
<PAGE>
(c) If any provisions of this Agreement shall be held
or made invalid in whole or in part, the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in accordance with the intent
and purpose of this Agreement, be replaced by mutual consent of the parties with
such valid provisions which in their economic effect come as close as legally
possible to such invalid provisions.
(d) Except as otherwise specified in the Appendices
hereto, ICC shall be entitled to rely on any notice or communication believed by
it to be genuine and correct and to have been sent to it by or on behalf of the
Fund.
(e) ICC agrees on behalf of itself and its employees
to treat confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where ICC 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 Fund.
(f) Any part of this Agreement or any Appendix
attached hereto may be changed or waived only by an instrument in writing signed
by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Brian C. Nelson
---------------------------------------------
Title: Vice President & Secretary
INVESTMENT COMPANY CAPITAL CORP.
By: /s/ Edward J. Veilleux
---------------------------------------------
Title: President
-4-
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
Flag Investors Telephone Income Fund, Inc. and
Investment Company Capital Corp.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of February 28, 1994 (the "Master Services
Agreement") between Flag Investors Telephone Income Fund, Inc. and Investment
Company Capital Corp. Defined terms not otherwise defined herein shall have the
meaning set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall mean any
officer of the Fund and any other person, who is fully authorized by the Fund's
Board of Directors, to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall mean
oral instructions received by ICC from an Authorized Person or from a person
reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions" shall
mean written instructions signed by two Authorized Persons and received by ICC.
The instructions may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person (or from
a person reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions confirming
Oral Instructions so that ICC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by ICC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. The Fund further agrees that ICC shall incur no liability
to the Fund in acting upon Oral or Written Instructions provided such
instructions reasonably appear to have been received from an Authorized Person.
If ICC is in doubt as to any action it should or should not take,
ICC may request directions or advice, including Oral or Written Instructions,
from the Fund. ICC shall be protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written Instructions it receives
from the Fund or from counsel and which ICC believes, in good faith, to be
consistent with those directions, advice or Oral of Written Instructions.
Notwithstanding the foregoing, ICC shall have no obligation (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral or Written Instructions unless, under the
terms of other provisions of this Appendix, the same is a condition of ICC's
properly taking or not taking such action.
-5-
<PAGE>
3. Description of Services.
(a) General Services to be Provided. ICC shall provide to the Fund
the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to complete or correct
information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction
with proxy solicitations; solicit and tabulate proxies;
receive and tabulate proxy cards for meetings of the
Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry
response;
(ix) Mail duplicate confirmation to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with ICC;
(x) Provide periodic shareholder lists and statistics to
the Fund;
(xi) Provide detail for underwriter/broker confirmations;
(xii) Mail periodic year-end tax and statement information;
(xiii) Provide timely notification to investment advisor,
accounting agent, and custodian of Fund activity; and
(xiv) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) Purchase of Shares. ICC shall issue and credit an account
of an investor, in the manner described in the Prospectus, once it receives: (i)
a purchase order; (ii) proper information to establish a shareholder account;
and (iii) confirmation of receipt by, or crediting of funds for such order to,
the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares
only in accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the shareholder
tenders his or her shares and directs the method of redemption in accordance
with the terms set forth in the Prospectus. If securities are received in proper
form, Shares shall be redeemed before the funds are provided to ICC. When the
Fund provides ICC with funds, redemption proceeds will be wired (if requested)
or a redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed by the
recordholder and delivered to ICC.
-6-
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the declaration and
payment of dividends and distributions, ICC shall issue the dividends and
distributions in shares, or, upon shareholder election, pay such dividends and
distributions in cash. Such issuance or payment shall be made after deduction
and payment of the required amount of funds to be withheld in accordance with
any applicable tax laws or other laws, rules or regulations. The Fund's
shareholders shall receive tax forms and other information, or permissible
substitute notice, relating to dividends and distributions, paid by the Fund as
are required to be filed and mailed by applicable law, rule or regulation. ICC
shall maintain and file with the IRS and other appropriate taxing authorities
reports relating to all dividends and distributions paid by the Fund to its
shareholders as required by tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the
Prospectus, ICC shall arrange for the following services, in accordance with the
applicable terms set forth in the Prospectus: (i) the issuance of Shares
obtained through any pre-authorized check plan and direct purchases through
broker wire orders, checks and applications; (ii) exchanges of shares of any
fund for Shares of the Fund with which the Fund has exchange privileges; (iii)
automatic redemption from an account where that shareholder participates in an
automatic redemption plan; and (iv) redemption of Shares from an account with a
check writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its shareholders,
including, reports to shareholders, confirmations of purchases and sales of
Shares, monthly or quarterly statements, dividend and distribution notices, and
proxy material.
(g) Records. ICC shall maintain records of the accounts for
each shareholder showing the following information: (i) name, address and U.S.
Tax Identification or Social Security number; (ii) number and class of Shares
held and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations; (iii) historical
information regarding the account of each shareholder, including dividends and
distributions paid and the date and price for all transactions on a
shareholder's account; (iv) any stop or restraining order placed against a
shareholder's account; (v) any correspondence relating to the current
maintenance of a shareholder's account; (vi) information with respect to
withholdings; and (vii) any information required in order for ICC to perform any
calculations contemplated or required by this Appendix or the Master Services
Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued upon: (i) the
shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by ICC; and (ii) completion
of a release and indemnification agreement signed by the shareholder to protect
ICC.
(i) Shareholder Inspection of Stock Records. Upon requests
from Fund shareholders to inspect stock records, ICC will notify the Fund and
the Fund shall deliver Oral or Written Instructions granting or denying each
such request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, ICC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of
the Prospectus, ICC shall act upon shareholder requests made by telephone for
redemption or exchange of ISI shares; provided that (i) the shareholder has
authorized telephone transactions on the Fund's Account Application or otherwise
in writing, (ii) if the request is a redemption, the amount to be redeemed does
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<PAGE>
not exceed $10,000 and (iii) ICC has complied with the identification and other
security procedures required by the Fund in connection with telephone
transactions.
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third
party all or any part of its obligations under this Appendix; provided that any
such subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
-8-
<PAGE>
Appendix II
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
FLAG INVESTORS TELEPHONE INCOME FUND, INC. and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of
the Master Services Agreement dated as of January 1, 1994 (the "Master
Services Agreement") between FLAG INVESTORS TELEPHONE INCOME FUND, INC. and
INVESTMENT COMPANY CAPITAL CORP. Defined terms not otherwise defined herein
shall have the meaning set forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following accounting
functions if required:
(a) Journalize investment, capital share and income and
expense;
(b) Verify investment buy/sell trade tickets when received
from the Fund's investment advisor and transmit trades to the Fund's custodian
for proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian,
and provide the Fund's investment advisor with the beginning cash balance
available for investment purposes;
(f) Update the cash availability throughout the day as
required by the Fund's investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and
Liabilities and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and
custody fees);
(i) Monitor the expense accruals and notify Fund management of
any proposed adjustments;
(j) Control all disbursements from the Fund and authorize such
disbursements upon written instructions from the President or any other officer
of the Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing
services approved by the investment advisor, or if such quotes are unavailable,
then obtain such prices from the investment advisor, and in either case
calculate the market value of portfolio investments;
(n) Transmit or mail a copy of the daily portfolio valuation
to the Fund's investment advisor;
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<PAGE>
(o) Compute the Fund's net asset value;
(p) As appropriate, compute the yields, total return, expense
ratios, portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include
the following items:
* Schedule of Investments;
* Statement of Net Assets and Liabilities;
* Statement of Operations;
* Statement of Changes in Net Assets;
* Cash Statement;
* Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
* Federal and State Tax Returns;
* Excise Tax Returns;
* Annual, Semi-Annual and Quarterly Shareholder
Reports;
* Rules 24 (e)-2 and 24 (f)-2 Notices;
* Annual and Semi-Annual Reports on Form N-SAR;
* Monthly and Quarterly Statistical Data Information
Reports Sent to Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and
compliance process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of the
Internal Revenue Code.
2. Records. ICC shall keep the following records: (a) all books and records with
respect to the Fund's books of account; and (b) records of the Fund's securities
transactions.
3. Liaison With Accountants. In addition to ICC's obligations relating to the
Fund's independent accountants set forth in the Master Services Agreement, ICC
shall act as liaison with the Fund's independent accountants and shall provide
account analyses, fiscal year summaries, and other audit related schedules.
4. Compensation. For services performed by ICC pursuant to this Appendix, the
Fund will pay to ICC compensation for such services as the parties may agree to
from time to time in writing.
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<PAGE>
EX-99.B(9)
Group Purchase Plan A Application
The purpose of this application is to determine whether the group that
is applying for a reduced sales charge may enter the Flag Investors Funds Group
Purchase Plan. Characteristics of a group are that it has been in existence for
at least six months, it has at least 25 members, and it has some purpose other
than purchasing investment company shares. In addition it must, through its
authorized representative or representatives, provide the Flag Investors funds,
their Distributors and/or its investment representatives with an opportunity to
communicate with each member of the group.
Date:
Name of Group:
Address:
Names of the Group's officers or representatives:
Form of organization:
Number of Members:
Date of Organization:
Purpose or business of the Group:
Approved __ Disapproved__
By:______________________
<PAGE>
EX-99.B(10)
[ LETTERHEAD OF BALLARD, SPAHR, ANDREWS & INGERSOLL ]
November 17, 1988
Flag Investors Telephone Income Fund, Inc.
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
We have acted as counsel for Flag Investors Telephone Income
Fund, Inc. (the "Fund") in connection with the organization of the Fund. We have
examined and participated in the preparation of the Fund's Articles of
Incorporation, its By-Laws, its minutes of meetings and forms of unanimous
consent of its Board of Directors and Shareholders, and Post-Effective Amendment
No. 9 under the Securities Act of 1933 and Amendment No. 11 under the Investment
Company Act of 1940 to the Registration Statement on Form N-1A (No. 2-87336)
(the "Registration Statement") filed with the Securities and Exchange Commission
on November 18, 1988 pursuant to which the Fund expressly adopted the
registration statement of Flag Investors Telephone Income Trust as its own.
Based upon the foregoing and our consideration of such other
matters as we have deemed necessary, we are of the opinion that, assuming that
the Registration Statement is declared effective on January 19, 1989, upon such
effectiveness, the shares of common stock of the Fund (the "Shares"), when
issued and paid for pursuant to the terms of the offering as described in the
Fund's Prospectus filed as part of such Registration Statement, will be legally
issued, fully paid and non-assessable.
We hereby consent to the inclusion of this opinion as Exhibit
10 to the Registration Statement.
Very truly yours,
/s/ Ballard, Spahr, Andrews & Ingersoll
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated January 26, 1996 on our
audit of the financial statements and financial highlights of Flag Investors
Telephone Income Fund, Inc. in the Statement of Additional Information with
respect to Post-Effective Amendment No. 19 to the Registration Statement (No.
2-87336) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, respectively, of Flag Investors Telephone Income Fund, Inc.
We also consent to the reference to our Firm under the headings "General
Information" and "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1996
<PAGE>
CONSENT
I hereby consent to being named as a Director of Flag Investors Telephone
Income Fund, Inc. (the"Fund"), in Post-Effective Amendment No. 19 to the Fund's
Registration Statement on Form N-1A, and in such other documents filed in
connection with the registration of the Fund's shares under the Securities Act
of 1933 and the Investment Company Act of 1940, as the persons filing such
documents may deem necessary or proper.
Date: February 7, 1996 By: /s/ Richard T. Hale
-------------------------------- --------------------------------
Richard T. Hale
<PAGE>
CONSENT
I hereby consent to being named as a Director of Flag Investors Telephone
Income Fund, Inc. (the"Fund"), in Post-Effective Amendment No. 19 to the Fund's
Registration Statement on Form N-1A, and in such other documents filed in
connection with the registration of the Fund's shares under the Securities Act
of 1933 and the Investment Company Act of 1940, as the persons filing such
documents may deem necessary or proper.
Date: February 7, 1996 By: /s/ Charles W. Cole, Jr.
-------------------------------- --------------------------------
Charles W. Cole, Jr.
<PAGE>
CONSENT
I hereby consent to being named as a Director of Flag Investors Telephone
Income Fund, Inc. (the"Fund"), in Post-Effective Amendment No. 19 to the Fund's
Registration Statement on Form N-1A, and in such other documents filed in
connection with the registration of the Fund's shares under the Securities Act
of 1933 and the Investment Company Act of 1940, as the persons filing such
documents may deem necessary or proper.
Date: February 7, 1996 By: /s/ Rebecca W. Rimel
-------------------------------- --------------------------------
Rebecca W. Rimel
<PAGE>
CONSENT
I hereby consent to being named as a Director of Flag Investors Telephone
Income Fund, Inc. (the"Fund"), in Post-Effective Amendment No. 19 to the Fund's
Registration Statement on Form N-1A, and in such other documents filed in
connection with the registration of the Fund's shares under the Securities Act
of 1933 and the Investment Company Act of 1940, as the persons filing such
documents may deem necessary or proper.
Date: February 7, 1996 By: /s/ Carl W. Vogt
-------------------------------- --------------------------------
Carl W. Vogt
<PAGE>
EX-99.B(13)
FLAG INVESTORS FUND, INC.
SUBSCRIPTION AGREEMENT
----------------------
For and in consideration of the mutual agreements herein contained,
Alex. Brown & Sons ("Alex. Brown") hereby agrees to purchase from Flag Investors
Fund, Inc., a Maryland corporation, (the "Corporation") and the Corporation
agrees to issue 9,000 shares of the Corporation's common shares, par value
$0.001 per share, Telephone Income Shares Series, (the "Shares") in exchange for
1,800 shares of common stock of American Telephone & Telegraph Company with a
value of $109,800, upon the terms and conditions set forth herein.
Alex. Brown agrees to purchase such shares and to pay the full
consideration therefor in common stock of American Telephone & Telegraph Company
to the Corporation upon demand.
Alex. Brown hereby confirms to the Corporation its representations that
it is purchasing such Shares for investment purposes, with no present intention
of redeeming or reselling any portion thereof, and its agreement that in the
event it should dispose of any of such Shares, such transaction will be effected
by redeeming such Shares through the Corporation.
ALEX. BROWN & SONS
/s/ Joseph R. Hardiman
-----------------------
Dated: As of November 4, 1983
Subscription Accepted:
FLAG INVESTORS FUND, INC.
By /s/ W. James Price
---------------------------
Chairman
<PAGE>
EX-99.B(15)(a)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors Telephone Income Fund, Inc. (the "Fund").
Other capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) Alex. Brown is authorized, pursuant to the
Plan, to make payments to any Participating Dealer under a Sub-Distribution
Agreement, to accept payments made to it under the Distribution Agreement and to
make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average daily
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown and the Fund's
Advisor are authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's Advisor and Alex. Brown; 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
<PAGE>
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 maintenance of registration of the Fund and its shares with
the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and 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
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
2
<PAGE>
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
3
<PAGE>
EX-99.B(15)(b)
(Class D Shares)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Telephone Income Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated
("Alex. Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to Alex.
Brown under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .60% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to
the Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown as
administrator and distributor is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor and
distributor of the class of the Fund's shares; the fees of Alex Brown as
administrator for the fund; 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; all costs and expenses in connection with maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees and
legal fees and disbursements of counsel); the costs and expenses of printing,
<PAGE>
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent certified public accountants, in connection with any matter
relating to the Fund; a portion of 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 therein.
5. Other Distribution Resources. Alex. Brown and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. Alex.
Brown will report to the Board of Directors on any such expenditures as part of
its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
<PAGE>
EX-99.B(15)(c)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Telephone Income Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated
("Alex. Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to Alex.
Brown under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to
the Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown as
distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor and
Alex. Brown; 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 maintenance of registration of
the Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions (including filing fees and 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 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
<PAGE>
expenses of Directors or Director members of any advisory board or committee;
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
<PAGE>
EX-99.B(16)
Schedule of Computation of Performance Quotations
(a) Average Annual Total Return Pursuant to SEC Rules
(i) One Year ERV
n
Using the formula: P (1 + T) = One Year ERV
Where: P = $1,000 = initial payment
T = average annual total return
n = 1 = number of years
One Year ERV = $984.74 = ending redeemable value at
the end of the one year period of a hypothetical
$1,000 payment made at the beginning of the one year
period
Solve for: T
1
1,000 (1 + T) = 984.74
1
(1 + T) = 984.74 = .98474
------
1,000
1 + T = .98474
T = .98474 - 1 = .01526
T = -1.53% = average annual total return
(ii) Four Year ERV
n
Using the formula: P(1 + T) = Four Year ERV
Where: P = $1,000 = initial payment
T = average annual total return
n = 4 = number of years
Four Year ERV = $1,823.89 = ending redeemable value
at the end of the four year period of a hypothetical
$1,000 payment made at the beginning of the four year period
<PAGE>
Solve for: T
4
1,000 (1 + T) = 1,823.89
4
(1 + T) = 1,823.89 = 1.82389
--------
1,000
4
1 + T = 1.82389 = 1.1621
T = 1.1621 - 1 = .1621
T = 16.21% = average annual total return
(b) Total Return Pursuant to First Non-Standardized Computation
(i) One Year ERV
n
Using the formula: P (1 + T ) = One Year ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 1 = number of years
One Year ERV = $10,152 = ending redeemable value at
the end of the one year period of a hypothetical
$10,000 investment made at the beginning of the one
year period
Solve for: T
1
10,000 (1 + T) = 10,152
1
(1 + T) = 10,152 = 1.0152
------
10,000
1 + T = 1.0152
T = 1.0152 - 1 = .0152
T = 1.52% = average annual total return
2
<PAGE>
(ii) Four Year ERV
Using the formula: P (1 + T) = Four Year ERV
Where: P = $10,000 = initial investment
T = aggregate total return
Four Year ERV = $18,802 = ending redeemable value at
the end of the four year period of a hypothetical
$10,000 investment made at the beginning of the four
year period
Solve for: T
10,000 (1 + T) = 18,802
1 + T = 18,802 = 1.8802
------
10,000
T = 1.8802 - 1 = .8802
T = 88.02% = aggregate total return
n
Using the formula: P (1 + T) = Four Year ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 4 = number of years
Four Year ERV = $18,802 = ending redeemable value
Solve for: T
4
10,000 (1 + T) = 18,802
4
(1 + T) = 18,802 - 1.8802
------
10,000
4
1 + T = 1.8802 = 1.1710
T = 1.1710 - 1 = .1710
T = 17.10% = average annual total return
3
<PAGE>
(c) Total Return Pursuant to Second Non-Standardized
Computation:
(i) One Year ERV
Using the formula:
One Year ERV = Ending NAV + Dividends + Capital Gains
Where: One Year ERV = ending redeemable value at the end
of the one year period of a hypothetical $10,000
investment made at the beginning of the one year
period
Ending NAV = $9,572 = net asset value at the end
of the one year period
Dividends = $536 = dividends distributed during
the one year period
Capital Gains = $64 = capital gains distributed
during the one year period
Solve for: One Year ERV
One Year ERV = 9,572 + 536 + 64 = 10,172
One Year ERV = $10,172 = ending redeemable value
n
Using the formula: P (1 + T) = One Year ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 1 = number of years
One Year ERV = $10,172 = ending redeemable value
4
<PAGE>
Solve for: T
1
10,000 (1 + T) = 10,172
1
(1 + T) = 10,172 = 1.0172
------
10,000
1 + T = 1.0172
T = 1.0172 - 1 = .0172
T = 1.72% = average annual total return
(ii) Four Year ERV
Using the formula:
Four Year ERV = Ending NAV + Dividends + Capital Gains
Where: Four Year ERV = ending redeemable value at the end
of the four year period of a hypothetical $10,000
investment made at the beginning of the four year
period
Ending NAV = $11,601 = net asset value at the end
of the four year period
Dividends = $2,954 = dividends distributed during
the four year period
Capital Gains = $2,947 = capital gains distributed
during the four year period
Solve for: Four Year ERV
Four Year ERV = 11,601 + 2,954 + 2,947 = 17,502
Four Year ERV = $17,502 = ending redeemable value
Using the formula: P (1 + T) = Four Year ERV
Where: P = $10,000 = initial investment
T = aggregate total return
Four Year ERV = $17,502 = ending redeemable value at
the end of the four year period of a hypothetical
5
<PAGE>
$10,000 investment made at the beginning of the four year
period
Solve for: T
10,000 (1 + T) = 17,502
1 + T = 17,502 = 1.7502
------
10,000
T = 1.7502 - 1 = .7502
T = 75.02% = aggregate total return
n
Using the formula: P (1 + T ) = Four Year ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 4 = number of years
Four Year ERV = $17,502 = ending redeemable value
Solve for: T
4
10,000 (1 + T) = 17,502
4
(1 + T) = 17,502 = 1.7502
------
10,000
4
1 + T = 17,502 = 1.1502
T = 1.1502 - 1 = .1502
T = 15.02% = average annual total return
6
Flag Investors Telephone Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B
and Flag Investors Class D
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Telephone
Income Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC- 20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and Flag
Investors Class D) and future classes of Fund shares. The Flag Investors Class A
Shares have been offered since the Fund's inception on January 18, 1984, the
Flag Investors Class B Shares have been offered since January 3, 1995 and the
Flag Investors Class D Shares are no longer being offered, though shares remain
outstanding.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
<PAGE>
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and By-Laws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
--------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
2
<PAGE>
III. Expense Allocations
Expenses of each class created after the date hereof must be allocated
as follows: (i) distribution and shareholder servicing payments associated with
any Rule 12b-1 Plan or servicing agreement, if any, relating to each respective
class of shares (including any costs relating to implementing such plans or any
amendment thereto) will be borne exclusively by that class; (ii) any incremental
transfer agency fees relating to a particular class will be borne exclusively by
that class; and (iii) Class Expenses relating to a particular class will be
borne exclusively by that class.
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares of the Fund and the
proper allocation of income and expenses among the various classes of shares of
the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
3
<PAGE>
EXHIBIT A
----------
Approved: March 23, 1993
Resolutions of Board Designating Flag Investors Class A Shares
and Creating Flag Investors Class B Shares (now known as Class D Shares)
WHEREAS, the Board of Directors of Flag Investors Telephone Income
Fund, Inc. has previously designated one class of the Fund's shares: "Flag
Investors Telephone Income Fund Shares";
NOW THEREFORE BE IT RESOLVED, that such Shares be, and they hereby are,
further designated and classified as the Fund's Class A Shares;
FURTHER RESOLVED, that in accordance with the authority granted to the
Board of Directors of the Fund pursuant to Article VI, Section 4 of the Fund's
Articles of Incorporation, a second class of the Fund's 40 million authorized
shares of common stock, par value $.001, be and hereby is, classified and
designated as the Fund's "Flag Investors Class B Shares" (the "Class B Shares");
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund to
make all appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new class of shares, the
related Distribution Agreement and Plan of Distribution under Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act") approved at this
meeting by this Board of Directors, including, if they deem it necessary or
appropriate, supplements and post-effective amendments under the Securities Act
of 1933 (the "1933 Act") and under the 1940 Act to the Fund's Registration
Statement on Form N-1A (Registration No. 2-87336), and all necessary exhibits
and other instruments relating thereto (collectively, the "Registration
Statement"), procuring all other necessary signatures thereon, and filing the
appropriate exhibits thereto with the Commission under the 1933 Act and the 1940
Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to appear, together with legal counsel, on
behalf of the Fund before the Commission in connection with any matter relating
to the Registration Statement and to take such other actions, including Blue Sky
filings, as may be required in connection with the establishment of such Class;
and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund, to
take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the Class B
Shares of the Fund, the taking of any such action to establish conclusively such
officer's authority therefore and the approval and ratification thereof by the
Fund.
Approval of Distribution Agreement,
Plan of Distribution and Form of Sub-Distribution Agreement
for Flag Investors Class B Shares (now known as Class D Shares)
RESOLVED, that the proposed Distribution Agreement (including the form
of Sub-Distribution Agreement annexed as Exhibit A thereto previously adopted
for the Flag Investors family of funds), between Flag Investors Telephone Income
Fund, Inc. and Alex. Brown & Sons Incorporated with respect to the distribution
of the Flag Investors Class B Shares of the Fund (the "Class B Shares") be, and
4
<PAGE>
the same hereby is, approved, in substantially the form presented to this
meeting, and that the appropriate officers of such fund be, and the same hereby
are, authorized and directed to enter into and execute such Distribution
Agreement with such modifications as said officers shall deem necessary or
appropriate or as may be required to conform with the requirements of any
applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
for the Class B Shares is determined to be reasonably likely to benefit the Fund
and its shareholders and that, based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for other similar plans;
FURTHER RESOLVED, that the Plan be, and hereby is, approved.
Approved: September 22, 1994
Resolutions of Board Reclassifying Old Flag Investors
Class B Shares and Creating New Flag Investors Class B Shares
RESOLVED, that all issued and outstanding Class B Shares of Flag
Investors Telephone Income Fund, Inc. (the "Fund") be, and they hereby are,
reclassified as Flag Investors Class D Shares (the "Class D Shares");
FURTHER RESOLVED, that the Board of Directors of the Fund, having
considered the growth in class assets, outlook for further growth and other
relevant considerations, have determined that the offering of the Class D Shares
should be terminated, such termination to be effective as of November 18, 1994;
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed in the name and on behalf of the Fund,
to take any action that the officer so acting may deem necessary or appropriate,
to effect the termination of the offering of the Class D Shares;
FURTHER RESOLVED, that an additional class of shares of the Fund be,
and hereby is, classified and designated as the "Flag Investors Class B Shares"
(the "Class B Shares") and that unissued shares of common stock, par value $.001
per share of the Fund be, and the same hereby are, reclassified as follows:
<TABLE>
<CAPTION>
Total # of Shares Class A Class B Class D Unclassified
- ----------------- ------- ------- ------- ------------
<S> <C> <C> <C> <C>
70,000,000 60,000,000 5,000,000 3,000,000 2,000,000
</TABLE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
5
<PAGE>
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares of the Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
6
<PAGE>
BY-LAWS
OF
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Stockholder Meetings. The Corporation may, but shall not be
required to, hold a regular meeting of stockholders in any year in which the
Corporation is not required, under the Investment Company Act of 1940, as
amended (the "1940 Act"), to submit for stockholder approval (i) the election of
directors, (ii) any contract with an investment adviser or principal
underwriter (as such terms are defined in the 1940 Act) that the Corporation
enters into or any renewal or amendment thereof, or (iii) the selection of the
Corporation's independent public accountants. If stockholder approval is
required for any of the purposes in (i) through (iii) above, the regular meeting
shall be held, at which stockholders shall vote on the proposal necessitating
such meeting and shall transact any other business as may properly be brought
before the meeting. Regular meetings of stockholders, if any, shall be held on
such day during the month of June and at such time as shall be designated by the
Board of Directors and stated in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Charter or the Corporation may be
called for any purpose or purposes by a majority of the Board of Directors or
the President, and shall be called by the President or Secretary on the written
request of the stockholders as provided by the Maryland General Corporation Law.
Such request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on at it; provided, however, that unless requested
by stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
the stockholders held during the preceding twelve (12) months.
-7-
<PAGE>
Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the stockholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the stockholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
stockholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
(c) At least five (5) days prior to each meeting of stockholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of stockholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
stockholder.
Section 5. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the stockholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each stockholder entitled to vote at any meeting of stockholders
may authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or the Corporation or these By-Laws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes cast at a meeting of stockholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
-8-
<PAGE>
(c) If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 8. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
stockholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter
of the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
-9-
<PAGE>
Section 3. Election and Term of Directors. Directors shall be elected
by majority vote of a quorum cast by written ballot at the regular meeting of
stockholders, if any, or at a special meeting held for that purpose. The term of
office of each director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of Directors; provided however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the stockholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of stockholders and until his successor is elected and qualifies. A
Director elected by the stockholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
-10-
<PAGE>
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board, who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
director chosen by a majority of the directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time.
Section 16. Compensation. Any Director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the directors may from
time to time determine.
-11-
<PAGE>
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the stockholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this Article
IV.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board
shall have power or authority to:
(a) recommend to stockholders any action requiring authorization
of stockholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment adviser
or principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not require
stockholder approval.
Section 4. General. One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence of disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
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Section 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
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(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
stockholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been stockholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
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Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of stockholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
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ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
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sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the stockholders in accordance with the
provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify its
directors to the fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its Directors and officers
who while serving as Directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
This Article XIII shall not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
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Section 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former director
or officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the stockholders or at any special meeting of the stockholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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FOR ARTICLES OF INCORPORATION AS AMENDED AND SUPPLEMENTED TO DATE SEE EXHIBITS
EX-99.B(1)(a) THROUGH EX-99.B(1)(d) TO THIS REGISTRATION STATEMENT,
AS FILED HEREWITH.
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS TELEPHONE INCOME FUND, INC. (the "Corporation") having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law has adopted a resolution
designating the Corporation's classified seventy million (70,000,000) shares of
Common Stock, par value $.001 per share, having an aggregate value of
$70,000.00, as follows: sixty million (60,000,000) shares are designated "Flag
Investors Telephone Income Fund Class A Shares" (the "Class A Shares"), five
million (5,000,000) shares are designated "Flag Investors Telephone Income Fund
Class B Shares" (the "Class B Shares"), three million (3,000,000) shares are
designated "Flag Investors Telephone Income Fund Class D Shares" (the "Class D
Shares") and two million (2,000,000) shares remain undesignated.
SECOND: Immediately before the designation of the Class D Shares
pursuant to these Articles Supplementary, the Corporation was authorized to
issue seventy million (70,000,000) shares of Common Stock, par value $.001 per
share, having an aggregate par value of $70,000.00, of which sixty million
(60,000,000) shares were designated "Flag Investors Telephone Income Fund Class
A Shares", five million (5,000,000) shares were designated "Flag Investors
Telephone Income Fund Class B Shares" and five million (5,000,000) shares
remained undesignated.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Flag Investors Telephone Income Fund, Inc. has
caused these Articles Supplementary to be executed by one of its Vice Presidents
and its corporate seal to be affixed and attested by its Secretary on this 17th
day of November 1994.
[CORPORATE SEAL]
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
By: /s/ Edward J. Veilleux
------------------------------
Vice President
Attest: /s/ Brian C. Nelson
----------------------
Secretary
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The undersigned, Vice President of FLAG INVESTORS TELEPHONE INCOME
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Edward J. Veilleux
-----------------------------
Edward J. Veilleux
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DISTRIBUTION AGREEMENT
AGREEMENT made as of the 19th day of January, 1989 by and between FLAG
INVESTORS TELEPHONE INCOME FUND, INC., a Maryland Corporation (the "Fund"), and
ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, on January 18, 1989 the Fund succeeded to the Registration
Statement of Flag Investors Telephone Income Trust as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the shares of Common Stock of the Fund (the "Shares") and Alex.
Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund hereby appoints Alex. Brown as Distributor for
the Shares for the period and on the terms set forth in this Agreement. Alex.
Brown accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on November 4, 1988 and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) Post-Effective Amendment No. 9 under the Securities Act of
1933 (the "1933 Act") and Post-Effective Amendment No. 11 under the 1940 Act to
the Fund's Registration Statement on Form N-1A (File No. 2-87336) as filed with
the Securities and Exchange Commission (the "SEC") on November 18, 1988 relating
to the Shares; and
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(e) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. In carrying out its obligations hereunder, Alex.
Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning
the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary to
carry into effect the distribution of the Shares; and
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown on behalf of the Fund pursuant hereto, shall at all
times be subject to any directives of the Board of Directors of the Fund. The
Board of Directors may agree, on behalf of the Fund, to amendments to this
Agreement, provided that the Fund must obtain the prior approval of the
shareholders of the Fund to any such amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments or supplements thereto;
(c) the provisions of the Articles of Incorporation of the Fund
and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
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(f) any other applicable provisions of state and Federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out its obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to federal, state or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and the Shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); except as provided in subparagraph (a) above, the expenses of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of
"Non-Interested" Directors (within the meaning of Section 2(a)(19) of the 1940
Act) or 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 Non-Interested Directors and of independent accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown'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 Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund nor obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasion.
9. Compensation. For the services to be rendered and the expenses to be
assumed by Alex. Brown the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
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<PAGE>
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 calculations of the fees as set forth above. Payment of
Alex. Brown's compensation for the preceding month shall be made as promptly as
possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Participating Dealer Agreements. Alex. Brown may enter into
participating dealer agreements (the "Participating Dealer Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and who is a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All Participating
Dealer Agreements shall be in substantially the form of the agreement attached
hereto as Exhibit "A". For processing Fund shareholders' redemption orders,
responding to inquiries from Fund shareholders concerning the status of their
accounts and the operations of the Fund and communicating with the Fund, its
transfer agent and Alex. Brown, Alex. Brown may pay each such Participating
Dealer an amount not to exceed that portion of the compensation paid to Alex.
Brown hereunder that is attributable to accounts of Fund shareholders who are
customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers or
employees of Alex. Brown to the extent permitted by law; and that the directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in Section 2(a)(42)
of the 1940 Act); and
(b) by the affirmative vote of a majority of the Non-Interested
Directors who do not have a financial interest in the operation of this
Agreement, by votes cast in person at a meeting specifically called for such
purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
Non-Interested Directors who do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act) or (iv) by Alex.
Brown. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment (as that
term is defined in Section 2(a)(4) of the 1940 Act).
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<PAGE>
15. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good faith
and to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. 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 both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. 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
the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS TELEPHONE
INCOME FUND, INC.
Attest: /s/ Brenda L. Bowers By /s/ Brian C. Nelson
---------------------- --------------------------
Vice President and Secretary
[SEAL] ALEX. BROWN & SONS
INCORPORATED
Attest: /s/ Brenda L. Bowers By /s/ Edward J. Veilleux
---------------------- --------------------------
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<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a
Participating Dealer and as such are authorized (i) to accept orders for the
purchase of Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit to
the Funds such orders and all additional material, including any certificates
for Shares, as may be required to complete the redemption and (iii) to assist
shareholders with the foregoing and other matters relating to their investments
in each Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
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<PAGE>
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to register or qualify in
certain states where registration or qualification is required. We will inform
you as to the states or other jurisdictions in which we believe the Shares have
been qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer Shares
to your customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by
law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
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<PAGE>
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
-------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
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<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ___ day of __________________, 1993, by and
between FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation (the
"Fund"), and Alex. Brown & Sons Incorporated, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
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 Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors Class
B Shares (the "Shares") and Alex. Brown wishes to become the distributor of the
Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises, and of other good and
valuable consideration by each of the parties hereto to the other party paid,
and of the agreements, covenants and obligations herein contained, the parties
hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as the exclusive
distributor of the Shares for the period and on the terms set forth in this
Agreement. Alex. Brown accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies, properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on November 4, 1988 and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors authorizing the
appointment of Alex. Brown as the Fund's Distributor of the Shares and approving
this Agreement;
(d) The Fund's Notification of Registration filed pursuant to
Section B(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on October 21, 1983;
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<PAGE>
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 2-87336) and under
the 1940 Act as filed with the Securities and Exchange Commission (the "SEC") on
October 21, 1983 relating to the Fund and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown agrees that all solicitations for
subscriptions for Shares shall be made in accordance with Fund's Articles of
Incorporation and By-Laws, and its then current Registration Statement,
Prospectus and Statement of Additional Information, and shall not at any time or
in any manner violate any provisions of the laws of the United States or of any
state or other jurisdiction which solicitations are then being made. In carrying
out its obligations hereunder, Alex. Brown shall undertake the following actions
and responsibilities:
(a) receive orders for purchase of Shares, accept or reject such
orders on behalf of the Fund in accordance with the currently effective
Prospectus for the Shares and the Fund's Statement of Additional Information and
transmit such orders as are so accepted to the Fund's transfer agent as promptly
as possible;
(b) receive requests for redemption from holders of Shares and
transmit such redemption requests to the Fund's transfer agent as promptly as
possible;
(c) respond to inquiries from the Fund's shareholders concerning
the status of their accounts with the Fund;
(d) provide to the Fund's Treasurer, at least quarterly, a
written report of the amounts expended in connection with all distribution
services rendered pursuant to this Agreement, including an explanation of the
purposes for which such expenditures were made; and
(e) take, on behalf of the Fund, all actions which appear to the
Fund necessary to carry into effect the distribution of the Shares and perform
such other administrative duties with respect to the Shares as the Fund's Board
of Directors may require.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any of the Shares. The Fund shall not sell any
of the Shares except through Alex. Brown and securities dealers who have valid
Sub-Distribution Agreements with Alex. Brown. Notwithstanding the provisions of
the foregoing sentence the Fund may issue its Shares at their net asset value to
any shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that any such amendment that would provide for a
material increase in the amount expended by the Fund must be approved by the
shareholders of the Fund before becoming effective.
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<PAGE>
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation of the Fund;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, any custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to federal, state or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the expenses of printing, including typesetting, and distributing
prospectuses of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of directors or members of any advisory board or committee other than
such directors or member who are "interested persons", of the Fund (as defined
in Section 2(a)(19) of the 1940 Act); all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the Fund's
Shares; charges and expenses of legal counsel, including counsel to the
directors of the Fund who are not "interested persons" of the Fund (as defined
in Section 2(a)(19) of the 1940 Act), and of independent accountants, in
connection with any matter relating to the Fund; a portion of 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.
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<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Directors. Such services will be
performed on behalf of the Fund and Alex. Brown's charges in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .60% of the average daily net assets of the Shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for the part of the month during which this Agreement is in effect
shall be prorated in a manner consistent with the calculations of the fees as
set forth above.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
sub-distribution agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Act of 1934 and a
member in good standing of the NASD, who may wish to act as a Participating
Dealer in connection with the proposed offering. All Sub-Distribution Agreements
shall be in substantially the form of the agreement attached hereto as Exhibit
"A". For processing Fund shareholders' redemption orders, responding to the
inquiries from Fund shareholders concerning the status of their accounts and the
operations of the Fund and communicating with the Fund, its transfer agent and
Alex. Brown, Alex. Brown may pay each such Participating Dealer an amount not to
exceed that portion of the compensation paid to Alex. Brown hereunder that is
attributable to accounts of Fund shareholders who are customers of such
Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of
Alex. Brown may serve as officers or directors of the Fund, and that officers or
directors of the Fund may serve as officers or directors of Alex. Brown to the
extent permitted by law; and that officers or directors of Alex. Brown are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or directors
of any other firm or corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or by the vote of a
majority of the outstanding voting securities (as defined in Section 2(a)(42) of
the 1940 Act), and
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<PAGE>
(b) by the affirmative vote of a majority of the directors who
are not "interested persons" of the Fund (as defined in Section 2(a)(19) of the
1940 Act) and who do not have a financial interest in the operation of this
Agreement, by votes cast in person at a meeting specifically called for such
purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in Section
2(a)(19) of the 1940 Act) and who do not have a financial interest in the
operation of this Agreement, (iii) by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act)
or (iv) by Alex. Brown. The notice provided for herein may be waived by each
party. This Agreement shall automatically terminate in the event of its
assignment as defined in Section 2(a)(4) of the 1940 Act.
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other parties at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, the addresses of the Fund and Alex. Brown
are as follows:
If to Alex. Brown:
Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, MD 21202
If to the Fund:
Flag Investors Telephone Income Fund, Inc.
135 E. Baltimore Avenue
Baltimore, Maryland 21202
17. 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 the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rules, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS TELEPHONE INCOME
FUND, INC.
Attest:/s/ Brian C. Nelson By /s/ Edward J. Veilleux
----------------------- ------------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:/s/ Brian C. Nelson By /s/ Richard T. Hale
----------------------- -------------------------
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New Class B Shares
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 30th day of December, 1994, by and between
FLAG INVESTORS TELEPHONE INCOME FUND, INC., a Maryland corporation (the "Fund"),
and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex. Brown").
W I T N E S S E T H
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 Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors Class
B Shares (the "Shares") and Alex. Brown wishes to become the distributor of the
Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on November 4, 1988 and all amendments thereto
(the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
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(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on October 21, 1983;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 2-87336) and under
the 1940 Act as filed with the SEC on October 21, 1983 relating to the Shares of
the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning
the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary to
carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements thereto;
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(c) the provisions of the Articles of Incorporation of the Fund
and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to Federal, State or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and the Shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above, the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or 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 Shares; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
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Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .75% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing 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 calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as such
term is defined in the NASD Rules of Fair Practice) equal to .25% of the average
daily net assets of the Shares of the Fund. Such fee shall be calculated and
accrued daily and the amounts of the daily accruals shall be paid monthly in the
manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act),
and
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(b) by the affirmative vote of a majority of the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act) and do not
have a financial interest in the operation of this Agreement, by votes cast in
person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
16. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. 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 parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. 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 the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS TELEPHONE INCOME
FUND, INC.
Attest: /s/ Brian C. Nelson By /s/ Edward J. Veilleux
------------------------ ------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Brian C. Nelson By /s/ Richard T. Hale
------------------------ -------------------------------
Title:
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Exhibit A
FLAG INVESTORS FAMILY OF FUNDS - CLASS B SHARES
135 East Baltimore Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds - Class B Shares (collectively, the "Funds", individually a "Fund"). The
Funds are open-end investment companies registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). The Funds offer their
Flag Investors Class B Shares ("Shares") to the public in accordance with the
terms and conditions contained in the Prospectus of each Fund. The term
"Prospectus" used herein refers to the prospectus on file with the Securities
and Exchange Commission which is part of the registration statement of each Fund
under the Securities Act of 1933 (the "Securities Act"). In connection with the
foregoing you may serve as a participating dealer (and, therefore, accept orders
for the purchase or redemption of Shares, respond to shareholder inquiries and
perform other related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
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pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
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9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by them hereunder.
In carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
-----------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
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FLAG INVESTORS TELEPHONE INCOME FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors Telephone Income Fund, Inc. (the "Fund").
Other capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) Alex. Brown is authorized, pursuant to the
Plan, to make payments to any Participating Dealer under a Sub-Distribution
Agreement, to accept payments made to it under the Distribution Agreement and to
make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average daily
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown and the Fund's
Advisor are authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's Advisor and Alex. Brown; 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 maintenance of registration of the Fund and its shares with
the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and 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
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
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5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved (i) by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
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(Class D Shares)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Flag
Investors Telephone Income Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement with respect to distribution of the Shares which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.60% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown as administrator
and distributor is authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's investment advisor and distributor of
the class of the Fund's shares; the fees of Alex. Brown as administrator for the
fund; 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; all costs and
expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and 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
-46-
<PAGE>
shareholders' and directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
directors or director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the directors of the Fund who are not interested persons
(as defined in the 1940 Act) of the Fund and of independent certified public
accountants, in connection with any matter relating to the Fund; a portion of
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 therein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
-47-
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Flag
Investors Telephone Income Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement with respect to distribution of the Shares which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown as distributor
for the Shares is authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's investment advisor and Alex. Brown; 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 maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and 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
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
-48-
<PAGE>
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
-49-
<PAGE>
EX-99.B(24)
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Bruce E. Behrens, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Bruce E. Behrens
--------------------------
Bruce E. Behrens
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
--------------------------
Joseph A. Finelli
Date: February 7, 1996
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Robert S. Killebrew, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert S. Killebrew, Jr.
--------------------------
Robert S. Killebrew, Jr.
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
--------------------------
Louis E. Levy
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
--------------------------
Eugene J. McDonald
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, W. James Price, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ W. James Price
--------------------------
W. James Price
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND,INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Telephone Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: February 28, 1994
<PAGE>
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Telephone Income Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
--------------------------
Harry Woolf
Date: February 28, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000731129
<NAME> TELEPHONE INCOME
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 348,767,222
<INVESTMENTS-AT-VALUE> 528,403,558
<RECEIVABLES> 3,399,723
<ASSETS-OTHER> 49,585
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 531,852,866
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 577,941
<TOTAL-LIABILITIES> 577,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 350,198,380
<SHARES-COMMON-STOCK> 35,731,389
<SHARES-COMMON-PRIOR> 38,008,885
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,440,208
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 179,636,337
<NET-ASSETS> 531,274,925
<DIVIDEND-INCOME> 16,661,194
<INTEREST-INCOME> 2,093,131
<OTHER-INCOME> 19,502
<EXPENSES-NET> 4,747,155
<NET-INVESTMENT-INCOME> 14,026,672
<REALIZED-GAINS-CURRENT> 35,372,071
<APPREC-INCREASE-CURRENT> 93,655,306
<NET-CHANGE-FROM-OPS> 143,054,049
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,026,672
<DISTRIBUTIONS-OF-GAINS> 34,268,838
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,634,796
<NUMBER-OF-SHARES-REDEEMED> 7,803,574
<SHARES-REINVESTED> 2,891,282
<NET-CHANGE-IN-ASSETS> 63,773,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 336,975
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,584,817
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,034,498
<AVERAGE-NET-ASSETS> 496,637,343
<PER-SHARE-NAV-BEGIN> 12.30
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 3.58
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (1.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.87
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
