<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Flag Investors Real Estate Securities Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement., if other than 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: ________________
-2-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
One South Street
Baltimore, Maryland 21202
[August 23], 1999
Dear Shareholder:
On June 4, 1999, Bankers Trust merged with Deutsche Bank AG. Bankers Trust is
the indirect parent of Investment Company Capital Corp., the investment advisor
to the Flag Investors Real Estate Securities Fund, Inc. (the "Fund"). LaSalle
Investment Management (Securities), L.P. ("LaSalle") is the sub-advisor to the
Fund. As a result of the merger, we are asking shareholders of the Fund to
approve new advisory and sub-advisory agreements. Enclosed is further
information relating to these changes, including a Questions & Answers section,
proxy statement and proxy card(s).
Important information about the changes:
o The merger has no effect on the number of shares you own or
the value of those shares.
o The advisory and sub-advisory fees payable under the new
advisory and sub- advisory agreements have not increased.
o The investment objective of your mutual fund investment has
not changed.
In addition to the change in advisory agreements, shareholders are also being
asked to approve other changes outlined in the enclosed Proxy Statement. The
Board of Directors of the Fund believes that the proposals are important and
recommends that you read the enclosed materials carefully and then vote for all
proposals.
What you need to do:
o Read all enclosed materials including the Questions & Answers
section.
o Choose one of the following options to vote:
1. By Mail: Complete the enclosed proxy card and return it
in the postage-paid envelope provided by (dd/mm/yy).
2. By Telephone: Call the Toll-Free # on your proxy card by
(dd/mm/yy).
3. By Internet: Logon to www.proxyvote.com by (dd/mm/yy).
4. Attend the Shareholder Meeting (details enclosed).
<PAGE>
Sincerely,
[INSERT MR. HALE'S SIGNATURE]
Richard T. Hale
Chairman
Flag Investors Real Estate Securities Fund, Inc.
<PAGE>
[August 23], 1999
IMPORTANT NEWS
FOR SHAREHOLDERS OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
While we encourage you to read the full text of the enclosed Proxy Statement,
here is a brief overview of some matters affecting the Fund which require a
shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q. What has happened to require a shareholder vote?
A. On June 4, 1999, Bankers Trust became a subsidiary of Deutsche Bank AG.
Bankers Trust is the indirect parent of Investment Company Capital Corp.,
("ICC") investment advisor to the Flag Investors Real Estate Securities Fund,
Inc. (the "Fund"). LaSalle Investment Management (Securities), L.P. ("LaSalle")
is the sub-advisor to the Fund.
Deutsche Bank, a banking company organized under the laws of the Federal
Republic of Germany, provides a comprehensive range of global banking and
financial services. Deutsche Bank now ranks as the fourth largest investment
manager in the world with $670 billion in assets in a full range of active and
index strategies. Deutsche Asset Management handles the investment management
activities of Deutsche Bank in the Americas, United Kingdom and Asia and will
manage $454 billion in assets globally.
To ensure that ICC may continue to serve as investment advisor and ABIM as
sub- advisor to the Fund, we are seeking shareholder approval of new advisory
and sub-advisory agreements. In addition, you are being asked to elect a Board
of Directors of the Fund and to modify or eliminate certain of the Fund's
fundamental investment policies in response to changes in the law.
THE BOARD MEMBERS OF YOUR FUND, INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE
FUND, RECOMMEND THAT YOU VOTE FOR THESE PROPOSALS.
Q. Why am I being asked to vote on the new advisory and sub-advisory agreements?
A. The Investment Company Act of 1940, which regulates investment companies in
the United States such as the Fund, requires a shareholder vote to approve new
investment advisory agreements following certain types of business combinations.
The new advisory and sub- advisory agreements became effective immediately upon
consummation of the merger and will continue in effect only upon shareholder
approval.
Q. How does the merger affect the Fund?
<PAGE>
A. The Fund and its respective investment objectives have not changed as a
result of the merger. You still own the same shares in the same Fund as you did
prior to the merger. The new advisory and sub-advisory agreements contain
substantially the same terms and conditions as the investment advisory and
sub-advisory agreements in effect prior to the merger, except for the dates of
execution, effectiveness and initial term. If shareholders do not approve the
new advisory and sub-advisory agreements, these agreements will no longer
continue and the Board of Directors will take such action as it deems to be in
the best interests of the Fund, and its shareholders.
Q. Have the investment advisory and sub-advisory fees remained the same?
A. Yes.
Q. What are the benefits of the merger?
A. There are several potential positive aspects of the merger you may be
interested in. Most notably, the combined institution will be one of the largest
financial institutions in the world, as well as a leader in a number of
important categories, including asset management. The financial strength of the
combined institution coupled with the increased breadth and depth of its
resources and capabilities are advantages the acquisition brings. Further, as a
truly global institution, the combined entity will be in a unique position to
provide coverage, services and products.
Q. How does the Board of Directors of the Fund recommend that I vote?
A. After careful consideration, the Board of Directors of the Fund recommends
that you vote in favor of all the proposals on the enclosed proxy card.
Q. Whom do I call for more information?
A. If you need more information, please call Shareholder Communications
Corporation, the Fund's information agent, at 1-800-732-6168.
Q. How can I vote my shares?
A. You may choose from one of the following options to vote your shares:
o By mail, with the enclosed proxy card(s) and return envelope.
o By telephone, with a toll-free call to the telephone number that appears on
your proxy card.
o Through the Internet, by using the Internet address located on your proxy
card and following the instructions on the site.
<PAGE>
o In person at the shareholder meeting (see details enclosed in proxy
statement).
Q. Will the Fund pay for the proxy solicitation and legal costs associated with
this transaction?
A. No, ICC will bear these costs. However, the Fund will bear the incremental
costs associated with changing the Fund's fundamental policies.
Please vote all issues on each proxy card that you receive. Thank you for
mailing your proxy card promptly.
[August 23], 1999
-3-
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------------------------
Notice of Special Meeting of Shareholders
October 7, 1999
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").
The Special Meeting will be held on Thursday, October 7, 1999, at 2:30 p.m.
Eastern 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. The purpose of the Special Meeting is to consider the
proposals set forth below and to transact 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 a new Investment Advisory Agreement between the Fund and
Investment Company Capital Corp.
PROPOSAL 3: To approve a new Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and LaSalle Investment Management
(Securities), L.P.
PROPOSAL 4: To eliminate the Fund's fundamental investment policy concerning
short sales.
PROPOSAL 5: To eliminate the Fund's fundamental investment policy concerning the
purchase of securities on margin.
PROPOSAL 6: To eliminate the Fund's fundamental investment policy concerning
purchases of oil, gas or mineral interests.
<PAGE>
PROPOSAL 7: To modify the Fund's fundamental investment policy concerning
borrowing.
PROPOSAL 8: To modify the Fund's fundamental investment policy concerning loans.
Only shareholders of the Fund at the close of business on August 6, 1999 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. YOU MAY ALSO VOTE EASILY AND QUICKLY BY TELEPHONE OR THROUGH THE
INTERNET. TO DO SO, PLEASE FOLLOW THE INSTRUCTION INCLUDED ON YOUR ENCLOSED
PROXY CARD. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO VOTE SO THAT A
QUORUM WILL BE PRESENT AND A MAXIMUM NUMBER OF SHARES MAY BE VOTED. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.
Amy M. Olmert
Secretary
Dated: [August 23], 1999
-4-
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
October 7, 1999
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, October 7, 1999, at 2:30 p.m. Eastern Time, or at
any adjournment thereof (the "Special Meeting"), at the offices of Investment
Company Capital Corp., in the conference room on the 30th Floor of The Alex.
Brown Building, One South Street, Baltimore, Maryland 21202. It is expected that
the Notice of Special Meeting, the Proxy Statement and a Proxy Card will be
mailed to shareholders on or about August 23, 1999.
Summary
-------
At the Special Meeting, shareholders will be asked to elect a slate of
Directors, to approve a new Investment Advisory Agreement, to approve a new
Sub-Advisory Agreement and to consider a number of issues relating to the
fundamental investment policies of the Fund.
Proposal 1 asks shareholders of the Fund to elect a Board of Directors.
Proposals 2 and 3 ask shareholders to consider a new Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. ("ICC" or the
"Advisor") and a new Sub-Advisory Agreement among the Fund, ICC and LaSalle
Investment Management (Securities), L.P. ("LaSalle" or the "Sub-Advisor"). This
action is necessary because the merger on June 4, 1999 (the "Merger") between
Bankers Trust Corporation ("Bankers Trust"), the indirect parent of ICC, and a
U.S. subsidiary of Deutsche Bank AG ("Deutsche Bank") may have arguably resulted
in an assignment and, therefore, termination of the Fund's prior Investment
Advisory and Sub-Advisory Agreements under the Investment Company Act of 1940,
as amended (the "1940 Act"). The proposed new Investment Advisory and
Sub-Advisory
-5-
<PAGE>
Agreements are identical to the Fund's prior Investment Advisory and
Sub-Advisory Agreements, except for the dates of execution, effectiveness and
initial term.
Proposals 4 through 8 ask shareholders to approve changes in the fundamental
investment policies of the Fund. Shareholders are being asked to eliminate or
modify certain of the Fund's investment policies primarily to update these
policies to reflect changes in the law. The changes to the Fund's fundamental
policies would become effective upon shareholder approval or at such later date
as the proper officers of the Fund determine.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please vote your proxy (the "Proxy") by mail, telephone or
internet, allowing sufficient time for the Proxy to be received on or before
2:30 p.m. Eastern Time on October 7, 1999. If your proxy is properly returned,
shares represented by it will be voted at the Special Meeting in accordance with
your instructions. However, if no instructions are specified on the Proxy with
respect to a specific Proposal, the Proxy will be voted FOR the approval of such
Proposal and in accordance with the judgement of the persons authorized as
proxies upon any other matter that may properly come before the Special Meeting.
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 August 6, 1999, 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 that
date, the Fund had ________________ shares outstanding. Each full share will be
entitled to one vote at the Special Meeting and each fraction of a share will be
entitled to the fraction of a vote equal to the proportion of a full share
represented by the fractional share.
The expenses of the Special Meeting will be borne by ICC, except that the
incremental costs associated with Proposals 4 through 8 will be borne by the
Fund, and will include reimbursement to brokerage firms and others for expenses
in forwarding Proxy solicitation materials to beneficial owners. The
solicitation of Proxies will be largely by mail, but may include telephonic,
telegraphic, Internet or oral communication by employees and officers of ICC and
LaSalle (collectively, the "Advisors"). Additional solicitation may be made by
Shareholder Communications Corporation, ("Shareholder Communications"), a
solicitation firm located in New York, New York, that has been engaged by the
Fund to assist in proxy solicitation. [Payments to Shareholder Communications by
ICC and the Fund are estimated to be $_____.]
Upon request, the Fund will furnish to shareholders, without charge, a copy
of the Annual Report for its fiscal year ended December 31, 1998, and, when
available, the SemiAnnual Report for the period ended June 30, 1999. The Annual
and Semi-Annual Reports of the Fund may be obtained by written request to the
Fund, One South Street, Baltimore, Maryland 21202, or by calling (800) 553-8080.
-6-
<PAGE>
The Fund is registered as an open-end, diversified management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended. The Fund offers three classes of shares: Class A, Class
B and Institutional.
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 R.
Burt, Richard T. Hale, Joseph R. Hardiman, Louis E. Levy, Eugene J. McDonald,
Rebecca W. Rimel, Truman T. Semans, and Robert H. Wadsworth (each a "Nominee"
and collectively the "Nominees"). All of the Nominees are currently members of
the Board of Directors except for Messrs. Burt and Wadsworth. Ms. Rimel and
Messrs. Hale, Levy, McDonald and Semans were last elected by a vote of
shareholders on August 14, 1997. Mr. Hardiman was appointed by the Board of
Directors to fill a vacancy on the Board and has not previously been elected by
the shareholders. Messrs. James J. Cunnane and Carl W. Vogt, who are current
members of the Board, are not seeking reelection and will resign from the Board
effective upon the election of their successors. It is the intention of the
Board that at least 75% of its members will be disinterested persons within the
contemplation of Section 15(f) of the 1940 Act and will remain disinterested
persons for at least three years after the Merger.
At a meeting held on July 28, 1999, the nominating committees (with each
committee comprised of four independent directors) of the Boards of Directors of
the Deutsche Funds, Inc. ("Deutsche Funds") and the Deutsche Portfolios
recommended to the full Boards the nomination of Ms. Rimel and Messrs. Hale,
Hardiman, Levy, McDonald and Semans to each Board. If approved by the full
Boards of the Deutsche Funds and the Deutsche Portfolios, and if subsequently
approved by shareholders, they will serve as directors of the Deutsche Funds and
Deutsche Portfolios. The Deutsche Funds and the Deutsche Portfolios are advised
or administered by a subsidiary of Deutsche Bank.
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. Because the Fund does not hold
regular annual
-7-
<PAGE>
shareholder meetings, each Nominee, if elected, will hold office until his or
her successor is elected and qualified.
Information Regarding Nominees
The following information is provided for each Nominee. [As of May 31, 1999,
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 total outstanding shares
of the Fund.]
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
------------- --- ---------------------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Richard T. Hale* 54 Managing Director, Deutsche Asset ______ ***
Director and Management; Director and President,
Chairman of the Investment Company Capital Corp.
Board since 1994 (registered investment advisor); Chartered
Financial Analyst. Director of 10 funds in
the Fund Complex.****
Richard R. Burt 52 Chairman, IEP Advisors, Inc,; Chairman of ______ ***
Nominee the Board, Weirton Steel Corporation;
Member of the Board, Archer Daniels
Midland Company (agribusiness
operations), Hollinger International Inc.
(publishing), Homestake Mining Company
(mining and exploration), HCL
Technologies (information technology) and
Anchor Technologies (gaming software and
equipment); Director, Mitchell Hutchins
family of funds (registered investment
companies); Member, Textron Corporation
International Advisory Council; and
Partner, McKinsey & Company (consulting),
1991- 1994. Formerly, U.S. Chief
Negotiator in Strategic Arms Reduction
Talks (START) with former Soviet Union
and U.S. Ambassador to the Federal
Republic of Germany, 1985-1991. Nominee
for Director of 8 funds in the Fund
Complex.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
------------- --- ---------------------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Joseph R. Hardiman 62 Private Equity Investor and Capital Markets _____ ***
Director since 1998 Consultant; Director, Wit Capital Group
(registered broker dealer) and The Nevis
Fund (registered investment company).
Formerly, President and Chief Executive
Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ
Stock Market, Inc., 1987-1997; Chief
Operating Officer of Alex. Brown & Sons
Incorporated (now BT Alex. Brown
Incorporated), 1985-1987; and General
Partner, Alex. Brown & Sons Incorporated
(now BT Alex. Brown Incorporated), 1976-
1985. Director of each fund in the Fund
Complex.
Louis E. Levy 66 Director, Kimberly-Clark Corporation ______ ***
Director since 1994 (personal consumer products) and
Household International (finance and
banking). Formerly, Chairman of the
Quality Control Inquiry Committee,
American Institute of Certified Public
Accountants, ___-___; Trustee, Merrill
Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-
Graduate School of Business, 1991-1992;
and Partner, KPMG Peat Marwick, retired
1990. Director of each fund in the Fund
Complex.
Eugene J. McDonald 67 President, Duke Management Company ______ ***
Director since 1994 (investments); Executive Vice President,
Duke University (education, research and
health care); Executive Vice Chairman and
Director, Central Carolina Bank & Trust
(banking); and Director, Victory Funds
(registered investment companies).
Formerly, Director, AMBAC Treasurers
Trust (registered investment company) and
DP Mann Holdings (insurance). Director of
each fund in the Fund Complex.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
------------- --- ---------------------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Rebecca W. Rimel 48 President and Chief Executive Officer, The ______ ***
Director since 1995 Pew Charitable Trusts (charitable funds);
Director and Executive Vice President, The
Glenmede Trust Company (investment trust
and wealth management). Formerly,
Executive Director, The Pew Charitable
Trusts. Director of 11 funds in the Fund
Complex.
Truman T. Semans* 72 Vice Chairman, Brown Investment Advisory ______ ***
Director since 1994 & Trust Company (formerly, Alex. Brown
Capital Advisory & Trust Company);
Director, Investment Company Capital Corp.
(registered investment advisor); and Director
and Chairman, Executive Committee
of Virginia Hot Springs, Inc. (property
management). Formerly, Managing
Director, BT Alex. Brown Incorporated;
Vice Chairman, Alex. Brown & Sons
Incorporated (now BT Alex. Brown
Incorporated). Director of 10 funds in the
Fund Complex.
Robert H. Wadsworth 59 President, The Wadsworth Group (registered ______ ***
Nominee investment advisor), First Fund Distributors,
Inc. (registered broker dealer) and
Guiness Flight Investment Funds, Inc.;
Director, The Germany Fund, Inc., The New
German Fund, Inc., The Central European
Equity Fund, Inc., and Deutsche Funds,
Inc.; Trustee, Deutsche Portfolios; and
Vice President, Professionally Managed
Portfolios and Advisors Series Trust
(registered investment companies).
Nominee for Director of 8 funds in the
Fund Complex.
</TABLE>
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** This information has been provided by each Nominee for Director of the
Fund.
*** As of May 31, 1999, the Nominees of the Fund as a group beneficially owned
an aggregate of less than 1% of the Fund.
**** The "Fund Complex" consists of 12 registered investment companies which
hold themselves out to investors as related companies for purposes of
investment and investor services for which ICC provides investment
advisory or administrative services.
-10-
<PAGE>
Compensation of Directors
Each Director who is not an "interested person" within the meaning of the
1940 Act, as well as the Fund's President, 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,
1998, Independent Directors' fees (including fees paid to the Fund's President)
attributable to the assets of the Fund totaled $2,230. Officers of the Fund,
except the Fund's President, receive no direct remuneration from the Fund.
Officers of the Fund who are employees of BT Alex. Brown Incorporated ("BT Alex.
Brown") or its affiliates may be considered to have received remuneration
indirectly.
Any Director who receives fees from the Fund is permitted to defer between
50% and 100% of his or her annual compensation pursuant to a Deferred
Compensation Plan. Ms. Rimel and Messrs. Cunnane, Levy, McDonald and Vogt 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 from among various funds in the Fund Complex and BT
International Equity Fund 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, 1998 is set forth in
the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended December 31, 1998 by the Fund Complex is
also set forth in the compensation table below.
-11-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Pension or Retirement Total Compensation Number of Funds
Compensation Benefits Accrued as from the Fund in Fund Complex
Payable Part of Fund and Fund Complex for which Director
Name and Position from the Fund Expenses Payable to Directors Serves
----------------- ------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard T. Hale, Chairman(1) $0 $0 $0 10
Truman T. Semans, Director(1) $0 $0 $0 10
James J. Cunnane, Director $240(2) (3) $39,000 13(4)
Joseph R. Hardiman, Director(5) $113(2) (3) $19,500 11(6)
John F. Kroeger, Director(7) $302(2) (3) $49,000 13(4)
Louis E. Levy, Director $268(2) (3) $44,000 13(4)
Eugene J. McDonald, Director $240(2) (3) $39,000 13(4)
Rebecca W. Rimel, Director $244(2) (3) $39,000 12(4,6)
Carl W. Vogt, Esq., Director $246(2) (3) $39,000 13(4,6)
</TABLE>
- -----------------
(1) A Director who is an "interested person" as defined in the 1940 Act.
(2) None of the amounts payable to Ms. Rimel and Messrs. Cunnane, Kroeger, Levy,
McDonald and Vogt were deferred pursuant to the Fund Complex's Deferred
Compensation Plan.
(3) The Fund Complex has adopted a Retirement Plan for eligible Directors and
the Fund's President, as described below. The actuarially computed pension
expense for the Fund for the fiscal year ended December 31, 1998 was
approximately $407.
(4) One of these Funds ceased operations on July 29, 1998.
(5) Elected to the Fund's Board effective September 27, 1998.
(6) Ms. Rimel receives and Messrs. Vogt and Hardiman received (prior to their
appointment or election as Director to all of the Funds in the Fund Complex)
proportionally higher compensation from each fund for which they serve.
(7) Retired, effective September 27, 1998; Deceased, November 26, 1998.
The Fund Complex has adopted a retirement plan (the "Retirement Plan") for
the Fund's President and 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 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 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. The Fund has one Participant, Mt. Woolf, a Director who retired
effective December 31, 1996, who qualified for the Retirement Plan by serving
fourteen years as 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. Such fee is
allocated to each fund in the Fund Complex based upon the relative net assets of
such fund to the Fund Complex.
-12-
<PAGE>
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, 1998, are as follows: Messrs.
Cunnane (4), Hardiman (0), Levy (4), McDonald (6), Vogt (3), and Ms. Rimel (3).
<TABLE>
<CAPTION>
Estimated Annual Benefits Payable By Fund Complex Upon Retirement
Years of Service Chairmen of Audit and Executive Committees Other Participants
---------------- ------------------------------------------ ------------------
<S> <C> <C>
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
</TABLE>
Meetings and Committees of the Board of Directors
There were four regular meetings of the Board of Directors held during the
fiscal year ended December 31, 1998. All incumbent Directors attended all of the
meetings 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. The Committee 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,
1998, were Ms. Rimel and Messrs. Levy (Chairman), Cunnane, Hardiman, McDonald
and Vogt, each of whom is not an "interested person" within the meaning of the
1940 Act. Mr. Kroeger was Chairman of the Audit and Compliance Committee until
his retirement. If elected, Messrs. Burt and Wadsworth will become members of
the Audit and Compliance Committee. The Audit and Compliance Committee met four
times during the fiscal year ended December 31, 1998. All incumbent members
attended all of the meetings 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 the 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, 1998, were Ms. Rimel and Messrs. McDonald
(Chairman), Cunnane, Hardiman, Levy and Vogt, each of whom is not an "interested
person" within the meaning of the 1940 Act. The Nominating Committee met once
during the fiscal year ended December 31, 1998. If elected,
-13-
<PAGE>
Messrs. Burt and Wadsworth will become members of the Nominating Committee. All
incumbent members attended the meeting held during its respective term.
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, 1998, were Ms. Rimel and Messrs. Cunnane
(Chairman), Hardiman, Levy, McDonald and Vogt, each of whom is not an
"interested person" within the meaning of the 1940 Act. If elected, Messrs. Burt
and Wadsworth will become members of the Compensation Committee. The
Compensation Committee did not meet during the fiscal year ended December 31,
1998.
The Board of Directors has an Executive Committee. The Executive Committee
makes recommendations to the full Board of Directors with respect to the renewal
of the Fund's agreements with its service providers. The members of the
Executive Committee during the fiscal year ended December 31, 1998, were Ms.
Rimel and Messrs. McDonald (Chairman), Cunnane, Levy, Hardiman and Vogt, each of
whom is not an "interested person" within the meaning of the 1940 Act. If
elected, Messrs. Burt and Wadsworth will become members of the Executive
Committee. The Chairman of the Executive Committee receives an aggregate annual
fee of $10,000 from the Fund Complex. Payment of the fee is allocated among all
funds in the Fund Complex in proportion to their relative net assets. The
Executive Committee was formed on September 28, 1998, and met once during the
fiscal year ended December 31, 1998. All incumbent members attended the meetings
held during their respective terms.
Board Approval of the Election of Directors
At meetings of the Board of Directors held on March 30, 1999 and July 28,
1999, 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 a majority 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.
-14-
<PAGE>
PROPOSAL 2: To approve a new Investment Advisory Agreement between the Fund
and Investment Company Capital Corp.
General Information
ICC is the Fund's investment advisor and LaSalle is the Fund's
sub-advisor. ICC is an indirect wholly owned subsidiary of Bankers Trust. On
November 30, 1998, Bankers Trust, Deutsche Bank and Circle Acquisition
Corporation entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the terms of the Merger Agreement, Circle Acquisition
Corporation, a wholly owned, New York subsidiary of Deutsche Bank, merged with
and into Bankers Trust on June 4, 1999, with Bankers Trust continuing as the
surviving entity. Under the terms of the Merger, each outstanding share of
Bankers Trust common stock was converted into the right to receive $93 in cash,
without interest.
As a result of the Merger, Bankers Trust became a wholly owned
subsidiary of Deutsche Bank. Deutsche Bank is a banking company with limited
liability organized under the laws of the Federal Republic of Germany. Deutsche
Bank is the parent company of a group consisting of banks, capital markets
companies, mutual fund management companies, mortgage banks, a property finance
company, installment financing and leasing companies, insurance companies,
research and consultancy companies and other domestic and foreign companies. At
March 31, 1999, the Deutsche Bank Group had total assets of $727 billion. The
Deutsche Bank Group's capital and reserves at March 31, 1999, were U.S. $19.6
billion. Since the Merger, Bankers Trust, ICC and LaSalle, along with their
affiliates, have continued to offer the same range of financial products and
services, including investment advisory services, that they offered prior to the
Merger.
The Merger on June 4, 1999 may have resulted in an assignment and,
therefore a termination, of the Fund's prior Investment Advisory Agreement under
the 1940 Act. 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 "Independent Directors"), unanimously
approved the New Advisory Agreement (attached as Exhibit A) on March 30, 1999.
The New Advisory Agreement is identical to the Fund's prior Investment Advisory
Agreement, except for the dates of execution, effectiveness and initial term.
On May 25, 1999, ICC was granted an exemptive order (the "Exemptive
Order") by the Securities and Exchange Commission (the "SEC") permitting
implementation, without obtaining prior shareholder approval, of the New
Advisory Agreement during an interim period commencing on the date of the
closing of the Merger and continuing, for a period of up to 150 days, through
the date on which the New Advisory Agreement is approved by the shareholders of
the Fund (the "Interim Period"). Under the terms of the Exemptive Order, ICC is
allowed to receive advisory fees during the Interim Period pursuant to the New
Advisory Agreement. In accordance with the Exemptive Order, the advisory fees
charged to the Fund and paid to ICC
-15-
<PAGE>
under the New Advisory Agreement have been held in an interest-bearing escrow
account and the Fund expects to continue to deposit these fees in such account
until approval of the New Advisory Agreement by shareholders of the Fund has
been obtained. If the New Advisory Agreement is not approved by the shareholders
of the Fund by the expiration of the Interim Period, the fees held in escrow
will be remitted to the Fund. As of [____], 1999, the amount escrowed totaled
$[____].
ICC does not anticipate any reduction in the quality of services now
provided to the Fund. Nor does ICC anticipate that the Merger will have any
adverse effect on its ability to fulfill its obligations under the New Advisory
Agreement or to operate its business in a manner consistent with past business
practice.
The Prior Advisory Agreement
Prior to June 4, 1999, ICC served as investment advisor to the Fund
pursuant to an Investment Advisory Agreement between ICC and the Fund, dated as
of September 1, 1997 (the "Prior Advisory Agreement"). The Prior Advisory
Agreement was last approved by the shareholders of the Fund on August 14, 1997
and by the Fund's Board of Directors, including a majority of the Independent
Directors, on September 29, 1998.
The New Advisory Agreement
Other than the dates of execution, effectiveness and initial term, the
New Advisory Agreement is identical to the Prior Advisory Agreement. The terms
of the New Advisory Agreement are summarized below and are qualified by
reference to Exhibit A.
Advisory Fees. 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 Prior 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, ICC would have received the same compensation as it received under
the Prior Advisory Agreement.
The New Advisory Agreement. The New Advisory Agreement provides that
the Advisor, in return for its fee, will (a) supervise and manage all aspects of
the Fund's operations, except for distribution services; (b) formulate and
implement continuing programs for the purchases and sales of securities,
consistent with the investment objective and policies of the Fund; (c) provide
the Fund with such executive, administrative and clerical services as are deemed
advisable by the Fund's Board of Directors; (d) provide the Fund with, or obtain
for it, adequate office space and all necessary office equipment and services,
including telephone service, utilities, stationery, supplies and similar items
for the Fund's principal office; (e) obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
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
-16-
<PAGE>
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 materials, tax returns, reports to the Fund's shareholders and
reports to and filings with the SEC. Subject to the approval of the Board and
the Fund's shareholders, the Advisor may delegate certain of its duties
enumerated above to a sub-advisor.
Under the New Advisory Agreement, the Fund pays ICC an annual fee based
on the Fund's average daily net assets. This fee is calculated and accrued daily
and the amounts of the daily accruals shall be paid monthly, at the annual rate
of 0.65% of the first $100 million, 0.55% of the next $100 million, 0.50% of the
next $100 million and 0.45% on the Fund's average daily net assets exceeding
$300 million.
The New Advisory Agreement provides that the Advisor will furnish,
subject to compliance with applicable banking regulations, at its expense and
without cost to the Fund, the services of one or more officers of the Fund to
the extent that such officers may be required by the Fund for the proper conduct
of its affairs. The Fund assumes and pays all other expenses of the Fund,
including, without limitation: payments to the Fund's distributor under the
Fund's plan of distribution; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions,
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to Federal, State or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares with the
SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing prospectuses and statements of
additional information 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
-17-
<PAGE>
and Directors) of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to, legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.
The services of the Advisor are not to be deemed exclusive, and the
Advisor is free to render investment advisory and corporate administrative or
other services to others (including other investment companies), and to engage
in other activities, so long as its services under the agreement are not
impaired thereby. The Advisor's officers or directors may serve as officers or
Directors of the Fund, and the Fund's officers or directors may serve as
officers or directors of the Advisor, to the extent permitted by law. 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.
Following the expiration of its initial two-year term, the New Advisory
Agreement continues in full force and effect from year to year, provided that
such continuance is approved at least annually by the Fund's Board or by the
vote of a majority of the Fund's outstanding voting securities, and by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or "interested persons" of a party to the agreement (other than as
Directors of the Fund) by votes cast in person at a meeting specifically called
for such purpose. The Agreement may be terminated, without the payment of any
penalty, by the Fund upon vote of the Fund's Board 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 Fund. This Agreement
automatically terminates in the event of its assignment.
The New Advisory Agreement obligates the Advisor to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to ensure the accuracy of all services performed under the agreement, but
the Advisor is not liable for any act or omission 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.
Board Considerations. The Board held a meeting on March 30, 1999, at
which the Board, including the Independent Directors, unanimously approved the
New Advisory Agreement and recommended the New Advisory Agreement for approval
by the shareholders of the Fund. 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
Prior 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.
-18-
<PAGE>
The Board was assured on behalf of Bankers Trust and Deutsche Bank 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 connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met:
1. For a period of three years after the change of control, at least
75% of the board members of the investment company must not be interested
persons of the acquired advisor or the acquiror (Bankers Trust and Deutsche
Bank, respectively, in this case). The Fund would be in compliance with this
provision of Section 15(f).
2. An "unfair burden" must not be imposed upon the investment company
as a result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
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). Bankers Trust and
Deutsche Bank 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. Bankers Trust and Deutsche Bank 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 ICC's organization and upon the ability of ICC to
provide advisory services to the Fund. The Board considered the skills and
capabilities of ICC in this regard and the representations of Bankers Trust and
Deutsche Bank that no material change was planned in the current management or
facilities of ICC.
The Board was also informed of the resources of Deutsche Bank 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
Deutsche Bank's experience as advisor and service provider to two families of
U.S. mutual funds as well as numerous non-U.S. mutual funds.
The Board also considered other effects on the Fund of ICC becoming an
affiliated person of Deutsche Bank. Following the Merger, the 1940 Act will
prohibit or impose certain conditions on the ability of the Fund to engage in
certain transactions with Deutsche Bank. For example, absent exemptive relief,
the Fund will be prohibited from entering into securities transactions in which
Deutsche Bank acts as a principal. Currently the Fund is prohibited from
entering into only those transactions in which Bankers Trust acts as principal.
The Fund will
-19-
<PAGE>
also have to satisfy certain conditions in order to engage in securities
transactions in which Deutsche Bank is acting as an underwriter. The Fund is
already required to satisfy such conditions when engaging in transactions in
which Bankers Trust 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 the New Advisory Agreement, would be borne
by the Advisor.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the Independent
Directors, unanimously approved the New Advisory Agreement and voted to
recommend its approval to the shareholders of the Fund.
Additional Information. On March 11, 1999, Bankers Trust Company, a
separate subsidiary of Bankers Trust, announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
ICC became a subsidiary of Bankers Trust after these events took place. Pursuant
to its agreement with the U.S. Attorney's office, Bankers Trust Company pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust Company
agreed to pay a $3.5 million fine to the State of New York. The events leading
up to the guilty plea did not arise out of the investment advisory and
management activities provided by ICC to the Fund.
As a result of the plea, absent an order from the SEC, ICC would not be
able to continue as Advisor. The SEC granted Bankers Trust Company a temporary
order under Section 9(c) of the Act to permit Bankers Trust Company and its
affiliates to continue to provide investment advisory services to registered
investment companies, and Bankers Trust Company, pursuant to Section 9(c) of the
Act, has filed an application for a permanent order. On May 7, 1999, the SEC
extended the temporary order under Section 9(c) of the Act until the SEC takes
final action on the application for a permanent order or, if earlier, November
8, 1999. However, there is no assurance that the SEC will grant a permanent
order. If the SEC refuses to grant a permanent order, shareholders will receive
supplemental proxy materials requesting approval to release any amounts held in
escrow up to the time of the refusal and such other action as deemed appropriate
by the Board.
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of
June 30, 1999 approximately $10 billion, including assets of the Fund and the
assets of ICC's other clients. ICC is a wholly owned subsidiary of BT Alex.
Brown and an indirect subsidiary of Bankers
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<PAGE>
Trust. The principal address of ICC and BT Alex. Brown is One South Street,
Baltimore, Maryland, 21202 and the principal address of Bankers Trust is 130
Liberty Street, New York, New York, 10006. Bankers Trust is a wholly owned
subsidiary of Deutsche Bank. The principal address of Deutsche Bank is Deutsche
Bank Aktiengesellschaft, Taunusalage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.
Deutsche Asset Management (Americas) ("Deutsche Asset Management") is
an operating unit of Deutsche Bank consisting of ICC and other asset management
affiliates of Deutsche Bank.
The following information is provided for each Director and the
principal executive officer of ICC.
Directors and Principal Executive Officer of ICC
<TABLE>
<CAPTION>
Name and Position with the Advisor Address Principal Occupation
- ---------------------------------- ------- --------------------
<S> <C> <C>
Richard T. Hale One South Street Managing Director,
Director and President Baltimore, Maryland 21202 Deutsche Asset Management
Margaret-Mary V. Preston One South Street Managing Director,
Director Baltimore, Maryland 21202 BT Alex. Brown Incorporated
Mayo A. Shattuck III One South Street President, Chief Operating Officer
Director Baltimore, Maryland 21202 and Director, BT Alex. Brown
Incorporated
Truman T. Semans Furness House Vice Chairman,
Director 19 South Street Brown Investment Advisory &
Baltimore, Maryland 21202 Trust Company
</TABLE>
For the fiscal year ended December 31, 1998, the Fund paid ICC an
aggregate fee of $171,435 (after fee waivers) for advisory services. For such
fiscal year, the Fund also paid ICC aggregate fees of $49,118 for transfer
agency services provided to the Fund and $41,142 for accounting services
provided to the Fund. For the same period, the Fund paid $15,719 to Bankers
Trust Company for custody services provided to the Fund.
As of June 4, 1999, to the 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 Bankers Trust that were converted into the
right to receive $93 per share in cash, without interest, pursuant to the terms
of the Merger. [Mr. Hale, Chairman and a Director of the Fund and President and
a Director of ICC, beneficially owned ______ shares of Bankers Trust. Mr.
Semans, a Director of the Fund and a Director of ICC, beneficially owned ______
shares of Bankers Trust. Charles A. Rizzo, Treasurer of the Fund and a Vice
President of ICC, beneficially owned ___ shares of Bankers Trust.] [Disclose any
substantial interest of officers/Directors/Nominees in Deutsche Bank.]
Other Funds Advised by ICC with Similar Investment Objectives
A number of funds in the Fund Complex invest primarily in equity
securities and accordingly seek capital appreciation, either in and of itself,
or along with income. However,
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<PAGE>
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 Communications Fund, Inc. ...................... $1,445,143(1) 0.68%(1)
Flag Investors Emerging Growth Fund, Inc. ..................... $ 123,273(2) 0.85%(2)
Flag Investors Equity Partners Fund, Inc. ..................... $ 465,382(3) [0.83%(3)]
Flag Investors International Fund, Inc. ....................... $ 12,187(4) 0.00% (net of fee waivers)(4)
Flag Investors Value Builder Fund, Inc. ....................... $ 922,789(5) 0.68%(5)
</TABLE>
- ----------------------
(1) Information given for the fiscal year ended December 31, 1998.
(2) Information given for the fiscal year ended October 31, 1998.
(3) Information given for the fiscal year ended May 31, 1999.
(4) Information given for the fiscal year ended October 31, 1998. Absent fee
waivers, Management Fees would be 0.75% of the fund's average daily net
assets.
(5) Information given for the fiscal year ended March 31, 1999.
Shareholder Approval of the New Advisory Agreement
Approval of the New Advisory Agreement requires the affirmative vote of
a majority of the outstanding voting securities of the Fund. In the event that
shareholders of the Fund do not approve the New Advisory Agreement, the Board
will take such action as it deems in the best interest of the Fund and its
shareholders which may include proposing that shareholders approve an agreement
in lieu of the New Advisory Agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW ADVISORY AGREEMENT. ---
PROPOSAL 3: To approve a new Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and LaSalle Investment
Management (Securities), L.P.
General Information
LaSalle is the Fund's sub-advisor. Shareholders are being asked to
approve a new Sub-Advisory Agreement among ICC, LaSalle and the Fund which has
been in effect since the closing of the Merger on June 4, 1999. For a
description of the Merger, together with the factors
-22-
<PAGE>
considered by the Board in its review and analysis of such Merger, please see
Proposal 2 beginning on page [__].
The Merger may have resulted in an assignment and, therefore a
termination, of the Fund's prior Sub-Advisory Agreement under the 1940 Act. In
anticipation of the Merger, the Directors of the Fund, including the Directors
who are not (i) parties to the new Sub-Advisory Agreement among the Fund, ICC
and LaSalle (the "New Sub-Advisory Agreement") or (ii) interested persons of any
such party (the "Independent Directors"), unanimously approved the New
Sub-Advisory Agreement (attached as Exhibit B) on March 30, 1999. The New Sub-
Advisory Agreement is identical to the Fund's prior Sub-Advisory Agreement,
except for the dates of execution, effectiveness and initial term.
On May 25, 1999, ICC was granted an Exemptive Order by the SEC
permitting implementation, without obtaining prior shareholder approval, of the
New Sub-Advisory Agreement during an interim period commencing on the date of
the closing of the Merger and continuing, for a period of up to 150 days,
through the date on which the New Sub-Advisory Agreement is approved by the
shareholders of the Fund (the "Interim Period"). Under the terms of the
Exemptive Order, LaSalle is allowed to receive sub-advisory fees during the
Interim Period pursuant to the New Sub-Advisory Agreement. In accordance with
the Exemptive Order, the sub-advisory fees paid to LaSalle by ICC under the New
Sub-Advisory Agreement have been held and will continue to be held in an
interest-bearing escrow account until approval of the New Sub-Advisory Agreement
by shareholders of the Fund has been obtained. If the New Sub-Advisory
Agreement is not approved by the shareholders of the Fund by the expiration of
the Interim Period, LaSalle will not be entitled to accrued fees and interest
paid to ICC.
LaSalle does not anticipate that the Merger will result in any
reduction in the quality of services now provided to the Fund. Nor does LaSalle
anticipate that the Merger will have any adverse effect on its ability to
fulfill its obligations under the New Sub-Advisory Agreement or to operate its
business in a manner consistent with past business practice.
The Prior Sub-Advisory Agreement
Prior to June 4, 1999, LaSalle served as sub-advisor to the Fund
pursuant to a Sub-Advisory Agreement among the Fund, ICC and ABKB/LaSalle
Securities Limited Partnership (predecessor to LaSalle), dated as of September
1, 1997 (the "Prior Sub-Advisory Agreement"). The Prior Sub-Advisory Agreement
was initially approved by the shareholders of the Fund on August 14, 1997. The
Prior Sub-Advisory Agreement was last approved by the Fund's Board of Directors,
including a majority of the Independent Directors, on September 29, 1998.
The New Sub-Advisory Agreement
Other than the dates of execution, effectiveness and initial term, the
New Sub-Advisory Agreement which has been in effect since June 4, 1999 is
identical to the Prior Sub-Advisory
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<PAGE>
Agreement. The terms of the New Sub-Advisory Agreement are summarized below and
are qualified by reference to Exhibit B.
Advisory Fees. The sub-advisory fee as a percentage of net assets
payable to the sub-advisor will be the same under the New Sub-Advisory
Agreement as under the Prior 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, LaSalle would have received the same
compensation as it received under the Prior Sub-Advisory Agreement.
The New Sub-Advisory Agreement. The New Sub-Advisory Agreement provides
that 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 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 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.
Under the New Sub-Advisory Agreement, ICC pays LaSalle an annual fee
based on the Fund's average daily net assets. This fee is calculated and accrued
daily and paid monthly, at the annual rate of 0.40% of the first $100 million,
0.35% of the next $100 million, 0.30% of the next $100 million and 0.25% of the
Fund's average daily net assets in excess of $300 million.
The New Sub-Advisory Agreement provides that LaSalle will furnish,
subject to compliance with applicable banking regulations, 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. 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 New 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; broker's
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
-24-
<PAGE>
representing shares of the Fund; all costs and expenses in connection with the
registration and the 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.
The services of LaSalle to ICC and the Fund are not to be deemed
exclusive, and LaSalle is free to render investment advisory or other services
to others (including other investment companies), and to engage in other
activities, so long as its services under the agreement are not impaired
thereby. Officers or directors of LaSalle may serve as officers or Directors of
the Fund, the Fund's officers or Directors may serve as officers or directors of
LaSalle, to the extent permitted by law, and officers or directors of 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,
directors or trustees of any other firm, trust or corporation, including other
investment companies.
Following the expiration of its initial two-year term, the New
Sub-Advisory Agreement continues in full force and effect from year to year,
provided that such continuance is approved at least annually by the Fund's Board
or by the vote of a majority of the Fund's outstanding voting securities, and by
the affirmative vote of a majority of the Directors who are not parties to the
agreement or "interested parties" of a party to the agreement (other than as
Directors of the Fund) by votes cast in person at a meeting specifically called
for such purpose.
The New Sub-Advisory Agreement may be terminated, without the payment
of any penalty, by the Fund upon a vote of the Fund's Board of Directors, by a
vote of a majority of the Fund's outstanding voting securities or by ICC or
LaSalle, upon 60 days' written notice to the other parties. The agreement
automatically terminates in the event of its assignment.
The New Sub-Advisory Agreement obligates LaSalle 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
-25-
<PAGE>
all services performed under the agreement, but LaSalle is not liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of LaSalle or its officers, directors or employees,
or reckless disregard by LaSalle of its duties under the agreement.
Board Considerations. The Board held a meeting on March 30, 1999, at
which the Board, including the Independent Directors, approved the New
Sub-Advisory Agreement for the Fund and recommended the New Sub-Advisory
Agreement for approval by the shareholders of the Fund. 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 Prior
Sub-Advisory Agreement and the New Sub-Advisory Agreement, including their terms
relating to the services to be provided thereunder by LaSalle and the fees and
expenses, are substantially identical.
LaSalle Investment Management (Securities), L.P.
LaSalle is a registered investment advisor and together with its
affiliates had, as of June 30, 1999, approximately $____ billion in real estate
securities under management, almost all of which is in domestic real estate
securities. LaSalle, a Maryland limited partnership, is a registered investment
advisor that is indirectly controlled by Jones Lang LaSalle Incorporated, an
international real estate investment management company. The address of LaSalle
is 100 East Pratt Street, Baltimore, Maryland 21202.
The following information is provided for each general partner and the
principal executive officer of LaSalle. [Confirm]
<TABLE>
<CAPTION>
Name and Position with LaSalle Address Principal Occupation
- ------------------------------ ------- --------------------
<S> <C>
[Jones Lang LaSalle Incorporated 200 East Randolph Drive Real Estate Investment
General Partner] Chicago, IL 60601
William K. Morrill, Jr. 100 East Pratt Street, [ ]
Managing Director and Chief Baltimore, Maryland 21202
Executive Officer
</TABLE>
For the fiscal year ended December 31, 1998, ICC paid LaSalle an
aggregate fee of $105,311 (net of fee waivers) for sub-advisory services. [Any
Transactions By Morrill re: Jones Long LaSalle Merger?]
Other Funds with Similar Investment Objectives Advised by LaSalle
LaSalle provides investment advisory services to one other Fund which
invests primarily in equity securities and accordingly seek capital
appreciation. The following table provides comparative information on fees paid
to LaSalle by such Fund.
-26-
<PAGE>
<TABLE>
<CAPTION>
Advisory Fee
Assets (as a percentage of
Fund (000's) average daily net assets)
- ---- ------- -------------------------
<S> <C> <C>
LaSalle Real Estate Securities Fund, Inc. ........................ $199(1) 0.00%(1)
</TABLE>
- ----------------------
(1) Information given for the fiscal year ended December 31, 1998. Absent fee
waivers, the advisory fee would be 0.75% of the fund's average daily net
assets.
Shareholder Approval of the New Sub-Advisory Agreement
Approval of the New Sub-Advisory Agreement requires the affirmative
vote of a majority of the outstanding voting securities of the Fund. In the
event that shareholders of the Fund do not approve the New Sub-Advisory
Agreement, the Board will take such action as it deems in the best interest of
the Fund and its shareholders, which may include proposing that shareholders
approve an agreement in lieu of the New Sub-Advisory Agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT. ---
PROPOSAL 4: To eliminate the Fund's fundamental investment policy concerning
short sales.
At the Special Meeting, the shareholders of the Fund will vote
regarding the elimination of the Fund's fundamental investment policy with
respect to short sales. Currently, the Fund has a fundamental investment policy
stating that:
The Fund will not effect short sales of securities.
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to eliminate the Fund's
fundamental investment policy on short sales. This policy was initially adopted
primarily to comply with state regulatory requirements, which have been
eliminated as a result of federal legislation. If the proposal is approved, the
Fund, subject to the approval of the Board of Directors and upon proper
disclosure in the Fund's registration statement, would be able to make short
sales in conformity with Section 18 of the 1940 Act. In a short sale, an
investor sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. Approval of the Proposal is not
expected to significantly affect the way the Fund is managed because the Fund
has no present intention to engage in short sales. However, Directors are
requesting approval of the Proposal in order to eliminate an unnecessary policy
and are doing so at this time in order to take advantage of the fact that the
Fund is holding a shareholder meeting.
-27-
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING ---
SHORT SALES.
PROPOSAL 5: To eliminate the Fund's fundamental investment policy concerning
the purchase of securities on margin.
At the Special Meeting, the shareholders of the Fund will vote
regarding the elimination of the Fund's fundamental investment policy with
respect to purchasing securities on margin. Currently, the Fund has a
fundamental investment policy stating that:
The Fund will not purchase securities on margin (but the Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions):
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to eliminate the Fund's
fundamental investment policy on purchasing securities on margin. This policy
was initially adopted primarily to comply with state regulatory requirements,
which have been eliminated as a result of federal legislation. If the proposal
is approved, the Fund would be able to purchase securities on margin. Margin
purchases involve the purchase of securities with money borrowed from a broker.
"Margin" is the cash or eligible securities that the borrower places with a
broker as collateral against the loan. Approval of the Proposal is not expected
to significantly affect the way the Fund is managed because the Fund has no
present intention to purchase securities on margin. However, Directors are
requesting approval of the Proposal in order to eliminate an unnecessary policy
and are doing so at this time to take advantage of the fact that the Fund is
holding a shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING ---
PURCHASING SECURITIES ON MARGIN.
PROPOSAL 6: To eliminate the Fund's fundamental investment policy concerning
purchases of oil, gas, or mineral interests.
At the Special Meeting, the shareholders of the Fund will vote
regarding the elimination of the Fund's fundamental investment policy with
respect to purchasing oil, gas or mineral interests. Currently, the Fund has a
fundamental investment policy stating that:
The Fund will not purchase participations or other direct interests in
oil, gas or other mineral exploration or development programs.
-28-
<PAGE>
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to remove the Fund's
fundamental investment policy regarding purchases of oil, gas or mineral
interests. This policy was initially adopted to comply with state regulatory
requirements, which have been eliminated as a result of federal legislation. If
the Proposal is approved, the Fund would be permitted to invest directly in oil,
gas or mineral interests. These investments are subject to certain risks
including substantial price fluctuations, unpredictable economic and political
circumstances, the existence of cartels in certain industries, and the
development of new technologies for finding and producing such materials.
Approval of the Proposal is not expected to significantly affect the way the
Fund is managed because the Fund has no present intention to invest directly in
oil, gas or mineral interests. However, the Directors are requesting approval of
the Proposal in order to eliminate an unnecessary policy and are doing so at
this time to take advantage of the fact that the Fund is holding a shareholder
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING ---
PURCHASES OF OIL, GAS, OR MINERAL INTERESTS.
PROPOSAL 7. To modify the Fund's fundamental investment policy concerning
borrowing.
At the Special Meeting, the shareholders of the Fund will vote
regarding the modification of the Fund's fundamental investment policy on
borrowing. Currently, the Fund has a fundamental investment policy stating that:
The Fund will not borrow money, except as a temporary measure to
facilitate settlements and for extraordinary or emergency purposes and
then only from banks in an amount not exceeding 10% of the total assets
of the Fund at the time of such borrowing, provided that, while
borrowings by the Fund equal to 5% or more of the Fund's total assets
are outstanding, the Fund will not purchase securities for investment.
If shareholders approve, the Fund's fundamental investment policy would
state that:
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such
borrowing.
The primary purpose of this proposal is to modify the Fund's
fundamental investment policy on borrowing to provide the Fund with increased
investment flexibility. The 1940 Act requires all funds to adopt a fundamental
investment policy regarding borrowing. The Proposal will permit the Fund to meet
its regulatory requirements under the 1940 Act, while allowing the Fund
increased flexibility in making investment decisions. Under its current policy,
the Fund
-29-
<PAGE>
may borrow only from banks. If the Proposal is approved, the Fund could borrow
from institutions other than banks, to the extent permitted by law. Approval of
the Proposal is not expected to significantly affect the way the Fund is managed
because the Fund has no present intention to borrow from institutions other than
banks. However, the Directors are requesting approval of this policy to provide
the Fund with increased investment flexibility and they are doing so at this
time to take advantage of the fact that the Fund is holding a shareholder
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE MODIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING ---
BORROWING.
PROPOSAL 8. To modify the Fund's fundamental investment policy concerning
loans.
At the Special Meeting, the shareholders of the Fund will vote
regarding the modification of the Fund's fundamental investment policy on loans.
Currently, the Fund has a fundamental policy stating that:
The Fund will not make loans, except that the Fund may purchase or hold
debt instruments, in accordance with its investment objectives and
policies.
If the Proposal is approved, the Fund's fundamental investment policy
would state that:
The Fund will not make loans, except that the Fund may purchase or hold
debt instruments in accordance with its investment objectives and
policies, and may loan portfolio securities and enter into repurchase
agreements.
The primary purpose of this Proposal is to modify the Fund's
fundamental investment policy concerning loans to permit the Fund to engage in
securities lending. The 1940 Act requires all funds to adopt a fundamental
policy regarding loans. The Proposal will permit the Fund to meet its regulatory
requirements under the 1940 Act, while permitting the Fund increased investment
flexibility to loan its portfolio securities to others. If the proposal is
approved, the Fund would be able to lend its securities to brokers, dealers,
domestic and foreign banks or other financial institutions for the purposes of
increasing its investment income. Any such loan would be secured by cash or
equivalent collateral, or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest or income. Securities
lending may subject the Fund to the risk of delay in recovering the loaned
securities or a loss of rights in the collateral should the borrower fail
financially.
The Proposal would also make clear that the Fund can enter into
repurchase agreements. Repurchase agreements are transactions in which the Fund
purchases a security and simultaneously commits to resell the security to the
seller (a bank or broker-dealer) at a mutually
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<PAGE>
agreed upon date and time. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Fund to the seller.
Approval of the Proposal is not expected to significantly affect the
way the Fund is managed because the Fund has no present intention to engage in
securities lending. However, the Directors are requesting approval of this
policy to provide the Fund with increased investment flexibility and they are
doing so at this time to take advantage of the fact that the Fund is holding a
shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE MODIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING ---
LOANS.
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers 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 or advised by BT Alex. Brown or its
affiliates.
<TABLE>
<CAPTION>
Business Experience Shares Beneficially
Name and Position During the Past Five Years, Owned as of
With the Fund Age including all Directorships May 31, 1999 Percentage
----------------- --- --------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Richard T. Hale* 54 See "Information Regarding Nominees." ______ **
Director and
Chairman since 1994
James J. Cunnane 61 Managing Director, CBC Capital (merchant ______ **
Director since 1994 banking), 1993-Present; Director, Net. World
(telecommunications), 1998 - Present. Director of
each fund in the Fund Complex.
Joseph R. Hardiman 62 See "Information Regarding Nominees." ______ **
Director since 1998
Louis E. Levy 66 See "Information Regarding Nominees." ______ **
Director since 1994
Eugene J. McDonald 67 See "Information Regarding Nominees." ______ **
Director since 1994
Rebecca W. Rimel 48 See "Information Regarding Nominees." ______ **
Director since 1995
Truman T. Semans* 72 See "Information Regarding Nominees." ______ **
Director since 1994
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Business Experience Shares Beneficially
Name and Position During the Past Five Years, Owned as of
With the Fund Age including all Directorships May 31, 1999 Percentage
----------------- --- --------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Carl W. Vogt, Esq. 63 Senior Partner, Fulbright & Jaworski L.L.P. (law); ______ **
Director since 1996 Director, Yellow Corporation (trucking) and
American Science & Engineering (x-ray
detection equipment). 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
each fund in the Fund Complex.
William K Morrill, Jr. 62 Managing Director and Chief Executive Officer, ______ **
President since 1994 LaSalle Investment Management (Securities), L.P..
Portfolio Manager with LaSalle or its
predecessors since 1988.
Keith R. Pauley 37 Managing Director, LaSalle Investment ______ **
Executive Vice President since Management, LP. (formerly, ABKB/LaSalle
1994 Securities Limited Partnership). Portfolio Manager
with LaSalle or its predecessors since 1986.
James A. Ulmer III 59 Principal, LaSalle Investment Management, L.P. ______ **
Executive Vice President since (formerly, ABKB/LaSalle Securities Limited
1998 Partnership); Member, National Association of Real
Estate Investment Trusts and past Chair
of the Real Estate Analysts Group of
the New York Society of Securities
Analysts. Formerly, Portfolio analyst
and strategist, AIRES Real Estate
Services, 1993-1997.
Amy M. Olmert 36 Vice President, BT Alex. Brown Incorporated, ______ **
Secretary since 1997 1997-Present. Formerly, Senior Manager, Coopers
& Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988-1997.
Charles A. Rizzo 42 Vice President and Department Head, Deutsche ______ **
Treasurer since 1999 Asset Management. Formerly, Senior Manager,
PricewaterhouseCoopers, LLP, 1993-1998.
Tracie E. Richter 31 Vice President, Morgan Grenfell, Inc.; Treasurer ______ **
Assistant Secretary and Chief Financial Officer, Morgan Grenfell
since 1999 Investment Trust, 1996-Present. Formerly, Vice
President, Bankers Trust Company, 1996-1998 and
Tax Associate, Goldman Sachs Asset Management,
1993-1996.
Daniel O. Hirsch 45 Principal, BT Alex. Brown Incorporated. Formerly, ______ **
Assistant Secretary Assistant General Counsel, United States Securities
since 1999 and Exchange Commission, 1993-1998.
</TABLE>
- -----------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** As of May 31, 1999 the Directors and officers of the Fund as a group
(15 persons) beneficially owned an aggregate of less than 1% the Fund.
[Messrs. Morrill, Pauley and Ulmer each serve as officers of the Sub-Advisor to
the Fund in the positions of Managing Director and Chief Executive Officer,
Managing Director and Principal, respectively.]
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<PAGE>
Investment Advisor and Sub-Advisor
See "Investment Company Capital Corp." on page ___ and "LaSalle Investment
Management (Securities), L.P." on page ___ for additional information concerning
the Advisor and the Sub-Advisor.
Principal Underwriter
ICC Distributors, Inc., located at Two Portland Square, Portland, Maine,
04104, acts as the Fund's principal underwriter.
Portfolio Transactions
In the fiscal year ended December 31, 1998, the Fund paid $290,267 in
brokerage commissions to BT Alex. Brown and its affiliates.
Independent Accountants
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected PricewaterhouseCoopers LLP as the independent
accountants of the Fund for the fiscal year ending December 31, 1999. A
representative of PricewaterhouseCoopers LLP 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>
<S> <C> <C>
Name and Address Amount of Beneficial Ownership Percent of Total Shares Outstanding
- ---------------- ------------------------------ -----------------------------------
[To be provided]
</TABLE>
Submission of Shareholder Proposals
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in which
the election of Directors is not required to be acted upon under the 1940 Act.
The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings.
-33-
<PAGE>
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, a new Sub-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.
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 a majority of the shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposals 2 through 8 requires the affirmative vote of a majority of
the outstanding voting securities of the Fund. As defined in the 1940 Act, the
vote of a "majority of the outstanding voting securities" of the Fund means the
vote of (i) 67% or more of the Fund's outstanding 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 through 8. 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
-34-
<PAGE>
shares with respect to the Proposals 1 through 3 when they have not received
instructions from beneficial owners.
Other Matters
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND WHO
WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO VOTE BY MAIL, TELEPHONE OR
INTERNET AS EXPLAINED IN THE INSTRUCTIONS INCLUDED ON YOUR PROXY CARD.
By Order of the Directors,
Amy M. Olmert
Dated: [August 23], 1999
-35-
<PAGE>
EXHIBIT A
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FORM OF INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 4th day of June, 1999
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
A-1
<PAGE>
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;
(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 filings 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
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reports as the Board of Directors may require in order to monitor the Fund's
portfolio transaction activities. In certain instances the Advisor may make
purchases of underwritten issues at prices which include underwriting fees. In
selecting a broker-dealer to execute each particular transaction, the Advisor
will take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. Accordingly, the price to the Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers who also provide research or statistical material or other
services to the Fund or the Advisor. Such allocation shall be in such amounts
and proportions as the Advisor shall determine and the Advisor will report on
said allocation regularly to the Board of Directors of the Fund, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking the most favorable price and execution
available and such other policies as the Directors may determine, the Advisor
may consider services in connection with the sale of shares of the Fund as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Fund.
Subject to the policies established by the Board of Directors in compliance
with applicable law, the Advisor may direct BT Alex. Brown Incorporated ("BT
Alex. Brown") to execute portfolio transactions for the Fund on an agency basis.
The commissions paid to BT Alex. Brown must be, as required by Rule 17e-1 under
the 1940 Act, "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time." If the purchase or sale of securities consistent with the investment
policies of the Fund or one or more other accounts of the Advisor is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by the Advisor. BT 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 BT Alex. Brown in any
transaction in which the Advisor or BT Alex. Brown acts as a principal with
respect to any part of the Fund's order. If BT 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:
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(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
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
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
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<PAGE>
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 0.65% of the first $100 million of the Fund's average daily
net assets, 0.55% of the Fund's average daily net assets exceeding $100 million
but not exceeding $200 million, 0.50% of the Fund's average daily net assets
exceeding $200 million but not exceeding $300 million and 0.45% 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
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<PAGE>
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act).
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: _______________________
INVESTMENT COMPANY CAPITAL CORP.
Attest: ___________________ By: __________________________
Name: ________________________
Title: _______________________
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<PAGE>
EXHIBIT B
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FORM OF SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 4th day of June, 1999 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 LASALLE INVESTMENT MANAGEMENT ( SECURITIES), L.P., 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 and as they shall from time to time be amended are
herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such By-laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of the Sub-Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC")
on 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
<PAGE>
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Sub-Advisor. In carrying out its obligations under
Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors;
(b) determine which issuers and securities shall be represented
in the Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(c) formulate and implement continuing programs for the purchases
and sales of the securities of such issuers and regularly report thereon to
the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs as
aforesaid, including the placing of orders for the purchase and sale of
securities of the Fund; and
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the Sub-Advisor
is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Sub-Advisor's primary consideration in effecting a security transaction will be
execution of orders at the most favorable price on an overall basis. In
performing this function the Sub-Advisor shall comply with applicable policies
established by the Board of Directors and shall provide the Board of Directors
with such reports as the Board of Directors may require in order to monitor the
Fund's portfolio transaction activities. In selecting a broker-dealer to execute
each particular transaction, the Sub-Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Directors may determine, the Sub-Advisor shall
not be deemed to have acted unlawfully or to have breached any duty created by
this Agreement or otherwise solely by reason of its having caused the Fund to
pay a broker-dealer that provides brokerage and research services to the
Sub-Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Sub-Advisor determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the Sub-Advisor's
overall responsibilities with respect to the Fund. The Sub-Advisor is further
authorized to allocate the orders placed by it on behalf of the Fund to such
broker-dealers who also provide research or statistical material or other
services to the Fund or the Sub-Advisor. Such allocation shall be in such
amounts and proportions as the Sub-Advisor shall determine and the Sub-Advisor
will report on said
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<PAGE>
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 BT Alex. Brown Incorporated ("BT
Alex. Brown") to execute portfolio transactions for the Fund on an agency basis.
The commissions paid to BT 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. BT
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 BT Alex. Brown in any
transaction in which the Sub-Advisor or BT Alex. Brown acts as a principal with
respect to any part of the Fund's order. If BT Alex. Brown is participating in
an underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the 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.
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<PAGE>
(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: 0.40% of the first $100 million of the
Fund's average daily net assets, 0.35% of the Fund's average daily net assets in
excess of $100 million but not exceeding $200 million, 0.30% of the Fund's
average daily net assets in excess of $200 million but not exceeding $300
million, and 0.25% of the Fund's average daily net assets 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.
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<PAGE>
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. 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
B-5
<PAGE>
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
_______________________ By: _______________________________
Name: _____________________________
Title: ____________________________
Attest: INVESTMENT COMPANY CAPITAL CORP.
_______________________ By: _______________________________
Name: _____________________________
Title: ____________________________
Attest: LASALLE INVESTMENT MANAGEMENT (SECURITIES), L.P.
_______________________ By: _______________________________
Name: _____________________________
Title: ____________________________
B-6
<PAGE>
[LOGO]
Three Ways To Vote Your Proxy
Proxy Voting Quick & Easy*
The enclosed proxy statement provides details on important issues affecting your
Flag Fund(s). The Board of your Fund(s) recommends that you vote FOR all
proposals.
We are offering three ways to vote: by automated touch-tone phone, by internet
and by mail. Voting by telephone or internet may be quicker or more cost
effective than the traditional method of mailing back your proxy card; however,
that option is still available to you. If you vote by telephone or internet,
there is no need to return your proxy card.
Your proxy vote is important! Please vote today.
By Automated Touch-Tone Phone*
Using our automated touch-tone phone system, dial the number provided on your
proxy card and follow the directions given.
By Internet*
Visit the website www.proxyvote.com and enter the 12-digit control number
located on your proxy card.
By Mail
Simply return your executed proxy in the enclosed postage-paid envelope.
*Do not mail the Proxy Card if voting by internet or telephone.
<PAGE>
[FLAG INVESTORS]
[PROXY SERVICES]
[P.O. BOX 9148]
[FARMINGDALE, NY 11735]
FORM OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
October 7, 1999
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) Edward
J. Veilleux, Amy M. Olmert and Kathy L. Churko and each of them (with full power
of substitution) the proxies of the undersigned to attend the Special Meeting of
Shareholders of the Fund to be held on October 7, 1999 (the "Special Meeting")
and any adjournments thereof, to vote all of the shares of the Fund that the
signer would be entitled to vote if personally present at the Special Meeting
and on any matter incident to the conduct of the Special Meeting, all as set
forth in the Notice of Special Meeting of Shareholders and Proxy Statement of
the Board of Directors. Said proxies are directed to vote or refrain from voting
pursuant to the Proxy Statement as indicated upon the matters set forth below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Directors.
To Vote by Telephone
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-000-0003
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to Website www.proxyvote.com
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions
Please print and sign your name on the space provided to authorized the voting
of your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or on any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X| KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 Richard R. Burt
Joseph R. Hardiman Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Robert H. Wadsworth
|_| FOR ALL
|_| WITHHOLD ALL
|_| FOR ALL EXCEPT:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <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 a new Investment Advisory Agreement between the Fund and Investment Company Capital Corp.
|_| For |_| Against |_| Abstain
3. To approve a new Sub-Advisory Agreement among the Fund, Investment Company Capital Corp. and LaSalle Investment
Management (Securities), L.P.
|_| For |_| Against |_| Abstain
4. To eliminate the Fund's fundamental investment policy concerning short sales.
|_| For |_| Against |_| Abstain
5. To eliminate the Fund's fundamental investment policy concerning the purchase of securities on margin.
|_| For |_| Against |_| Abstain
6. To eliminate the Fund's fundamental investment policy concerning purchases of oil, gas or mineral interests.
|_| For |_| Against |_| Abstain
7. To modify the Fund's fundamental investment policy concerning borrowing.
|_| For |_| Against |_| Abstain
8. To modify the Fund's fundamental investment policy concerning loans.
|_| For |_| Against |_| Abstain
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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, trustor in any other representative --------------------------------------- --------------
capacity please sign your name and title. For joint Signature (Joint Owners) Date
accounts, each joint owner must sign.
</TABLE>
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
