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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FLAG INVESTORS COMMUNICATIONS FUND, INC.
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(Name of Registrant as Specified in its Charter)
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(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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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FLAG INVESTORS COMMUNICATIONS FUND, INC.
One South Street
Baltimore, Maryland 21202
July [19], 2000
Dear Shareholder:
The Board of Directors of Flag Investors Communications Fund, Inc. (the
"Fund") is pleased to invite you to a Special Meeting of shareholders to be held
at 2:15 p.m. (Eastern time) on August 31, 2000, at the offices of the Fund's
advisor, Investment Company Capital Corp. ("ICCC"), One South Street, Baltimore,
Maryland. At this meeting you will be asked to approve several important
proposals affecting your Fund.
Enclosed is further information relating to these proposals, including a
Question and Answer section, proxy statement and proxy card. The proxy statement
discusses each proposal in detail.
THE BOARD BELIEVES THAT EACH OF THE PROPOSALS IS IMPORTANT AND RECOMMENDS
THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR ALL
PROPOSALS.
Two proposals seek approval for changes to the Fund's fee arrangements.
The new fee arrangements serve two primary purposes. First, they compensate
the Fund's advisor for its management efforts and for taking on
responsibility for a variety of administrative and management services, some
of which were previously handled by third-party vendors. Second, they provide
for an increase in compensation to the Fund's advisor and sub-advisor in
recognition of the Fund's superior long-term returns. Even with the proposed
new fee arrangements in place, the Fund's expense ratio will remain very
competitive within its peer group.
- As the Fund has grown, the advisor has made significant investments to
enhance its administrative and shareholder service capability. Additional
staff has been added in key areas, and dedicated in-house groups have been
created to handle legal services, performance measurement, technology
management, tax services and financial reporting. The advisor believes this
change will benefit shareholders in at least two ways. The new in-house
capability replaces or extends the range of services offered by third-party
vendors. Previously, the Fund paid fees directly to third parties for
certain of these administrative services. By building and maintaining an
in-house staff to deliver these services, the advisor
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believes it will be able to provide certain services more efficiently than
third parties could as well as reduce the fees paid to these parties for
these services over time. In addition, the advisor believes that a
dedicated in-house staff will allow it to provide a higher quality and a
fuller range of services for the Fund. Further, the advisor's enhanced
capabilities allow it to better manage the increasing complexity of the
Fund's administration.
- The Fund's advisor will use part of its additional compensation to increase
the fees paid to the Fund's sub-advisor. The Board believes that this
change is appropriate in recognition of two critical factors in the pursuit
of superior long-term returns. The sub-advisor has invaluable expertise and
unusual experience in the communications sector. In addition, producing
superior returns for the Fund will require even more sophisticated,
insightful, and demanding research analysis and portfolio management skill
as the communications industry continues to see rapid acceleration both in
the pace of change and degree of complexity.
As noted, with the new fee arrangements in place, the advisor believes that
overall fees will remain very competitive as compared to comparable
communications funds. Based on data for the 12 months ended May 31, 2000, if the
change in the Fund's fee arrangements had been in place, the Fund's expense
ratio would have been 1.09% (after fee waivers) and 1.24% (without fee waivers)
for its Class A shares. Based on data only for the month of May 2000, these pro
forma expense ratios would be 1.02% (after fee waivers) and 1.17% (without fee
waivers). THESE EXPENSE RATIOS COMPARE FAVORABLY WITH THE 1.22% AVERAGE EXPENSE
RATIO OF "A" CLASS SHARES OF ALL OTHER SPECIALTY COMMUNICATIONS FUNDS TRACKED BY
MORNINGSTAR AS OF MAY 31, 2000. Please see the proxy statement for additional
information about this comparative data.
Shareholders are also being asked to provide advance approval for a
proposed sub-advisory agreement that will reflect a change in control of the
sub-advisor scheduled for March 2001. This change of control is not expected to
have any impact on the quality and nature of the services that the sub-advisor
provides to the Fund.
Finally, shareholders are being asked to approve restructuring the Fund
from a "stand alone" fund to a feeder fund in a "master-feeder" fund format.
This restructuring is intended to allow the Fund to benefit from economies of
scale and possible cost savings if additional assets can be attracted to the new
master-feeder structure. THE NEW STRUCTURE WILL NOT CHANGE THE FUND'S INVESTMENT
OBJECTIVE, STRATEGIES AND RISKS. THE INVESTMENT ADVISOR AND SUB-ADVISOR WHO ARE
CURRENTLY RESPONSIBLE FOR MANAGING THE FUND'S ASSETS WILL REMAIN THE SAME.
WHAT YOU NEED TO DO:
- Please read all enclosed materials, including the Question & Answer
section.
- Vote in one of the following ways:
1. By Internet: Logon to www.proxyvote.com and follow the on-screen
instructions.
2. By Telephone: Call Toll-Free 1-877-504-7018.
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3. By Mail: Complete the enclosed proxy card and return it in the
pre-paid envelope provided.
4. Attend the shareholder meeting (details enclosed).
Thank you for voting on these important matters.
Sincerely,
Truman T. Semans
Chairman
Flag Investors Communications Fund, Inc.
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July [19], 2000
QUESTIONS AND ANSWERS
FOR SHAREHOLDERS OF
FLAG INVESTORS COMMUNICATIONS FUND, INC.
Here is a brief overview of the primary matters affecting the Fund that
require a shareholder vote. We encourage you to also read the full text of the
enclosed proxy statement.
Q. What are shareholders being asked to vote on?
A. At the Meeting, shareholders are voting to approve the following matters:
- Changes to the Fund's fee arrangements, including new advisory and
sub-advisory agreements for the Fund that increase the fees paid to
the Fund's advisor and sub-advisor.
- A proposed sub-advisory agreement to reflect an expected change of
control of the Fund's sub-advisor.
- The restructuring of the Fund into a master-feeder format under which
the Fund would become a "feeder" fund investing all of its assets in a
"master" portfolio, and related proposals to put that new structure in
place.
Q. Why is the Board recommending changes to the Fund's fee arrangements?
A. The new fee arrangements will increase compensation to the Fund's advisor and
sub-advisor. These increases recognize the additional administrative services
and the increased expertise, experience and effort necessary to administer the
Fund and manage the Fund's investments in an increasingly complex and demanding
environment. The advisor's and sub-advisor's expertise is reflected in the
Fund's superior long-term returns.
Q. What additional services is the advisor providing?
A. The advisor has made significant, on-going investments in staff and
infrastructure to enhance its administrative and shareholder services, and to
handle the increasing complexity of the mutual fund business. The advisor's
investments include investments in technology, as well as the creation of legal,
tax, performance measurement and financial reporting groups. As a result of
these investments, the advisor now provides additional services, including some
for which the Fund previously paid fees directly to third party vendors. The
advisor believes that these investments will enable it to provide various Fund
services more efficiently than could third party vendors, thereby reducing the
fees paid to these parties for these services over time. There can be no
assurances, however, that such cost savings can be achieved.
Q. Why is the Board recommending a new sub-advisory agreement that increases the
fees paid by the advisor to the sub-advisor?
A. The Board believes that the proposed fees properly recognize the depth of
experience and
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expertise the sub-advisor provides to the Fund in the increasingly complex and
challenging communications sector. The sub-advisor has achieved excellent
investment performance for the Fund over both short-term and long-term periods.
As the pace of technological change and globalization continue to increase, the
successful pursuit of superior long-term returns requires greater expertise and
creates additional demand on the sub-advisor's research, analysis and portfolio
management abilities.
Q. How are the Fund's fee arrangements changing?
A. Currently, the Fund pays the advisor one fee for providing both advisory and
administrative services to the Fund. This fee arrangement is set out in a single
agreement. Under the new fee arrangements, the existing agreement will be
replaced by two new agreements: 1) an advisory agreement that will increase the
current advisory fees by 15 basis points (15 basis points equals 0.15% of the
Fund's average daily net assets), and 2) an administrative services agreement
that will pay the advisor, in its capacity as Fund administrator, 15 basis
points for providing administrative services. The advisor and administrator have
agreed, however, to fee waivers aggregating 15 basis points. The end result is
that the Fund's fees would increase by 15 basis points after the fee waiver.
Q. How long will the fee waiver last?
A. The advisor and administrator have agreed to maintain the waiver for a
minimum of two years, and have advised the Board that they have no present
intention to change the waiver thereafter. The advisor and administrator may
continue the waiver indefinitely. Before eliminating or reducing the waiver, the
advisor and administrator must give advance notice to the Board, which reviews
the overall level of fees paid to the advisor and administrator.
Q. If the recommended changes to the fee arrangements are approved, how will the
Fund's expense ratio compare to those of other communications funds?
A. Historically, the Fund's expense ratio has been very competitive. The advisor
believes that at the Fund's current size, the Fund's expense ratio will remain
competitive even if the proposed changes are approved. Assuming an approval of
the proposed changes in the Fund's fee arrangements, the Fund's pro forma
expense ratio for its Class A shares would have been 1.09% (after the fee
waiver) and 1.24% (without the fee waiver) based on the advisor's analysis of
assets and expenses for the 12 month period ended May 31, 2000. Based on data
for only the month of May 2000, these pro forma expense ratios would have been
1.02% (after fee waivers) and 1.17% (without fee waivers). These expense ratios
would compare favorably with the 1.22% average expense ratio of "A" class shares
of all other specialty communications funds tracked by Morningstar as of May 31,
2000. See the proxy statement for additional information about this comparative
data.
Q. Approval is also sought for a proposed sub-advisory agreement reflecting an
expected change of control of the Fund's sub-advisor in March 2001. How will
this expected change in control affect the Fund?
A. The expected change in control of the Fund's sub-advisor is not expected to
have any effect on the management of the Fund. The sub-advisor is currently
owned by two partners, one of which is currently affiliated with the Fund's
advisor. The unaffiliated partner is buying out the other. THE
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FUND'S CURRENT PORTFOLIO MANAGERS WILL STILL MANAGE THE FUND'S ASSETS, AND THE
FUND WILL HAVE THE SAME INVESTMENT OBJECTIVE, STRATEGIES, AND RISKS.
Q. How will the restructuring to a master-feeder format (the "Restructuring")
affect my investment in the Fund?
A. You will still own the same number of shares in the Fund as you did prior to
the Restructuring. Your tax basis in the shares you currently own will remain
the same. THE FUND'S CURRENT PORTFOLIO MANAGERS WILL STILL MANAGE THE FUND'S
ASSETS, AND THE FUND WILL HAVE THE SAME INVESTMENT OBJECTIVE, STRATEGIES, AND
RISKS. You will buy and sell shares in the same manner as before. The expenses
paid by Fund shareholders will change, but only to the extent of the proposed
new fee arrangements for the Fund. The Restructuring will not take place unless
shareholders also approve the proposed new fee arrangements. See the proxy
statement for further details discussing when the Restructuring, if approved,
will take place.
Q. What is a master-feeder format, and how is that format different from the
Fund's current structure?
A. The Fund currently invests its assets in a portfolio of securities selected
by the Fund's portfolio managers. In a master-feeder format, the Fund would
instead become a "feeder fund" and invest all of its assets in another fund,
called a "master portfolio", which would invest its asset in a portfolio of
securities selected by its portfolio managers. THE MASTER PORTFOLIO WOULD BE
MANAGED BY THE SAME PORTFOLIO MANAGERS WHO CURRENTLY MANAGE THE FUND. In the
future, other feeder funds can also invest in the master portfolio. By allowing
more than one fund to invest in the same master portfolio, common portfolio
expenses can be shared, with the possible effect of lowering costs for each
feeder fund.
Q. Why is the Fund proposing to convert to a feeder fund in a master-feeder
format?
A. Since a master portfolio can have more than one feeder fund, a master-feeder
fund arrangement has the potential to facilitate growth in the size of the
assets held by the master portfolio. The advisor hopes that such growth would
lead to economies of scale that could reduce the Fund's expense ratio. There can
be no assurance, however, that such economies of scale will be realized.
Q. How does the Board of Directors of the Fund recommend that I vote?
A. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS
THAT YOU VOTE IN FAVOR OF ALL PROPOSALS ON THE ENCLOSED PROXY CARD.
Q. Where can I get more information?
A. If you need more information, please call Shareholder Communications
Corporation, the Fund's information agent, at 1-800-732-6168.
Q. How can I vote my shares?
A. You may choose from one of the following options:
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- Through the Internet, by using www.proxyvote.com and following the
on-screen instructions.
- By telephone, by calling toll-free 1-800-[number to be determined later]
- By mail, with the enclosed proxy card and return envelope.
- In person at the shareholder meeting (see details enclosed in the proxy
statement).
Please vote on all issues on each proxy card that you receive. Thank you
for mailing your proxy card promptly.
7
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PRELIMINARY COPY
FLAG INVESTORS COMMUNICATIONS FUND, INC.
One South Street
Baltimore, Maryland 21202
Notice of Special Meeting of Shareholders
July 19, 2000
TO THE SHAREHOLDERS OF FLAG INVESTORS COMMUNICATIONS FUND, INC.:
You are cordially invited to a special meeting ("the Meeting") of the
shareholders of Flag Investors Communications Fund, Inc. The Meeting will be
held on August 31, 2000, at 2:15 p.m. Eastern time at the offices of the Fund's
advisor, Investment Company Capital Corp., in the conference room on the 30th
Floor of One South Street, Baltimore, Maryland 21202. The purpose of the Meeting
is to consider the proposals set forth below and to transact such other business
as may be properly brought before the Meeting:
PROPOSAL 1A: To approve a new investment advisory agreement between the
Fund and its investment advisor, Investment Company Capital
Corp. ("ICCC"), increasing the advisory fee paid by the Fund
to ICCC; and
PROPOSAL 1B: To approve a new investment sub-advisory agreement among the
Fund, ICCC and the Fund's sub-advisor, Alex. Brown
Investment Management ("ABIM"), increasing the sub-advisory
fee paid by ICCC to ABIM.
PROPOSAL 2: To approve a proposed sub-advisory agreement among the Fund,
ICCC and ABIM, effective March 2001, reflecting an expected
change in control of ABIM.
PROPOSAL 3: To approve conversion of the Fund into a feeder fund in a
master-feeder format.
Proposals 1A, 1B and 3 are mutually contingent. Unless all of these proposals
are approved, none will take effect.
Only shareholders of the Fund at the close of business on July 5, 2000, are
entitled to notice of, and to vote at, this meeting or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE VOTE NOW.
YOU MAY COMPLETE AND RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
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YOU MAY ALSO VOTE EASILY AND QUICKLY BY TELEPHONE OR THROUGH THE INTERNET. TO DO
SO, PLEASE FOLLOW THE INSTRUCTIONS INCLUDED ON YOUR ENCLOSED PROXY CARD.
YOUR PROXY IS REVOCABLE AT ANY TIME PRIOR TO THE MEETING.
NO MATTER HOW MANY SHARES YOU OWN, YOUR VOTE IS IMPORTANT AND WILL ENSURE THAT A
QUORUM WILL BE PRESENT AT THE MEETING.
Thank you.
/s/ Amy M. Olmert
------------------
Amy M. Olmert
Secretary
Dated: July [19], 2000
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FLAG INVESTORS COMMUNICATIONS FUND, INC.
One South Street
Baltimore, Maryland 21202
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
August 31, 2000
2:15 p.m.
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Communications 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 August 31, 2000, at 2:15 p.m. Eastern time, or at any
adjournment thereof (the "Meeting"), at the offices of the Fund's advisor,
Investment Company Capital Corp., in the conference room on the 30th Floor of
One South Street, Baltimore, Maryland 21202. It is expected that the Notice of
Meeting, the Proxy Statement and a Proxy Card will be mailed to shareholders on
or about July [19], 2000.
SUMMARY
At the Meeting, shareholders will be asked to approve several proposals.
Proposal 1A asks shareholders of the Fund to approve a new investment
advisory agreement between the Fund and its investment advisor, Investment
Company Capital Corp. ("ICCC"), increasing the advisory fee paid by the Fund to
ICCC.
Proposal 1B asks shareholders of the Fund to approve a new investment
sub-advisory agreement among the Fund, ICCC and the Fund's investment
sub-advisor, Alex. Brown Investment Management ("ABIM"), increasing the
sub-advisory fee paid by ICCC to ABIM.
Proposal 2 asks shareholders of the Fund to approve a proposed sub-advisory
agreement among the Fund, ICCC and ABIM, effective March 2001, reflecting an
expected change in control of ABIM.
Proposal 3 asks shareholders of the Fund to approve the restructuring of
the Fund into a feeder fund in a master-feeder format.
If you do not expect to be present at the Meeting and wish your shares to
be voted, please vote your proxy (the "Proxy") by mail, telephone or the
Internet, allowing sufficient time for the Proxy to be received and processed on
or before 2:15 p.m. Eastern time on August 31, 2000. If your Proxy is properly
returned, shares represented by it will be voted at the Meeting in accordance
with your instructions. However, if no instructions are specified on your signed
Proxy with respect to a specific Proposal, the Proxy will be voted FOR the
approval of such Proposal and in accordance with the judgment of the persons
appointed as proxies upon any other matter that may properly come before the
Meeting. Shareholders may revoke their Proxies at any time prior to the
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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 Meeting.
The close of business on July 5, 2000, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of,
and to vote at, the Meeting and at any adjournment thereof. On that date, the
Fund had [ ] shares outstanding. Each full share will be entitled to one vote at
the 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. All classes of the Fund's shares will vote together on each proposal.
The expenses of the Meeting will be shared by ICCC and ABIM (collectively,
the "Advisors"), 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,
Internet or face-to-face meetings by employees and officers of the Advisors.
Additional solicitation will be made by Shareholder Communications Corporation
("Shareholder Communications"), a solicitation firm located in New York, New
York, that has been engaged by the Advisors to assist in proxy solicitation.
Upon request, the Fund will furnish to shareholders, without charge, a copy
of the Fund's Annual Report for its fiscal year ended December 31, 1999 and the
Semi-annual Report for the period ended June 30, 2000, when available. These
reports of the Fund may be obtained by written request to the Fund, One South
Street, Mail Stop 16-xxx, Attention: Baltimore, Maryland 21202, or by calling
(800) 553-8080.
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.
PROPOSAL 1A: TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE
FUND AND INVESTMENT COMPANY CAPITAL CORP. ("ICCC" OR THE
"ADVISOR"), INCREASING THE ADVISORY FEES PAID BY THE FUND TO
ICCC
The Board has unanimously approved, and is recommending that shareholders
approve, a new investment advisory agreement between the Fund and ICCC that
would increase the rate of the fee payable to ICCC, the Fund's advisor. A
portion of the new fees would provide ICCC with funds to increase ABIM's
sub-advisory fee. The rationale for the proposed increase in ABIM's fee is
discussed under Proposal 1B. The fee increases for ICCC and ABIM will not go
into effect unless both proposals, as well as Proposal 3, are approved by
shareholders. Each fee increase will go into effect immediately upon shareholder
approval.
REASONS FOR THE NEW AGREEMENTS
INTRODUCTION. As investment advisor to the Fund, ICCC is responsible for
supervising and managing almost all aspects of the Fund's operations. Under the
terms of the current investment advisory agreement between the Fund and ICCC
(the "Current Advisory Agreement"), ICCC pays its own expenses in connection
with the services ICCC provides, and the Fund is responsible for
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paying for all Fund expenses. Over time, however, managing the Fund has become
more complicated and costly, both in terms of providing support services to
shareholders as the Fund has grown, and as a result of the increasing complexity
of the mutual fund business.
In recent years as the Fund has grown, ICCC has made substantial
investments in the infrastructure of its business to enable it to better manage
the increasing complexity of the Fund's administration. These investments also
provide ICCC with new in-house capabilities that replace or extend the range of
services that the Fund formerly paid third party vendors to provide. By building
and maintaining an in-house staff to deliver these services, ICCC believes it
will be able to provide certain services more efficiently than third parties
could, as well as reduce the fees paid to these parties for these services over
time. ICCC also believes that a dedicated in-house staff allows it to provide a
higher quality and a fuller range of services for the Fund.
In recognition of (1) ICCC's efforts in managing the Fund in light of its
growth and (2) the increased level of administrative and management services the
Fund now receives from ICCC, the Board approved, subject to shareholder
approval, a change in the Fund's fee arrangements, essentially splitting the
Current Advisory Agreement into two new agreements: a new investment advisory
agreement (the "New Advisory Agreement") and a new administrative services
agreement (the "Administrative Services Agreement"). The purpose of using two
agreements rather than one is to recognize and clarify these two types of
services that ICCC provides to the Fund, and appropriately compensate ICCC for
each type of service provided. The Board believes that the New Advisory
Agreement and Administrative Services Agreement are in the best interests of the
shareholders of the Fund and are reasonable in light of the nature, scope and
quality of services that ICCC provides, the Fund's performance, the fees and
expenses paid by comparable funds and ICCC's expenses and profitability in
managing the Fund. While the Administrative Services Agreement does not require
shareholder approval, it will not be implemented unless shareholders approve the
New Advisory Agreement and Proposals 1B and 3.
Some of the key factors considered by the Board in approving the New
Advisory Agreement and Administrative Services Agreement are discussed below.
For a detailed discussion of the various factors addressed by the Board when
considering and approving these agreements, see "Board Considerations."
INFRASTRUCTURE INVESTMENTS. The Board considered information on the many
investments ICCC has made to enhance the infrastructure of its business,
including:
- Establishment of a legal group to perform in-house some of the work
formerly handled by outside law firms that were paid directly by the Fund.
- Creation of a performance measurement group, resulting in earlier and more
detailed performance reporting.
- Development of a technology group to reduce manual work and the potential
for errors, and to improve the timeliness of data and reports.
- Various software investments, including recent purchases of software for
tax work, sales tracking, and to supplement the portfolio accounting and
performance reporting systems.
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- Establishment of a tax department to perform in-house much of the Fund's
tax work previously performed by outside firms that were paid directly by
the Fund.
- Development of a financial reporting group to handle production of
shareholder reports and prospectuses, which is expected to result in faster
production and may also generate future savings in printing costs.
- Ongoing development of the Flag Investors web-site (www.flaginvestors.com),
which, among other things, is expected in early 2001 to offer the Fund's
shareholders secure, 24-hour access to their account information. There can
be no assurances, however, that such access will become operational.
ICCC also advised the Board that ICCC expects to make further investments
in its business to improve the level of services provided to the Fund. The Board
concluded that these past and on-going investments should permit ICCC to provide
better support to the Fund's growing shareholder base, both now and in the
future. For example, the cost and complexity of handling a mutual fund relates
to the number of its shareholder accounts, among other things. As of January 31,
2000, the Fund had nearly 100,000 shareholder accounts, with the number of
shareholders increasing by over 49,000 during the previous 12-month period
alone. The Board also noted that while the benefits of these investments accrue
to all funds in the Flag fund complex, the Fund is one of the largest in the
complex and thus a major beneficiary.
FUND PERFORMANCE. The Board also considered ICCC's past performance as
advisor to the Fund, as reflected in the Fund's rating and the returns provided
to Fund shareholders as of March 31, 2000. The Fund has a Five-Star overall
rating from Morningstar, Inc. ("Morningstar"), which is the highest rating
awarded. As the following table shows, each class of shares of the Fund also has
consistently performed well as compared to its benchmark over prescribed time
periods. Past performance, of course, is no indication or guarantee of future
returns.
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDED MARCH 31, 2000)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class I
Shares(1) S&P 500(2) Shares(1) S&P 500(2) Shares(1) S&P 500(2) Shares S&P 500(2)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Past One Year 17.39% 17.94% 17.13% 17.94% 21.98% 17.94% 24.59% 17.94%
--------------------------------------------------------------------------------------------------------------------------------
Past Five Years 38.21% 26.76% 38.17% 26.76% N/A 26.76% N/A 26.76%
--------------------------------------------------------------------------------------------------------------------------------
Past Ten Years 23.08% 18.84% N/A 18.84% N/A 18.84% N/A 18.84%
--------------------------------------------------------------------------------------------------------------------------------
Since Inception 21.86% 18.09%(3) 37.53% 27.58%(4) 64.77 % 26.09%(5) 55.56% 20.49%(6)
(1/18/84) (1/3/95) (10/28/98) (6/4/98)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the current maximum sales charges.
(2) The Standard & Poor's 500 Index is an unmanaged index that is a widely
recognized benchmark of general market performance. The index does not
factor in the costs of buying, selling, and holding securities -- costs
which are reflected in the Fund's results.
(3) For the period from 1/31/84 through 3/31/2000.
(4) For the period from 12/31/94 through 3/31/2000.
(5) For the period from 10/31/98 through 3/31/2000.
(6) For the period from 5/31/98 through 3/31/2000.
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NEW FEE ARRANGEMENTS. The use of two new agreements to replace the Current
Advisory Agreement alters the Fund's current advisory fee arrangements, as shown
in the following table:
COMPARISON OF ADVISORY FEE ARRANGEMENTS
<TABLE>
<CAPTION>
CURRENT PROPOSED
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<S> <C> <C>
Advisory Fee 0.58% 0.73%
Administrative Services Fee 0 0.15%
Fee Waiver 0 (0.15%)
----- -------
TOTAL 0.58% 0.73%
</TABLE>
The end result is that the overall fees paid by the Fund to ICCC would
increase by 0.15% of the Fund's average daily net assets, which equals the fees
the Fund would pay under the new Administrative Services Agreement. Although
fees to ICCC would rise, ICCC, in its capacity as the Fund's advisor and
administrator, has agreed to an aggregate fee waiver equal to 0.15% of the
Fund's average daily net assets. These fee waivers will last for a minimum of
two years, and ICCC has no current intention to change the waiver thereafter.
Before eliminating or reducing the waiver after two years, ICCC must give
advance notice to the Board, which reviews the overall level of fees paid to the
advisor and administrator. The practical effect is that ICCC, in its dual
capacities as the Fund's advisor and administrator, will receive only one-half
of the combined fee increase unless and until the fee waiver is eliminated or
reduced after notice to and further consideration by the Board, or the Board
approves changes to the Administrative Services Agreement.
EXPENSE RATIO COMPARISON. The Fund's expense ratio has historically been
very competitive. Based on data for the 12 months ended May 31, 2000, and
assuming the proposed change in the Fund's fee arrangements is approved by
shareholders, the Fund's pro forma expense ratio for its Class A shares would
have been 1.09% (after the fee waiver) and 1.24% (without the fee waiver). Based
on data for only the month of May 2000, these pro forma expense ratios would
have been 1.02% (after fee waivers) and 1.17% (without fee waivers). These
expense ratios compare favorably with the 1.22% average expense ratio of "A"
class shares of all specialty communications funds tracked by Morningstar as of
May 31, 2000. (Please note that the data Morningstar provides on each fund it
tracks is based on publicly available information contained in the fund's annual
shareholder report and reported by each fund to Morningstar. This information
does not reflect more current data as of a date after the date of the fund's
most recent annual report. For example, if after the distribution of a fund's
most recent annual report, the fund's assets grow and its expenses remain the
same, the fund's current expense ratio may be lower than the expense ratio
included in that fund's most recent annual report. As a result, Morningstar data
does not necessarily reflect each fund's most current expense ratio. The Fund's
pro forma expense ratios described above, however, are based on current data as
of May 2000, as considered by the Board.)
The following table and example provide a comparison of the Fund's average
annual operating expenses for the fiscal year ended December 31, 1999, as
reported in the Fund's most recent annual report, and the pro forma expenses
showing these same expenses adjusted for the Fund's new fee arrangements. The
figures shown below differ from those discussed in the preceding paragraph as a
result of the growth of Fund assets during 1999 and 2000, which caused Fund
expenses, as a percentage of Fund assets, to decline over time.
14
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSE (DEDUCTED CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS I SHARES
FROM FUND ASSETS) CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA
----------------- ------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.58% 0.73% 0.58% 0.73% 0.58% 0.73% .058% 0.73%
Distribution and/or
Service (12b-1) Fees 0.25% 0.25% 0.75% 0.75% 0.75% 0.75% None None
Other Expenses 0.13% 0.28% 0.38% 0.53% 0.37% 0.52% 0.14% 0.29%
----- ----- ----- ----- ----- ----- ----- -----
Total Annual Fund
Operating Expenses 0.96% 1.26% 1.71% 2.01% 1.70% 2.00% 0.72% 1.02%
Less Fee Waivers -- (0.15%) -- (0.15%) -- (0.15%) -- (0.15%)
------ ------- ------ ------- ------ ------- ------ -------
Net Expenses 0.96% 1.11% 1.71% 1.86% 1.70% 1.85% 0.72% 0.87%
</TABLE>
--------------------
EXAMPLE:
This Example is intended to help you compare the cost of investing in each
class of the Fund with the cost of investing in other mutual funds. This is a
hypothetical example only, and is not intended to suggest that the Fund's future
performance will match the assumptions used in the example.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year, the Fund's operating expenses remain the same, the fee waiver applies
during the first two years only and all expenses reflect the maximum applicable
sales charges. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $643 $657 $839 $899 $1,052 $1,176 $1,663 $1,963
Class B Shares $674 $689 $839 $901 $1,128 $1,255 $1,727 $2,028
Class C Shares $273 $288 $536 $598 $ 923 $1,049 $2,021 $2,302
Class I Shares $ 73 $ 89 $227 $299 $ 391 $ 533 $ 851 $1,220
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA CURRENT PRO FORMA
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $643 $657 $839 $899 $1,052 $1,176 $1,663 $1,963
Class B Shares $174 $189 $539 $601 $ 928 $1,055 $1,727 $2,028
Class C Shares $173 $188 $536 $598 $ 923 $1,049 $2,021 $2,302
Class I Shares $ 73 $ 89 $227 $299 $ 391 $ 533 $ 851 $1,220
</TABLE>
15
<PAGE>
THE CURRENT ADVISORY AGREEMENT
ICCC serves as investment advisor to the Fund pursuant to the Current
Advisory Agreement between ICCC and the Fund, dated as of June 4, 1999.
Shareholders of the Fund last approved the Current Advisory Agreement on October
7, 1999, in connection with the merger of ICCC's corporate parent with Deutsche
Bank AG. The Board, including a majority of the Independent Directors, approved
the Current Advisory Agreement for an initial two-year term on March 30, 1999.
FEES. ICCC receives a fee from the Fund, calculated daily and paid at the
end of each calendar month. The annual rate of the advisory fee under the
Current and New Advisory Agreements is as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY CURRENT NEW
NET ASSETS ADVISORY FEE ADVISORY FEE
---------- ------------ ------------
<S> <C> <C>
0 - $100 Million 0.85% 1.00%
Next $100 Million 0.75% .90%
Next $100 Million 0.70% .85%
Next $200 Million 0.65% .80%
Next $500 Million 0.58% .73%
Next $500 Million 0.53% .68%
Excess over $1.5 Billion 0.50% .65%
</TABLE>
For the year ended December 31, 1999, the Fund paid ICCC $11,892,502 in
advisory fees. If the Fund's new fee arrangements (including fee waivers) had
been in place instead, the Fund would have paid ICCC advisory and
administrative services fees of $14,998,488, which represents an increase of
26%. Without fee waivers, the Fund would have paid ICCC advisory and
administrative services fees of $17,248,261, which represents an increase of
45%.
THE NEW ADVISORY AGREEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The New Advisory Agreement is identical to the Current Advisory Agreement,
except as follows: the New Advisory Agreement includes the change in fees, and
does not require the Advisor to provide certain administrative services to the
Fund or to provide the Fund with or obtain for it office space, equipment and
services that will now be provided pursuant to the Administrative Services
Agreement. The New Advisory Agreement also requires the Advisor to maintain
certain books and records. Additionally, the dates of execution, effectiveness
and initial term of the New Agreement differ from those of the Current Advisory
Agreement. The terms of the New Advisory Agreement are summarized below and are
qualified by reference to Exhibit A.
THE NEW ADVISORY AGREEMENT. The New Advisory Agreement provides that the
Advisor, in return for its fee, will (a) supervise and manage all aspects of the
Fund's investment program; (b) formulate and implement continuing programs for
the purchase and sale 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
and as might not otherwise be provided under the Fund's other agreements; (d)
obtain and evaluate
16
<PAGE>
pertinent information about significant developments and economic, statistical
and financial data; (e) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors; (f) take all actions necessary to carry into effect the
Fund's purchase and sale programs; and (g) maintain such books and records, in
cooperation with the Fund's administrator and the Fund's distributor, as may be
required by law or deemed advisable by the Board of Directors. Subject to the
approval of the Board and the Fund's shareholders, the Advisor may delegate
certain of its duties enumerated above to a sub-advisor.
As described above, under the New Advisory Agreement the Fund will pay ICCC
an annual fee based on the Fund's average daily net assets. Further, ICCC may,
from time to time, voluntarily waive a portion of its advisory fee.
The New Advisory Agreement provides that the Advisor will furnish, at its
expense and without cost to the Fund, the services of one or more officers of
the Fund to the extent that such officers may be required by the Fund for the
proper conduct of its affairs. The Fund assumes and pays all other expenses of
the Fund. These expenses include, but are not limited to, payments to the Fund's
distributor under the Fund's plans of distribution and to the Fund's
administrator under the Administrative Services Agreement; 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 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;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
The services of the Advisor are not to be deemed exclusive, and the Advisor
is 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 the agreement are not impaired thereby. The Advisor's officers or
directors may serve as officers or directors of the Fund, and the Fund's
officers or directors may serve as officers or directors of the Advisor.
Following the expiration of its initial two-year term, the New Advisory
Agreement continues in full force and effect from year to year, provided that
such continuance is approved at
17
<PAGE>
least annually by the Fund's Board or by the vote of a majority of the Fund's
outstanding voting securities, and by the affirmative vote of a majority of the
Directors who are not parties to the agreement or "interested persons" of a
party to the agreement (other than as Directors of the Fund) by votes cast in
person at a meeting specifically called for such purpose.
The New Advisory Agreement may be terminated at any time, on waivable
written notice within 60 days and without any penalty, by vote of the Fund's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities, or by the Advisor. The agreement automatically terminates in the
event of its assignment.
The New Advisory Agreement obligates the Advisor to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to ensure the accuracy of all services performed under the agreement, but
the Advisor is not liable for any act or omission that does not constitute
willful misfeasance, bad faith or gross negligence on the part of the Advisor or
its officers, directors or employees, or reckless disregard by the Advisor of
its duties under the agreement.
As discussed in Proposal 3, the Board of Directors has approved agreements
for a master portfolio, including an advisory agreement with a fee that is the
same as the proposed advisory fee for the Fund, but contingent on shareholder
approval of the New Advisory Agreement. If shareholders approve the new Advisory
Agreement and the reorganization of the Fund into a feeder fund, the contractual
fee at the master level will be the same as the proposed fee at the feeder
level.
The Directors have also approved (contingent upon shareholder approval of
this proposal and proposals 1B and 3) a new Administrative Services Agreement
for the Fund. If shareholders approve the New Advisory Agreement (and proposals
1B and 3), the Advisor and the Administrator will waive a portion of their
respective fees, for a period of at least two years, in an amount equal to the
increase in advisory fees. If the New Advisory Agreement (and proposals 1B and
3) is not approved, the Fund's current fee arrangements will remain in place at
the current level.
THE ADMINISTRATIVE SERVICES AGREEMENT. The Administrative Services
Agreement provides that the Administrator, in return for its fee, will (a)
supervise and manage all aspects of the Fund's operations, other than portfolio
management and distribution; (b) provide the Fund with such executive,
administrative, clerical and bookkeeping services as are deemed advisable by the
Fund's Board of Directors; (c) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services including all items
for any offices as are deemed advisable by the Fund's Board of Directors; (d)
supervise the operations of the Fund's transfer and dividend disbursing agent;
and (e) 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.
Under the Administrative Services Agreement, the Fund pays ICCC an annual
fee based on the Fund's average daily net assets. This fee is calculated and
accrued daily and the amounts of the daily accruals shall be paid monthly, at
the annual rate of 0.15% of the Fund's average daily net assets. The
Administrator may from time to time voluntarily waive a portion of its
administrative services fee.
18
<PAGE>
The Administrative Services Agreement provides that the Administrator will
furnish, at its expense and without cost to the Fund, the services of one or
more officers of the Fund to the extent that such officers may be required by
the Fund for the proper conduct of its affairs. The Fund assumes and pays all
other expenses of the Fund. (See "The New Advisory Agreement" above for a list
of these expenses.)
The services of the Administrator are not to be deemed exclusive, and the
Administrator is free to render corporate administrative or other services to
others (including other investment companies), and to engage in other
activities, so long as its services under the agreement are not impaired
thereby. The Administrator's officers or directors may serve as officers or
directors of the Fund, and the Fund's officers or directors may serve as
officers or directors of the Administrator.
The Administrative Services Agreement continues in full force and effect
until terminated.
The Administrative Services Agreement may be terminated at any time, on
waivable written notice within 60 days and without any penalty, by vote of the
Fund's Board of Directors or by the Administrator. The agreement automatically
terminates in the event of its assignment.
The Administrative Services Agreement obligates the Administrator to
exercise care and diligence and to act in good faith and to use its best efforts
within reasonable limits in performing the services provided for under the
agreement, but the Administrator is not liable for any act or omission which
does not constitute willful misfeasance, bad faith or gross negligence on the
part of the Administrator.
BOARD CONSIDERATIONS. The Board held meetings on March 21-22, 2000, and
June 21-22, 2000 to consider the New Advisory Agreement and the Administrative
Services Agreement. In addition, the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund (the "Independent Directors") also
discussed approval of the New Advisory Agreement with their independent counsel.
To assist the Directors in their consideration of the New Advisory
Agreement and the Administrative Services Agreement at the Board meetings, ICCC
presented a comparative analysis, under the existing and pro forma advisory
fees, of the performance and expenses of the Fund. The Directors considered (1)
the nature and quality of the advisory services rendered and the results
achieved by ICCC in the management of the Fund, giving due consideration to (i)
the likely impact of the proposed fee on relative performance and (ii) the
significant and on-going infrastructure investments made by ICCC to enable it to
better provide services to the Fund's shareholders and the increased complexity
of the mutual fund business in general; (2) the relationship of the proposed fee
arrangements to the fees of comparable mutual funds, the impact of the proposed
increase in fees on the Fund's expense ratio and the relationship of the Fund's
pro forma expense ratio to the expense ratios of comparable mutual funds; (3)
the costs borne by ICCC in providing investment advisory and other services to
the Fund, including the proposed additional payments to the Fund's sub-advisor;
(4) the profits of ICCC in providing services to the Fund; (5) the extent to
which the economies of scale that ICCC might experience as a result of growth in
the Fund's assets would be shared with the Fund; (6) the terms and conditions of
the voluntary fee waiver provided by ICCC; and (7) research services received in
return for allocation of brokerage. With respect to the nature and quality of
services and the results achieved, the Directors were presented with
19
<PAGE>
information about the success of the Fund since inception (1984) in maintaining
highly competitive portfolio performance.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the Independent
Directors, unanimously approved the New Advisory Agreement and Administrative
Services Agreement, and voted to recommend approval of the New Advisory
Agreement to the shareholders of the Fund.
INFORMATION ABOUT ICCC
ICCC is a registered investment advisor with assets under management as of
December 31, 1999, of approximately $11 billion, including the assets of ICCC's
other clients. ICCC is an indirect wholly owned subsidiary of Deutsche Bank AG.
The principal address of ICCC is One South Street, Baltimore, Maryland, 21202.
The principal address of Deutsche Bank is Deutsche Bank Aktiengesellschaft,
Taunusalage 12, D-60262 Frankfurt am Main, Federal Republic of Germany.
The following information is provided for each Director and the principal
executive officer of ICCC. Unless otherwise noted, the address for each is One
South Street, Baltimore, Maryland 21202.
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH ICCC PRINCIPAL OCCUPATION
------------------------------------ --------------------
<S> <C>
Richard T. Hale, Director and President - Managing Director, Deutsche Asset Management
- Managing Director, DB Alex. Brown LLC
Ross Youngman, Director - Managing Director, Deutsche Asset Management
Steven A. Schneider, Director - Managing Director, Deutsche Asset Management
</TABLE>
Additionally, Mr. Hale is a director and Daniel O. Hirsch is an officer of
the Fund as well as ICCC.
For the fiscal year ended December 31, 1999, the Fund paid ICCC aggregate
fees of $1,639,648 for transfer agency services and $153,996 for accounting
services provided to the Fund. The Fund also paid Bankers Trust Company, an
affiliate of ICCC, $146,539 for custody services provided to the Fund. The
Fund also paid $7,200 in brokerage commissions to DB Alex. Brown, an affiliate
of ICCC. The Fund will continue to receive these services if the Fund's new
fee arrangements are approved.
In addition, on May 17, 2000, DB Alex. Brown, LLC ("DBAB"), an affiliate of
ICCC, entered into an agreement to sell its 50% general partnership interest in
the Fund's sub-advisor to the Fund's sub-advisor, subject to certain conditions.
If these conditions are met, the sale becomes effective in March 2001. In
connection with this sale, the Fund's sub-advisor also entered into a trademark
license agreement with BT Alex Brown Holdings, Inc. ("BTAB Holdings"), another
affiliate of ICCC. Under these agreements, the Fund's sub-advisor agreed to pay
DBAB and BTAB Holdings a total of 78% of its sub-advisory fees earned during
calendar years 2000, 2001,
20
<PAGE>
and 2002 in connection with providing sub-advisory services to the Fund and two
other funds in the Flag Investors fund complex, (the "Fund Complex"), less
certain deductions. (See Proposal 2 for further information about this
transaction.)
OTHER FUNDS ADVISED BY ICCC WITH SIMILAR INVESTMENT OBJECTIVES
A number of funds in the Fund Complex invest primarily in equity securities
and accordingly seek capital appreciation, either in and of itself, or along
with income. However, each of these funds employs widely differing investment
policies and styles in seeking these objectives. The following table provides
comparative information on fees paid to ICCC pursuant to advisory agreements in
effect for such funds.
<TABLE>
<CAPTION>
AVERAGE NET MANAGEMENT FEE
ASSETS (AS A PERCENTAGE OF
FUND (000s) AVERAGE DAILY NET ASSETS)
---- ------ -------------------------
<S> <C> <C>
Flag Investors Emerging Growth Fund, Inc. $139,710(1) 0.85%(1)
Flag Investors Equity Partners Fund, Inc. $433,828(2) 0.78%(2)
Flag Investors Real Estate Securities Fund, Inc. $ 25,246(3) 0.35%
(net of fee waivers)(3)
Flag Investors Value Builder Fund, Inc. $967,181(4) 0.73%(4)
</TABLE>
--------------------
(1) Information given for the fiscal year ended October 31, 1999.
(2) Information given for the fiscal year ended May 31, 2000.
(3) Information given for the fiscal year ended December 31, 1999. Absent fee
waivers, management fees would be 0.65% of the fund's average daily net
assets.
(4) Information given for the fiscal year ended March 31, 2000.
In conjunction with the proposal of the New Advisory Agreement, and the
related new sub-advisory agreement for ABIM discussed in Proposal 1B, and
contingent upon Fund shareholder approval of each, ABIM agreed to lower the
sub-advisory fees it charges ICCC for providing sub-advisory services to Flag
Investors Equity Partners Fund, Inc. and Flag Investors Value Builder Fund, Inc.
by ten basis points at each breakpoint. This change has no impact on the
advisory fees either of these funds pays to ICCC, because ICCC, not the funds
themselves, pays ABIM. Nevertheless, the ultimate impact of this change is to
increase the net fees ICCC earns by providing advisory services to each of these
funds.
SHAREHOLDER APPROVAL OF THE NEW ADVISORY AGREEMENT
Approval of the New Advisory Agreement requires the affirmative vote of a
majority of the outstanding voting securities of the Fund, as defined in the
1940 Act. In the event that shareholders of the Fund do not approve the New
Advisory Agreement, the Current Advisory Agreement will remain in effect. In
addition, the Board will not implement any of the Fund's new fee arrangements
and will take such other action as it deems in the best interest of the Fund and
its shareholders.
21
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW ADVISORY AGREEMENT.
PROPOSAL 1B: TO APPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT AMONG THE
FUND, INVESTMENT COMPANY CAPITAL CORP. ("ICCC") AND ALEX.
BROWN INVESTMENT MANAGEMENT ("ABIM"), INCREASING THE
SUB-ADVISORY FEE PAID BY ICCC TO ABIM.
The Board has unanimously approved, and is recommending that shareholders
approve, a new sub-advisory agreement among the Fund, ICCC and ABIM (the "New
Sub-Advisory Agreement") that would increase the fee paid by ICCC to ABIM by
0.05% of the Fund's average daily net assets at each break point. As discussed
below, the Board believes that the New Sub-Advisory Agreement is appropriate
because it properly recognizes the services and expertise that the sub-advisor
provides to the Fund as the sub-advisor pursues superior long-term returns in
today's complex and rapidly changing global telecommunications industry. The New
Sub-Advisory Agreement will not go into effect unless Proposals 1A and 3 are
also approved by shareholders.
REASONS FOR THE NEW SUB-ADVISORY AGREEMENT
At meetings held on March 21-22, 2000, and June 21-22, 2000, the Board
considered the New Sub-Advisory Agreement. Two of the key factors the Board
considered are summarized below. For a detailed discussion of the various
factors addressed by the Board when considering and approving the New
Sub-Advisory Agreement, see "Board Considerations."
FUND PERFORMANCE. As sub-advisor to the Fund, ABIM is responsible for,
among other things, managing the Fund's investment portfolio, which includes
making all decisions with respect to the securities the Fund will buy, sell and
hold. In this connection, ABIM has invaluable expertise and unusual experience
in the communications industry sector. The quality of the services and expertise
that ABIM provides to the Fund is evidenced by the Fund's performance over both
short-term and long-term periods.
As discussed under "Fund Performance" in Proposal 1A, the Fund has the
highest overall rating (Five Stars) from Morningstar, and has out performed the
S&P 500, its benchmark, for the period starting at its inception and ended March
31, 2000. Additionally, over the one-, three- and five-year periods ended March
31, 2000, the Fund, excluding the impact of sales charges, has outperformed the
S&P 500. The Board believes that the New Sub-Advisory Agreement properly
recognizes the high quality services and expertise that ABIM provides to the
Fund's shareholders.
INCREASED COMPLEXITY OF THE FUND. The Fund originally started in 1984 as a
vehicle that mostly held shares of AT&T and the seven Regional Bells Operating
Companies (the so-called "baby Bells"). Since that time, the Fund has evolved
into a more complex mutual fund, seeking investments in securities of domestic
and foreign companies that are engaged in the research, development, manufacture
or sale of communications services, technology, equipment or products. For
example, as of May 31, 2000, the Fund's portfolio included securities of
communication equipment companies (20% of the Fund's portfolio), software and
applications providers (7% of the Fund's portfolio), media companies (15% of the
Fund's portfolio) and international network operators (12% of the Fund's
22
<PAGE>
portfolio). Moreover, the worldwide expansion of the telecommunications field
has increased both the number and nature of the companies involved, which has
increased the complexity of managing the Fund's investment portfolio. As the
pace of technological change and globalization continue to increase, the
successful pursuit of superior long-term returns requires greater expertise and
creates additional demand on the sub-advisor's research, analysis and portfolio
management abilities.
THE CURRENT SUB-ADVISORY AGREEMENT
ABIM serves as sub-advisor to the Fund pursuant to a sub-advisory agreement
among the Fund, ICCC and ABIM, dated as of June 4, 1999 (the "Current
Sub-Advisory Agreement"). The Current Sub-Advisory Agreement was initially
approved by the shareholders of the Fund on October 7, 1999. The Current
Sub-Advisory Agreement was approved by the Fund's Board of Directors, including
a majority of the Independent Directors, for an initial two-year term on March
30, 1999.
FEES. ABIM receives a fee from ICCC, calculated daily and paid at the end
of each calendar month. The annual rate of the sub-advisory fee under the
Current and New Sub-Advisory Agreements is as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY CURRENT PROPOSED
NET ASSETS SUB-ADVISORY FEE SUB-ADVISORY FEE
---------- ---------------- ----------------
<S> <C> <C>
0 - $100 Million 0.60% 0.65%
Next $100 Million 0.55% 0.60%
Next $100 Million 0.50% 0.55%
Next $200 Million 0.45% 0.50%
Next $500 Million 0.40% 0.45%
Next $500 Million 0.37% 0.42%
Excess over $1.5 Billion 0.35% 0.40%
</TABLE>
For the year ended December 31, 1999, ICCC paid ABIM $8,337,647 in
sub-advisory fees. If the New Advisory Agreement had been in place instead, ICCC
would have paid ABIM $9,364,454, which represents an increase of 12%.
THE NEW SUB-ADVISORY AGREEMENT
Other than the fees and the dates of execution, effectiveness and initial
term, the New Sub-Advisory Agreement is identical to the Current Sub-Advisory
Agreement. The terms of the New Sub-Advisory Agreement are summarized below and
are qualified by reference to Exhibit B.
THE NEW SUB-ADVISORY AGREEMENT. The New Sub-Advisory Agreement provides
that ABIM, in return for its fee, will (a) provide the Fund with executive,
administrative and clerical services; (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 purchase and sale of the securities and regularly report thereon to the
Fund's Board of Directors; (d) take, on behalf of the Fund, all actions
necessary to effect the purchase and sale programs, including placing orders;
and (e) obtain and evaluate pertinent information about
23
<PAGE>
significant developments and economic, statistical and financial data, with
respect to securities considered desirable for inclusion in the Fund's
portfolio.
The New Sub-Advisory Agreement provides that ABIM will furnish at its
expense, the services of one or more officers of the Fund, to the extent that
such officers may be required by the Fund for the proper conduct of its affairs.
ABIM will maintain at its expense, a trading function in order to place orders
for the purchase and sale of portfolio securities of the Fund. The Fund assumes
and pays all of its other expenses.
The services of ABIM are not to be deemed totally exclusive. ABIM is free
to render investment advisory or other services to others, so long as its
services under the agreement are not impaired thereby. Partners of ABIM may
serve as officers or Directors of the Fund, the Fund's officers or Directors may
serve as officers or partners of ABIM, and partners of ABIM are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, trustees or directors of
any other firm, trust or corporation, including other investment companies.
Following the expiration of its initial two-year term, the New Sub-Advisory
Agreement continues in full force and effect from year to year, provided that
such continuance is approved at least annually by the Fund's Board or by the
vote of a majority of the Fund's outstanding voting securities, and by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or "interested parties" of a party to the agreement (other than as
Directors of the Fund) by votes cast in person at a meeting specifically called
for such purpose.
The New Sub-Advisory Agreement may be terminated, without the payment of
any penalty, by the Fund upon a vote of the Fund's Board of Directors, by a vote
of a majority of the Fund's outstanding voting securities or by ABIM, upon 60
days' waivable written notice to the other parties. The agreement automatically
terminates in the event of its assignment.
The New Sub-Advisory Agreement obligates ABIM to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to ensure the accuracy of all services performed under the agreement, but
ABIM is not liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of ABIM or its officers,
partners or employees or reckless disregard by ABIM of its duties under the
agreement.
BOARD CONSIDERATIONS. At meetings on March 21 and 22, 2000, and June 21-22,
2000, the Board considered the New Sub-Advisory Agreement. In addition, the
Independent Directors also discussed approval of the New Sub-Advisory Agreement
with their independent counsel.
To assist the Directors in their consideration of the New Sub-Advisory
Agreement, ICCC and ABIM presented a comparative analysis, under the existing
and pro forma advisory fees, of the performance and expenses of the Fund. The
Directors took into account (1) the nature and quality of the sub-advisory
services rendered and the results achieved by ABIM in the management of the
Fund, giving due consideration to the likely impact of the proposed fee on
relative performance; (2) the relationship of the proposed sub-advisory fee
schedule to the fee schedules of comparable mutual funds, the impact of the
proposed increase in advisory fees on the Fund's expense ratio and the
relationship of the Fund's pro forma expense ratio to the expense ratios of
comparable mutual funds; (3) the costs borne by ABIM in providing investment
sub-advisory services to the Fund,
24
<PAGE>
including the expansion of ABIM's research and administrative efforts and the
increased complexities associated with the global telecommunications industry;
(4) the profits of ABIM in providing services to the Fund; (5) the extent to
which the economies of scale that ABIM might experience as a result of growth in
the Fund's assets would be shared with ICCC and the Fund; and (6) research
services received in return for allocation of brokerage. With respect to the
nature and quality of services and the results achieved, the Directors were
presented with information about the success of the Fund since inception (1984)
in maintaining highly competitive portfolio performance.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the Independent
Directors, unanimously approved the New Sub-Advisory Agreement and voted to
recommend its approval to the shareholders of the Fund.
ADDITIONAL INFORMATION ABOUT ABIM
ABIM, a limited partnership, is a registered investment advisor with assets
under management as of June 30, 2000, of approximately $10.4 billion, including
assets of the Fund and the assets of ABIM's other clients. Buppert, Behrens &
Owen, Inc. ("BB&O"), a company organized and owned by three employees of ABIM,
owns a 49% limited partnership interest and a 1% general partnership interest in
ABIM. DB Alex. Brown, LLC ("DBAB"), an affiliate of ICCC, owns the remaining 50%
general partnership interest in ABIM. The address of each of the foregoing
entities is One South Street, Baltimore, Maryland 21202.
The following information is provided for each general partner and the
principal executive officer of ABIM.
<TABLE>
<CAPTION>
NAME AND POSITION WITH ABIM ADDRESS PRINCIPAL OCCUPATION
--------------------------- ------- --------------------
<S> <C> <C>
Buppert, Behrens & Owen, Inc. One South Street N/A
General Partner Baltimore, MD 21202
DB Alex. Brown, LLC One South Street N/A
General Partner Baltimore, MD 21202
J. Dorsey Brown, III One South Street Chief Executive Officer, ABIM
Chief Executive Officer Baltimore, MD 21202
</TABLE>
ABIM is an affiliate of ICCC. For the fiscal year ended December 31, 1999,
the Fund paid to ICCC or ICCC's affiliates the amounts described in Proposal 1A
for the advisory, transfer agency, accounting and custody services provided to
the Fund.
OTHER FUNDS WITH SIMILAR INVESTMENT OBJECTIVES SUB-ADVISED BY ABIM
ABIM acts as sub-advisor to two other funds that invest primarily in equity
securities and accordingly seek capital appreciation, either in and of itself,
or along with income. However, each of these funds employs widely differing
investment policies and styles in seeking these objectives.
25
<PAGE>
The following table provides comparative information on fees paid by ICCC to
ABIM pursuant to sub-advisory agreements in effect for such funds.
<TABLE>
<CAPTION>
AVERAGE NET SUB-ADVISORY FEE
ASSETS OF (AS A PERCENTAGE OF
FUND FUND (OOOs) AVERAGE DAILY NET ASSETS)
---- ----------- -------------------------
<S> <C> <C>
Flag Investors Equity Partners Fund, Inc. $433,828(1) 0.56%(1)
Flag Investors Value Builder Fund, Inc. $967,181(2) 0.53%(2)
</TABLE>
--------------------
(1) Information given for the fiscal year ended May 31, 2000.
(2) Information given for the fiscal year ended March 31, 2000.
In conjunction with the proposal of the New Sub-Advisory Agreement, and the
related New Advisory Agreement for ICCC discussed in Proposal 1A, ABIM agreed to
lower the sub-advisory fees it charges ICCC for providing advisory services to
Flag Investors Equity Partners Fund, Inc. and Flag Investors Value Builder Fund,
Inc. by ten basis points at each breakpoint. This change would be effective only
upon shareholder approval of the New Sub-Advisory Agreement and the New Advisory
Agreement for ICCC.
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the New Sub-Advisory Agreement requires the affirmative vote of
a majority of the outstanding voting securities of the Fund (as defined in the
1940 Act). In the event that shareholders of the Fund do not approve the New
Sub-Advisory Agreement, the Board will take such action as it deems in the best
interest of the Fund and its shareholders, which may include proposing that
shareholders approve an agreement in lieu of the New Sub-Advisory Agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
26
<PAGE>
PROPOSAL 2: TO APPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT AMONG THE
FUND, INVESTMENT COMPANY CAPITAL CORP. ("ICCC") AND ALEX.
BROWN INVESTMENT MANAGEMENT ("ABIM"), REFLECTING THE CHANGE
OF CONTROL OF ABIM
As described below, ABIM and one of its current 50% owners have entered
into an agreement to purchase the interest of the remaining 50% owner, effective
March 2001. This expected change of control of ABIM may be considered an
assignment and termination of any sub-advisory agreement that ABIM has with ICCC
and the Fund at that time. In anticipation of this transaction, the Board has
unanimously approved, and is recommending that shareholders approve, a new
sub-advisory agreement among the Fund, ICCC and ABIM, which reflects the change
of control of ABIM (the "Proposed Sub-Advisory Agreement"). The change of
control of ABIM is not expected to impact the nature or quality of the services
to be provided by ABIM to ICCC or the Fund.
THE PROPOSED SUB-ADVISORY AGREEMENT
The terms of the Proposed Sub-Advisory Agreement will be identical to the
sub-advisory agreement in place in March 2001 when the change of control of ABIM
takes effect. If Proposals 1A and 1B (or substantially similar proposals) are
approved, the Proposed Sub-Advisory Agreement will be identical to the New
Sub-Advisory Agreement; otherwise, the Proposed Sub-Advisory Agreement will be
identical to the Current Sub-Advisory Agreement. See Proposal 1B for a detailed
discussion of the terms of both the Current and New Sub-Advisory Agreements and
related information.
CHANGE OF CONTROL OF ABIM
ABIM currently is a limited partnership affiliated with ICCC. Buppert,
Behrens & Owen, Inc. ("BB&O"), a company organized and owned by three employees
of ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. DB Alex. Brown, LLC ("DBAB"), an affiliate of ICCC, owns the
remaining 50% general partnership interest in ABIM.
On May 17, 2000, ABIM and BB&O entered into an Agreement of Sale of
Partnership Interests ("Sale Agreement") with DBAB that will result in BB&O
holding all partnership interests in ABIM, effective as of a March 2001 closing
date. In connection with this sale, ABIM also entered into a Trademark License
Agreement (the "License Agreement") with BT Alex. Brown Holdings, Inc. ("BTAB
Holdings") that will permit ABIM to continue to use the "Alex. Brown" name from
the March 2001 closing date until December 31, 2005. Under the terms of these
agreements, ABIM has agreed to pay DBAB and BTAB Holdings an amount equal to 60%
and 18%, respectively, of the sub-advisory fees earned during calendar years
2000, 2001 and 2002 by ABIM for providing advisory services to ICCC on behalf of
the Fund, and two other funds in the Fund Complex: Flag Investors Equity
Partners Fund, Inc. ("Equity Partners") and Flag Investors Value Builder Fund,
Inc. ("Value Builder"). If one or more of these funds converts to a feeder fund
in a master-feeder format, as described in Proposal 3, this calculation would
include sub-advisory fees earned in connection with providing sub-advisory
services to any master portfolio in which a fund invests. All amounts due will
be paid on eight installments on a quarterly basis
27
<PAGE>
beginning April 30, 2001, with the last installment due January 31, 2003.
Amounts due DBAB will be offset by ABIM partnership distributions payable to
DBAB in April 2001.
The March 2001 closing date for the Sale Agreement is contingent upon,
among other events, the approval of the Proposed Sub-Advisory Agreement by Fund
shareholders, and the approval of similar-type proposed sub-advisory agreements
by the shareholders of Equity Partners and Value Builder. The Sale Agreement
also includes a provision prohibiting ABIM, BB&O and its employees, partners,
officers, or directors from providing investment advisory services to any other
registered investment company pursuing the same investment strategies as the
Fund, Equity Partners or Value Builder. Consistent with the fiduciary duties
that ICCC owes the Fund as its advisor, the Sale Agreement and License Agreement
do not prevent ICCC from suggesting that the Fund terminate its relationship
with ABIM if ICCC believes such a suggestion is appropriate, but any such
termination must ultimately be recommended by a majority of the Fund's
Independent Directors and approved by the Fund's Board.
BOARD CONSIDERATIONS
At meetings on March 21 and 22, 2000, the Board considered the Proposed
Sub-Advisory Agreement. The Board, including the Independent Directors, approved
the Proposed Sub-Advisory Agreement and recommended it for approval by the
shareholders of the Fund.
In evaluating the Proposed Sub-Advisory Agreement, the Board considered
substantially the same factors that led it to approve the New Sub-Advisory
Agreement, as described in Proposal 1B under "Board Considerations," as well as
the continuity of services. The Board also took into account (1) the nature and
quality of services expected to be provided by ABIM after the change of control;
and (2) the potential impact of the terms and conditions of the Sale Agreement
and License Agreement on ABIM's financial standing and profitability,
particularly as these factors affect ABIM's ability to provide the services
required under the Proposed Sub-Advisory Agreement. In these regards, the Board
concluded that the change of control of ABIM was not expected to have any
adverse material impact on the nature and quality of services to be provided by
ABIM.
The Board also was advised that ICCC, ABIM and BB&O intended to comply with
the requirements of Section 15(f) of the 1940 Act. Section 15(f) provides a
non-exclusive safe harbor for an investment advisor to an investment company or
any of its affiliated persons to receive any amount or benefit in connection
with a change in control of the investment advisor that results in an assignment
so long as two conditions are met:
1. For a period of three years after the change of control, at least 75%
of the board members of the investment company must not be interested
persons of the acquired advisor or the acquirer (ABIM and BB&O,
respectively, in this case). The Board of the Fund currently is in
compliance with this provision of Section 15(f) and expects to remain
so in the future.
2. An "unfair burden" must not be imposed upon the investment company as
a result of such transaction or any express or implied terms,
conditions or understandings applicable thereto. The term "unfair
burden" is defined in Section 15(f) to include any arrangement during
the two-year period after the change of control of ABIM whereby the
investment advisor, or any interested person of any such advisor
28
<PAGE>
(among others, ICCC) receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or
its shareholders (other than fees for bona fide investment advisory or
other services) or from any person in connection with the purchase or
sale of securities or other property to, from or on behalf of the
investment company (other than bona fide ordinary compensation as
principal underwriter for such investment company). ICCC, ABIM, and
BB&O are not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on
the Fund as a result of the change of control of ABIM. ICCC, ABIM, and
BB&O have agreed that they, and their affiliates, will take no action
that would have the effect of imposing an "unfair burden" on the Fund
as a result of the change of control of ABIM. In particular, they
believe that the advisory fee increase reflects a fee for bona fide
advisory services and not an undue burden.
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the Proposed Sub-Advisory Agreement requires the affirmative
vote of a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act). In the event that shareholders of the Fund do not approve the
Proposed Sub-Advisory Agreement, or the shareholders of Value Builder and Equity
Partners do not approve their respective sub-advisory agreements, the Board will
take such action as it deems in the best interest of the Fund and its
shareholders, which may include proposing that shareholders approve an agreement
in lieu of the Proposed Sub-Advisory Agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE PROPOSED SUB-ADVISORY AGREEMENT.
PROPOSAL 3: TO APPROVE THE RESTRUCTURING OF THE FUND INTO A FEEDER FUND
IN A MASTER-FEEDER FORMAT.
OVERVIEW
The Board has unanimously approved, and is recommending that shareholders
approve, restructuring the Fund into a feeder fund in a master-feeder format
(the "Restructuring"). The Restructuring would result in the Fund investing all
of its assets in the Communications Portfolio (the "Portfolio" or "master
portfolio") of the Flag Investors Portfolios Trust ("Master Trust"), which will
have substantially the same investment objective, policies and restrictions as
the Fund. THE RESTRUCTURING WILL NOT CHANGE THE ADVISOR OR SUB-ADVISOR
ULTIMATELY RESPONSIBLE FOR MANAGING THE FUND'S ASSETS. As described below,
participation in the Restructuring requires approval of certain related changes
to the Fund's fundamental investment policies.
The Restructuring will not take place unless shareholders approve this
proposal as well as the Fund's new fee arrangements, discussed previously in
Proposals 1A and 1B. If approved, the Restructuring is expected to take effect
on or before October 2, 2000.
29
<PAGE>
THE MASTER-FEEDER STRUCTURE
If the Restructuring is approved, the Fund would seek to achieve its
investment objective by investing in the Portfolio, rather than investing
directly in securities. The Portfolio in turn would invest in securities in
accordance with its investment objective, policies and restrictions. As a
result, investment advisory services will be provided to the Fund at the master
portfolio (i.e., Portfolio) level. Because the Portfolio will have substantially
the same investment objective, policies and restrictions as the Fund, and will
hire the Fund's current advisor and sub-advisor, this structure is not expected
to impact the manner in which the Fund's assets are ultimately invested.
After the Restructuring, Fund shareholders will continue to hold the same
number of shares of the Fund. The value of the shareholder's investment in the
Fund will be the same immediately after the Fund's investment in the Portfolio
as it was before that investment. Going forward, the value of the Fund's shares
will be based directly upon the investment experience of the Portfolio.
Other feeder funds may invest in the Portfolio in the future. A goal of a
master-feeder fund arrangement is to achieve operational efficiencies through
economies of scale thereby achieving a lower ratio of operating expenses to net
assets, assuming that the assets of the Portfolio are greater than the assets of
any individual feeder fund. There can be no assurance, however, that such
economies of scale will be realized.
The Fund would be able to withdraw its investment in the Portfolio at any
time if the Board determined that doing so would be in the best interests of the
Fund and its shareholders. Upon any such withdrawal, the Board of Directors
would consider what action might be taken. In accordance with the Fund's
investment objective, policies and restrictions, the Board could invest the
Fund's assets in another master portfolio, or retain an investment advisor to
manage the Fund's assets directly (as is currently the case).
IMPACT ON FEES AND EXPENSES
The Restructuring will not take place unless shareholders also approve the
Fund's new fee arrangements. These new fee arrangements are discussed in
Proposals 1A and 1B, which include a comparison of the Fund's current fees to
those applicable under the proposed new fee arrangements. If the Restructuring
takes place, any agreements that the Portfolio enters into as part of the
Restructuring will reflect these new fee arrangements. That portion of the fees
for administrative services will be split between the Portfolio and the Fund,
reflecting the different services provided at each level.
As a general matter, although advisory and custodial fees will become an
obligation of the Portfolio, the Fund will still pay for these services
indirectly. The Portfolio will allocate these fees to each feeder fund based on
the fund's relative net assets. Distribution, Transfer Agency, shareholder
servicing and other administrative fees will continue to be a direct obligation
of the Fund.
As noted previously, one goal of the master-feeder structure is to increase
the assets under management at the Portfolio level in hopes of achieving
economies of scale, and possibly cost savings, for investors in the Portfolio,
including the Fund. While there can be no assurance that
30
<PAGE>
such economies of scale will be realized, the Portfolio anticipates adding other
feeder funds in the future.
TAX CONSEQUENCES
The Restructuring is not expected to have adverse tax consequences for Fund
shareholders. The Restructuring will not change the tax basis of Fund shares
held by shareholders, and distributions from the Fund will continue to be
taxable to Fund shareholders as ordinary income or capital gain, as the case may
be. Further, as part of the transaction, the Fund and its shareholders are not
expected to recognize any gain or loss for federal income tax purposes. The
Portfolio and the Fund are organized and intend to conduct their respective
operations in a manner such that both the Portfolio and Fund, by investing all
of its investable assets in the Portfolio, will not be required to pay any
federal income or excise taxes.
RISKS OF A MASTER-FEEDER STRUCTURE
The Fund's investment in the Portfolio poses certain potential risks.
Large-scale redemptions by other feeder funds could have adverse effects on the
Fund, such as requiring the liquidation of a significant portion of the
Portfolio's holdings at a time when it could be disadvantageous to do so. In the
future, other feeder funds could have a greater ownership interest in the
Portfolio than the Fund's interest and, therefore, could have effective voting
control over the operation of the Portfolio. Finally, if the Fund is required to
redeem its interests in the Portfolio for any reason (for instance, because its
shareholders did not approve changes to the Fund's investment policies parallel
to changes approved for the Portfolio), the Fund's Board may be unable to find
an appropriate substitute investment vehicle for the Fund's assets, which could
have a significant effect on the Fund's shareholders.
MANAGEMENT OF THE FUND AFTER THE RESTRUCTURING
The Portfolio will be advised by Investment Company Capital Corp. ("ICCC"),
the Fund's current advisor. The Portfolio will be sub-advised by Alex. Brown
Investment Management, the Fund's current sub-advisor. After the Restructuring,
ICCC also will provide administrative services to the Portfolio and the Fund.
The Portfolio is a separate series of the Master Trust, an open-end
management investment company registered under the 1940 Act and organized as a
New York Business Trust. The Portfolio has been established to serve as the
investment portfolio for various investment companies and other types of
institutional accounts. Portfolio shares are not offered for sale directly to
the public. While no other feeder funds currently invest in the Portfolio, such
feeders may so invest in the future. To the extent that such feeders' expense
structures differ from the Fund's, their investment returns will be different as
well.
The Master Trust has its own Board of Trustees, including a majority of
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Portfolio. All Fund Board members currently serve as Trustees of the Master
Trust.
31
<PAGE>
THE PORTFOLIO'S INVESTMENT POLICIES
The investment objective of the Portfolio is the same as the investment
objective of the Fund. The Portfolio seeks to achieve its investment objective
through investments limited to the types of securities in which the Fund is
authorized to invest. The investment restrictions or policies of the Portfolio
prohibit it from investing in any security or engaging in any transaction in
which the Fund currently could not directly invest or engage.
The investment objective of the Portfolio is not a fundamental policy. The
approval of the Portfolio's investors (i.e., the Fund and other holders of
interests in the Portfolio, if any) would be required to change any of its
fundamental investment policies or restrictions. Any change in non-fundamental
investment policies or restrictions would not require such approval.
CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICIES
In conjunction with the Restructuring, the Board approved related changes
to the Fund's fundamental investment policies necessary to permit the Fund to
invest all of its assets in the Portfolio. Shareholder approval is also required
to effect these changes. These changes will have no impact on the Fund's
investment objective, strategies and risks, but, as described below, are needed
for the Fund to become a feeder fund in a master-feeder format. Accordingly, in
approving the Restructuring, shareholders are approving related changes to each
of the following fundamental investment policies of the Fund. Since the
Portfolio's investment polices include restrictions similar in nature to the
Funds' current policies, approving the modified policies will not permit the
Portfolio to engage in any investment activity that the Fund could not currently
undertake.
A. DIVERSIFICATION
Under the Fund's current diversification policy, the Fund can invest only
10% of its assets in any one company, such as the Portfolio. The modified policy
makes clear that investment companies (i.e., the Portfolio) are not included for
the purposes of the 10% test. As result, the Fund, as a feeder fund, will be
permitted to invest all of its assets in the Portfolio. The specific changes to
put the modified policy in place are described below.
The Fund's fundamental policy regarding diversification currently states
that the Fund is not permitted to:
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.
If the Proposal is approved, this policy would be eliminated and replaced
with the following:
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, except that the Fund's assets may be invested in the securities of
one or more management investment companies to the extent permitted by the
1940 Act and the rules and regulations thereunder.
32
<PAGE>
B. CONCENTRATION
Under the current concentration policy, the Fund can, if it wishes, invest
up to 25% of its assets in any one industry other than the communications
industry. Since the Portfolio could be viewed as a single company in one
industry, this policy must be changed if the Fund is to invest all of its assets
in the Portfolio. Accordingly, the modified policy makes clear that investment
companies (i.e., the Portfolio) are not included for purposes of the 25% test.
The specific changes to put the modified policy in place are described below.
The Fund's fundamental policy regarding concentration currently states that
the Fund is not permitted to:
Invest less than 65% of its total assets in the communications field,
except as described in the Prospectus, (otherwise the Fund will not
concentrate more than 25% of its total assets in securities of issuers in
any industry).
If the Proposal is approved, this policy would be eliminated and replaced
with the following:
Invest less than 65% of its total assets in the communications field,
except as described in the Prospectus, provided that: (a) otherwise the
Fund will not concentrate more than 25% of its total assets in securities
of issuers in any industry and (2) notwithstanding this limitation or any
other fundamental investment limitation, assets may be invested in the
securities of one or more management investment companies to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
C. UNDERWRITING
Under the Fund's current underwriting policy, the Fund cannot underwrite
securities. Since the Fund will be investing in (i.e., buying and selling)
shares of the Portfolio, the Fund could be viewed as acting as an underwriter
for the Portfolio. The modified policy makes clear that the Fund's on-going
investment in the Portfolio is not considered to be the underwriting of
securities. The specific changes to put the modified policy in place are
described below.
The Fund's fundamental policy regarding underwriting currently states that
the Fund is not permitted to:
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.
If the Proposal is approved, this policy would be eliminated and replaced
with the following:
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. This restriction shall
not limit the Fund's ability to invest in securities issued by one or more
33
<PAGE>
registered investment companies to the extent permitted by the 1940 Act and
the rules and regulations thereunder.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has carefully considered Proposal 3, which will
authorize the Restructuring, including necessary changes to the Fund's
fundamental investment policies. At meetings held on December 15, 1999, and June
21-22, 2000, the Board approved this proposal and determined to seek shareholder
authorization of the actions necessary for the Fund to invest all its investable
assets in the Portfolio. In approving this Proposal, the Board considered the
experience and performance record of ABIM's communications equity team, the
Fund's new fee arrangements, and the opportunity that the Restructuring provides
to pursue additional distribution outlets and potential cost savings for the
Fund over time. Based on the factors discussed above and others, the Board
determined that the Restructuring is in the best interests of the Fund and its
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE RESTRUCTURING OF THE FUND INTO A FEEDER FUND IN A MASTER-FEEDER
FORMAT.
ADDITIONAL INFORMATION
BENEFICIAL OWNERS
To the knowledge of Fund management, as of the Record Date, there were no
beneficial owners holding 5% or more of the outstanding shares of the Fund. As
of the Record Date, the Directors and Officers of the Fund as a group
beneficially owned an aggregate of less than 1% of the outstanding shares of the
Fund.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in which
the election of Directors is not required to be acted upon under the 1940 Act.
The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings.
Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, such as the approval of investment policy changes,
a new investment advisory or sub-advisory agreement or other matters requiring
shareholder action under the 1940 Act. In addition, Maryland General Corporation
Law provides for the calling of a special meeting by the written request of
shareholders holding at least 25% of the shares entitled to vote at the meeting.
34
<PAGE>
A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Directors. Upon written request by ten or more shareholders, who have
been such for at least six months and who hold shares constituting at least 1%
of the outstanding shares, stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Director, the Fund has
undertaken to provide a list of shareholders or to disseminate appropriate
materials.
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.
REQUIRED VOTE
Approval of each of the Proposals requires the affirmative vote of a
majority of the outstanding voting securities of the Fund. As defined in the
1940 Act, the vote of a "majority of the outstanding voting securities" of the
Fund means the vote of (i) 67% or more of the Fund's outstanding voting
securities 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
Meeting and will therefore have the effect of counting against each of the
Proposals. The Fund believes that brokers who hold shares as record owners for
beneficial owners have the authority under the rules of the various stock
exchanges to vote those shares with respect to Proposal 2 when they have not
received instructions from beneficial owners.
35
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OTHER MATTERS
No business other than the matters described above is expected to come
before the Meeting, but should any matter incident to the conduct of the Meeting
or any question as to an adjournment of the 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 MEETING AND WHO WISH TO HAVE
THEIR SHARES VOTED ARE REQUESTED TO VOTE BY MAIL, TELEPHONE OR INTERNET AS
EXPLAINED IN THE INSTRUCTIONS INCLUDED ON YOUR PROXY CARD.
By Order of the
Directors,
/s/ Amy M. Olmert
------------------
Amy M. Olmert
Secretary
Dated: July [19], 2000
36
<PAGE>
EXHIBIT A
FLAG INVESTORS COMMUNICATIONS FUND, INC.
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of the _________ day of ___________, 2000
by and between FLAG INVESTORS COMMUNICATIONS 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, non-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 into an agreement to
provide investment advisory 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 supervise and
manage all aspects of the Fund's investment program 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 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");
<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-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 investment
program;
(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
and as might not otherwise be provided under the Fund's other agreements;
(d) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio;
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<PAGE>
(e) determine which issuers and securities shall be represented
in the Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(f) take all actions necessary to carry into effect the Fund's
purchase and sale programs; and
(g) maintain such books and records in cooperation with the
Fund's administrator and distributor, as may be required by law or deemed
advisable by the Fund's Board of Directors.
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 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 Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking the most favorable price and
execution
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<PAGE>
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 DB Alex. Brown LLC ("DB
Alex. Brown") to execute portfolio transactions for the Fund on an agency basis.
The commissions paid to DB 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 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. DB 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 DB Alex. Brown in any
transaction in which the Advisor or DB Alex. Brown acts as a principal with
respect to any part of the Fund's order. If DB 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:
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<PAGE>
(a) The Advisor shall furnish, at its expense and without cost to
the Fund, the services of one or more officers of the Fund, to the extent
that such officers may be required by the Fund for the proper conduct of
its affairs.
(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: payments to the Fund's
distributor under the Fund's plans of distribution and to the Fund's
administrator under the Fund's administrative services agreement; 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. 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.
-5-
<PAGE>
(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
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: 1.00% of the first $100 million of
the Fund's average daily net assets, 0.90% of the next $100 million of the
Fund's average daily net assets, 0.85% of the next $100 million of the Fund's
average daily net assets, 0.80% of the next $200 million of the Fund's average
daily net assets, 0.73% of the next $500 million of the Fund's average daily net
assets, 0.68% of the next $500 million of the Fund's average daily net assets,
and 0.65% 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. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
10. NON-EXCLUSIVITY. The services of the Advisor to the Fund are not
to be deemed to be exclusive, and the Advisor shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities, so long as its services under this Agreement are
not impaired thereby. It is understood and agreed that officers or directors of
the Advisor may serve as officers or Directors of the Fund, and that officers or
Directors of the Fund may serve as officers or directors of the Advisor to the
extent permitted by law; and that the officers and directors of the Advisor are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, trustees or
directors of any other firm, trust or corporation, including other investment
companies.
11. TERM. This Agreement shall become effective at 12:01 a.m. on the
date hereof and shall continue in force and effect, subject to Section 13
hereof, for two years from the date hereof.
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<PAGE>
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, 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).
14. 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.
15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
the Advisor for this purpose shall be One South Street, Baltimore, Maryland
21202.
-7-
<PAGE>
16. 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.
[SEAL] FLAG INVESTORS COMMUNICATIONS FUND, INC.
Attest: By:
----------------------------------- ------------------------------
Name: Name:
Title:
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: By:
----------------------------------- ------------------------------
Name: Name:
Title:
-8-
<PAGE>
EXHIBIT B
FLAG INVESTORS COMMUNICATIONS FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the day of , by and among
FLAG INVESTORS COMMUNICATIONS 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, non-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 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-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").
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<PAGE>
The Fund will furnish the Sub-Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. DUTIES OF SUB-ADVISOR. In carrying out its obligations under Section 1
hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Fund's Board of Directors;
(b) determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(c) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect such purchase and sale programs as
aforesaid, including the placing of orders for the purchase and sale of
securities of the Fund; and
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio.
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.
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<PAGE>
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking the most favorable price and execution
available and such other policies as the Directors may determine, the
Sub-Advisor may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the policies established by the Board of Directors in compliance
with applicable law, the Advisor may direct DB Alex. Brown LLC ("DB Alex.
Brown") to execute portfolio transactions for the Fund on an agency basis. The
commissions paid to DB 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. DB
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 DB Alex. Brown in any
transaction in which the Sub-Advisor or DB Alex. Brown acts as a principal with
respect to any part of the Fund's order. If DB 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.
7. EXPENSES. The expenses connected with the Fund shall be allocable
between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall, subject to compliance with applicable
banking regulations, furnish, at its expense and without cost to the Fund,
the services of the President and certain Vice Presidents of the Fund, to
the extent that such officers may be required by the Fund for the proper
conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense and without cost to
the Fund, a trading function in order to carry out its obligations under
Section 3 hereof to place orders for the purchase and sale of portfolio
securities for the Fund.
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<PAGE>
(c) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: payments to the
Advisor under the Investment Advisory Agreement between the Fund and the
Advisor, payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' 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: 0.65% of the first $100 million of the
Fund's average daily net assets, 0.60% of the next $100 million of the Fund's
average daily net assets, 0.55% of the next $100 million of the Fund's average
daily net assets, 0.50% of the next $200 million of the Fund's average daily net
assets, 0.45% of the next $500 million of the Fund's average daily net assets,
0.42% of the next $500 million of the Fund's average daily net assets, and 0.40%
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. Payment of the
Sub-Advisor's compensation for the preceding month shall be made as promptly as
possible.
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. TERM. This Agreement shall become effective at 12:01 a.m. on the date
hereof and shall remain in force and effect, subject to Section 12 hereof, for
two years from the date hereof.
-4-
<PAGE>
11. RENEWAL. Following the expiration of its initial two-year term, this
Agreement shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities of the Fund (as defined in
Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or "interested persons" of a party to this
Agreement (other than as Directors of the Fund) by votes cast in person at
a meeting specifically called for such purpose.
12. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund (as defined in Section
2(a)(42) of the 1940 Act), on sixty (60) days' written notice to the Advisor and
the Sub-Advisor. This Agreement may be terminated at any time, without the
payment of any penalty, by the Sub-Advisor on sixty (60) days' written notice to
the Fund and the Advisor. The notice provided for herein may be waived by any
person to whom such notice is required. This Agreement shall automatically
terminate in the event of its assignment (as defined in Section 2(a)(4) of the
1940 Act).
13. NON-EXCLUSIVITY. The services of the Sub-Advisor to the Advisor and the
Fund are not to be deemed to be exclusive, and the Sub-Advisor shall be free to
render investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its services
under this Agreement are not impaired thereby. It is understood and agreed that
partners of the Sub-Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or partners of the
Sub-Advisor to the extent permitted by law; and that the partners of the
Sub-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.
14. LIABILITY OF SUB-ADVISOR. In the performance of its duties hereunder,
the Sub-Advisor shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under this Agreement, but the Sub-Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Sub-Advisor or its
officers, directors or employees, or reckless disregard by the Sub-Advisor of
its duties under this Agreement.
15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the
Sub-Advisor, of the Advisor and of the Fund for this purpose shall be One South
Street, Baltimore, Maryland 21202.
16. QUESTIONS 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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
[SEAL] FLAG INVESTORS COMMUNICATIONS FUND, INC.
Attest: By:
------------------------ ------------------------------------
Name: Name:
Title:
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: By:
------------------------ ------------------------------------
Name: Name:
Title:
[SEAL] ALEX. BROWN INVESTMENT MANAGEMENT
Attest: By:
------------------------ ------------------------------------
Name: Name:
Title:
-6-
<PAGE>
[LOGO]
DEUTSCHE BANC ALEX. BROWN
MUTUAL FUND SERVICES
MS 1-18-8
ONE SOUTH STREET
BALTIMORE, MD 21202-3220
TO VOTE BY TELEPHONE
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-877-504-7018
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
TO VOTE BY INTERNET
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to Website www.proxyvote.com
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
FLAG INVESTORS COMMUNICATIONS FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
AUGUST 31, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG INVESTORS
COMMUNICATIONS FUND, INC.
This proxy is for your use in voting on various matters relating to Flag
Investors Communications Fund, Inc. (the "Fund"). The undersigned
shareholder(s) of the Fund, revoking previous proxies,hereby appoint(s) Bruce
A. Rosenblum, Jeffrey A. Engelsman and Kathy L. Churko and each of them (with
full power of substitution) the proxies of the undersigned to attend the
Special Meeting of Shareholders of the Fund to be held on August 31, 2000
(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.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: FLICFI KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
---
Vote On Proposals For Against Abstain
1A. To approve a new Investment Advisory Agreement between the Fund and / / / / / /
Investment Company Capital Corp., increasing the advisory fee paid by the
Fund.
1B. To approve a new Sub-Advisory Agreement among the Fund, Investment Company / / / / / /
Capital Corp. and Alex. Brown Investment Management, increasing the
sub-advisory fee paid by Investment Company Capital Corp. to the Fund's
sub-advisor.
2. To approve a proposed Sub-Advisory Agreement among the Fund, Investment / / / / / /
Company Capital Corp. and Alex. Brown Investment Management, effective
March 2001, reflecting an expected change in control of the Fund's
sub-advisor.
3. To approve conversion of the Fund into a feeder fund in a master-feeder / / / / / /
format.
Please print and sign your name in the space provided to authorize the voting of your shares as indicated and return promptly.
When signing on behalf of a corporation, partnership, estate, trustor in any other representative capacity please sign your name
and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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