<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
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(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
[LETTERHEAD OF FLAG INVESTORS FUNDS]
July 17, 1997
Dear Shareholders:
The enclosed proxy statement relates to a special meeting of the Shareholders of
the Flag Investors Real Estate Securities Fund, Inc. (the "Fund").
On April 6, 1997, Alex. Brown Incorporated, the parent corporation of the Fund's
investment advisor, entered into a definitive agreement to merge into a
subsidiary of Bankers Trust New York Corporation. Due to the pending change in
control of Alex. Brown Incorporated, we are asking you to approve new investment
advisory agreements for the advisor and sub-advisor. The same advisor and
sub-advisor will continue to provide these services to your Fund. The new
agreements are substantially the same as the current agreements.
We are also asking Shareholders to elect a Board of Directors. All eight
nominees currently serve as Directors although two were appointed to fill
vacancies and were not previously elected by Shareholders. This election will
give the Fund flexibility to fill vacancies in the future. Also, with the
resignation of two existing interested Directors, the percentage of independent
Directors is being increased to 75% of the Board members.
These proposals have been unanimously approved by your Fund's Board of
Directors, who recommend you vote for the proposals. Your vote is important and
your participation in the governance of the Fund does make a difference.
Sincerely,
/s/ Richard T. Hale
-------------------
Richard T. Hale
Chairman
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
One South Street
Baltimore, Maryland 21202
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
AUGUST 14, 1997
TO THE SHAREHOLDERS OF FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
You are cordially invited to a special meeting (the "Special Meeting") of
the shareholders of Flag Investors Real Estate Securities Fund, Inc. (the
"Fund") on Thursday, August 14, 1997, at 10:45 a.m. Eastern Standard Time at
the offices of Investment Company Capital Corp., in The Conference Room on the
30th Floor of The Alex. Brown Building, One South Street, Baltimore, Maryland
21202, for the purpose of considering the proposals set forth below and for the
transaction of such other business as may be properly brought before the
Special Meeting:
PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Directors of the Fund.
PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.
PROPOSAL 3: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, Investment Company Capital Corp. and ABKB/LaSalle
Securities Limited Partnership.
Only shareholders of the Fund at the close of business on June 25, 1997
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 SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON
AS POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
Scott J. Liotta
Vice President and Secretary
Dated: July 17, 1997
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
One South Street
Baltimore, Maryland 21202
---------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 14, 1997
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Fund to be held on Thursday, August 14, 1997, at 10:45 a.m. Eastern Standard
Time, or at any adjournment thereof (the "Special Meeting"), at the offices of
Investment Company Capital Corp., in The Conference Room on the 30th Floor of
The Alex. Brown Building, One South Street, Baltimore, Maryland 21202. It is
expected that the Notice of Special Meeting, the Proxy Statement and a Proxy
Card will be mailed to shareholders on or about July 17, 1997.
The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a new Investment Advisory Agreement and a new
Sub-Advisory Agreement to take effect following the consummation of the
transactions contemplated by an Agreement and Plan of Merger, dated as of April
6, 1997 (the "Merger"), between Bankers Trust New York Corporation and Alex.
Brown Incorporated. This action is necessary to avoid the possibility that the
Merger could result in assignment and, therefore, termination of the Fund's
current Investment Advisory Agreement and Sub-Advisory Agreement. It is
contemplated that, after the Merger, Investment Company Capital Corp. ("ICC" or
the "Advisor") will remain the investment advisor to the Fund and ABKB/LaSalle
Securities Limited Partnership ("ABKB/LaSalle" or the "Sub-Advisor") will remain
the sub-advisor to the Fund. The Fund's new Investment Advisory Agreement and
Sub-Advisory Agreement are identical to the Fund's current Investment Advisory
Agreement and Sub-Advisory Agreement, except for the dates of execution,
effectiveness and initial term; the deletion of provisions relating to state
expense limits that have been preempted by federal law; and a proviso to the
effect that the obligation of ICC to make its personnel available to serve as
officers of the Fund is subject to applicable banking regulations. Shareholders
will also be asked to elect a slate of Directors.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before 10:45 a.m. Eastern Standard Time on Thursday,
August 14, 1997. No postage is required if the Proxy is mailed in the United
States. If the accompanying Proxy is executed properly and returned, shares
represented by it will be voted at the Special Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted FOR the election of the proposed slate of Directors of the Fund
("Proposal 1"), FOR the new Investment Advisory Agreement ("Proposal 2") and
FOR the new Sub-Advisory Agreement ("Proposal 3"). All shareholders of the Fund
are entitled to vote on each Proposal. Shareholders may revoke their Proxies at
any time prior to the time they are voted by giving written notice to the
Secretary of the Fund, by delivering a subsequently dated Proxy or by attending
and voting at the Special Meeting.
The close of business on June 25, 1997, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice
of, and to vote at, the Special Meeting and at any adjournment thereof. On the
Record Date, the Fund had 2,657,610.922 shares outstanding, consisting of
2,187,562.338 Flag Investors Real Estate Securities Fund Class A Shares and
470,048.584 Flag Investors Real Estate Securities Fund Class B Shares. Each
full share will be entitled to one vote at the Special Meeting and each
fraction of a share will be entitled to the fraction of a vote equal to the
proportion of a full share represented by the fractional share.
1
<PAGE>
The expenses of the Special Meeting will be borne by the Fund, except that
the incremental costs associated with Proposals 2 and 3 will be borne by ICC
and will include reimbursement to brokerage firms and others for expenses in
forwarding Proxy solicitation materials to beneficial owners. The solicitation
of Proxies will be largely by mail, but may include telephonic, telegraphic or
oral communication by employees and officers of ICC and ABKB/LaSalle
(collectively, the "Advisors").
THE FUND WILL FURNISH TO SHAREHOLDERS, WITHOUT CHARGE, A COPY OF THE
ANNUAL REPORT FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1996, UPON REQUEST. THE
ANNUAL REPORT OF THE FUND MAY BE OBTAINED BY WRITTEN REQUEST TO THE FUND, ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202 OR BY CALLING (800) 767-FLAG.
The Fund is registered as an open-end, diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended.
PROPOSAL 1: To consider and act upon a proposal to elect a Board of Directors
of the Fund.
At the Special Meeting, it is proposed that eight Directors be elected to
hold office until their successors are duly elected and qualified. The persons
named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the
election of Richard T. Hale, James J. Cunnane, John F. Kroeger, Louis E. Levy,
Eugene J. McDonald, Rebecca W. Rimel, Truman T. Semans and Carl W. Vogt (each a
"Nominee" and collectively, the "Nominees"). All of the Nominees are currently
members of the Board of Directors. Messrs. Hale, Cunnane, Kroeger, Levy,
McDonald and Semans were last elected by the sole shareholder of the Fund on
December 27, 1994. Mr. Vogt and Ms. Rimel were appointed by the Board of
Directors to fill vacancies on the Board as they arose and have not previously
been elected by the shareholders. Mr. Harry Woolf retired from the Board
effective December 31, 1996. Mr. Charles W. Cole, Jr. and Mr. Robert S.
Killebrew, Jr. have resigned from the Board, effective upon the election of
Directors at the Special Meeting, so that 75% of the Board members will be
Disinterested persons within the contemplation of Section 15(f) of the 1940
Act. It is the intention of the Board that at least 75% of its members will be
such Disinterested persons for at least three years after the Merger.
The proposal to elect the Board of Directors is being presented for
shareholder approval pursuant to requirements under the 1940 Act. Under the
1940 Act, Directors may not fill vacancies unless at least two-thirds of the
Directors holding office after such vacancies are filled have been elected by
the shareholders. The Special Meeting will provide the Board with operating
flexibility by making it possible for the Board of Directors to fill vacancies
that may occur in the future.
Each of the Nominees has consented to being named in this Proxy Statement
and to serving as a Director if elected. The Fund knows of no reason why any
Nominee would be unable or unwilling to serve if elected.
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in
which the election of Directors is not required to be acted upon under the 1940
Act. The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings. Because the Fund does not hold regular annual
shareholder meetings, each Nominee, if elected, will hold office until his or
her successor is elected and qualified.
Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, including to approve investment policy changes, a
new investment advisory agreement or other matters requiring shareholder action
under the 1940 Act.
A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Directors, in which case shareholders may receive assistance in
communicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied. In addition, Maryland General Corporation Law
provides for the calling of a special meeting by the written request of
shareholders holding at least 25% of the shares entitled to vote at the
meeting.
2
<PAGE>
Information Regarding Nominees
The following information is provided for each Nominee. It includes his or
her name, position with the Fund, length of directorship, age, principal
occupations or employment during the past five years, directorships with other
companies which file reports periodically with the Securities and Exchange
Commission, number of directorships with the 12 registered investment companies
which hold themselves out to investors as related companies for purposes of
investment and investor services to which ICC or an affiliated person of ICC
provides investment advisory or administration services (collectively, the
"Fund Complex"), number of shares of the Fund beneficially owned and percentage
of shares of the Fund beneficially owned. As of May 31, 1997, the Directors and
officers of the Fund as a group and the Nominees as a group beneficially owned
an aggregate of less than 1% of the shares of the Fund.
<TABLE>
<CAPTION>
Business Experience Shares
Name and Position During the Past Five Years Beneficially Owned
with the Fund Age (including all directorships) as of May 31, 1997** Percentage
- -------------------------- ----- ------------------------------------------ ------------------- -----------
<S> <C> <C> <C> <C>
Richard T. Hale* 51 Managing Director, Alex. Brown & Sons 2,793 shares ***
Director and Chairman Incorporated; Director and President,
of the Board since 1994 Investment Company Capital Corp.
(registered investment advisor);
Chartered Financial Analyst. Director of
each fund in the Fund Complex.
James J. Cunnane 59 Managing Director, CBC Capital None ***
Director since 1994 (merchant banking), 1993-Present.
Formerly, Senior Vice President and
Chief Financial Officer, General
Dynamics Corporation (defense),
1989-1993; and Director, The Arch Fund
(registered investment company).
Director of each fund in the Fund
Complex.
John F. Kroeger 72 Director/Trustee, AIM Funds (registered None ***
Director since 1994 investment companies). Formerly,
Consultant, Wendell & Stockel
Associates, Inc. (consulting firm) and
General Manager, Shell Oil Company.
Director of each fund in the Fund
Complex.
Louis E. Levy 64 Director, Kimberly-Clark Corporation 1,746 shares ***
Director since 1994 (personal consumer products) and
Household International (finance and
banking); Chairman of the Quality
Control Inquiry Committee, American
Institute of Certified Public Accountants.
Formerly, Trustee, Merrill Lynch Funds
for Institutions, 1991-1993; Adjunct
Professor, Columbia University-Graduate
School of Business, 1991-1992; Partner,
KPMG Peat Marwick, retired 1990.
Director of each fund in the Fund
Complex.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Business Experience Shares
Name and Position During the Past Five Years Beneficially Owned
with the Fund Age (including all directorships) as of May 31, 1997** Percentage
- ---------------------- ----- ------------------------------------------ ------------------- -----------
<S> <C> <C> <C> <C>
Eugene J. McDonald 65 President, Duke Management Company None ***
Director since 1994 (investments); Executive Vice President,
Duke University (education, research and
health care); Director, Central Carolina
Bank & Trust (banking), Key Funds
(registered investment companies),
AMBAC Treasurers Trust (registered
investment company) and DP Mann
Holdings (insurance). Director of each
fund in the Fund Complex.
Rebecca W. Rimel 46 President and Chief Executive Officer, None ***
Director since 1995 The Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede
Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
Director of 10 funds in the Fund
Complex.
Truman T. Semans* 70 Managing Director, Alex. Brown & Sons None ***
Director since 1994 Incorporated; Director, Investment
Company Capital Corp. (registered
investment advisor). Formerly, Vice
Chairman, Alex. Brown & Sons
Incorporated. Director of 10 funds in the
Fund Complex.
Carl W. Vogt, Esq. 61 Senior Partner, Fulbright & Jaworski None ***
Director since 1996 L.L.P. (law); Director, Yellow
Corporation (trucking). Formerly,
Chairman and Member, National
Transportation Safety Board; Director,
National Railroad Passenger Corporation
(Amtrak); and Member, Aviation System
Capacity Advisory Committee (Federal
Aviation Administration). Director of 9
funds in the Fund Complex.
</TABLE>
- ------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act. Such individual's service as Director is conditioned upon Federal
Reserve Board approval. (See "The New Advisory Agreement" below.)
** This information has been provided by each Nominee for Director of the Fund.
*** As of May 31, 1997, the Nominees of the Fund as a group beneficially owned
an aggregate of less than 1% of the shares of the Fund.
Compensation of Directors
Each Director who is not an "interested person" receives an aggregate
annual fee (plus reimbursement for reasonable out-of-pocket expenses incurred
in connection with his or her attendance at Board and committee meetings) from
the Fund and all of the funds in the Fund Complex for which he or she serves.
Payment of such fees and expenses is allocated among all such funds described
above in proportion to their relative net assets. For the fiscal year ended
December 31, 1996. Disinterested Directors' fees attributable to the assets of
the Fund totaled approximately $334. Officers of the Fund receive no direct
remuneration in such capacity from the Fund. Officers of the Fund who are
employees of Alex. Brown Incorporated or its affiliates ("Alex. Brown") may be
considered to have received remuneration indirectly.
4
<PAGE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, and up to 100%, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and Vogt
and Ms. Rimel have each executed a Deferred Compensation Agreement and may
defer a portion of their compensation from the Fund and the Fund Complex.
Currently, the deferring Directors may select various funds in the Fund Complex
in which all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring Directors' deferral accounts will be paid in
cash, in quarterly installments over a period of ten years.
The aggregate compensation payable by the Fund to each of the Fund's
Directors serving during the fiscal year ended December 31, 1996 is set forth
in the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended December 31, 1996 by the Fund Complex is
also set forth in the compensation table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate
Compensation Pension or Retirement
Payable Benefits Accrued as
Name and Position from the Fund Part of Fund Expenses
- --------------------------------------------- --------------- -----------------------
<S> <C> <C>
Richard T. Hale, Director and Chairman(1) ... $ 0 $0
Charles W. Cole, Jr., Director(1) ............ $ 0 $0
James J. Cunnane, Director ................. $114(3) +
N. Bruce Hannay, Director(4) .................. $ 7(3) +
Robert S. Killebrew, Jr.,
Director(1) ................................. $ 0 $0
John F. Kroeger, Director .................... $143(3) +
Louis E. Levy, Director .................... $114(3) +
Eugene J. McDonald, Director ................. $114(3) +
Rebecca W. Rimel, Director ................. $138(3) +
Truman T. Semans, Director(1) ............... $ 0 $0
Carl W. Vogt, Esq., Director ................. $137(3) +
Harry Woolf, Director(6) ..................... $114(3) +
Total Compensation
From the Fund and Number of Funds in
Fund Complex Fund Complex for
Name and Position Payable to Directors Which Director Serves
- --------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Richard T. Hale, Director and Chairman(1) ... $ 0 12
Charles W. Cole, Jr., Director(1) ............ $ 0 4(2)
James J. Cunnane, Director ................. $39,000 12
N. Bruce Hannay, Director(4) .................. $ 3,321 12
Robert S. Killebrew, Jr.,
Director1 ................................... $ 0 1
John F. Kroeger, Director .................... $49,000 12
Louis E. Levy, Director .................... $39,000 12
Eugene J. McDonald, Director ................. $39,000 12
Rebecca W. Rimel, Director ................. $39,000 6(2),(5)
Truman T. Semans, Director(1) ............... $ 0 7(2)
Carl W. Vogt, Esq., Director ................. $39,000 5(2),(5)
Harry Woolf, Director(6) ..................... $39,000 12
</TABLE>
- ------------
(1) Denotes an individual who is an "interested person" as defined in the 1940
Act.
(2) Currently, the number of Funds in the Fund Complex for which Messrs. Cole,
Semans and Vogt and Ms. Rimel serve is 8, 10, 9 and 10, respectively.
(3) Of the amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald,
Vogt and Woolf and Ms. Rimel, no amount was deferred pursuant to the Fund
Complex's Deferred Compensation Plan.
(4) Retired, effective January 31, 1996, and is now deceased.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from each
fund for which they serve as a Director.
(6) Retired, effective December 31, 1996.
+ The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the fiscal year ended December 31, 1996 was $533.
The Fund Complex has adopted a retirement plan (the "Retirement Plan") for
Directors who are not employees of the Fund, the Fund's investment advisor or
their respective affiliates (the "Participants"). After completion of six years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fees earned by such Participant in his or
her last year of service. Upon retirement, each Participant will receive
annually 10% of such fee for each year that he or she served after completion
of the first five years, up to a maximum annual benefit of 50% of the fee
earned by the Participant in his or her last year of service. The fee will be
paid quarterly, for life, by each fund for which he or she serves. The
Retirement Plan is unfunded and unvested. Mr. Kroeger has qualified but has not
received benefits. The Fund has one Participant, a Director who retired
effective December 31, 1996, who has qualified for the Retirement Plan by
serving
5
<PAGE>
fourteen years as a Director in the Fund Complex and who will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Another
Participant who retired on January 31, 1996, and died on June 2, 1996, was paid
fees of $8,090 by the Fund Complex under the Retirement Plan in the fiscal year
ended December 31, 1996. Such fees are allocated to each fund in the Fund
Complex based upon the relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable to
a Participant upon retirement assuming various years of service and payment of
a percentage of the fee earned by such Participant in his or her last year of
service, as described below. The approximate credited years of service, shown
in parentheses, for each Participant at December 31, 1996, are as follows:
Messrs. Cunnane (2), Kroeger (14), Levy (2), McDonald (4), Vogt (1) and Ms.
Rimel (1).
Years of Service Estimated Annual Benefits Payable By
- ------------------ Fund Complex Upon Retirement
---------------------------------------------------
Chairman of Audit Committee Other Participants
----------------------------- -------------------
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
Meetings and Committees of the Board of Directors
There were four meetings of the Board of Directors held during the fiscal
year ended December 31, 1996. In such fiscal year, all Directors attended at
least 75% of the meetings of the Board of Directors held during their
respective terms.
The Board of Directors has an Audit and Compliance Committee. The Audit
and Compliance Committee makes recommendations to the full Board of Directors
with respect to the engagement of independent accountants and reviews, with the
independent accountants, the results of the audit engagement and matters having
a material effect on the Fund's financial operations. The members of the Audit
and Compliance Committee during the fiscal year ended December 31, 1996, were
Messrs. Kroeger (Chairman), Cunnane, Levy, McDonald, Vogt and Woolf and Ms.
Rimel each of whom is not an "interested person" within the meaning of the 1940
Act. Mr. Woolf was a member of the Audit and Compliance Committee until his
retirement on December 31, 1996. The Audit and Compliance Committee met four
times during the fiscal year ended December 31, 1996. In such fiscal year, all
members attended at least 75% of the meetings of the Audit and Compliance
Committee held during their respective terms. The Chairman of the Audit and
Compliance Committee receives an aggregate annual fee of $10,000 from the Fund
Complex. Payment of such fee is allocated among all funds in the Fund Complex
in proportion to their relative net assets.
The Board of Directors has a Nominating Committee. The Nominating
Committee makes recommendations to the full Board of Directors with respect to
candidates for the Board of Directors. The members of the Nominating Committee
during the fiscal year ended December 31, 1996, were Messrs. McDonald
(Chairman), Cunnane, Kroeger, Levy, Vogt and Woolf and Ms. Rimel, each of whom
is not an "interested person" within the meaning of the 1940 Act. Mr. Woolf was
a member of the Nominating Committee until his retirement on December 31, 1996.
The Nominating Committee met once during the fiscal year ended December 31,
1996 and all members attended the meeting.
The Board of Directors has a Compensation Committee. The Compensation
Committee makes recommendations to the full Board of Directors with respect to
the compensation of Directors. The members of the Compensation Committee during
the fiscal year ended December 31, 1996, were Messrs. Woolf (Chairman), Cunnane,
Kroeger, Levy, McDonald and Vogt and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. Mr. Woolf was a member
of the Compensation Committee until his retirement on December 31, 1996. Mr.
Cunnane became Chairman of the Compensation Committee upon Mr. Woolf's
retirement. The Compensation Committee met once during the fiscal year ended
December 31, 1996 and all members attended the meeting.
6
<PAGE>
Board Approval of the Election of Directors
At a meeting of the Board of Directors held June 17, 1997, the Board of
Directors recommended that shareholders vote FOR each of the Nominees for
Director named herein. In recommending that shareholders elect the Nominees as
Directors of the Fund, the Board considered the Nominees' experience and
qualifications.
Shareholder Approval of the Election of Directors
The Election of the Directors requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that one-third of the shares
entitled to vote are present in person or by Proxy at the Special Meeting. If
you give no voting instructions, your shares will be voted FOR all Nominees
named herein. If the Directors are not approved by shareholders of the Fund,
the Board of Directors will consider alternative nominations.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELECTION OF THE DIRECTORS.
PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.
Investment Company Capital Corp. is the Fund's investment advisor and
ABKB/LaSalle Securities Limited Partnership is the sub-advisor. ICC is an
indirect subsidiary of Alex. Brown Incorporated. Alex. Brown Incorporated has
entered into an Agreement and Plan of Merger with Bankers Trust New York
Corporation (together with its affiliates, "Bankers Trust") under which Alex.
Brown Incorporated would merge with and into a subsidiary of Bankers Trust New
York Corporation. Under the terms of the Merger, shares of Alex. Brown
Incorporated to be exchanged had an aggregate value of approximately $1.7
billion at the time the Merger was announced. As of December 31, 1996, Bankers
Trust New York Corporation was the seventh largest bank holding company in the
United States with total assets of approximately $120 billion. Its subsidiary,
Bankers Trust Company, is a worldwide merchant bank dedicated to serving the
needs of corporations, governments, financial institutions and private clients
through a global network of over 120 offices in more than 40 countries.
Investment management is a core business of Bankers Trust, built from its roots
as a trust bank founded in 1903. Bankers Trust Company is one of the nation's
largest and most experienced investment managers with approximately $227
billion in assets under management globally.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has
promulgated rules and regulations pursuant to its authority under the BHCA (and
taking into consideration certain provisions of the National Banking Act of
1933 generally referred to as the Glass-Steagall Act) that govern the
relationship between bank holding company affiliates and mutual funds, such as
the Fund, under which certain regulatory approvals will be necessary. However,
after the Merger, it is expected that ICC and ABKB/LaSalle will continue to
serve as the Advisors.
The Advisors do not anticipate any reduction in the quality of services
now provided the Fund and do not expect that the Merger will result in any
material changes in the business of the Advisors or in the manner in which the
Advisors render services to the Fund. Nor do the Advisors anticipate that the
Merger or any ancillary transactions will have any adverse effect on their
ability to fulfill their respective obligations under the new Investment
Advisory Agreement or the new Sub-Advisory Agreement or to operate their
business in a manner consistent with past business practice.
The Investment Advisory Agreements
In anticipation of the Merger, the Directors of the Fund, including the
Directors who are not (i) parties to the new Investment Advisory Agreement
between the Fund and ICC (the "New Advisory Agreement") or (ii) interested
persons of any such party (the "Disinterested Directors"), unanimously approved
the New Advisory Agreement. The form of the New Advisory Agreement is identical
to the Current Advisory Agreement, except for the dates of execution,
effectiveness and initial term; the deletion of provisions relating to state
expense limits that have been preempted by federal law; and a proviso to the
effect that the obligation of ICC to make its personnel available to serve as
7
<PAGE>
officers of the Fund is subject to applicable banking regulations. The holders
of a majority of the outstanding voting securities (within the meaning of the
1940 Act) of the Fund are being asked to approve the New Advisory Agreement.
See "The New Advisory Agreement" below.
The Current Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund, dated
as of August 23, 1994 (the "Current Advisory Agreement"), was last approved by
the sole shareholder of the Fund on December 27, 1994. The Current Advisory
Agreement was most recently approved by the Fund's Board of Directors, including
a majority of the Disinterested Directors, on October 1, 1996.
The Current Advisory Agreement provides that ICC, in return for its fee,
will (a) supervise and manage all aspects of the Fund's operations, except for
distribution services; (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;
(d) provide the Fund with, or obtain for it, adequate office space and all
necessary office equipment and services; (e) obtain and evaluate pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign and otherwise, whether affecting the economy
generally or the 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 ICC considers desirable for
inclusion in the Fund's portfolio; (f) determine which issuers and securities
shall be represented in the Fund's portfolio and regularly report thereon to
the Fund's Board of Directors; (g) take all actions necessary to carry into
effect the Fund's purchase and sale programs; (h) supervise the operations of
the Fund's transfer and dividend disbursing agent; (i) provide the Fund with
such administrative and clerical services for the maintenance of certain
shareholder records as are deemed advisable by the Fund's Board of Directors;
and (j) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy materials, tax returns, reports to the Fund's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities. Subject to the approval of the Board and the Fund's shareholders,
ICC may delegate certain of its duties enumerated above to a sub-advisor.
The Current Advisory Agreement provides for compensation to ICC, calculated
daily and paid monthly, at an annual rate of .65% of the first $100 million of
the Fund's average daily net assets, .55% of the next $100 million of the Fund's
average daily net assets, .50% of the next $100 million of the Fund's average
daily net assets, and .45% of the Fund's average daily net assets exceeding $300
million.
The Current Advisory Agreement provides that ICC 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 or causes to be paid
all other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safe-keeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the Directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8
<PAGE>
The services of ICC are not to be deemed exclusive, and ICC is free to
render investment advisory and other services to others, including other
investment companies, and to engage in other activities, so long as its
services under the agreement are not impaired thereby. ICC's officers or
directors may serve as officers or Directors of the Fund, the Fund's officers
or Directors may serve as officers or directors of ICC, to the extent permitted
by law, and officers and directors of ICC 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 Current
Advisory Agreement continues in force and effect from year to year, provided
that such continuance is approved at least annually by the Fund's Board of
Directors or by the vote of a majority of the outstanding voting securities of
the Fund, and by the affirmative vote of a majority of the Directors who are
not parties to the agreement or "interested persons" of a party to the
agreement (other than as Directors of the Fund) by votes cast in person at a
meeting specifically called for such purpose.
The Current 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 ICC, upon
60 days' written notice to the other party. The agreement automatically
terminates in the event of its assignment.
The Current Advisory Agreement obligates ICC, in the performance of its
duties under the agreement, 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 ICC is not liable
for any act or omission which does not constitute willful misfeasance, bad
faith or gross negligence on the part of ICC or its officers, directors or
employees, or reckless disregard by ICC of its duties under the agreement.
The New Advisory Agreement
The Board of Directors approved the proposed New Advisory Agreement
between the Fund and ICC on June 17, 1997, the form of which is attached as
Exhibit A. The form of the proposed New Advisory Agreement is identical to the
Current Advisory Agreement, except for the dates of execution, effectiveness
and initial term; the deletion of provisions relating to state expense limits
that have been preempted by federal law; and a proviso to the effect that the
obligation of ICC to make its personnel available to serve as officers of the
Fund is subject to applicable banking regulations.
The investment advisory fee as a percentage of net assets payable by the
Fund will be the same under the New Advisory Agreement as under the Current
Advisory Agreement. If the investment advisory fee under the New Advisory
Agreement had been in effect for the Fund's most recently completed fiscal
year, the advisory fee to which ICC would have been entitled, would have been
identical to that to which it was entitled under the Current Advisory
Agreement.
The Board held a meeting on June 17, 1997, at which the Board, including
the Disinterested Directors, unanimously approved the New Advisory Agreement
for the Fund and recommended the New Advisory Agreement for approval by the
shareholders of the Fund. The New Advisory Agreement would take effect upon the
later to occur of (i) the obtaining of shareholder approval or (ii) the closing
of the Merger. The New Advisory Agreement will continue in effect for an
initial two-year term and thereafter for successive annual periods as long as
such continuance is approved in accordance with the 1940 Act.
In evaluating the New Advisory Agreement, the Board based its
determination primarily on its conclusion that there would be a high degree of
continuity of services to the Fund and took into account that the Fund's
Current Advisory Agreement and the New Advisory Agreement, including their
terms relating to the services to be provided thereunder by ICC and the fees
and expenses payable by the Fund, are substantially identical.
The Board was assured on behalf of Alex. Brown and Bankers Trust that they
intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment advisor
to an investment company or any of its affiliated persons to receive any amount
or benefit in
9
<PAGE>
connection with a change in control of the investment advisor that results in
an assignment so long as two conditions are met. First, for a period of three
years after the change of control, at least 75% of the board members of the
investment company must not be interested persons of the acquired advisor or
the acquiror (Alex. Brown and Bankers Trust, respectively, in this case). The
Fund would be in compliance with this provision of Section 15(f). Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any arrangement during the two-year period after the Merger whereby the
investment advisor, or any interested person of any such advisor, receives or
is entitled to receive any compensation, directly or indirectly, from the
investment company or its shareholders (other than fees for bona fide
investment advisory or other services) or from any person in connection with
the purchase or sale of securities or other property to, from or on behalf of
the investment company (other than bona fide ordinary compensation as
principal underwriter for such investment company). Alex. Brown and Bankers
Trust are not aware of any express or implied term, condition, arrangement or
understanding that would impose an "unfair burden" on the Fund as a result of
the Merger. Alex. Brown and Bankers Trust have agreed that they, and their
affiliates, will take no action that would have the effect of imposing an
"unfair burden" on the Fund as a result of the Merger.
The Board also considered the terms of the Merger and the possible effects
of the Merger upon the Advisor's organization and upon the ability of the
Advisor to provide advisory services to the Fund. The Board considered the
skills and capabilities of the Advisor in this regard and the representations
of Alex. Brown and Bankers Trust that no material change was planned in the
current management or facilities of the Advisor.
The Board was also informed of the resources of Bankers Trust that could
be made available to the Advisor and the Fund. Although the Board focused
primarily on the continuity of services to the Fund, the Directors did consider
Bankers Trust's experience as advisor and service provider to a family of
mutual funds. They also received preliminary information about Bankers Trust's
ability to provide other services, including custody.
The Board also considered the effect on the Fund of ICC becoming an
affiliated person of Bankers Trust. In particular, the Board considered the
potential impact of banking laws and steps that might be necessary to secure
Federal Reserve Board approval of the Merger. In this regard, the Board also
considered the likelihood that the Fund will have to engage an independent
principal underwriter after the Merger but that Alex. Brown & Sons will
continue to be able to provide services to its clients in connection with
shareholder accounts with the Fund. The Board also considered the fact that the
continued ability of Alex. Brown personnel to serve as Directors or officers of
the Fund was subject to Federal Reserve Board approval. Following the Merger,
the 1940 Act will prohibit or impose certain conditions on the ability of the
Fund to engage in certain transactions with Bankers Trust. For example, absent
exemptive relief, the Fund will be prohibited from entering into securities
transactions in which Alex. Brown or Bankers Trust acts as a principal.
Currently the Fund is prohibited from entering into transactions in which Alex.
Brown acts as principal. The Fund will also have to satisfy certain conditions
in order to engage in securities transactions in which Alex. Brown or Bankers
Trust is acting as an underwriter. The Fund is already required to satisfy such
conditions when engaging in transactions in which Alex. Brown is acting as an
underwriter. In this connection, management of the Advisor represented to the
Board that it does not believe these prohibitions or conditions will have a
material effect on the management or performance of the Fund.
The Board also considered that the costs of the Special Meeting, insofar
as they apply to approval of new Advisory Agreements, would be borne by ICC.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the
Disinterested Directors, unanimously approved the New Advisory Agreement with
respect to the Fund and voted to recommend its approval to the shareholders of
the Fund.
In the event that shareholders of the Fund do not approve the New Advisory
Agreement, the Current Advisory Agreement will remain in effect and 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 Advisory Agreement. If the Merger is not
consummated, ICC will continue to serve as investment advisor of the Fund
pursuant to the terms of the Current Advisory Agreement.
10
<PAGE>
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of May
31, 1997 approximately $5.5 billion, including assets of the Fund and the
assets of ICC's other clients. ICC is an indirect subsidiary of Alex. Brown
Incorporated. The principal address of each is One South Street, Baltimore,
Maryland 21202.
The following information is provided for each Director and the principal
executive officer of ICC.
Directors and Principal Executive Officer
of Investment Company Capital Corp.
<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- -------------------------- --------------------------- ----------------------------
<S> <C> <C>
Charles W. Cole, Jr. One South Street Managing Director, Alex.
Chairman Baltimore, Maryland 21202 Brown & Sons Incorporated
Richard T. Hale One South Street Managing Director, Alex.
Director and President Baltimore, Maryland 21202 Brown & Sons Incorporated
David L. Hopkins One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Alvin B. Krongard One South Street Chairman, Chief Executive
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated
Margaret-Mary V. Preston One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Robert F. Price One South Street Managing Director and
Director Baltimore, Maryland 21202 General Counsel, Alex.
Brown & Sons Incorporated
Mayo A. Shattuck III One South Street President, Chief Operating
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated
Truman T. Semans One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Beverly L. Wright One South Street Managing Director and Chief
Director Baltimore, Maryland 21202 Financial Officer, Alex.
Brown & Sons Incorporated
</TABLE>
For the fiscal year ended December 31, 1996, ICC waived all advisory fees
due it ($106,045) and reimbursed expenses of $61,823. For the fiscal year ended
December 31, 1996, the Fund paid ICC aggregate fees of $15,522 for transfer
agency services and $19,225 for accounting services provided to the Fund. For
the fiscal year ended December 31, 1996, the Fund paid Alex. Brown & Sons
Incorporated an aggregate distribution fee of $68,483. For the fiscal year
ended December 31, 1996, ICC paid ABKB/LaSalle an aggregate fee of $3,163 (net
of voluntary fee waivers of $62,095) for sub-advisory services.
As of May 31, 1997, to Fund management's knowledge as provided by the
Directors and officers of the Fund, the following Directors and officers of the
Fund beneficially owned shares of Alex. Brown Incorporated. Mr. Hale, Chairman
and a Director of the Fund and President and a Director of ICC, beneficially
owned 90,470 shares of Alex. Brown Incorporated. Mr. Cole, a Director of the
Fund and Chairman and a Director of ICC, beneficially owned 4,356 shares of
Alex. Brown Incorporated. Mr.
11
<PAGE>
Semans, a Director of the Fund and a Director of ICC, beneficially owned
25,433 shares of Alex. Brown Incorporated. Mr. Robert S. Killebrew, Jr., a
Director of the Fund, beneficially owned 73,163 shares of Alex. Brown
Incorporated. Mr. William K. Morrill, Jr., President of the Fund and Managing
Director of ABKB/LaSalle, beneficially owned 315 shares of Alex. Brown
Incorporated. Mr. Edward J. Veilleux, a Vice President of the Fund and Executive
Vice President of ICC, beneficially owned 200 shares of Alex. Brown
Incorporated. Mr. Joseph A. Finelli, Treasurer of the Fund and a Vice President
of ICC, beneficially owned 33 shares of Alex. Brown Incorporated. Ms. Laurie D.
Collidge, Assistant Secretary of the Fund, beneficially owned 48 shares of Alex.
Brown Incorporated.
Other Funds Advised by ICC with Similar Investment Objectives
A number of funds in the Flag Investors family of funds 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 ICC pursuant
to advisory agreements in effect for such funds.
<TABLE>
<CAPTION>
Management Fee
Assets (as a percentage of
Fund (000's) average daily net assets)
- ----- ----------- ---------------------------
<S> <C> <C>
Flag Investors Equity Partners Fund, Inc. ......... $170,815(1) .78% (net of fee waivers)(1)
Flag Investors Emerging Growth Fund, Inc. ......... $ 65,848(2) .85%(2)
Flag Investors International Fund, Inc. ......... $ 12,930(3) .00% (net of fee waivers)(3)
Flag Investors Telephone Income Fund, Inc. ...... $550,604(4) .66%(4)
Flag Investors Value Builder Fund, Inc. ......... $345,426(5) .82%(5)
</TABLE>
- ------------
(1) Information given for the fiscal year ended May 31, 1997. Absent fee
waivers, Management would be .91% of the fund's average daily net assets.
(2) Information given for the fiscal year ended October 31, 1996.
(3) Information given for the fiscal year ended October 31, 1996. Absent fee
waivers, Management Fees would be .75% of the fund's average daily net
assets.
(4) Information given for the fiscal year ended December 31, 1996.
(5) Information given for the fiscal year ended March 31, 1997.
Shareholder Approval of the New Advisory Agreement
Approval of the New Advisory Agreement requires the affirmative vote of a
majority of the outstanding shares of the Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's outstanding shares present at the 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW ADVISORY AGREEMENT.
PROPOSAL 3: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, Investment Company Capital Corp. and ABKB/LaSalle
Securities Limited Partnership.
ABKB/LaSalle Securities Limited Partnership is the Fund's sub-advisor.
Shareholders are being asked to approve a New Sub-Advisory Agreement to take
effect following the consummation of the Merger. For a description of the
Merger, together with the factors considered by the Board in its review and
analysis of such Merger, please see Proposal 2 on page 7.
The Current Sub-Advisory Agreement
The current Sub-Advisory Agreement among the Fund, ICC and ABKB/LaSalle,
dated December 30, 1994 (the "Current Sub-Advisory Agreement"), was last
approved by the sole shareholder of the Fund on December 27, 1994. The Current
Sub-Advisory Agreement was most recently approved by the Fund's Board of
Directors, including a majority of the Disinterested Directors, on October 1,
1996.
12
<PAGE>
The Current Sub-Advisory Agreement provides that ABKB/LaSalle, in return
for its fee, will (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
ABKB/LaSalle 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 and 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 ICC considers desirable for inclusion in the Fund's portfolio.
The Current Sub-Advisory Agreement provides for compensation to
ABKB/LaSalle from ICC, calculated daily and paid monthly, at an annual rate of
.40% of the first $100 million of the Fund's average daily net assets, .35% of
the next $100 million of the Fund's average daily net assets, .30% of the next
$100 million of the Fund's average daily net assets, and .25% of the Fund's
average daily net assets in excess of $300 million.
The Current Sub-Advisory Agreement provides that ABKB/LaSalle will 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. ABKB/LaSalle will
maintain, at its expense and without cost to the Fund, a trading function in
order to place orders for the purchase and sale of portfolio securities of the
Fund. The Fund assumes and pays or causes to be paid all other expenses of the
Fund, including, without limitation: payments to ICC under the Current Advisory
Agreement, payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing shares of the
Fund; all costs and expenses in connection with the registration and maintenance
of registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not interested persons
(as defined in the 1940 Act) of the Fund and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
The services of ABKB/LaSalle are not deemed to be exclusive, and
ABKB/LaSalle is free to render investment advisory and other services to
others, including other investment companies, and to engage in other
activities, so long as its services under the agreement are not impaired
thereby. Partners of ABKB/LaSalle may serve as officers or Directors of the
Fund, the Fund's officers or Directors may serve as officers or partners of
ABKB/LaSalle, to the extent permitted by law, and partners of ABKB/LaSalle 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 Current
Sub-Advisory Agreement continues in force and effect from year to year,
provided that such continuance is approved at least annually by the Fund's
13
<PAGE>
Board of Directors or by the vote of a majority of the outstanding voting
securities of the Fund, and by the affirmative vote of a majority of the
Directors who are not parties to the agreement or "interested persons" of a
party to the agreement (other than as Directors of the Fund) by votes cast in
person at a meeting specifically called for such purpose.
The Current 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
ABKB/LaSalle, upon 60 days' written notice to the other parties. The agreement
automatically terminates in the event of its assignment.
The Current Sub-Advisory Agreement obligates ABKB/LaSalle, in the
performance of its duties under the agreement, 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
ABKB/LaSalle is not liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of ABKB/LaSalle
or its officers, partners or employees, or reckless disregard by ABKB/LaSalle
of its duties under the agreement.
The New Sub-Advisory Agreement
The Board of Directors approved the proposed new Sub-Advisory Agreement
among the Fund, ICC and ABKB/LaSalle (the "New Sub-Advisory Agreement") on June
17, 1997, the form of which is attached as Exhibit B. The form of the proposed
New Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the dates of execution, effectiveness and initial term and the
deletion of provisions relating to state expense limits that have been preempted
by federal law.
The sub-advisory fee as a percentage of net assets payable by ICC will be
the same under the New Sub-Advisory Agreement as under the Current Sub-Advisory
Agreement. If the sub-advisory fee under the New Sub-Advisory Agreement had
been in effect for the Fund's most recently completed fiscal year, the
sub-advisory fee to which ABKB/LaSalle would have been entitled would have been
identical to that to which it was entitled under the Current Sub-Advisory
Agreement.
The Board held a meeting on June 17, 1997, at which the Board, including
the Disinterested Directors, unanimously approved the New Sub-Advisory Agreement
for the Fund and recommended the New Sub-Advisory Agreement for approval by the
shareholders of the Fund. The New Sub-Advisory Agreement would take effect upon
the later to occur of (i) the obtaining of shareholder approval or (ii) the
closing of the Merger. The New Sub-Advisory Agreement will continue in effect
for an initial two-year term and thereafter for successive annual periods as
long as such continuance is approved in accordance with the 1940 Act.
In evaluating the New Sub-Advisory Agreement, the Board considered
substantially the same factors that led it to approve the New Advisory
Agreement, particularly the continuity of services. In this regard, the Board
took into account that the Fund's Current Sub-Advisory Agreement and the New
Sub-Advisory Agreement, including their terms relating to the services to be
provided thereunder by ABKB/LaSalle and the fees and expenses are substantially
identical.
In the event that shareholders of the Fund do not approve the New
Sub-Advisory Agreement, the Current Sub-Advisory Agreement will remain in
effect and the Board will take such action as it deems in the best interest of
the Fund and its shareholders, which may include proposing that shareholders
approve an agreement in lieu of the New Sub-Advisory Agreement. If the Merger
is not consummated, ABKB/LaSalle will continue to serve as investment advisor
of the Fund pursuant to the terms of the Current Sub-Advisory Agreement.
ABKB/LaSalle Securities Limited Partnership
ABKB/LaSalle is a registered investment advisor and together with its
affiliates had, as of May 31, 1997, approximately $2.4 billion in real estate
securities under management, almost all of which is in domestic real estate
securities. ABKB/LaSalle, a Maryland limited partnership, is one of several
entities through which LaSalle Partners Limited Partnership and its affiliates
conduct real estate investment advisory and related businesses. ABKB/LaSalle is
controlled indirectly by DEL-LPL Limited Partnership, a Delaware limited
partnership,
14
<PAGE>
whose general partners are M.G. Rose and nine corporations, each of which is
owned by one of the following persons: Jonathan E. Bortz; Daniel W. Cummings;
Wade W. Judge; William K. Morrill, Jr.; Stuart L. Scott; Robert C. Spoerri;
Lynn C. Thurber; Earl E. Webb; and Robert F. Works. The address of ABKB/LaSalle
is 100 East Pratt Street, Baltimore, Maryland 21202.
The following information is provided for each general partner and the
principal executive officer of ABKB/LaSalle.
<TABLE>
<CAPTION>
Name and Position with ABKB/LaSalle Address Principal Occupation
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
ABKB/LaSalle Securities 100 East Pratt Street Real Estate Investment
Incorporated Baltimore, MD 21202
General Partner
William K. Morrill, Jr. ABKB/LaSalle Managing Director,
Chief Executive Officer 100 East Pratt Street ABKB/LaSalle
Baltimore, MD 21202
</TABLE>
For the fiscal year ended December 31, 1996, ICC paid ABKB/LaSalle an
aggregate fee of $3,163 (net of voluntary fee waivers of $62,095) for
sub-advisory services. For the fiscal year ended December 31, 1996, ICC waived
all advisory fees due it ($106,045) and reimbursed expenses of $61,823. For
such year, the Fund paid ICC aggregate fees of $15,522 for transfer agency
services and $19,225 for accounting services provided to the Fund. For the
fiscal year ended December 31, 1996, the Fund paid Alex. Brown & Sons
Incorporated an aggregate distribution fee of $68,483.
Please refer to Proposal 2 -- "Investment Company Capital Corp." on page
11 for information regarding ownership in Alex. Brown Incorporated
by Directors and officers of the Fund.
Other Funds with Similar Investment Objectives Sub-Advised by ABKB/LaSalle
ABKB/LaSalle does not act as advisor or sub-advisor to any other funds
with investment objectives similar to those of the Fund.
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 shares of the Fund. For purposes of this
proposal, "majority of the outstanding shares" means the vote of (i) 67% or
more of the Fund's outstanding shares present at the Special 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
15
<PAGE>
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers, including their names, positions with the Fund, length of service in
such positions, ages, principal occupations or employment during the past five
years and amount of shares of the Fund beneficially owned as of May 31, 1997,
is set forth below. Each officer of the Fund will hold such office until a
successor has been elected by the Board of Directors. Directors and officers of
the Fund are also directors and officers of some or all of the other investment
companies managed, administered, advised or distributed by Alex. Brown & Sons
Incorporated or its affiliates.
<TABLE>
<CAPTION>
Position With
Name the Fund Age
- ----------------------- ---------------------- -----
<S> <C> <C>
Richard T. Hale* Director and 51
Chairman of the
Board since 1994
Charles W. Cole, Jr.* Director since 1996 61
James J. Cunnane Director since 1994 59
Robert S. Killebrew, Jr.* Director since 1995 57
John F. Kroeger Director since 1994 72
Louis E. Levy Director since 1994 64
Eugene J. McDonald Director since 1994 65
Rebecca W. Rimel Director since 1995 46
Truman T. Semans* Director since 1994 70
Carl W. Vogt, Esq. Director since 1996 61
William K. Morrill, Jr. President since 1994 60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business Experience Shares
During the Past Five Years Beneficially Owned
Name (including all directorships) as of May 31, 1997** Percentage
- ----------------------- ------------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
Richard T. Hale* See "Information Regarding 2,793 shares ***
Nominees."
Charles W. Cole, Jr.* Vice Chairman, Alex. Brown Capital None ***
Advisory & Trust Company (registered
investment advisor); Chairman,
Investment Company Capital Corp.
(registered investment advisor);
Director, Provident Bankshares
Corporation and Provident Bank of
Maryland. Formerly, President and
Chief Executive Officer, Chief
Administrative Officer, and Director,
First Maryland Bancorp, The First
National Bank of Maryland and First
Omni Bank; Director, York Bank and
Trust Company.
James J. Cunnane See "Information Regarding None ***
Nominees."
Robert S. Killebrew, Jr.* Managing Director, Alex. Brown & 9,726 shares ***
Sons Incorporated; Certified Financial
Analyst and Investment Advisor.
Formerly, Senior Portfolio Manager,
Brown Asset Management (registered
investment advisor), 1974-1995.
John F. Kroeger See "Information Regarding None ***
Nominees."
Louis E. Levy See "Information Regarding 1,746 shares ***
Nominees."
Eugene J. McDonald See "Information Regarding None ***
Nominees."
Rebecca W. Rimel See "Information Regarding None ***
Nominees."
Truman T. Semans* See "Information Regarding None ***
Nominees."
Carl W. Vogt, Esq. See "Information Regarding None ***
Nominees."
William K. Morrill, Jr. Managing Director, ABKB/LaSalle None ***
Securities Limited Partnership. Portfolio
Manager with ABKB/LaSalle or its
predecessors since 1985.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Position With
Name the Fund Age
- -------------------- ----------------------- -----
<S> <C> <C>
Keith R. Pauley Executive Vice 33
President since 1994
Edward J. Veilleux Vice President since 53
1994
Gary V. Fearnow Vice President since 52
1994
Scott J. Liotta Vice President since 32
1996; Secretary since
1997
Joseph A. Finelli Treasurer since 1995 40
Laurie D. Collidge Assistant Secretary 31
since 1994
<CAPTION>
Business Experience Shares
During the Past Five Years Beneficially Owned
Name (including all directorships) as of May 31, 1997** Percentage
- -------------------- ------------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
Keith R. Pauley Senior Vice-President, ABKB/LaSalle 1,795 shares ***
Securities Limited Partnership. Portfolio
Manager with ABKB/LaSalle or its
predecessors since 1986.
Edward J. Veilleux Principal, Alex. Brown & Sons 4,088 shares ***
Incorporated; Vice President, Armata
Financial Corp. (registered
broker-dealer); Executive Vice
President, Investment Company Capital
Corp. (registered investment advisor).
Gary V. Fearnow Managing Director, Alex. Brown & None ***
Sons Incorporated and Manager, Private
Client Marketing, Alex. Brown & Sons
Incorporated.
Scott J. Liotta Manager, Fund Administration, Alex. None ***
Brown & Sons Incorporated, July
1996-Present. Formerly, Manager and
Foreign Markets Specialist, Putnam
Investments Inc. (registered investment
companies), April 1994-July 1996;
Supervisor, Brown Brothers Harriman
& Co. (domestic and global custody),
August 1991-April 1994.
Joseph A. Finelli Vice President, Alex. Brown & Sons None ***
Incorporated and Vice President,
Investment Company Capital Corp.
(registered investment advisor),
September 1995-Present. Formerly,
Vice President and Treasurer, The
Delaware Group of Funds (registered
investment companies) and Vice
President, Delaware Management
Company Inc. (investments),
1980-1995.
Laurie D. Collidge Asset Management Department, Alex. None ***
Brown & Sons Incorporated,
1991-Present.
</TABLE>
- ------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** This information has been furnished by each Director and officer.
*** As of May 31, 1997, the Directors and officers of the Fund as a group (17
persons) beneficially owned an aggregate of less than 1% of the shares of
the Fund.
Investment Advisor and Sub-Advisor
See "Investment Company Capital Corp." on page 11 and "ABKB/LaSalle
Securities Limited Partnership" on page 14 for additional information
concerning the Advisors.
Principal Underwriter
Alex. Brown & Sons Incorporated, located at One South Street, Baltimore,
Maryland 21202, a wholly-owned subsidiary of Alex. Brown Incorporated, acts as
the Fund's principal underwriter.
17
<PAGE>
Portfolio Transactions
In the fiscal year ended December 31, 1996, the Fund paid Alex. Brown &
Sons Incorporated brokerage commissions in the aggregate amount of $480, which
represented 1.39% of the Fund's aggregate brokerage commissions and which were
paid on transactions that represented 1.35% of the aggregate dollar amount of
transactions that incurred commissions paid by the Fund.
Independent Accountants
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected Coopers & Lybrand L.L.P. as the independent
accountants of the Fund for the fiscal year ending December 31, 1997. A
representative of Coopers & Lybrand L.L.P. will be available by telephone
during the Special Meeting, if needed, to make a statement if desired and to
respond to appropriate questions from shareholders.
Beneficial Owners
To the knowledge of Fund Management, as of the Record Date, the following
was a beneficial owner of 5% or more of the outstanding shares of the Fund.
<TABLE>
<CAPTION>
Amount of Percent of
Name and Address Beneficial Ownership Total Shares Outstanding
- ------------------------- ---------------------- -------------------------
<S> <C> <C>
T. Rowe Price, Trustee 190,460 shares 7.17%
Alex. Brown & Sons Inc.
Plan 100460
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21297-0354
</TABLE>
Submission of Shareholder Proposals
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions
to be considered to the Fund 60 days in advance of any such meeting for
inclusion in the Fund's proxy statement and form of proxy for such meeting as
is held. The Nominating Committee of the Board of Directors will give
consideration to shareholder suggestions as to nominees for the Board of
Directors. Shareholders retain the right, under limited circumstances, to
request that a meeting of the shareholders be held for the purpose of
considering the removal of a Director from office and, if such a request is
made, the Fund will assist with shareholder communications in connection with
the meeting.
Required Vote
Approval of Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that one-third of all shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposals 2 and 3 (the New Advisory and Sub-Advisory Agreements)
requires the affirmative vote of a majority of the outstanding shares of the
Fund. As defined in the 1940 Act, the vote of a majority of the outstanding
shares means the vote of (i) 67% or more of the Fund's outstanding shares
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against the
Proposals but will be counted for purposes of determining whether a quorum is
present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting and will therefore have the effect of counting against
Proposals 2 and 3. The Fund believes that brokers who hold shares as record
owners for beneficial owners have the authority under the rules of the various
stock exchanges to vote those shares with respect to the Proposals when they
have not received instructions from beneficial owners.
18
<PAGE>
Other Matters
No business other than the matter described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of
the Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
By Order of the Directors,
Scott J. Liotta
Vice President and Secretary
Dated: July 17, 1997
19
<PAGE>
EXHIBIT A
FORM OF NEW
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the ________ day of
________________, 1997 by and between FLAG INVESTORS REAL ESTATE SECURITIES
FUND, INC., a Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL
CORP., a Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisors 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 under
which the Advisor will provide investment advisory and administrative services
for the Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the Advisor
to act as the Fund's investment advisor. The Advisor shall manage the Fund's
affairs and shall supervise all aspects of the Fund's operations (except as
otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service 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 Department of
Assessments and Taxation of the State of Maryland on May 2, 1994 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 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 May 5,
1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and under the
1940 Act as filed with the SEC on May 5, 1994 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 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's operations, except
for distribution services;
(b) formulate and implement continuing programs for the purchases and
sales of securities, consistent with the investment objective and policies
of the Fund;
A-1
<PAGE>
(c) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate office space and
all necessary office equipment and services, including telephone service,
utilities, stationery, supplies and similar items for the Fund's principal
office;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio;
(f) determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(g) take all actions necessary to carry into effect the Fund's purchase
and sale programs;
(h) supervise the operations of the Fund's custodian, sub-advisor,
transfer and dividend disbursing agent;
(i) provide the Fund with such administrative and clerical services for
the maintenance of certain shareholder records, as are deemed advisable by
the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Fund's
shareholders and reports to and filing with the SEC.
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 securities transactions will be to
obtain the best price and execution on an overall basis. 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 other than Alex. Brown & Sons Incorporated ("Alex. Brown")
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 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.
A-2
<PAGE>
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to
be received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time." If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more other account of the Advisor is considered at or about the
same time, transactions in such securities will be allocated among the accounts
in a manner deemed equitable by the Advisor. Alex. Brown and the Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any transaction
in which the Advisor or Alex. Brown acts as a principal with respect to any
part of the Fund's order. If Alex. Brown is participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with policies established by the Board of Directors in compliance
with the 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 Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with applicable banking
regulations, furnish, at its expense and without cost to the Fund, the
services of one or more officers of the Fund, to the extent that such
officers may be required by the Fund for the proper conduct of its affairs.
(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: payments to the Fund's
distributor under the Fund's plan of distribution, the charges and expenses
of any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions, chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
Federal, State or other governmental agencies; the costs and the expenses
of the engraving or printing of certificates representing shares of the
Fund; all costs and expenses in connection with 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 shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not "interested persons" (as defined
in the 1940 Act) of the Fund and of independent accountants, in connection
with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance
A-3
<PAGE>
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 including a
majority of the Fund's Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund, and of the shareholders of the Fund,
the Advisor may delegate to a sub-advisor its duties enumerated in Section
3, hereof. 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, but shall not be responsible for the sub-advisor's performance
under the sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to, perform
services on behalf of the Fund which are 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 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 expense on
any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses assumed by
the Advisor, the Fund shall pay to the Advisor monthly compensation at an annual
rate of .65% of the first $100 million of the Fund's average daily net assets,
.55% of the Fund's average daily net assets exceeding $100 million but not
exceeding $200 million, .50% of the Fund's average daily net assets exceeding
$200 million but not exceeding $300 million and .45% of the Fund's average daily
net assets exceeding $300 million.
Except as hereinafter set forth, compensation under this Agreement shall
be calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month, compensation for
the 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 and Renewal. This Agreement shall become effective as of the date
hereof and shall continue in force and effect, subject to Section 12 hereof, for
two years from the date hereof. 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 (as defined in the 1940 Act)
of the Fund; and
(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) 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, without the payment of any
penalty, by the Fund upon vote of the Fund's Board of Directors or a vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) or by the Advisor, upon sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment (as
defined in the 1940 Act).
A-4
<PAGE>
13. Liability of Advisor. In the performance of its duties hereunder, the
Advisor shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under this Agreement, but the Advisor shall
not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund
and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.
15. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant
to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement
shall be interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest:-------------- By:-----------------------------------
Name:
Title:
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest:-------------- By:-----------------------------------
Name:
Title:
A-5
<PAGE>
EXHIBIT B
FORM OF NEW
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the _______ day of ________________, 1997 by
and among FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, a
Maryland limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund, which is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the Sub-Advisor for
purposes of rendering advisory services to the Fund and the Advisor in
connection with the Advisor's responsibilities to the Fund on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the Sub-Advisor to
act as the Fund's Sub-Advisor under the supervision of the Fund's Board of
Directors and the Advisor, and the Sub-Advisor hereby accepts such appointment,
all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the Sub-Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Department of
Assessments and Taxation of the State of Maryland on May 2, 1994 and all
amendments thereto (such Articles of Incorporation, as presently in effect
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 as they shall from time to time be amended, are herein
called the "Bylaws");
(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 May 5,
1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and under the
1940 Act as filed with the SEC on May 5, 1994 relating to the shares of the
Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as presently in
effect and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Sub-Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Sub-Advisor. In carrying out its obligations under Section 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;
B-1
<PAGE>
(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.
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 Alex. Brown & Sons Incorporated
("Alex. Brown") to execute portfolio transactions for the Fund on an agency
basis. The commissions paid to Alex. Brown must be, as required by Rule 17e-1
under the 1940 Act, "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more other accounts of the Sub-Advisor
is considered at or about the same time, transactions in such securities will be
allocated among the accounts in a manner deemed equitable by the Sub-Advisor.
Alex. Brown and the Sub-Advisor may combine such transactions, in accordance
with applicable laws and regulations, in order to obtain the best net price and
most favorable execution.
The Fund will not deal with the Sub-Advisor or Alex. Brown in any
transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
B-2
<PAGE>
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 provisions of the By-laws; and
(e) any other applicable provisions of Federal and State 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 furnish, at its expense and without cost to
the Fund, the services of the President and certain Vice Presidents of the
Fund, to the extent that such officers may be required by the Fund for the
proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense and without cost to
the Fund, a trading function in order to carry out its obligations under
Section 3 hereof to place orders for the purchase and sale of portfolio
securities for the Fund.
(c) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: payments to the
Advisor under the Investment Advisory Agreement between the Fund and the
Advisor; payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commission chargeable to
the Fund in connection with portfolio securities transactions to which the
Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to Federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with
the registration and maintenance of registration of the Fund and its shares
with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and
reports to shareholders; fees and travel expenses of Directors or Director
members of any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) of the Fund and of independent
certified public accountants, in connection with any matter relating to the
Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto);
and all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by the Sub-
Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation equal to
the sum of the amounts determined by applying the following annual rates to the
Fund's average daily net assets: .40% of the first $100 million of the Fund's
average daily
B-3
<PAGE>
net assets, .35% of the Fund's average daily net assets in excess of $100
million but not exceeding $200 million, .30% of the Fund's average daily net
assets in excess of $200 million but not exceeding $300 million, and .25% of
the Fund's average daily net assets in excess of $300 million. Except as
hereinafter set forth, compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals paid monthly. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculations of the fees as set forth above. Payment of the Sub-Advisor's
compensation for the preceding month shall be made as promptly as possible.
9. Additional 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.
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 officers or Directors 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 Directors of the Sub-Advisor to the extent permitted by law; and
that the officers and Directors 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, directors or trustees of any
other firm, trust 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.
B-4
<PAGE>
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 100 East Pratt Street, Baltimore,
Maryland 21202, and the address of the Advisor and the Fund shall be One South
Street, Baltimore, Maryland 21202.
16. Questions and 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.
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.
FLAG INVESTORS REAL ESTATE SECURITIES
FUND, INC.
Attest:------------------ By:-----------------------------------
Name:
Title:
INVESTMENT COMPANY CAPITAL CORP.
Attest:------------------ By:-----------------------------------
Name:
Title:
ABKB/LASALLE SECURITIES LIMITED
PARTNERSHIP
Attest:------------------ By:-----------------------------------
Name:
Title:
B-5
<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
This proxy is for your use in voting on various matters relating to Flag
Investors Real Estate Securities Fund, Inc. (the "Fund"). The undersigned
shareholder(s) of the Fund, revoking previous proxies, hereby appoint(s) Scott
J. Liotta, I. Alisa Stesch and Laurie D. Collidge and each of them (with full
power of substitution) the proxies of the undersigned to attend the Special
Meeting of Shareholders of the Fund to be held on August 14, 1997 (the "Special
Meeting") and any adjournments thereof, to vote all of the shares of the Fund
that the signer would be entitled to vote if personally present at the Special
Meeting and on any matter incident to the conduct of the Special Meeting, all as
set forth in the Notice of Special Meeting of Shareholders and Proxy Statement
of the Board of Directors. Said proxies are directed to vote or refrain from
voting pursuant to the Proxy Statement as indicated upon the matters set forth
below.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X|
KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Vote on Directors
1. To consider and act upon a proposal to elect a Board of Directors.
Richard T. Hale James J. Cunnane
John F. Kroeger Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt
|_| FOR ALL
|_| WITHHOLD ALL
|_| FOR ALL EXCEPT:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To withhold authority to vote, mark "FOR ALL EXCEPT" and write the
nominee's name on the line below.
- ---------------------------------------------------------
Vote on Proposals
2. To approve or disapprove a new Investment Advisory Agreement between the
Fund and Investment Company Capital Corp.
|_| For |_| Against |_| Abstain
3. To approve or disapprove a new Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and ABKB/LaSalle Securities Limited
Partnership.
|_| For |_| Against |_| Abstain
Please print and sign your name in the space provided to ________________________________ _____________________
authorize the voting of your shares as indicated and return Signature [PLEASE SIGN WITHIN BOX] Date
promptly. When signing on behalf of a corporation,
partnership, estate, trust or in any other representative
capacity please sign your name and title. For joint accounts, _______________________________ _____________________
each joint owner must sign. Signature (Joint Owners) Date
</TABLE>
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
