FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of
September, 1997 by and between FLAG INVESTORS REAL ESTATE SECURITIES FUND,
INC., a Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP.,
a Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an agreement under
which the Advisor will provide investment advisory and administrative services
for the Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the
Advisor to act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations (except
as otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May 2, 1994
and all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein called the
"Articles of Incorporation");
-1-
(b) The Fund's By-laws and all amendments thereto (such By-laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of the Advisor and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant to Section 8(a)
of the Investment Company Act of 1940 on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities Act
of 1933, as amended (the "1933 Act") (File No. 33-78648) and under the 1940 Act
as filed with the SEC on May 5, 1994 relating to the shares of the Fund, and all
amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations under
Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's operations, except for
distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
(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
-2-
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 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
-3-
the value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to the Fund. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Fund to such broker-dealers
other than Alex. Xxxxx & Sons Incorporated ("Alex. Xxxxx") 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 Alex. Xxxxx to execute portfolio
transactions for the Fund on an agency basis. The commissions paid to Alex.
Xxxxx must be, as required by Rule 17e-1 under the 1940 Act, "reasonable and
fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other account of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Xxxxx and the Advisor may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Xxxxx in any transaction
in which the Advisor or Alex. Xxxxx acts as a principal with respect to any part
of the Fund's order. If Alex. Xxxxx 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:
-4-
(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 0000 Xxx) 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
-5-
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.
-6-
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 0000
Xxx) of the Fund, and of the shareholders of the Fund, the Advisor may delegate
to a sub-advisor its duties enumerated in Section 3, hereof. The Advisor shall
continue to supervise the performance of any such sub-advisor and shall report
regularly thereon to the Fund's Board of Directors, but shall not be responsible
for the sub-advisor's performance under the sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to, perform services
on behalf of the Fund which are not required by this Agreement upon the request
of the Fund's Board of Directors. Such services will be performed on behalf of
the Fund and the Advisor's charge in rendering such services may be billed
monthly to the Fund, subject to examination by the Fund's independent
accountants. Payment or assumption by the Advisor of any Fund expense that the
Advisor is not required to pay or assume under this Agreement shall not relieve
the Advisor of any of its obligations to the Fund nor obligate the Advisor to
pay or assume any similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Fund shall pay to the Advisor monthly compensation
at an annual rate of .65% of the first $100 million of the Fund's average daily
net assets, .55% of the Fund's average daily net assets exceeding $100 million
but not exceeding $200 million, .50% of the Fund's average daily net assets
exceeding $200 million but not exceeding $300 million and .45% of the Fund's
average daily net assets exceeding $300 million.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for the
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Payment of the
Advisor's compensation for the preceding month shall be made as promptly as
possible.
10. Non-Exclusivity. The services of the Advisor to the Fund are
not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other
-7-
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 0000 Xxx) 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 0000 Xxx)
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 0000 Xxx) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
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 Xxx Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx
00000.
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
-8-
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: /s/ Xxx X. Xxxxxx By: /s/Xxxxxxx X. Xxxxxxx, Xx.
----------------- --------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
Title: President
INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Xxx X. Xxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
----------------- ----------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Executive Vice President
-9-
