<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
One South Street
Baltimore, Maryland 21202
-------------------------
Notice of Special Meeting of Shareholders
April 3, 1998
TO THE SHAREHOLDERS OF FLAG INVESTORS TELEPHONE INCOME FUND, INC.:
You are cordially invited to a special meeting of the shareholders of
Flag Investors Telephone Income Fund, Inc. (the "Fund") on Friday, April 3,
1998, at _______ _.m. Eastern Time, or at any adjournment thereof (the "Special
Meeting"), at the offices of Investment Company Capital Corp., [in the
Conference Room on the 30th Floor of The Alex. Brown Building,] One South
Street, Baltimore, Maryland 21202, for the purpose of considering the proposals
set forth below and for the transaction of such other business as may be
properly brought before the Special Meeting:
PROPOSAL 1: To approve a change in the Fund's investment
objective from "current income and long term growth
of capital without undue risk" to "to maximize total
return."
PROPOSAL 2: To approve the replacement of the Fund's
fundamental investment policy on industry
concentration that requires it to invest at least 65%
of the value of its total assets in securities of
issuers in the telephone industry with a fundamental
policy requiring it to invest at least 65% of its
total assets in securities of issuers in the
communications field.
Each Proposal is contingent on the approval of the other Proposal. If
shareholders of the Fund do not approve both Proposals, the Fund's investment
objective and policy on industry concentration will remain unchanged. Upon the
approval by shareholders of each Proposal, the Board intends to make certain
additional changes affecting the Fund, including: (i) changing the name of the
Fund to "Flag Investors Communications Fund, Inc."; (ii) deleting the Fund's
non-fundamental investment policy requiring that at least 65% of the Fund's
total assets be invested in income-producing securities (including
debt-obligations) of issuers in the telephone or other industries; and (iii)
amending the Fund's dividend policy to provide that the Fund will continue to
pay all net investment income in quarterly dividends, but that the Fund will not
attempt to maintain a consistent stream of dividend income or pay a dividend
that constitutes a return of capital.
Only shareholders of the Fund at the close of business on Monday,
January 26, 1998 are entitled to notice of, and to vote at, the Special Meeting.
<PAGE>
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
Amy M. Olmert
Secretary
Dated: _________, 1998
-2-
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
APRIL 3, 1998
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Telephone Income Fund, Inc. (the "Fund") in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Fund to be held on Friday, April 3, 1998, at ______ _.m. Eastern Time, or at any
adjournment thereof (the "Special Meeting"), at the offices of Investment
Company Capital Corp., [in the Conference Room on the 30th Floor of The Alex.
Brown Building,] One South Street, Baltimore, Maryland 21202. It is expected
that the Notice of Special Meeting, the Proxy Statement and a Proxy Card will be
mailed to shareholders on or about ________, 1998.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before _____ _.m. Eastern Time on Friday, April 3, 1998. No
postage is required if the Proxy is mailed in the United States. If the
accompanying Proxy is executed properly and returned, shares represented by it
will be voted at the Special Meeting in accordance with the instructions on the
Proxy. However, if no instructions are specified, shares will be voted FOR the
proposal to change the Fund's investment objective ("Proposal 1") and FOR the
proposal to change the Fund's fundamental policy on industry concentration
("Proposal 2" and, together with Proposal 1, the "Proposals"). All shareholders
of the Fund are entitled to vote on each Proposal. Shareholders may revoke their
Proxies at any time prior to the time they are voted by giving written notice to
the Secretary of the Fund, by delivering a subsequently dated Proxy or by
attending and voting at the Special Meeting.
The close of business on January 26, 1998 has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting. On the Record Date, the Fund had
_____________ shares outstanding, consisting of _______________ Flag Investors
Telephone Income Fund Class A Shares, ________________ Flag Investors Telephone
Income Fund Class B Shares and ______________ Flag Investors
<PAGE>
Telephone Income Fund Class D Shares. Each full share will be entitled to one
vote at the Special Meeting and each fraction of a share will be entitled to the
fraction of a vote equal to the proportion of a full share represented by the
fractional share.
The expenses of the Special Meeting will be borne by the Fund and will
include reimbursement to brokerage firms and others for expenses in forwarding
Proxy solicitation materials to beneficial owners. The solicitation of Proxies
will be largely by mail, but may include telephonic, telegraphic or oral
communication by employees and officers of the Fund's investment advisor,
Investment Company Capital Corp. ("ICC" or the "Advisor"), and sub-advisor,
Alex. Brown Investment Management ("ABIM" or the "Sub-Advisor"). Additional
solicitation may be made by [solicitation firm], a solicitation firm located in
[city, state] that has been engaged by the Fund to assist in proxy solicitation
at an estimated cost of approximately $[0000].
[The Fund will furnish to shareholders a copy of its Annual Report for
the fiscal year ended December 31, 1996 and Semi-Annual Report for the period
ended June 30, 1997 upon request. If available, the Fund will furnish a copy of
its Annual Report for the fiscal year ended December 31, 1997. The Annual and
Semi-Annual Reports of the Fund may be obtained without charge by written
request to the Fund, One South Street, Baltimore, Maryland 21202 or by calling
(800) 767-FLAG.]
The Fund is registered as an open-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and its shares are registered under the Securities Act of 1933, as
amended.
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting of shareholders in
any year in which the election of Directors is not required to be acted upon
under the 1940 Act. The Fund has availed itself of this provision and achieves
cost savings by eliminating printing costs, mailing charges and other expenses
involved in routine annual meetings.
Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings also may be held by
the Fund for other purposes, including to approve investment policy changes, a
new investment advisory agreement or other matters requiring shareholder action
under the 1940 Act. In addition, Maryland General Corporation Law provides for
the calling of a special meeting by the written request of shareholders holding
at least 25% of the shares entitled to vote at the meeting.
-2-
<PAGE>
PROPOSAL 1: To approve a change in the Fund's investment
objective from "current income and long term growth
of capital without undue risk" to "to maximize total
return."
PROPOSAL 2: To approve the replacement of the Fund's
fundamental investment policy on industry
concentration that requires it to invest at least 65%
of the value of its total assets in securities of
issuers in the telephone industry with a fundamental
policy requiring it to invest at least 65% of its
total assets in securities of issuers in the
communications field.
The Board of Directors of the Fund has determined that it would be in
the best interest of the Fund and its shareholders to amend the Fund's
investment objective and to change the Fund's fundamental policy on industry
concentration. Accordingly, the Board proposes, effective upon the later of
shareholder approval or May 1, 1998, (i) that the investment objective of the
Fund be changed from "current income and long-term growth of capital without
undue risk" to "to maximize total return" and (ii) that the Fund's fundamental
policy on industry concentration that currently requires it to invest at least
65% of the value of its total assets in securities of issuers in the telephone
industry be replaced with a fundamental policy that would require the Fund to
invest at least 65% of its total assets in securities of issuers in the
communications field. For purposes of Proposal 2, companies would be considered
to be in the "communications field" if they are engaged in the research,
development, manufacture or sale of communications services, technology,
equipment or products.
The Directors, after consultation with the Fund's Advisor and
Sub-Advisor, believe that each of these Proposals is appropriate in light of
changes that have occurred in the telephone industry in recent years. In the
years immediately following the Fund's inception, a number of well-capitalized
companies, particularly the Regional Bell Operating Companies ("RBOCs") which
were created as part of the reorganization of AT&T, demonstrated stable,
profitable growth and predominated in the telephone industry. One of the
traditional strengths of these telephone companies has been their ample cash
flows, which enabled them to provide a consistently high stream of dividend
income. This dividend income has, in the past, enabled the Fund to seek current
income as a significant component of its primary investment objective. However,
as discussed below, telephone companies are expanding into other areas of the
communications field and are increasingly competing with each other and other
communications companies. These changes have affected and will continue to
affect the Fund's ability to generate substantial current income while investing
primarily in telephone companies.
Extensive changes in telecommunications law, which became effective in
1996, and rapid technological advancement have accelerated these changes in the
telephone industry, as well as the communications industry generally. The new
legislation allows existing telephone companies, both local and long distance,
to expand into each others' business as well as into other segments of the
communications industry. In addition, the legislation permits other
communications firms to enter into the telephone business. The legislation also
enlarges the scope of permitted affiliations between telephone companies and
other communications companies.
-3-
<PAGE>
Generally, these changes have manifested themselves in two distinct
ways that affect the Fund. First, the RBOCs and other traditional telephone
industry participants in which the Fund primarily invests have sought to expand
into each others' traditional business territories and into developing lines of
business in other segments of the communications industry. For example, the
RBOCs, which previously offered only regional telephone service, have begun to
compete with other well established long distance service providers as well as
in cellular and digital wireless services. These opportunities often are in less
mature or highly capital-intensive industry segments that require a large
percentage of a company's available cash for reinvestment. A consequence of
increased income reinvestment has been a trend toward higher capital growth
status, but decreased dividend opportunity. Second, consumer demand has
increasingly diverged from traditional wireline-only "telephone" communications
into wireline and wireless voice, data and video services. This rapid
development has created opportunities for many emerging companies to provide
novel types of communications services and products. It has also encouraged
various industry participants, including the RBOCs, to consolidate with each
other and with companies across industry segments in their search for growth and
improved market position from expanded service opportunities.
In light of these industry changes, the Board has determined that it is
no longer practical for the Fund to continue to seek current income as a
significant part of its investment objective or to concentrate its investments
in the telephone industry. The shift of telephone companies to a higher growth
status, while holding out the prospect for solid future returns, generally has
the effect of decreasing the stream of dividend income available to the Fund.
This will limit the Fund's ability to provide a consistent income stream in the
form of dividend income. Also, the development of separate industry segments
outside the local telephone and long distance businesses, coupled with greater
market diversification, enables non-traditional providers a chance to benefit
from the growing worldwide demand for communications products and services. This
has resulted in a blurring of the traditional line that has defined companies in
the "telephone" industry.
These changes in the telephone and communications field have effected
and will continue to affect the risk/return profile of the Fund. In particular,
the traditional telephone companies will continue to evolve in the face of new
challenges. While the shift to a higher growth status in response to these
challenges promises opportunity for greater capital appreciation, these
traditional companies now face different risks due to increased competition and
accelerated technological and industry change. Telephone companies and other
communications firms will continue to adapt, consolidate and diversify to meet
these new challenges even if shareholders do not approve the Proposals. The
Advisor and Sub-Advisor believe, however, that approval of the Proposals will
best enable the Fund to benefit shareholders in light of these changes.
Accordingly, the Board of Directors recommends that shareholders vote
FOR each Proposal. In reaching this conclusion, the Board of Directors
considered the industry trends described above and such other factors and
information that the Board deemed relevant.
-4-
<PAGE>
Each Proposal is contingent on the approval of the other Proposal. If
shareholders of the Fund do not approve both Proposals, the Fund's investment
objective and policy on industry concentration will remain unchanged. In that
event, the Board will take such action as it deems in the best interests of the
Fund and its shareholders, which may include proposing other changes to the
investment policies of the Fund.
Upon the approval by shareholders of each Proposal, the Board intends
to make certain additional changes affecting the Fund, including: (i) changing
the name of the Fund to "Flag Investors Communications Fund, Inc."; (ii)
deleting the Fund's non-fundamental investment policy requiring that at least
65% of the Fund's total assets be invested in income-producing securities
(including debt-obligations) of issuers in the telephone or other industries;
and (iii) amending the Fund's dividend policy to provide that the Fund will
continue to pay all net investment income in quarterly dividends, but that the
Fund will not attempt to maintain a consistent stream of dividend income or pay
a dividend that constitutes a return of capital.
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers, including their names, positions with the Fund, principal occupations
or employment during the past five years, the number of directorships of the
thirteen funds managed, administered or advised by the Advisor (the "Fund
Complex"), the number of shares of the Fund beneficially owned and the
percentage of shares beneficially owned as of November 30, 1997, is set forth
below. [As of November 30, 1997 Directors and officers of the Fund as a group
beneficially owned less than 1% of the shares of the Fund.]
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Owned as of
With the Fund Business Experience During the November 30, Percentage
------------- Past Five Years ------------ ----------
(including all directorships) 1997**
----------------------------- ------
<S> <C> <C> <C>
Truman T. Semans* Managing Director Emeritus, BT Alex. Brown 12,739 shares ***
Director and Chairman Incorporated. Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated (now BT Alex. Brown
Incorporated); Director, Investment Company
Capital Corp. (registered investment advisor);
and Vice Chairman, Alex. Brown Capital Advisory &
Trust Company. Director of 11 funds in the Fund
Complex.
James J. Cunnane Managing Director, CBC Capital (merchant None ***
Director banking), 1993-Present. Formerly, Senior Vice
President and Chief Financial Officer, General
Dynamics Corporation (defense), 1989-1993; and
Director, The Arch Fund (registered investment
company). Director of each fund in the Fund
Complex.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Owned as of
With the Fund Business Experience During the November 30, Percentage
------------- Past Five Years ------------ ----------
(including all directorships) 1997**
----------------------------- ------
<S> <C> <C> <C>
Richard T. Hale* Managing Director, BT Alex. Brown Incorporated; 2,177 shares ***
Director Director and President, Investment Company
Capital Corp. (registered investment advisor); and
Chartered Financial Analyst. Director of 12 funds
in the Fund Complex.
John F. Kroeger Director/Trustee, AIM Funds (registered investment 3,646 shares ***
Director companies). Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm); and
General Manager, Shell Oil Company. Director of
each fund in the Fund Complex.
Louis E. Levy Director, Kimberly-Clark Corporation (personal 1,478 shares ***
Director consumer products) and Household International
(finance and banking); Chairman of the Quality
Control Inquiry Committee, American Institute
of Certified Public Accountants. Formerly,
Trustee, Merrill Lynch Funds for Institutions,
1991-1993; Adjunct Professor, Columbia
University-Graduate School of Business,
1991-1992; and Partner, KPMG Peat Marwick,
retired 1990. Director of each fund in the Fund
Complex.
Eugene J. McDonald President, Duke Management Company None ***
Director (investments); and Executive Vice President, Duke
University (education, research and health
care). Director, Central Carolina Bank & Trust
(banking); Key Funds (registered investment
companies); and DP Mann Holdings (insurance).
Formerly, Director, AMBAC Treasurers Trust
(registered investment company). Director of
each fund in the Fund Complex.
Rebecca W. Rimel President and Chief Executive Officer, The Pew 565 shares ***
Director Charitable Trusts; and Director and Executive Vice
President, The Glenmede Trust Company.
Formerly, Executive Director, The Pew Charitable
Trusts. Director of 11 funds in the Fund Complex.
Carl W. Vogt, Esq. Senior Partner, Fulbright & Jaworski L.L.P. (law). None ***
Director Director, Yellow Corporation (trucking). Formerly,
Chairman and Member, National Transportation
Safety Board; Director, National Railroad
Passenger Corporation (Amtrak); and Member,
Aviation System Capacity Advisory Committee
(Federal Aviation Administration). Director of
11 funds in the Fund Complex.
</TABLE>
PH02/205921.2
-6-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Owned as of
With the Fund Business Experience During the November 30, Percentage
------------- Past Five Years ------------ ----------
(including all directorships) 1997**
----------------------------- ------
<S> <C> <C> <C>
Harry Woolf Professor-at-Large Emeritus, Institute for Advanced 1,993 shares ***
President Study. Director, ATL and Spacelabs Medical Corp.
(medical equipment); Family Health
International (non-profit research and
education) and Research America (non-profit
medical research). Formerly, Director, Flag
Investors Family of Funds (registered
investment companies); Trustee, Reed College
(education); Trustee, Rockefeller Foundation;
and Director, Merrill Lynch Cluster C Funds
(registered investment companies).
Amy M. Olmert Vice President, BT Alex. Brown Incorporated, June None ***
Secretary 1997 - Present. Formerly, Senior Manager,
Coopers & Lybrand L.L.P., September 1988 - June
1997.
Joseph A. Finelli Vice President, BT Alex. Brown Incorporated and None ***
Treasurer Vice President, Investment Company Capital Corp.
(registered investment advisor), September 1995-
Present. Formerly, Vice President and Treasurer,
The Delaware Group of Funds (registered
investment companies); and Vice President,
Delaware Management Company Inc.
(investments), 1980-August 1995.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Owned as of
With the Fund Business Experience During the November 30, Percentage
------------- Past Five Years ------------ ----------
(including all directorships) 1997**
----------------------------- ------
<S> <C> <C> <C>
Scott J. Liotta Assistant Vice President, Fund Administration, BT None ***
Assistant Secretary Alex. Brown Incorporated, July 1996 - Present.
Formerly, Manager and Foreign Markets Specialist,
Putnam Investments Inc. (registered investment
companies), April 1994 - July 1996; and
Supervisor, Brown Brothers Harriman & Co.
(domestic and global custody), August 1991 - April
1994.
</TABLE>
- --------------------
* Denotes a Director who is an "interested person" as defined in the 1940 Act.
** This information has been provided by each Director and officer.
*** As of November 30, 1997, the Directors and officers of the Fund as a
group beneficially owned an aggregate of less than 1% of the shares of
the Fund.
Investment Advisor and Investment Sub-Advisor
Investment Company Capital Corp., located at One South Street,
Baltimore, Maryland 21202, acts as investment advisor to the Fund. Alex. Brown
Investment Management, located at the same address, acts as investment
sub-advisor to the Fund.
Principal Underwriter
ICC Distributors, Inc., located at P.O. Box 7558, Portland, Maine
04101, acts as principal underwriter for the Fund.
Beneficial Owners
[To the knowledge of Fund Management, as of the Record Date, there were
no beneficial owners of 5% or more of the outstanding shares of the Fund.]
Submission of Shareholder Proposals
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions to
be considered to the Fund 60 days in advance of any such meeting for inclusion
in the Fund's proxy statement and form of proxy for such meeting as is held. The
Nominating Committee of the Board of Directors will give consideration to
shareholder suggestions as to nominees for the Board of Directors. Shareholders
retain the right, under limited circumstances, to request that a meeting of the
shareholders be held for the purpose of
-8-
<PAGE>
considering the removal of a Director from office and, if such a request is
made, the Fund will assist with shareholder communications in connection with
the meeting.
Required Vote
Approval of each Proposal requires the affirmative vote of a majority
of the outstanding shares of the Fund. As defined in the 1940 Act, the vote of a
majority of the outstanding shares means the vote of (i) 67% or more of the
Fund's outstanding shares present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against
the Proposals but will be counted for purposes of determining whether a quorum
is present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting and will, therefore, have the effect of counting against each
Proposal. [Brokers who hold shares as record owners for beneficial owners may
have the authority under the rules of the various stock exchanges to vote those
shares with respect to the Proposals when they have not received instructions
from beneficial owners.]
Other Matters
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Directors,
Amy M. Olmert
Secretary
Dated: __________, 1998
-9-
<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
April 3, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG
INVESTORS TELEPHONE INCOME FUND, INC.
This proxy is for your use in voting on various matters relating to Flag
Investors Telephone Income Fund, Inc. (the "Fund"). The undersigned
shareholder(s) of the Fund, revoking previous proxies, hereby appoint(s) [Edward
J. Veilleux, Scott J. Liotta, and I. Alisa Stesch] and each of them (with full
power of substitution) the proxies of the undersigned to attend the Special
Meeting of Shareholders of the Fund to be held on April 3, 1998 (the "Special
Meeting") and any adjournments thereof, to vote all of the shares of the Fund
that the signer would be entitled to vote if personally present at the Special
Meeting and on any matter incident to the conduct of the Special Meeting, all as
set forth in the notice of Special Meeting of Shareholders and Proxy Statement
of the Board of Directors. Said proxies are directed to vote or refrain from
voting pursuant to the Proxy Statement as indicated upon the matters set forth
below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Directors.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X|
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED DETACH AND RETURN THIS PORTION
AND DATED. ONLY
FLAG INVESTORS TELEPHONE INCOME FUND, INC.
Vote on Proposals:
1. To approve a change in the Fund's investment objective from "current
income and long term growth of capital without undue risk" to "to
maximize total return."
[ ] For [ ] Against [ ] Abstain
2. To approve the replacement of the Fund's fundamental investment policy
on industry concentration that requires it to invest at least 65% of
the value of its total assets in securities of issuers in the telephone
industry with a fundamental policy requiring it to invest at least 65%
of its total assets in securities of issuers in the communications
field.
[ ] For [ ] Against [ ] Abstain
Please print and sign your
name in the space provided to
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
authorize the voting of your _______________________________ ___________________________
shares as indicated and return Signature [PLEASE SIGN WITHIN BOX] Date
promptly. When signing on
behalf of a corporation,
partnership, estate, trust
or in any other _____________________________ ___________________________
representative capacity, Signature (Joint Owners) Date
please sign your name and
title. For joint accounts,
each joint owner must sign.
</TABLE>
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
February __, 1998
Dear Shareholder:
As we begin 1998, we are enthusiastic about the long-term prospects for
every major segment of the telecommunications industry. The expanding, global
nature of the industry affords us the flexibility to take advantage of
opportunities in both the traditional long distance and local telephone
segments, as well as the emerging areas of telecommunications.
We believe that this industry evolution is a favorable development, and
for several years we have been successfully expanding the Fund's investments to
take advantage of the trends. Nevertheless, we also recognize that unless we
change the Fund's policy as well, we may at times limit our opportunity to
purchase the best values of in the industry. With this in mind, the Fund's Board
of Directors has voted, subject to shareholder approval, to:
(i) change the Fund's investment objective from "current income
and long-term growth of capital without undue risk" to
"maximize total return," and
(ii) change the Fund's fundamental investment policy requiring that
at least 65% of the value of the Fund's assets be invested in
securities of issuers in the telephone industry with a policy
requiring that at least 65% of the Fund's assets be invested
in securities of issuers in the communications field.
An important aspect of the changing characteristics of the industry is
that telephone/telecommunications companies have chosen to slow dividend growth
in favor of increased flexibility and greater investment in their business. As a
result, it is expected that the Fund's quarterly dividend amount will be
reduced. In addition, if the above policies are approved, it is contemplated
that the Fund's name will change to Flag Investors Communications Fund, Inc. and
that the Fund's non-fundamental investment policy of investing at least 65% of
the Fund's assets in income-producing securities (including debt obligations)
will be rescinded.
The enclosed proxy outlines these topics in more detail. We encourage
you to read the materials carefully and ask you to join the Fund's directors and
vote in favor of the proposals. If you have any questions about the proposed
changes, please call 1-800-767-3524.
As conservative investors with strict criteria, we believe there is
substantial opportunity to earn very attractive returns over the long term,
without taking undue risk. As the industry continues to evolve, the Fund will
continue to take advantage of new opportunities to invest in companies that
pursue focused business strategies and place a priority on shareholder
interests. Thank you for your interest in the Fund.
Sincerely,
/s/ Bruce E. Behrens /s/ Liam D. Burke
Bruce E. Behrens Liam D. Burke
Portfolio Manager Portfolio Manager
