<PAGE>
File No. 811-04981
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[x] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
Morgan Grenfell SMALLCap Fund, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
<PAGE>
Morgan Grenfell SMALLCap Fund, Inc.
Dear Fellow SMALLCap Fund Shareholder: March 31, 2000
By now you should have received the SMALLCap Fund's proxy materials for the
upcoming Annual Meeting of Stockholders scheduled to be held on April 18, 2000.
You may also have received proxy materials from Ralph W. Bradshaw seeking his
election to the Fund's Board of Directors. If you have not already done so, we
are writing to urge you to vote the white proxy card for Ms. Audrey Jones for
election to the Board of Directors. We strongly believe that Ms. Jones is the
superior candidate for election to the Board and we would like to take this
opportunity to highlight Ms. Jones experience and her record as both the Fund's
portfolio manager and, more recently, as a director of the Fund. We will also
point out why we believe the election of Mr. Bradshaw would not be in your best
interests. Finally, we will address the inaccurate assertions in Mr. Bradshaw's
proxy statement by presenting the truth about your Board's actions. We hope
that you will consider this information when voting. Unless you have already
done so. your Board unanimously urges you to vote the WHITE proxy card FOR the
election of Audrey Jones to the Board of Directors.
o Ms. Jones' excellent performance. Ms. Jones and her team have created
--------------------------------
significant value for our shareholders.
(arrow) The Fund has increased in value by 376.8% since inception through
December 31, 1999 based on an increase in net asset value,
considerably outperforming both the S&P 600 Small Cap Index, the
Fund's benchmark index, and the Russell 2000 Index, which have
increased 245.8% and 277.4%, respectively, over the same time
period.
(arrow) The Fund realized a total return of 74.81% for the year ended
February 29, 2000, significantly outperforming the S&P 600 Small Cap
Index which returned 37.35% and the Russell 2000 Index which
returned 49.12% over that same period.
(arrow) Resulting from the Fund's strong performance during 1999, the Board
will be declaring a dividend of $1.66 per share, or approximately
10% of the Fund as of December 31, 1999.
o Mr. Bradshaw lacks experience and is not working for your benefit.
------------------------------------------------------------------
Mr. Bradshaw does not appear to have any experience in the small cap segment
of the U.S. equities market. He also does not appear to have had any success
at narrowing the discount on a sustained basis - three of the four funds for
which he serves as a director had larger discounts than your Fund as shown in
the table below. Most importantly, we believe that Mr. Bradshaw is seeking
election to the Board to serve the interests of his employer, Deep Discount
Advisors, Inc., which owns approximately 16% of the Fund, and not the
interests of our long-term shareholders.
<TABLE>
<CAPTION>
Net Asset Value* Market Price* Discount* 52 week Market Return*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Austria Fund 20.48 14.875 27.30% 56.30%
Central European Value Fund 16.37 12.5 23.60% 35.10%
Clemente Strategic Value Fund 16.18 14.1875 12.30% 39.20%
Portugal Fund 16.67 13.9375 16.40% 19.70%
AVERAGE 17.43 13.875 19.90% 37.58%
Morgan Grenfell SMALLCap Fund 19.47 16.625 14.60% 92.80%
</TABLE>
* As of March 24, 2000 and reported in Barron's dated March 27, 2000.
<PAGE>
o Inaccuracies in the Bradshaw proxy statement and the truth about your Board's
actions. Contrary to the erroneous assertions in the Bradshaw proxy
statement, your Board has and will continue to carefully evaluate all
possible options to attempt to narrow the discount. On the basis of extensive
study, your Board has concluded that there is no evidence that any strategy
which preserves the Fund's closed-end structure produces a measurable long-
term effect on the discount. Your Board feels strongly that the Fund's close-
end structure has contributed to the Fund's superior performance since
inception, while at the same time has helped to minimize costs in the form of
lower total expenses.
We have outlined on the first page several significant reasons why we
strongly believe Ms. Jones is the most qualified candidate for election to the
Board. As shareholders, we ask you to also consider the following additional
reasons in support of the conclusion that Ms. Jones is the most qualified
candidate.
Ms. Jones contribution to the Board
- -----------------------------------
o She has been involved with the Fund since its inception in 1987, serving
as portfolio manager for the entire life of the Fund.
o She brings a significant amount of financial services industry
experience to the Board, having served as a portfolio manager for 18
years and, prior to that, an equity analyst for 8 years.
(arrow) From her long tenure in the industry, she is very well connected
with, and respected by, members of the brokerage community who
are in a position to recommend the Fund to their customers.
(arrow) Morgan Stanley and Salomon Smith Barney have recently issued
"buy" recommendations for Fund shares based on their expectation
of the Fund's future performance. This may have a positive
effect on narrowing the discount from net asset value at which
Fund shares have traded by increasing the demand for Fund
shares.
o Her unique perspective as the Fund's portfolio manager and her valuable
industry experience complement and enhance the skills that have resulted
in a board that has and will continue to serve the best interests of all
our shareholders.
o She is not only a portfolio manager and a director, but is also a fellow
shareholder, owning 9,760 shares of the Fund as of February 14, 2000.
Selection of Ms. Jones by the Independent Directors
- ---------------------------------------------------
The Fund's Nominating Committee consists of the three directors who have no
affiliation with the Fund's Adviser. Each of these directors has substantial
business and financial experience and, along with Ms. Jones, collectively owns
over 40,000 shares of the Fund. The interests of these directors are clearly
aligned with the interests of our fellow shareholders. The Nominating Committee
unanimously decided that it would be in the best interests of the Fund and our
shareholders to nominate Ms. Jones to stand for re-election to the Board for all
of the reasons outlined above. The Nominating Committee, which reconvened to
consider the merits of Mr. Bradshaw's candidacy, unanimously re-affirmed their
support for Ms. Jones as the person who is unquestionably the most qualified to
serve as a member of the Board of Directors for your Fund to continue to enhance
the value of your investment.
2
<PAGE>
Mr. Bradshaw lacks experience and is not working for your benefit
- -----------------------------------------------------------------
We also question the experience and insight that Mr. Bradshaw will bring to
this Board. Unlike Ms. Jones, Mr. Bradshaw does not appear to have any
experience in the small cap segment of the U.S. equities market. Mr. Bradshaw
also suggests in his proxy statement that he would bring fresh insights and
initiative to the Board to help to narrow the discount at which Fund shares have
traded. The evidence strongly suggests otherwise! Of the four funds for which
Mr. Bradshaw serves as a director, only one had a discount as of March 24, 2000
which was smaller than your Fund's, and then only by 2.3%. The average discount
of those four funds as of March 24, 2000 was 19.90%, which was considerably
higher than the Fund's discount on that same date.
In addition to lacking the experience to serve our shareholders as a
director, we do not believe that Mr. Bradshaw would work to serve the best
interests of our long-term shareholders. We believe that Mr. Bradshaw is
seeking election to the Board to serve the interests of his employer, Deep
Discount Advisors, Inc., which owns approximately 16% of the Fund and which
acquired the majority of that interest within the last year. Deep Discount is
in the business of profiting by buying shares of closed-end funds at a discount
and then selling those shares as soon as the discount narrows. Deep Discount is
only concerned with the Board taking action which can have a short-term impact
on a fund's discount, irrespective of the effect that such action can have on
the Fund, its performance or its other shareholders.
Mr. Bradshaw states in his proxy statement that neither Deep Discount nor
Ron Olin Investment Management is sponsoring his candidacy and that each entity
remains a passive investor in the Fund. We do not believe this to be true. We
----------------
believe that Mr. Bradshaw is working in concert with Deep Discount and Olin
Management for their benefit!
The truth is that as recently as December 1999 Mr. Bradshaw has served as a
Vice President and the Corporate Secretary of Deep Discount. Mr. Bradshaw is
also typically one of a slate of directors nominated by Deep Discount when
waging proxy contests against Deep Discount's closed-end fund targets. Mr.
Bradshaw was nominated by Deep Discount in several proxy contests in 1999, the
most recent being only 4 months ago. We strongly believe that Mr. Bradshaw and
Deep Discount's goal in distancing themselves from one another in our case is to
preserve Deep Discount's and Olin Management's ability to sell the shares of the
Fund that they hold at any time, particularly if Deep Discount believes that Mr.
Bradshaw can engineer a short-term reduction in the Fund's discount. Under the
federal securities laws, if Deep Discount is not considered a "passive
-------
investor", Deep Discount would not be able to buy and sell any shares of the
- ---------
Fund within any six month period without disgorging any profits on the sale to
the Fund. This law is designed to prevent an entity like Deep Discount, which
owns over 10% of the Fund, from being able to manipulate the Fund and its stock
price so that it can realize short-term profits at the expense of all of the
other shareholders of the Fund. By recharacterizing Mr. Bradshaw as a
"consultant" rather than as an executive officer and having Mr. Bradshaw seek a
nomination to the Board in his individual capacity, we believe Deep Discount is
trying to set the stage for a sale of some or all of its shares of the Fund
without having to wait the six months provided for under the federal securities
laws. We know, and you should as well, that Deep Discount is behind Mr.
Bradshaw's candidacy and, most importantly, that Mr. Bradshaw would continue to
serve the interests of his primary employers, Deep Discount and Olin Management,
not your interests!
The Bradshaw inaccuracies and the truth about the Board's actions
- -----------------------------------------------------------------
Mr. Bradshaw asserts in his proxy statement that the Board has been lax
in its treatment of the discount, has failed to explore measures designed to
boost the value of your investment and has refrained from soliciting our
shareholders' opinions on this issue. This could not be further from the truth!
-----------------------------------------
3
<PAGE>
Your Board always has and will continue to actively and seriously consider
the size of the discount. We, the members of the Board, have carefully
evaluated all possible options to attempt to narrow the discount, including
open-market share repurchase programs, managed distribution plans, tender offers
as well as open-ending the Fund. In evaluating each option, we have carefully
considered whether implementation of the option would be in the best interests
of the Fund's long-term stockholders and whether there is sufficient evidence to
suggest that implementation of the option could have a measurable effect on the
discount. We have also considered the experiences of other funds and the
actions they have taken to reduce the discount. We have concluded, on the
basis of extensive study, that no evidence exists that any strategy which
preserves the Fund's closed-end structure produces a long-term narrowing of the
discount.
We believe that the Fund's closed-end structure has been a key component to
the Fund's success. We feel that the closed-end fund structure has contributed
to the Fund's superior performance since its inception and has helped to
minimize costs to stockholders in the form of lower total expenses. We strongly
believe that the benefits to our long-term shareholders of continuing to operate
the Fund as a closed-end fund outweigh any potential one-time benefit of
converting to an open-end fund. In addition, the Board presented a proposal in
the Fund's 1994 proxy statement asking shareholders to vote on open-ending the
Fund. That proposal was defeated by shareholders by a wide margin, because we
believe our shareholders understand and appreciate the positive effect that the
closed-end structure can have on maximizing long-term performance as well as on
minimizing expenses and minimizing adverse tax effects for Fund shareholders.
To assist us in reaching our Shareholders, Georgeson Shareholder
Communications has agreed to provide proxy solicitation services to the Fund at
a cost of approximately $35,000 plus out of pocket expenses.
Conclusion
- ----------
Your Board strongly believes that it is in the best long-term interest of
fund shareholders to continue to seek capital appreciation and dividends by
investing in a carefully selected portfolio of U.S. small cap equity securities
within the closed-end fund structure. Your Board also believes that Audrey
Jones has been a critical component of the Fund's success to date and that her
continued service on the Board of Directors will continue to help create value
for our shareholders.
Unless you have already done so, please sign, date and return the enclosed
WHITE proxy card in the enclosed postage-paid return envelope. We thank you for
your support. Should you have any questions or need any assistance, please call
the Fund's proxy solicitor, Georgeson Shareholder Communications, at 1-800-223-
2064.
Thank you for your time and your consideration.
Sincerely yours,
/s/ Joseph J. Incandela
-----------------------
Joseph J. Incandela
Chairman of the Morgan Grenfell SMALLCap Fund, Inc.
4
<PAGE>
MORGAN GRENFELL SMALLCAP FUND, INC.
885 Third Avenue - 32nd Floor
New York, New York 10022
ANNUAL MEETING OF SHAREHOLDERS
APRIL 18, 2000
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Morgan Grenfell SMALLCap Fund, Inc., a
Maryland corporation (the "Company"), hereby appoints Fran Pollack-Matz and
Edward J. Veilleux, or either of them, as proxies for the undersigned, with full
power of substitution in each of them, to attend the Annual Meeting of the
Stockholders of the Company to be held at 885 Third Avenue, 32nd Floor, New
York, New York, 10022 on Friday, April 18, 2000, at 9:30 a.m. (Eastern time),
and any adjournment or postponement thereof, to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast at such meeting
and otherwise to represent the undersigned at the meeting with all powers
possessed by the undersigned if personally present at the meeting. The
undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of
Stockholders and of the accompanying Proxy Statement and revokes any proxy
heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as instructed
on the reverse side hereof. If this Proxy is executed but no instruction is
given, the votes entitled to be cast by the undersigned will be cast "for" the
nominee for director and "for" each of the other proposals as described in the
Proxy Statement and in the discretion of the Proxy holder on any other matter
that may properly come before the meeting or any adjournment or postponement
thereof.
(Continued, and to be dated and signed on the reverse side hereof.)
<PAGE>
1. [ ] To elect Audrey M.T. Jones as a director of the Company to serve
until the Fund's Annual Meeting in 2003 and until her successor is
duly elected and qualifies.
[ ] Withhold authority for the nominee named above.
2. Ratification of the appointment of KPMG LLP as Independent Certified
Public Accountants for the fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To vote and otherwise represent the undersigned on any other matter
that may properly come before the meeting or any adjournment or
postponement thereof in the discretion of the Proxy holder.
[ ] CHECK HERE ONLY IF YOU PLAN TO ATTEND THE MEETING IN PERSON
Please sign exactly as your name or names appear in the
box on the left. When signing as attorney, executor,
administrator, trustee or guardian, please give your
full title as such. If a corporation, please sign in
full corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.
Dated:____________________________________________, 2000
________________________________________________________
________________________________________________________
(Signature(s) of Shareholder(s))
