<PAGE> 1
Supplement dated June 12, 1995
to the Prospectus of Alex. Brown Cash Reserve Fund, Inc.
dated August 1, 1994
The disclosure contained within the Prospectus of Alex. Brown Cash
Reserve Fund, Inc. dated August 1, 1994, is amended and supplemented by the
following:
On June 1, 1995, the Fund's Board of Directors approved, subject to
shareholder approval, a proposal to increase the investment advisory fee payable
by the Fund, on behalf of each Series, to Investment Company Capital Corp.
("ICC").
The matter will be submitted to shareholders of each of the Fund's
Series at a meeting scheduled for July 25, 1995. Shareholders of record of the
Fund as of the close of business on June 9, 1995 will be entitled to vote on the
proposal relating to their Series. If such proposals are approved, the
investment advisory fee and total operating expenses of each Series will
increase, effective August 1, 1995, and the "Annual Fund Operating Expenses" and
"Example" appearing on page 2 of the Prospectus will be restated as shown below.
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
------ -------- --------
<S> <C> <C> <C>
Advisory Fees (See "Management of the Fund - Investment Advisor
and Sub-Advisor") ............................................................. .28% .26% .29%
12b-1 Fees (See "Management of the Fund - Distributor") .............................. .25% .25% .25%
Other Expenses ....................................................................... .15% .09% .12%
-------- -------- --------
Total Fund Operating Expenses ........................................................ .68% .60% .66%
======== ======== ========
</TABLE>
Example
Assuming a hypothetical investment of $1,000, a 5% annual return and
redemption at the end of each time period, an investor in each Series would have
paid transaction and operating expenses at the end of each year as follows:
Prime Treasury Tax-Free
Series Series Series
------ -------- --------
1 year ............................ $ 7 $ 6 $ 7
3 years ........................... $22 $19 $21
5 years ........................... $39 $34 $37
10 years .......................... $88 $77 $85
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
In addition, the section entitled "Management of the Fund - Investment
Advisor" will be amended as follows:
"As compensation for providing investment advisory services to the
Fund, ICC is entitled to receive a fee from the Fund, calculated daily and paid
monthly, at the annual rate of .30% of the first $500 million of the Fund's
aggregate average daily net assets, .26% of the next $500 million of the Fund's
aggregate average daily net assets, .25% of the next $500 million of the Fund's
aggregate average daily net assets, .24% of the next $1 billion of the Fund's
aggregate average daily net assets, and .23% of the Fund's aggregate average
daily net assets in excess of $2.5 billion. Each Series pays its share of the
foregoing fee in proportion to its relative net assets. In addition, ICC is
entitled to receive an additional fee with respect to the Prime and Tax-Free
Series, calculated daily and paid monthly, at the annual rate of .02% of the
Prime Series' average daily net assets and .03% of the Tax-Free Series' average
daily net assets. ICC may, from time to time, voluntarily waive a portion of its
fee with respect to any Series to preserve or enhance the performance of the
Series."
<PAGE> 2
LOGO
ALEX.
BROWN
CASH
RESERVE
FUND, INC.
PRIME SERIES
TREASURY SERIES
TAX-FREE SERIES
An open-end, diversified
fund for individuals, businesses,
institutions and fiduciaries,
designed as a convenient means
to earn a high level of current
income from three diversified,
professionally managed portfolios
of high quality money market
instruments while preserving
capital and liquidity.
August 1, 1994
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
PROSPECTUS
<PAGE> 3
ALEX. BROWN CASH RESERVE FUND, INC.
P. O. Box 17250
Baltimore, Maryland 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed for individuals, businesses, institutions and fiduciaries which seek
as high a level of current income (tax-exempt current income in the case of
the Tax-Free Portfolio) as is consistent with preservation of capital and
liquidity.
The Fund offers three Series of Shares:
o Prime Series
o Treasury Series
o Tax-Free Series
This Prospectus relates to the Alex. Brown Cash
Reserve Shares of each of the above Series.
Other principal features of the Fund:
o Fund shares are sold without purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or
cash; and
o Wire transfers, free check redemptions and other convenient cash
management services are available.
For current yield information and for purchase and redemption information,
call your Alex. Brown & Sons Incorporated investment representative or (410)
234-3737.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW ABOUT
THE FUND PRIOR TO INVESTING AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1994 HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY
INCORPORATED BY REFERENCE. IT IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE BY
CALLING THE FUND AT (800) 553-8080.
TABLE OF CONTENTS
PAGE
1. Table of Fees and Expenses ... 2
2. Financial Highlights ......... 3
3. Investment Program ........... 6
4. How to Invest in the Fund .... 9
5. How to Redeem Shares ......... 10
6. Dividends and Taxes .......... 12
7. Management of the Fund ....... 13
8. Current Yield ................ 15
9. General Information .......... 15
10. Application Form ............. 17
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Prospectus Dated: August 1, 1994
<PAGE> 4
1 TABLE OF FEES AND
EXPENSES
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses that an investor in each Series
of the Fund may bear directly and indirectly. A person who purchases shares
of the Fund through a financial institution may be charged separate fees by
the financial institution. The percentages shown below expressing Annual Fund
Operating Expenses are based on the actual expenses of the Prime Series (.62%
of average net assets), the Treasury Series (.54% of average net assets after
fee waivers) and the Tax-Free Series (.58% of average net assets) for the
fiscal year ended March 31, 1994. Current expenses may be greater or less
than those shown. Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
------------ ------------ ------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge imposed on Purchase ...................... None None None
Maximum Sales Charge imposed on Reinvested Dividends .......... None None None
Deferred Sales Charge ......................................... None None None
Redemption Fees ............................................... None None None
Annual Fund Operating Expenses As a % of Average Net Assets
- ------------------------------ -------------------------------------------
Advisory Fees (See "Management of the Fund -- Investment
Advisor and Sub-Advisor")* .................................. .21% .19%* .21%
Distribution Fees (See "Management of the Fund -- Distributor") .25% .25% .25%
Other Expenses ................................................ .16% .10% .12%
------------ ------------ ------------
Total Fund Operating Expenses ................................. .62% .54%* .58%
============ ============ ============
</TABLE>
- ------------
*Advisory fees may be waived voluntarily from time to time to preserve or
enhance the performance of a Series. Absent fee waivers for the Treasury
Series for the fiscal year ended March 31, 1994, Advisory Fees and Total
Fund Operating Expenses would have been .21% and .56%, respectively, of the
average net assets of the Treasury Series.
EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and
redemption at the end of each time period, an investor in each Series would
have paid transaction and operating expenses at the end of each year as
follows:*
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
-------- ---------- ----------
<S> <C> <C> <C>
1 year ......................................................... $ 6 $ 6 $ 6
3 years ........................................................ $20 $17 $19
5 years ........................................................ $35 $31 $33
10 years ....................................................... $80 $70 $75
</TABLE>
- ------------
*Absent fee waivers for the Treasury Series for the one, three, five and ten
year periods, expenses would be $6, $18, $32 and $72, respectively.
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
2
<PAGE> 5
2 FINANCIAL HIGHLIGHTS
The financial highlights included in these tables have been derived from
the Fund's financial statements for the Prime Series, the Treasury Series and
the Tax-Free Series for the indicated fiscal periods which have been audited
by the Fund's independent accountants. The financial statements and financial
highlights for the fiscal year ended March 31, 1994 and the report thereon
are included in the Statement of Additional Information which can be obtained
at no charge by calling the Fund at (800) 553-8080.
Prime Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------------
1994(1) 1993(1) 1992(1) 1991(1) 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Income from Investment
Operations:
Net investment income 0.0262 0.0295 0.0485 0.0734 0.0846
Less Distributions:
Dividends from net
investment income
and short-term
gains ............. (0.0262) (0.0295) (0.0485) (0.0734) (0.0846)
------------ ------------ ------------ ------------ ------------
Net asset value at
end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ......... 2.65% 2.99% 4.96% 7.59% 8.80%
Ratios to Average Net
Assets:
Expenses ............ 0.62% 0.63% 0.61% 0.59% 0.52%
Net investment income 2.62% 2.95% 4.84% 7.31% 8.42%
Supplemental Data:
Net assets at end of
period ............ $1,368,451,627 $1,151,979,704 $1,264,629,485 $1,295,888,161 $1,312,276,151
Number of shares
outstanding at end
of period ......... 1,368,449,549 1,151,977,279 1,264,629,485 1,295,888,161 1,312,272,415
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
For the
eleven
months
ended Year Ended April 30,
March 31, ---------------------------------------------------------------
1989+ 1988 1987 1986 1985
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- --------- ---------- ---------- ----------
Income from Investment
Operations:
Net investment income 0.0712 0.0647 0.0572 0.0729 0.0940
Less Distributions:
Dividends from net
investment income
and short-term
gains ............. (0.0712) (0.0647) (0.0572) (0.0729) (0.0940)
----------- --------- ---------- ---------- ----------
Net asset value at
end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== --------- ---------- ---------- ----------
Total Return ......... 8.01%* 6.67% 5.87% 7.54% 9.82%
Ratios to Average Net
Assets:
Expenses ............ 0.54%* 0.52% 0.55% 0.59% 0.58%
Net investment income 7.81%* 6.46% 5.71% 7.28% 9.38%
Supplemental Data:
Net assets at end of
period ............ $1,084,793,157 $874,051,953 $831,784,041 $686,611,968 $583,642,018
Number of shares
outstanding at end
of period ......... 1,084,789,421 874,047,336 831,779,424 686,611,968 583,642,018
</TABLE>
- ------
* Annualized.
+ The Fund's fiscal year-end was changed to March 31.
(1) Financial information for fiscal years ended March 31, 1994, 1993, 1992
and 1991, respectively, is given for the Alex. Brown Cash Reserve Shares
class of the Prime Series.
3
<PAGE> 7
Treasury Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------------
1994(1) 1993(1) 1992(1) 1991(1) 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of
period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Income from
Investment
Operations:
Net investment
income ........... 0.0255 0.0285 0.0477 0.0698 0.0829
Less Distributions:
Dividends from net
investment income
and short-term
gains ............ (0.0255) (0.0285) (0.0477) (0.0698) (0.0829)
------------ ------------ ------------ ------------ ------------
Net asset value at
end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ........ 2.58% 2.89% 4.88% 7.21% 8.61%
Ratios to Average Net
Assets:
Expenses ........... 0.54%* 0.55%* 0.55% 0.56% 0.41%
Net investment
income ........... 2.55% 2.87% 4.76% 6.82% 8.25%
Supplemental Data:
Net assets at end of
period ........... $581,724,214 $618,175,839 $725,010,207 $716,551,599 $272,467,125
Number of shares
outstanding at end
of period ........ 581,723,449 618,152,465 725,010,207 716,551,599 272,509,276
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
For the
eleven
months
ended Year Ended April 30,
March 31, ------------------------------------------------------------------
1989+ 1988 1987 1986 1985
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of
period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Income from
Investment
Operations:
Net investment
income ........... 0.0696 0.0617 0.0578 0.0717 0.0918
Less Distributions:
Dividends from net
investment income
and short-term
gains ............ (0.0696) (0.0617) (0.0578) (0.0717) (0.0918)
------------ ------------ ------------ ------------ ------------
Net asset value at
end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ........ 7.82%** 6.35% 5.94% 7.41% 9.58%
Ratios to Average Net
Assets:
Expenses ........... 0.44%** 0.45% 0.45% 0.47% 0.53%
Net investment
income ........... 7.50%** 6.17% 5.74% 7.17% 8.89%
Supplemental Data:
Net assets at end of
period ........... $235,086,589 $280,628,025 $251,097,755 $160,449,398 $143,604,015
Number of shares
outstanding at end
of period ........ 235,197,074 280,519,083 251,101,013 160,449,398 143,604,015
</TABLE>
- ------------
* Ratio of expenses to average net assets prior to partial fees waived was
0.56% for the fiscal years ended March 31, 1994 and 1993.
** Annualized.
+ The Fund's fiscal year-end was changed to March 31.
(1) Financial information for fiscal years ended March 31, 1994, 1993, 1992
and 1991, respectively, is given for the Alex. Brown Cash Reserve Shares
class of the Treasury Series.
4
<PAGE> 9
Tax-Free Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended March 31, For the period
------------------------------------------------ Dec. 17, 1990*
1994 1993 1992 through March 31, 1991
-------------- -------------- -------------- ----------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- -------------- -------------- ----------------------
Income from Investment Operations:
Net investment income ...................... 0.0184 0.0213 0.0353 0.0124
Less Distributions:
Dividends from net investment income and
short-term gains ......................... (0.0184) (0.0213) (0.0353) (0.0124)
-------------- -------------- -------------- ----------------------
Net asset value at end of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ======================
Total Return ................................. 1.86% 2.15% 3.59% 4.35%**
Ratios to Average Net Assets:
Expenses ................................... 0.58% 0.60% 0.56%*** 0.53%**
Net investment income ...................... 1.84% 2.13% 3.49% 4.25%**
Supplemental Data:
Net assets at end of period ................ $378,859,232 $315,661,447 $304,987,823 $256,895,180
Number of shares outstanding at end of
period ................................... 378,939,262 315,700,742 305,008,959 256,895,680
</TABLE>
- ------
*Date operations commenced.
**Annualized.
***Ratio to average net assets prior to partial fees waived was .57% for the
year ended March 31, 1992.
5
<PAGE> 10
3 INVESTMENT PROGRAM
INVESTMENT OBJECTIVES
The investment objective of each Series of the Fund is to seek as high a
level of current income as is consistent with preservation of capital and
liquidity. Each Series endeavors to achieve this objective by investing in a
diversified portfolio of domestic money market instruments that satisfy
strict credit quality standards and that mature within one year or less from
the date of purchase. The Tax-Free Series endeavors to achieve its objective
by investing in a diversified portfolio of high quality, short-term municipal
obligations. (See "Portfolio Investments -- Treasury Series -- Prime Series
- -- Tax-Free Series.")
Portfolio Investments
-- Treasury Series
The Treasury Series may invest in U.S. Treasury obligations consisting of
marketable securities and instruments issued by the U.S. Treasury, including
bills, notes, bonds and other obligations. It is management's intention to
have 100% of the portfolio invested in such instruments at all times. In
unusual circumstances, up to 10% of the Series may be invested in repurchase
agreements collateralized by U.S. Treasury obligations. Such investments will
be made only when it is necessary to ensure that the Series is fully invested
while satisfying its liquidity requirements.
-- Prime Series
In addition to the U.S. Treasury obligations described above and
repurchase agreements collateralized by U.S. Treasury securities, the Prime
Series may invest in obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S. Government. Some of
these obligations are backed by the full faith and credit of the U.S.
Government (e.g., the Government National Mortgage Association), others are
supported by the issuing agency's right to borrow from the U.S. Treasury
(e.g., securities of Federal Home Loan Banks) and still others are backed
only by the credit of the instrumentality (e.g., the Federal National
Mortgage Association).
The Prime Series may also invest in a broad range of commercial and bank
obligations that the investment advisor, under guidelines established by the
Board of Directors, believes present minimal credit risk and that satisfy the
criteria for such obligations described below:
The Prime Series may invest in instruments consisting of commercial paper
and variable amount master demand notes. Eligible commercial paper is limited
to short term, unsecured promissory notes issued by corporations which (i)
are rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1+ or
A-1 by Standard and Poor's Corporation ("S&P") or (ii) if not rated, are of
comparable quality to Prime-1 or A-1+ or A-1 instruments as determined by the
Fund's investment advisor; and (iii) are otherwise "Eligible Securities" as
defined in Rule 2a-7 under the Investment Company Act of 1940. Variable
amount master demand notes are unsecured demand notes that permit investment
of fluctuating amounts of money at variable rates of interest pursuant to
arrangements with issuers who meet the foregoing quality criteria. The
interest rate on a variable amount master demand note is periodically
redetermined according to a prescribed formula. Although there is no
secondary market in master demand notes, the payee may demand payment of the
principal amount of the note on relatively short notice. All master demand
notes acquired by the Prime Series will be payable within a prescribed notice
period not to exceed seven days. (See the Statement of Additional Information
with respect to commercial paper and bond ratings.)
6
<PAGE> 11
The Prime Series may also invest in bank instruments, consisting mainly of
certificates of deposit and bankers' acceptances, that (i) are issued by U.S.
banks which satisfy applicable quality standards; or (ii) are fully insured
as to principal and interest by the Federal Deposit Insurance Corporation.
-- Tax-Free Series
The Tax-Free Series may invest in municipal securities consisting of (i)
debt obligations issued by or on behalf of public authorities to obtain funds
to be used for various public purposes (including the construction of a wide
range of public facilities), for refunding outstanding obligations, for
general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain types of industrial development
bonds issued by or on behalf of public authorities to obtain funds to provide
for the construction, equipment, repair or improvement of privately operated
facilities ("private activity bonds"); provided that the interest paid on
such debt obligations and private activity bonds, in the opinion of bond
counsel, is exempt from federal income taxes.
The Tax-Free Series invests in high quality municipal securities that the
investment advisor believes, under guidelines established by the Board of
Directors, present minimal credit risk and that at the time of purchase are
rated within the two highest credit categories assigned by the recognized
rating agencies, including: (1) bonds rated Aaa or Aa by Moody's or AAA or AA
by S&P; (2) municipal commercial paper rated Prime-1 or Prime-2 by Moody's or
A-1+, A-1 or A-2 by S&P (provided that such purchases would be further
limited unless the instrument meets the definition of "Eligible Security" as
defined in Rule 2a-7 under the Investment Company Act of 1940); (3) municipal
notes and floating and variable rate demand obligations rated SP-1 or higher
by S&P or MIG2 or VMIG or higher by Moody's; and (4) obligations secured by
letters of credit providers rated within the two highest categories by any
nationally recognized bank rating agency approved by the Fund's Board of
Directors. The Series may purchase unrated securities if they are determined
by the investment advisor, under guidelines established by the Board of
Directors, to be of comparable value to those obligations rated in the
categories described above.
The Tax-Free Series may hold cash reserves pending investment of such
reserves in municipal securities.
It is a fundamental policy of the Tax-Free Series to have its assets invested
so that at least 80% of the Series' income will be exempt from federal income
taxes, and it is the Tax-Free Series' present intention (but it is not a
fundamental policy) to invest its assets so that 100% of its annual interest
income will be tax-exempt. From time to time, on a temporary basis or for
defensive purposes, however, the Fund may invest in taxable short-term
investments which meet the criteria for investment for the Treasury or Prime
Series as described above.
The Tax-Free Series will seek to avoid the purchase of private activity bonds
the interest on which will be considered to be an item of preference for
purposes of alternative minimum tax liability for individuals under the
Internal Revenue Code of 1986, as amended (the "Code"). (See "Dividends and
Taxes.")
OTHER INVESTMENT PRACTICES
The Fund may enter into the following arrangements with respect to any Series
of the Fund:
When-Issued Securities involving commitments by a Series to purchase
portfolio securities on a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a
stated price and yield. A Series will generally not pay for such securities
or start earning interest on them until they are received. When-issued
7
<PAGE> 12
commitments will not be used for speculative purposes and will be entered into
only with the intention of actually acquiring the securities.
The Prime Series and the Treasury Series may also enter into the following
arrangements:
Repurchase Agreements under which the purchaser (for example, a Series of the
Fund) acquires ownership of an obligation and the seller agrees, at the time
of the sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, repurchase agreements entered into by a Series
will not have a stated maturity in excess of seven days from the date of
purchase. A Series may enter into repurchase agreements with institutions
which the Fund's Board of Directors believes present minimal credit risk. If
the seller of a repurchase agreement fails to repurchase the obligation in
accordance with the terms of the agreement, the Series of the Fund which
entered into the repurchase agreement may incur a loss to the extent that the
proceeds realized on the sale of the underlying obligation are less than the
repurchase price. In the event of the insolvency of a seller that defaults on
its repurchase obligation, disposition of the securities underlying the
repurchase agreement could be delayed pending court or administrative action.
The Prime Series may also enter into the following arrangements:
Reverse Repurchase Agreements involving the sale of money market instruments
held by the Prime Series, with an agreement to repurchase the instruments at
an agreed upon price and date. The Prime Series will employ reverse
repurchase agreements only when necessary to meet unanticipated net
redemptions so as to avoid liquidating other money market instruments during
unfavorable market conditions. The Prime Series will utilize reverse
repurchase agreements when the interest income to be earned from portfolio
investments which would otherwise have to be liquidated to meet redemptions
is greater than the interest expense incurred as a result of the reverse
repurchase transactions. Reverse repurchase agreements involve the risk that
the market value of securities retained by the Prime Series in lieu of
liquidation may decline below the repurchase price of the securities sold by
the Prime Series which it is obligated to repurchase.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and
state regulatory limitations, the most significant of which are set forth
below:
(1) No Series may purchase securities of any issuer (other than obligations
of the U.S. Government, its agencies or instrumentalities and any municipal
securities guaranteed by the U.S. Government), if immediately after such
purchase more than 5% of the value of such Series' assets would be invested
in such issuer;
(2) No Series may borrow money or issue senior securities, except that (i)
any Series may borrow money from banks for temporary purposes in amounts up
to 10% of the value of such Series' total assets at the time of borrowing,
provided that any such borrowings are repaid prior to the purchase of
additional portfolio securities, (ii) the Prime Series may enter into reverse
repurchase agreements in accordance with its investment program and (iii) any
Series of the Fund may enter into commitments to purchase securities in
accordance with its investment program;
(3) No Series may lend money or securities except to the extent that a
Series' investments may be considered loans;
8
<PAGE> 13
(4) The Prime Series may not purchase any commercial paper or variable rate
demand notes which would cause more than 25% of the value of the Series'
total assets at the time of such purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; and
(5) The Tax-Free Series may not purchase any securities (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, certificates of deposit and guarantees of banks) which
would cause more than 25% of the value of the Series' total net assets at the
time of such purchase to be invested in: (i) securities of one or more
issuers conducting their principal activities in the same state; (ii)
securities, the interest on which is paid from revenues of projects with
similar characteristics; or (iii) industrial development bonds the obligors
of which are in the same industry.
The investment objectives of each Series of the Fund as described under
"Investment Objectives" and the foregoing restrictions are matters of
fundamental policy except where noted and may not be changed without the
affirmative vote of a majority of the outstanding shares of the Series
affected. The Treasury Series has a policy, which may be changed by the
Fund's Board of Directors and without shareholder approval, of limiting
investments in U.S. Government obligations to U.S. Treasury obligations.
4 HOW TO INVEST IN THE FUND
GENERAL INFORMATION ON PURCHASES
Shares of any Series may be purchased from Alex. Brown & Sons Incorporated
("Alex. Brown") or through securities dealers which have entered into dealer
agreements with Alex. Brown ("Participating Dealers") or through institutions
which maintain accounts with the Fund on behalf of their customers. The terms
and conditions under which purchases will be effected may be subject to terms
and conditions set forth in agreements between the investor and Alex. Brown,
a Participating Dealer or other institution through which investments are
made.
The minimum initial investment in any Series of the Fund is $1,500.
Subsequent investments in the same Series must be at least $100. Orders for
purchase of Fund shares are accepted only on a "business day of the Fund"
which means any day on which PNC Bank, National Association ("PNC"), the
Fund's custodian, and the New York Stock Exchange are open for business. It
is expected that during the next twelve months, PNC and/or the New York Stock
Exchange will be closed on Saturdays and Sundays and on New Year's Day,
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving
Day and Christmas Day.
An order to purchase Fund shares is effective only when Alex. Brown
receives an order in proper form and federal funds are available to the Fund
for investment. The Fund reserves the right to reject any order for the
purchase of Fund shares. Fund shares are purchased at the net asset value
next determined after acceptance of the order.
The net asset value of each of the Fund's Series is determined once daily
as of 12:00 noon (Eastern Time) on each business day of the Fund. Because the
Fund uses the amortized cost method of valuing the portfolio securities of
each Series and rounds the per share net asset value of shares of each
Series, it is anticipated that the net asset value of each Series will remain
constant at $1.00 per share, but there can be no assurance that this
objective can be met. Share purchases effected before 11:00 a.m. (Eastern
Time) begin to earn dividends on the same business day. Share purchases
9
<PAGE> 14
received after 11:00 a.m. (Eastern Time) begin to earn dividends on the
following day. Payments transmitted by check are normally converted into federal
funds within two business days and are accepted subject to collection at full
face amount. If purchases of shares are made by check, redemption of those
shares may be restricted. (See "How to Redeem Shares.")
PURCHASES THROUGH ALEX. BROWN
Shares of any Series of the Fund may be purchased with funds on account with
Alex. Brown. Any investor who does not already maintain an Alex. Brown
account may open one by calling an Alex. Brown investment representative or
by completing the application included with this prospectus and mailing it,
together with the initial purchase amount, to the address indicated.
Investments in any Series of the Fund may be made by any one of the following
convenient methods.
1. By telephone -- Investors may call their Alex. Brown investment
representative and request that available cash balances in their Alex. Brown
account be invested in one or more Series of the Fund.
2. By mail -- Investors may mail checks for purchases of shares of any
Series of the Fund to their Alex. Brown investment representative or deliver
checks directly to their local Alex. Brown office. Alternatively, investors
may mail checks to Alex. Brown through the use of convenient share purchase
order tickets and pre-addressed envelopes. A supply of order tickets and
envelopes may be obtained through any Alex. Brown investment representative
or by calling (800) 553-8080.
3. By wire -- Shares of any Series may be purchased by wiring funds to an
Alex. Brown account. Investors should call an Alex. Brown investment
representative or (410) 727-1700 for instructions.
4. Through an automatic investment and redemption program -- Alex. Brown has
established a special procedure whereby proceeds from sales of securities
will be combined with other available credit balances in an Alex. Brown
customer's account (the "account") on settlement date and invested in shares
of the Series of the Fund selected by the customer. In addition, all credit
balances in an account at the end of each day are invested on the next
business day of the Fund so long as the resulting Fund balance is $100 or
more. Additionally, Fund shares will be redeemed automatically to pay for
securities purchases in the account. Such redemption will be made on the
settlement date of the securities purchase.
The initial purchase requirement of $1,500 does not apply to those
shareholders who elect to take part in the Automatic Investment and
Redemption Program.
PURCHASES THROUGH DEALERS AND INSTITUTIONS
Special procedures are established for expediting transactions on behalf of
securities dealers and institutional accounts. The Fund and Alex. Brown have
arranged for PNC to offer sub-accounting services to Fund shareholders and
maintain information with respect to underlying share owners. Bank trust
departments, investment counselors, brokers, and others desiring
sub-accounting services can make the necessary arrangements through the Fund
or Alex. Brown. Check redemption services cannot be made available, however,
for shares held in sub-accounts.
5 HOW TO REDEEM SHARES
In addition to participation in the automatic purchase and redemption
program described above, shareholders may redeem all or part of their shares
of any Series on any business day of the Fund by transmitting a redemption
10
<PAGE> 15
order to Alex. Brown by any of three convenient methods outlined below. A
redemption request is effected at the net asset value next determined after
tender of shares for redemption. Redemption orders received after 11:00 a.m.
(Eastern Time) will be executed the following business day of the Fund at the
net asset value of the Series to be redeemed next determined after receipt of
the order. If the shares to be redeemed were purchased by check, the Fund
reserves the right not to honor the redemption request until the check has
cleared, and redemption of such shares by wire or by check redemption will be
restricted for a period of fifteen calendar days unless the proceeds of
redemption are used to purchase other securities through Alex. Brown. The right
to redeem shares may be affected by the terms and conditions of the
shareholder's account agreement with Alex. Brown, a Participating Dealer or
other institution.
REDEMPTION BY CHECK
Shareholders who complete the necessary forms may establish special check
redemption privileges that entitle them to write checks drawn on the Fund
that will clear through the Fund's account with PNC, in any amount not less
than $500. The payee of the check may cash or deposit it in the same way as
an ordinary bank check. Shareholders are entitled to dividends on the shares
redeemed until the check has been presented to PNC for payment. If the amount
of the check exceeds the value of the Fund shares of all Series in the
account, the check will be returned to the payee marked "nonsufficient
funds." Checks written in amounts less than $500 may also be returned. The
Fund in its discretion will honor such checks but will charge the account a
servicing fee of $15. Cancelled checks will not be returned to the
shareholder, but the amounts will be reflected on the shareholder's monthly
Alex. Brown statement of account. Since the total amount of shares in an
account may vary, shareholders should not attempt to redeem their entire
account by check.
The Fund reserves the right to terminate or alter check redemption privileges
at any time, to impose a service charge, or to charge for checks. The Fund
also may charge a shareholder's account for returned checks and for effecting
stop orders.
If a shareholder of more than one Series presents a check redemption request,
the Fund will automatically redeem shares of such Series in the following
order until the full amount of the check redemption has been satisfied:
Tax-Free Series, Prime Series and Treasury Series.
If a shareholder desires check redemption privileges, the necessary forms may
be obtained through Alex. Brown.
REDEMPTION BY WIRE
A shareholder who wishes to redeem $10,000 or more and who has previously
completed the necessary authorizations, may request that payment be made by
wire transfer of federal funds. In such case, once the redemption is
effected, payment will be made in federal funds wired to the shareholder's
bank on the same day. Alex. Brown will subtract from the redemption proceeds
the cost of effecting the wire transfer.
REDEMPTION BY MAIL
A shareholder may redeem Fund shares in any amount by mailing a redemption
request to Alex. Brown at P.O. Box 17250, Baltimore, Maryland 21203. Payment
for shares redeemed by mail will be made by check and will ordinarily be
mailed within seven days after receipt by Alex. Brown of a written redemption
request in good order. The request must include the following:
(a) a letter of instruction specifying the Alex. Brown account number and
the Series (Prime, Treasury or Tax-Free) and the number of shares or dollar
amount to be redeemed (or that all shares of a Series credited to an Alex.
Brown account be redeemed), signed by all owners of the shares in the exact
names in which their Alex. Brown account is maintained;
11
<PAGE> 16
(b) a guarantee of the signature of each registered owner by a member of
the Federal Deposit Insurance Corporation, a trust company, broker, dealer,
credit union (if authorized under state law), a securities exchange or
association, clearing agency or savings association; and
(c) any additional documents required by the Fund or transfer agent for
redemption by corporations, partnerships, trusts or fiduciaries.
ADDITIONAL INFORMATION ON REDEMPTION
Dividends payable up to the date of redemption on redeemed shares will be
paid on the next dividend payment date. If all of the shares of a Series of
the Fund in an Alex. Brown account have been redeemed on the dividend payment
date, the dividend will be credited in cash to the shareholder's account at
Alex. Brown.
The Board of Directors may authorize redemption of all shares in an account
of any Series which has been reduced by the shareholder to less than $500, if
the Board of Directors determines that it is necessary to reduce
disproportionately burdensome expenses of servicing small accounts or is
otherwise in the best interest of the Fund. At least 60 days' prior notice
will be given to allow a shareholder to make an additional minimum investment
set by the Board of Directors to avoid redemption.
6 DIVIDENDS AND TAXES
DIVIDENDS
All of the net income earned on each Series is normally declared as
dividends daily to the respective shareholders of record of each Series.
Dividends on each Series are normally payable on the first day that a share
purchase order is effective but not on the date that a redemption order is
effective. If a purchase order is received by Alex. Brown after 11:00 a.m.
(Eastern Time), the shareholder will receive dividends beginning on the
following day. Dividends are declared daily and reinvested monthly in the
form of additional full and fractional shares of the same Series at net asset
value, unless the shareholder has elected to have dividends paid in cash.
TAXES
The following is only a general summary of certain federal tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion herein is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which may be
changed by legislative, judicial or administrative action.
Each Series of the Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As long as a Series qualifies for this
tax treatment, it will not be required to pay federal income taxes on amounts
distributed to shareholders; but shareholders, unless otherwise exempt, will pay
taxes on taxable amounts so distributed.
The Tax-Free Series intends to qualify to pay "exempt-interest dividends" to its
shareholders, by satisfying certain Code requirements described in the Statement
of Additional Information. So long as these and certain other requirements are
met, dividends of the Tax-Free Series derived from net tax-exempt interest
income will be exempt-interest dividends that are excluded from the gross income
of such Series' shareholders for federal income tax purposes. Exempt-interest
dividends may, however, have collateral federal income tax consequences,
12
<PAGE> 17
including alternative minimum tax consequences. (See the Statement of Additional
Information.) The percentage of the Tax-Free Series' income which is tax-exempt
will be determined annually and will be applied uniformly to all dividends
declared with respect to such Series during that year. This percentage may
differ from the actual tax-exempt percentage of such Series' income for any
particular day.
Distributions of net investment company taxable income (generally, net
investment income plus the excess, if any, of net short-term capital gains over
net long-term capital losses) are taxed to shareholders as ordinary income.
Distributions will not be eligible for the dividends received deduction
otherwise available to corporate shareholders. Although no Series expects to
realize any long-term capital gains, any distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses) will
be taxable to shareholders as long-term capital gains, regardless of the length
of time a shareholder has held the shares.
Ordinarily, shareholders will include in their taxable income all dividends
declared by a Series in the year of payment. However, dividends declared payable
to shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by a Series in the year in which the dividends were
declared.
Shareholders of the Treasury Series may not be required to pay state income tax
on dividends to the extent such dividends are derived from interest on U.S.
Treasury obligations. State laws vary and investors are encouraged to consult
with their tax advisors on this issue.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their own tax advisors concerning the application of state and local taxes to
investments in the Fund, which may differ from the federal income tax
consequences described above. Additional information concerning taxes is set
forth in the Statement of Additional Information.
7 MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to its officers and to Alex. Brown, Investment Company Capital Corp.
(formerly Flag Investors Management Corp.) ("ICC"), the Fund's investment
advisor, and PNC Institutional Management Corporation ("PIMC"), the sub-advisor
to the Prime Series and the Tax-Free Series, subject to the investment
objectives and policies of the Fund and to general supervision by the Fund's
Board of Directors. Alex. Brown, ICC and PIMC also furnish or procure on behalf
of the Fund all services necessary to the proper conduct of the Fund's business.
Two Directors and all of the officers of the Fund are officers or employees of
Alex. Brown or ICC. A majority of the Board of Directors of the Fund have no
affiliation with Alex. Brown, ICC, or PIMC.
INVESTMENT ADVISOR
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland
21202, a wholly-owned subsidiary of Alex. Brown (described below), was organized
in 1987 and acts as the Fund's investment advisor pursuant to two separate
Investment Advisory Agreements, one dated as of April 4, 1990 relating to the
13
<PAGE> 18
Prime Series and the Treasury Series, and one dated as of October 5, 1990
relating to the Tax-Free Series (the "Advisory Agreements"). Pursuant to the
terms of the Advisory Agreements, ICC supervises and manages the Fund's
operations and generally provides management and administrative services for
the Fund. ICC may delegate its duties under the Advisory Agreements and has
delegated certain of such duties for the Prime Series and the Tax-Free Series
to PIMC as described below. ICC is also investment advisor to, and Alex.
Brown acts as distributor for, several funds in the Flag Investors family of
funds which, as of June 30, 1994, had net assets of approximately $1 billion.
As compensation for providing investment advisory services to the Fund for
the fiscal year ended March 31, 1994, ICC received a fee from the Fund (net
of fee waivers for the Treasury Series) which represented .21% of the Fund's
aggregate average net assets. ICC may, from time to time, voluntarily waive a
portion of its advisory fee with respect to any Series to preserve or enhance
the performance of the Series. Each Series pays its share of the fee in
proportion to its relative net assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Treasury Series. (See "Custodian, Transfer
Agent, Accounting Services.")
SUB-ADVISOR
PIMC, Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809, acts as sub-advisor to the Prime Series and the Tax-Free Series,
respectively, pursuant to two separate sub-advisory agreements between ICC and
PIMC, one dated as of April 1, 1992 relating to the Prime Series and one dated
as of June 1, 1991 relating to the Tax-Free Series (the "Sub-Advisory
Agreements"). PIMC is a wholly-owned subsidiary of PNC, the Fund's custodian.
Subject to the oversight of ICC, PIMC is responsible for managing the Prime
Series' and the Tax-Free Series' investments. PIMC was organized in 1977 to
perform advisory services for investment companies. PNC and its predecessors
have been in the business of managing the investments of fiduciary and other
accounts in the Philadelphia, Pennsylvania area since 1847. PIMC advises or
manages approximately 65 open-end investment portfolios with total assets of
approximately $26 billion as of June 30, 1994.
As compensation for its services under the Sub-Advisory Agreements for the
fiscal year ended March 31, 1994, PIMC received a fee from ICC equal to .10% of
the combined aggregate average net assets of the Prime Series and the Tax-Free
Series. If ICC voluntarily waives a portion of its fee with respect to the Prime
Series or the Tax-Free Series (see "Investment Advisor"), PIMC has agreed to
waive a portion of its fee in the same proportion and for the same time periods
as ICC's waiver.
During the fiscal year ended March 31, 1994, the expenses borne by each Series
of the Fund, including the fees to ICC, amounted to .62% of the Prime Series'
average net assets, .54% (net of fee waivers) of the Treasury Series' average
net assets and .58% of the Tax-Free Series' average net assets. (See "Table of
Fees and Expenses.")
DISTRIBUTOR
The Fund has entered into two separate distribution agreements, one dated as of
April 4, 1990 relating to the Prime Series and the Treasury Series and one dated
as of October 5, 1990 relating to the Tax-Free Series, (the "Distribution
Agreements"), with Alex. Brown, 135 East Baltimore Street, Baltimore, Maryland
21202. Alex. Brown is an investment banking firm which offers a broad range of
investment services to individual, institutional, corporate and municipal
clients. It is a wholly-owned subsidiary of Alex. Brown Incorporated which has
engaged directly and through subsidiaries and affiliates in the investment
14
<PAGE> 19
business since 1800. Alex. Brown is a member of the New York Stock Exchange and
other leading securities exchanges. Headquartered in Baltimore, Maryland, Alex.
Brown has 20 offices throughout the United States and, through subsidiaries,
maintains offices in London, England, Geneva, Switzerland and Tokyo, Japan.
Alex. Brown serves as the exclusive distributor for shares of the Fund's three
Series. As compensation for its services for the fiscal year ended March 31,
1994, Alex. Brown received a fee from the Fund which represented .25% of the
Fund's average net assets.
Alex. Brown may make payments to shareholder servicing agents, including
securities dealers, banks and other financial institutions, that provide
shareholder services. Such financial institutions may impose separate fees in
connection with these services and investors should review this Prospectus in
conjunction with any such institution's fee schedule. In addition, financial
institutions may be required to register as dealers pursuant to state securities
laws.
Alex. Brown may use a portion of the fee it receives from the Fund to compensate
its investment representatives for opening shareholder accounts, processing
investor purchase and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and operations of the Fund,
and communicating with the Fund and its transfer agent on behalf of the Fund's
shareholders. Additionally, Alex. Brown bears all expenses associated with
advertisements, promotional materials, sales literature and printing and mailing
prospectuses to other than Fund shareholders.
8 CURRENT YIELD
From time to time the Fund advertises the "yield" and "effective yield" of a
particular Series or class. Both figures are based on historical earnings and
are not intended to indicate future performance. The "yield" of a Series or
class refers to the income generated by an investment in that Series or class
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized", that is, the amount of income generated by the
investment during that week is assumed to be generated each week of a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly, but when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The Tax-Free Series may also advertise a taxable-equivalent yield
or effective yield, which are calculated by applying a stated income tax rate to
the Series' tax-exempt income for the same periods and annualized as described
above.
The yield for any Series or class of the Fund can be obtained by calling an
Alex. Brown investment representative or (410) 234-3737.
9 GENERAL INFORMATION
DESCRIPTION OF SHARES
Shares of the Fund are divided into three series, each with a par value of
$.001 - the Prime Series, the Treasury Series and the Tax-Free Series. Each of
the Series currently offers one or more classes, which classes differ from each
other principally in the allocation of certain expenses and the method of
distribution. Shares of the Fund have equal rights with respect to voting,
except that the holders of shares of a particular Series or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such Series or class. For example, holders of a particular Series will have the
exclusive right to vote on any investment advisory agreement or investment
15
<PAGE> 20
restriction that relates only to such Series. In the event of dissolution or
liquidation, holders of shares of each Series will receive pro rata, subject to
the rights of creditors, (a) the proceeds of the sale of the assets held in the
respective Series less (b) the liabilities of the Fund attributable to the
respective Series or allocated among all Series based on the respective
liquidation value of each Series. There will not normally be annual
shareholders' meetings. Shareholders may remove directors from office by votes
cast at a meeting of shareholders or by written consent. A meeting of
shareholders may be called at the request of the holders of 10% or more of the
Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and non-assessable.
The Board of Directors may create additional series or classes of Fund shares
without shareholder approval.
CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC, a national banking association with offices at Airport Business Center, 200
Stevens Drive, Lester, Pennsylvania 19113, acts as custodian for the Fund's
portfolio securities and cash. PFPC Inc. ("PFPC"), an affiliate of PNC with
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809, provides accounting
services to the Prime Series and the Tax-Free Series. Investment Company Capital
Corp., 135 East Baltimore Street, Baltimore, Maryland 21202 (telephone (800)
553-8080), the Fund's investment advisor, also serves as the Fund's transfer and
dividend disbursing agent and provides accounting services to the Treasury
Series. As compensation for providing accounting services to the Treasury
Series, ICC receives from the Fund an annual fee equal to $55,000 for average
daily net assets of less than $250 million, plus a percentage of the Treasury
Series' average daily net assets in excess of $250 million at a maximum rate of
.0020% of net assets and declining at various asset levels to a minimum rate of
.0005% on net assets of $1 billion or more. For the period from January 1, 1994
through March 31, 1994, ICC received an annualized fee equal to .0009% of the
Treasury Series' average net assets. (See the Statement of Additional
Information.) Prior to January 1, 1994, Alex. Brown, the Fund's distributor,
provided accounting services to the Treasury Series and for the period from
April 1, 1994 through December 31, 1994, received from the Fund an annualized
fee equal to .0009% of the Treasury Series' average net assets.
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to hold
annual meetings of shareholders. However, shareholders may remove directors from
office by votes cast at a meeting of shareholders or by written consent. A
meeting of shareholders may be called at the request of the holders of 10% or
more of the Fund's outstanding shares.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, Coopers & Lybrand.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact an Alex.
Brown investment representative or (800) 553-8080.
16
<PAGE> 21
ALEX. BROWN CASH RESERVE FUND, INC.
APPLICATION FORM
TO OPEN NEW ACCOUNT
1.) Complete application below in full.
2.) Check enclosed for $_________________________
3.(a). $_______to be invested in Prime Series.
(b). $_______to be invested in Treasury Series.
(c). $_______to be invested in Tax-Free Series.
EXISTING ALEX. BROWN ACCOUNTS
1.) My account number is __________________________________________________
2.) Name(s) _______________________________________________________________
3.) Check enclosed for $ __________________________________________________
4. (a). $_______to be invested in Prime Series.
(b). $_______to be invested in Treasury Series.
(c). $_______to be invested in Tax-Free Series.
All checks should be made payable to Alex. Brown & Sons Incorporated and
mailed to:
Alex. Brown Cash Reserve Fund, Inc.
P.O. Box 17250
Baltimore, Maryland 21203
PLEASE NOTE: The minimum initial investment in each Series is $1,500.
Subsequent investments in each Series must be $100 or more.
- -----------------------------------------------------------------------------
1. ACCOUNT REGISTRATION -- Please Print
- --------------------------------------------- ------------------------
Names Social Security
or Tax ID No.**
- ---------------------------------------------
Joint Owner's Name (if applicable)*
- -----------------------------------------------------------------------------
Street Address
- --------- ------------ -------- ------------ -------------
City State Zip Code Home Phone Office Phone
* In the case of joint ownership, joint tenancy with right of survivorship
will be presumed unless otherwise indicated.
** Enter "Applied" if number has been applied for and not received.
- -----------------------------------------------------------------------------
2. DIVIDEND INSTRUCTIONS
[ ] Place an "X" in this box if you want your dividends paid to you in cash.
Otherwise, they will be reinvested in additional shares of the Fund.
- -----------------------------------------------------------------------------
3. CHECK REDEMPTION PRIVILEGE (Optional)
[ ] Place an "X" in this box if you want information regarding the Check
Redemption Privilege.
- -----------------------------------------------------------------------------
4. SIGNATURE(S) I (we) am (are) of legal age and have read the prospectus
dated August 1, 1994.
Under penalties of perjury, I certify (1) that the number shown on this
form is my correct taxpayer identification number, and (2) that I am not
subject to backup withholding either because I have not been notified that I
am subject to backup withholding as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me that I
am no longer subject to backup withholding.
- ----------------------------------------------------- ----------------------
Date
- ----------------------------------------------------- ----------------------
Date
17
<PAGE> 22
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 23
ALEX. BROWN CASH RESERVE FUND, INC.
BOARD OF DIRECTORS
W. JAMES PRICE, Chairman
Managing Director Emeritus,
Alex. Brown & Sons Incorporated
Baltimore, Maryland
RICHARD T. HALE LOUIS E. LEVY
Managing Director, Formerly Partner,
Alex. Brown & Sons Incorporated KPMG Peat Marwick
Baltimore, Maryland New York, New York
ALONZO G. DECKER, JR. EUGENE J. McDONALD
Honorary Chairman of the Board and President and CEO,
Chairman of the Executive Committee, Duke Management Co.
Black and Decker Corp. Executive Vice President,
Towson, Maryland Duke University
Durham, North Carolina
N. BRUCE HANNAY
Business Consultant HARRY WOOLF
Port Ludlow, Washington Professor, Institute for
Advanced Study
JOHN F. KROEGER Princeton, New Jersey
Formerly Consultant, Wendell & Stockel
Associates, Inc.
Summit, New Jersey
- -----------------------------------------------------------------------------
OFFICERS
W. JAMES PRICE M. ELLIOTT RANDOLPH, JR. DIANA M. ELLIS
Chairman Vice President Treasurer
RICHARD T. HALE
President PAUL D. CORBIN MONICA M. HAUSNER
Vice President Assistant Vice President
EDWARD J. VEILLEUX
Executive Vice President BRIAN C. NELSON LAURIE D. DEPRINE
Vice President Assistant Secretary
& Secretary
- -----------------------------------------------------------------------------
Distributor Custodian
ALEX. BROWN & SONS PNC BANK
INCORPORATED Airport Business Center
135 East Baltimore Street 200 Stevens Drive
Baltimore, Maryland 21202 Lester, Pennsylvania 19113
(410) 727-1700
Transfer Agent
Investment Advisor INVESTMENT COMPANY CAPITAL CORP.
INVESTMENT COMPANY CAPITAL CORP. 135 East Baltimore Street
135 East Baltimore Street Baltimore, Maryland 21202
Baltimore, Maryland 21202 (800) 553-8080
Sub-Advisor Independent Accountants
PNC INSTITUTIONAL COOPERS & LYBRAND
MANAGEMENT CORP. 2400 Eleven Penn Center
400 Bellevue Parkway Philadelphia, Pennsylvania 19103
Wilmington, Delaware 19809
<PAGE> 24
LOGO
Printed in U.S.A. _______________________
| |
Alex. Brown | Third Class Mail |
Cash Reserve Fund, Inc. | U.S. POSTAGE |
P.O. Box 17250 | PAID |
Baltimore, Maryland 21203 | Baltimore, Md. |
| Permit No. 8614 |
|_______________________|
<PAGE> 25
Supplement dated June 12, 1995
to the Prospectus of
Flag Investors Cash Reserve Prime Shares
(Class A and Class B)
dated March 30, 1995
The disclosure contained within the Prospectus of Flag Investors Cash
Reserve Prime Shares (Class A and Class B)(Classes of Alex. Brown Cash Reserve
Fund, Inc.) dated August 1, 1994, is amended and supplemented by the following:
On June 1, 1995, the Fund's Board of Directors approved, subject to
shareholder approval, a proposal to increase the investment advisory fee payable
by the Fund, on behalf of each Series, to Investment Company Capital Corp.
("ICC").
The matter will be submitted to shareholders of each of the Fund's
Series at a meeting scheduled for July 25, 1995. Shareholders of record of the
Fund as of the close of business on June 9, 1995 will be entitled to vote on the
proposal relating to their Series. If such proposals are approved, the
investment advisory fee and total operating expenses of each Series will
increase, effective August 1, 1995, and the "Annual Fund Operating Expenses" and
"Example" appearing on page 2 of the Prospectus will be restated as shown below.
<TABLE>
<CAPTION>
Flag Flag
Investors Investors
Annual Fund Operating Expenses (as a percentage of average net assets) Class A Class B
Shares Shares
--------- ----------
<S> <C> <C>
Management Fees ......................................................................... .28% .28%
12b-1 Fees .............................................................................. .25% .75%
Other Expenses (including a .25% shareholder servicing
fee for Flag Investors Class B Shares) ............................................ .15% .40%***
---- -----
Total Operating Expenses ................................................................ .68% 1.43%
==== =====
</TABLE>
*** A portion of the shareholder servicing fee is allocated to member
firms of the National Association of Securities Dealers, Inc. and qualified
banks for continued personal service by such members to investors in Flag
Investors Class B Shares, such as responding to shareholder inquiries,
quoting net asset values, providing current marketing materials and
attending to other shareholder matters.
Example:
<TABLE>
<CAPTION>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period: 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Flag Investors Class A Shares . . . . . . . . . . . . . . . . $ 7 $22 $ 39 $ 88
Flag Investors Class B Shares . . . . . . . . . . . . . . . . $55 $76 $101 $139*
- ---------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on the
same investment, assuming no redemption: 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Flag Investors Class B Shares . . . . . . . . . . . . . . . . $15 $46 $81 $139*
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class B
expenses and four years of Class A expenses.
<PAGE> 26
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
In addition, the section entitled "Investment Advisor" will be amended
as follows:
"As compensation for providing investment advisory services to the
Fund, ICC is entitled to receive a fee from the Fund, calculated daily and paid
monthly, at the annual rate of .30% of the first $500 million of the Fund's
aggregate average daily net assets, .26% of the next $500 million of the Fund's
aggregate average daily net assets, .25% of the next $500 million of the Fund's
aggregate average daily net assets, .24% of the next $1 billion of the Fund's
aggregate average daily net assets, and .23% of the Fund's aggregate average
daily net assets in excess of $2.5 billion. Each Series pays its share of the
foregoing fee in proportion to its relative net assets. In addition, ICC is
entitled to receive an additional fee with respect to the Prime Series,
calculated daily and paid monthly, at the annual rate of .02% of the Prime
Series' average daily net assets. ICC may, from time to time, voluntarily waive
a portion of its fee with respect to any Series of the Fund to preserve or
enhance the performance of the Series."
<PAGE> 27
Supplement dated June 12, 1995
to the Prospectus of
Alex. Brown Cash Reserve Fund, Inc. - Institutional Shares
dated August 1, 1994
The disclosure contained within the Prospectus of Alex. Brown Cash
Reserve Fund, Inc. - Institutional Shares dated August 1, 1994, is amended and
supplemented by the following:
On June 1, 1995, the Fund's Board of Directors approved, subject to
shareholder approval, a proposal to increase the investment advisory fee payable
by the Fund, on behalf of each Series, to Investment Company Capital Corp.
("ICC").
The matter will be submitted to shareholders of each of the Fund's
Series at a meeting scheduled for July 25, 1995. Shareholders of record of the
Fund as of the close of business on June 9, 1995 will be entitled to vote on the
proposal relating to their Series. If such proposals are approved, the
investment advisory fee and total operating expenses of each Series will
increase, effective August 1, 1995, and the "Annual Fund Operating Expenses" and
"Example" appearing on page 2 of the Prospectus will be restated as shown below.
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<S> <C> <C>
Advisory Fees (See "Management of the Fund - Investment Advisor") ......................... .28% .26%
12b-1 Fees (See "Management of the Fund - Distributor") ................................... None None
All Other Expenses ........................................................................ .15% .07%
---- ----
Total Fund Operating Expenses ............................................................. .43% .33%
==== ====
</TABLE>
Example
Assuming a hypothetical investment of $1,000, a 5% annual return and
redemption at the end of each time period, an investor in Institutional Shares
of either Series would have paid transaction and operating expenses at the end
of each year as follows:
Prime Treasury
Series Series
------ --------
1 year ................................... $ 4 $ 3
3 years .................................. $14 $11
5 years .................................. $24 $20
10 years .................................. $55 $45
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
In addition, the section entitled "Management of the Fund - Investment
Advisor" will be amended as follows:
"As compensation for providing investment advisory services to the
Fund, ICC is entitled to receive a fee from the Fund, calculated daily and paid
monthly, at the annual rate of .30% of the first $500 million of the Fund's
aggregate average daily net assets, .26% of the next $500 million of the Fund's
aggregate average daily net assets, .25% of the next $500 million of the Fund's
aggregate average daily net assets, .24% of the next $1 billion of the Fund's
aggregate average daily net assets, and .23% of the Fund's aggregate average
daily net assets in excess of $2.5 billion. Each Series pays its share of the
foregoing fee in proportion to its relative net assets. In addition, ICC is
entitled to receive an additional fee with respect to the Prime Series,
calculated daily and paid monthly, at the annual rate of .02% of the Prime
Series' average daily net assets. ICC may, from time to time, voluntarily waive
a portion of its fee with respect to any Series to preserve or enhance the
performance of the Series."
<PAGE> 28
LOGO
ALEX.
BROWN
CASH
RESERVE
FUND, INC.
INSTITUTIONAL
SHARES
An open-end, diversified
fund for institutions designed
as a convenient means to earn
a high level of current income
from two diversified, professionally
managed portfolios of high quality
money market instruments while
preserving principal and liquidity.
August 1, 1994
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
PROSPECTUS
<PAGE> 29
ALEX. BROWN CASH RESERVE FUND, INC.
INSTITUTIONAL SHARES
P. O. Box 17250
Baltimore, Maryland 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed to seek as high a level of current income as is consistent with
preservation of capital and liquidity. The class of shares of the Fund
offered by this Prospectus may be purchased only by eligible institutions.
The Fund offers:
o Prime Series -- a portfolio invested in U.S. Treasury obligations,
repurchase agreements backed by such instruments, obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government,
domestic bank instruments and commercial paper of the highest quality; and
o Treasury Series -- a portfolio invested in U.S. Treasury bills, notes,
bonds and other obligations issued by the U.S. Treasury.
Other principal features of the Fund:
o No direct or indirect purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or
cash; and
o Wire and telephone transfers.
For current yield information and for purchase and redemption information,
call (410) 234-3737.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW ABOUT
THE FUND PRIOR TO INVESTING AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1994 HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY
INCORPORATED BY REFERENCE. IT IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE BY
CALLING THE FUND AT (800) 553-8080.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Table of Fees and Expenses 2
2. Financial Highlights 3
3. The Fund and the Institutional Shares 5
4. Investment Program 5
5. How to Invest in Institutional Shares of
the Fund 7
6. Dividends and Taxes 9
7. How to Redeem Shares 10
8. Management of the Fund 10
9. Current Yield 12
10. General Information 12
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Prospectus Dated: August 1, 1994
<PAGE> 30
1 TABLE OF FEES AND
EXPENSES
The following table of fees and expenses is provided to assist investors
in understanding the various costs and expenses that an investor in
Institutional Shares of the Prime or Treasury Series of the Fund may bear
directly and indirectly. The percentages shown below expressing Annual Fund
Operating Expenses are based on the actual expenses of the Institutional
Shares of the Prime Series (.30% of average net assets) and the Treasury
Series (.27% of average net assets after fee waivers), respectively, for the
fiscal year ended March 31, 1994. Current expenses may be greater or less
than those shown.
<TABLE>
<CAPTION>
Institutional Institutional
Shares Shares
Prime Treasury
Series Series
----------------- -----------------
Shareholder Transaction Expenses As a % of Average Net Assets
- -------------------------------- ----------------------------
<S> <C> <C>
Maximum Sales Charge imposed on Purchase (as percentage of offering
price) ............................................................... None None
Maximum Sales Charge imposed on Reinvested Dividends (as a percentage of
offering price) ...................................................... None None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) .................................. None None
Redemption Fees (as a percentage of amount redeemed, if applicable) .... None None
Annual Fund Operating Expenses
- ------------------------------
Advisory Fees (See "Management of the Fund -- Investment Advisor and
Sub-Advisor")* ....................................................... .21% .19%*
Distribution Fees (See "Management of the Fund -- Distributor") ........ None None
All Other Expenses ..................................................... .09% .08%
----- -----
Total Fund Operating Expenses .......................................... .30% .27%*
===== =====
</TABLE>
- ------
* Advisory fees may be waived voluntarily from time to time to preserve or
enhance the performance of a Series. Absent fee waivers for the Treasury
Series for the fiscal year ended March 31, 1994, Advisory Fees and Total
Fund Operating Expenses would have been .21% and .29%, respectively, of the
average net assets of the Institutional Shares of the Treasury Series.
EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and
redemption at the end of each time period, an investor in Institutional
Shares of either Series would have paid transaction and operating expenses at
the end of each year as follows:*
<TABLE>
<CAPTION>
Prime Treasury
Series Series*
-------- ----------
<S> <C> <C>
1 year ................................................................... $ 3 $ 3
3 years .................................................................. $10 $ 9
5 years .................................................................. $17 $15
10 years ................................................................. $39 $35
</TABLE>
- ------
* Absent fee waivers for the Treasury Series for the one, three, five and ten
year periods, expenses would be $3, $9, $16, and $37, respectively.
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
2
<PAGE> 31
2 FINANCIAL HIGHLIGHTS
The Fund has offered the Institutional Shares since June 4, 1990. However,
the Fund has offered other classes of shares since 1981 in the case of the
Prime Series and 1982 in the case of the Treasury Series. Historical
financial information about the Fund is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares may incur. (See "Table of Fees and
Expenses.") Nevertheless, historical information about the Fund may be useful
to investors if they take into account the differences in expenses.
Accordingly, the financial highlights included in these tables have been
derived from the Fund's financial statements for the periods indicated which
have been audited by the Fund's independent accountants. The financial
statements and financial highlights for the fiscal year ended March 31, 1994
and the report thereon are included in the Statement of Additional
Information which can be obtained at no charge by calling the Fund at (800)
553-8080.
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Prime Series*
------------------------------
Institutional Prime Shares
-------------------------------------------------------
June 4, 1990*
Year Ended March 31, through Year Ended March 31,
-------------------------- March 31, ------------------------------
1994 1993 1992 1991 1991 1990
----------- ----------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ------------- -------------- --------------
Income from Investment Operations:
Net investment income ............... 0.0294 0.0327 0.0515 0.0617 0.0734 0.0846
Less Distributions:
Dividends from net investment income
and short-term gains .............. (0.0294) (0.0327) (0.0515) (0.0617) (0.0734) (0.0846)
----------- ----------- ----------- ------------- -------------- --------------
Net asset value at end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ============ ============== ==============
Total Return ......................... 2.98% 3.32% 5.27% 7.70%** 7.59% 8.80%
Ratios to Average Net Assets:
Expenses ............................ 0.30%* 0.31% 0.32% 0.35%** 0.59% 0.52%
Net investment income ............... 2.94%* 3.24% 5.34% 7.53%** 7.31% 8.42%
Supplemental Data:
Net assets at end of period ......... $23,437,449 $28,884,078 $21,867,108 $117,633,558 $1,295,888,161 $1,312,276,151
Number of shares outstanding at end
of period ......................... 23,437,939 28,884,132 21,867,108 117,633,558 1,295,888,161 1,312,272,415
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
Prime Series*
---------------------------------------------------------------------------
For the
eleven
months
ended Year Ended April 30,
March 31, ----------------------------------------------------------
1989+ 1988 1987 1986 1985
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- ------------ ------------ ------------ ------------
Income from Investment Operations:
Net investment income ............... 0.0712 0.0647 0.0572 0.0729 0.0940
Less Distributions:
Dividends from net investment income
and short-term gains .............. (0.0712) (0.0647) (0.0572) (0.0729) (0.0940)
-------------- ------------ ------------ ------------ ------------
Net asset value at end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============ ============ ============ ============
Total Return ......................... 8.01%** 6.67% 5.87% 7.54% 9.82%
Ratios to Average Net Assets:
Expenses ............................ 0.54%** 0.52% 0.55% 0.59% 0.58%
Net investment income ............... 7.81%** 6.46% 5.71% 7.28% 9.38%
Supplemental Data:
Net assets at end of period ......... $1,084,793,157 $874,051,953 $831,784,041 $686,611,968 $583,642,018
Number of shares outstanding at end
of period ......................... 1,084,789,421 874,047,336 831,779,424 686,611,968 583,642,018
</TABLE>
- ------
* The Institutional Prime Shares commenced operations on June 4, 1990. Per
share data under the heading Prime Series does not include data for the
Institutional Prime Shares.
** Annualized.
+ The Fund's fiscal year-end was changed to March 31.
3
<PAGE> 33
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Institutional Treasury Shares
-------------------------------------------------------------
June 4,
1990*
Year Ended March 31, through
-------------------------------------------- March 31,
1994 1993 1992 1991
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ------------
Income from Investment
Operations:
Net investment income .... 0.0282 0.0314 0.0504 0.0590
Less Distributions:
Dividends from net
investment income and
short-term gains ....... (0.0282) (0.0314) (0.0504) (0.0590)
----------- ----------- ----------- ------------
Net asset value at end of
period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ============
Total Return .............. 2.86% 3.19% 5.17% 7.36%**
Ratios to Average Net
Assets:
Expenses ................. 0.27%(1) 0.26%(1) 0.27% 0.29%**
Net investment income .... 2.82% 3.16% 4.90% 7.02%**
Supplemental Data:
Net assets at end of
period ................. $39,692,848 $60,146,987 $63,834,323 $58,017,844
Number of shares
outstanding at end of
period ................. 39,688,259 60,140,874 63,834,323 58,017,844
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Treasury Series*
-------------------------------------------------------------------------------------------------------
For the
eleven
months
Year Ended March 31, ended Year Ended April 30,
---------------------------- March 31, ------------------------------------------------------
1991 1990 1989+ 1988 1987 1986 1985
------------ ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ----------- ------------ ------------ -----------
Income from Investment
Operations:
Net investment income .... 0.0698 0.0829 0.0696 0.0617 0.0578 0.0717 0.0918
Less Distributions:
Dividends from net
investment income and
short-term gains ....... (0.0698) (0.0829) (0.0696) (0.0617) (0.0578) (0.0717) (0.0918)
------------ ------------ ------------ ----------- ------------ ------------ -----------
Net asset value at end of
period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ =========== ============ ============ ===========
Total Return .............. 7.21% 8.61% 7.82%** 6.35% 5.94% 7.41% 9.58%
Ratios to Average Net
Assets:
Expenses ................. 0.56% 0.41% 0.44%** 0.45% 0.45% 0.47% 0.53%
Net investment income .... 6.82% 8.25% 7.50%** 6.17% 5.74% 7.17% 8.89%
Supplemental Data:
Net assets at end of
period ................. $716,551,599 $272,467,125 $235,086,589 $280,628,025 $251,097,755 $160,449,398 $143,604,015
Number of shares
outstanding at end of
period ................. 716,551,599 272,509,276 235,197,074 280,519,083 251,101,013 160,449,398 143,604,015
</TABLE>
- ------------
* The Institutional Treasury Shares commenced operations on June 4, 1990.
Per Share data under the heading Treasury Series does not include data for
the Institutional Shares.
** Annualized.
+ The Fund's fiscal year-end was changed to March 31.
(1) Ratio of expenses to average net assets prior to partial fees waived was
0.29% and 0.27% for the years ended March 31, 1994 and March 31, 1993,
respectively.
4
<PAGE> 35
3 THE FUND AND
THE INSTITUTIONAL SHARES
The Fund is a money market fund which seeks a high level of current income
consistent with preservation of capital and liquidity. The Fund has two separate
portfolios that offer Institutional Shares: the Prime Series and the Treasury
Series (the "Series"). This Prospectus relates exclusively to one of four
classes of shares currently offered by the Prime Series and one of two classes
of shares currently offered by the Treasury Series. The classes of shares of the
Fund offered pursuant to this Prospectus are designed primarily for institutions
as an economical and convenient means for the investment of short-term funds
which they hold for their own account or hold or manage for others. Such
institutions include banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions. The other classes of shares of the Fund are offered to
both individual and institutional investors.
All classes of each Series share a common investment objective, portfolio and
advisory fee, but each class has different expenses, shareholder qualifications
and methods of distribution. Expenses of the Fund which are not directly
attributable to the operations of any class or Series are prorated among all
classes of the Fund based upon the relative net assets of each class. Expenses
of the Fund which are not directly attributable to a specific class but are
directly attributable to a specific Series are prorated among all the classes of
such Series based upon the relative net assets of each such class. Expenses of
the Fund which are directly attributable to a class are charged against the
income available for distribution as dividends to such class.
4 INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of each Series of the Fund is to seek as high a level
of current income as is consistent with preservation of capital and liquidity.
Each Series endeavors to achieve its objective by investing in a diversified
portfolio of domestic money market instruments that satisfy strict credit
quality standards and that mature within one year or less from the date of
purchase.
PORTFOLIO INVESTMENTS
The Prime Series and the Treasury Series may invest in U.S. Treasury obligations
consisting of marketable securities and instruments issued by the U.S. Treasury,
including bills, notes, bonds and other obligations. It is management's
intention to have 100% of the Treasury Series' assets invested in such
instruments at all times. In unusual circumstances, up to 10% of the Treasury
Series' assets may be invested in repurchase agreements collateralized by U.S.
Treasury obligations. Such investments will be made only when it is necessary to
ensure that the Treasury Series is fully invested while satisfying its liquidity
requirements.
In addition to U.S. Treasury obligations, the Prime Series may invest in
obligations issued or guaranteed as to principal and interest by agencies or
instrumentalities of the U.S. Government. Some of these obligations are backed
by the full faith and credit of the U.S. Government (e.g., the Government
National Mortgage Association), others are supported by the issuing agency's
right to borrow from the U.S. Treasury (e.g., securities of Federal Home Loan
Banks) and still others are backed only by the credit of the instrumentality
(e.g., the Federal National Mortgage Association).
The Prime Series may also invest in a broad range of bank and commercial
obligations that the investment advisor, under guidelines established
5
<PAGE> 36
by the Board of Directors, believes present minimal credit risk and that satisfy
the criteria for such obligations described below:
Bank Instruments consisting mainly of certificates of deposit and bankers'
acceptances that (i) are issued by U.S. banks which satisfy applicable
quality standards; or (ii) are fully insured as to principal and interest by
the Federal Deposit Insurance Corporation.
Commercial Instruments consisting of commercial paper and variable amount
master demand notes. Eligible commercial paper is limited to short-term
unsecured promissory notes issued by corporations which (i) are rated Prime-1
by Moody's Investors Service, Inc. ("Moody's") or A-1+ or A-1 by Standard &
Poor's Corporation ("S&P"); or (ii) if not rated, are of comparable quality
to Prime-1 or A-1+ and A-1 instruments as determined by the Fund's investment
advisor; and (iii) are otherwise "Eligible Securities" under Rule 2a-7 of the
Investment Company Act of 1940. Variable amount master demand notes are
unsecured demand notes that permit investment of fluctuating amounts of money
at variable rates of interest pursuant to arrangements with issuers who meet
the foregoing quality criteria. The interest rate on a variable amount master
demand note is periodically redetermined according to a prescribed formula.
Although there is no secondary market in master demand notes, the payee may
demand payment of the principal amount of the note on relatively short
notice. All master demand notes acquired by the Prime Series will be payable
within a prescribed notice period not to exceed seven days. (See the
Statement of Additional Information for information with respect to
commercial paper and bond ratings.)
The Fund may enter into the following arrangements with respect to both
Series:
Repurchase Agreements under which the purchaser (for example, a Series of
the Fund) acquires ownership of an obligation and the seller agrees, at the
time of the sale, to repurchase the obligation at a mutually agreed upon time
and price, thereby determining the yield during the purchaser's holding
period. Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, repurchase agreements entered into by a Series
of the Fund will not have a stated maturity in excess of seven days from the
date of purchase. If the seller of a repurchase agreement fails to repurchase
the obligation in accordance with the terms of the agreement, the Series of
the Fund that entered into the repurchase agreement may incur a loss to the
extent that the proceeds realized on the sale of the underlying obligation
are less than the repurchase price. In the event of the insolvency of a
seller that defaults on its repurchase obligation, disposition of the
securities underlying the repurchase agreement could be delayed pending court
or administrative action.
When-Issued Securities involving commitments by a Series to purchase
portfolio securities on a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a
stated price and yield. A Series will generally not pay for such securities
or start earning interest on them until they are received. When-issued
commitments will not be used for speculative purposes and will be entered
into only with the intention of actually acquiring the securities.
The Prime Series may also enter into the following arrangements:
Reverse Repurchase Agreements involving the sale of money market
instruments held by the Prime Series with an agreement to repurchase the
instruments at an agreed upon price and date. The Prime Series will employ
reverse repurchase agreements only when necessary to meet unanticipated net
redemptions so as to avoid liquidating other money market instruments during
unfavorable market conditions. The Prime Series will utilize reverse
repurchase agreements when the interest income to be earned from
6
<PAGE> 37
portfolio investments which would otherwise have to be liquidated to meet
redemptions is greater than the interest expense incurred as a result of the
reverse repurchase transactions. Reverse repurchase agreements involve the risk
that the market value of securities retained by the Prime Series in lieu of
liquidation may decline below the repurchase price of the securities sold by the
Prime Series which it is obligated to repurchase.
INVESTMENT RESTRICTIONS
The Fund's investment program for both Series is subject to a number of
investment restrictions which reflect self-imposed standards as well as
federal and state regulatory limitations, the most significant of which are
set forth below. The Fund will not:
(1) purchase securities of any one issuer (other than obligations of the
U.S. Government, its agencies or instrumentalities if immediately after such
purchase more than 5% of the value of a Series' assets would be invested in
such issuer;
(2) with respect to the Prime Series only, purchase any commercial paper
or variable rate demand notes which would cause more than 25% of the value of
the Prime Series' total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry;
(3) borrow money or issue senior securities, except that (i) either Series
may borrow money from banks for temporary purposes in amounts up to 10% of
the value of such Series' total assets at the time of borrowing, provided
that any such borrowings by such Series will be repaid prior to the purchase
of additional portfolio securities by such Series, (ii) the Prime Series may
enter into reverse repurchase agreements in accordance with its investment
program and (iii) either Series of the Fund may enter into commitments to
purchase securities in accordance with the investment program of such Series,
which commitments may be considered the issuance of senior securities; or
(4) lend money or securities except to the extent that a Series'
investments may be considered loans.
The Fund's investment objective as described under "Investment Objective" and
the foregoing restrictions are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding shares
of the Series affected. The Treasury Series has a policy, which may be
changed by the Fund's Board of Directors and without shareholder approval, of
limiting investments in U.S. Government obligations to U.S. Treasury
obligations.
5 HOW TO INVEST IN INSTITUTIONAL SHARES
OF THE FUND
GENERAL INFORMATION ON PURCHASES
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) may purchase Institutional Shares of both Series
through Alex. Brown & Sons Incorporated ("Alex. Brown"). Institutions interested
in establishing an account with the Fund should contact Alex. Brown for details
at (410) 727-1700.
The minimum initial investment in Institutional Shares of either Series of the
Fund is $1,000,000; there is no minimum for subsequent investments in the same
Series. Orders for the purchase of Institutional Shares are accepted only on a
"business day of the Fund" which means any day on which PNC Bank, National
Association ("PNC"), the Fund's custodian, and the New York Stock Exchange
7
<PAGE> 38
are open for business. It is expected that during the next twelve months, PNC
and/or the New York Stock Exchange will be closed on Saturdays and Sundays and
on New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day.
Orders to purchase Institutional Shares are executed at the net asset value of
Fund shares as next determined after the order is effective. Because the Fund
uses the amortized cost method of valuing the portfolio securities of each
Series and rounds the per share net asset value of shares of each Series, it is
anticipated that the net asset value of each Series will remain constant at
$1.00 per share, but there can be no assurance that this objective can be met.
The net asset value of all shares of each of the Fund's Series is determined
once daily as of 12:00 noon (Eastern Time) on each business day of the Fund. An
order placed by telephone in the manner described below before noon will be
effective the same day if federal funds are wired to the Fund's custodian before
the close of business on that day. Wire orders are effective as of the next net
asset value determination after receipt of the wire. Share purchases effected
before 11:00 a.m. (Eastern Time) begin to earn dividends on the same business
day. Share purchases received after 11:00 a.m. (Eastern Time) begin to earn
dividends on the following day.
Institutions may place orders to purchase Institutional Shares either by calling
Alex. Brown at (410) 727-1700 and then wiring federal funds, or by wiring
federal funds with the necessary instructions as described below. As noted, a
telephone order placed by 12:00 noon (Eastern Time) is effective that day if
federal funds are received by the close of business. A wire order is effective
the same day if the wire is received before noon or the following day if the
wire order is received after noon. A shareholder who places an order by
telephone will be asked to furnish:
--The shareholder's Fund account number
--The amount to be invested
--The Series selected for investment (Prime Series or Treasury Series)
Federal Funds should be wired to:
PNC Bank
a/c Alex. Brown & Sons Incorporated
Acct. #5918197
Philadelphia, PA 19103
referring in the wire to:
--Alex. Brown Cash Reserve Fund, Inc. (Institutional Shares)
--The Fund account number (and, if available, the shareholder account
number)
--The amount to be invested
--Either the Prime Series or the Treasury Series
OTHER INFORMATION
Periodic statements of account from Alex. Brown will reflect all dividends,
purchases and redemptions of Institutional Shares. The Fund and Alex. Brown
have arranged for PNC to offer sub-accounting services to Fund shareholders
and maintain information with respect to underlying share owners.
The Fund reserves the right to reject any order for the purchase of
Institutional Shares.
8
<PAGE> 39
6 DIVIDENDS AND TAXES
DIVIDENDS
All of the net income earned on the Prime Series and the Treasury Series is
normally declared as dividends daily to the respective shareholders of record of
each Series. Dividends on both Series are normally payable on the first day that
a share purchase order is effective but not on the date that a redemption order
is effective. If a purchase order is received by Alex. Brown after 11:00 a.m.
(Eastern Time), the shareholder will receive dividends beginning on the
following day. Dividends are declared daily and reinvested monthly in the form
of additional full and fractional shares of the same Series at net asset value,
unless the shareholder has elected to have dividends paid in cash.
TAXES
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders, and
the discussion herein is not intended as a substitute for careful tax planning.
The following summary is based on current tax laws and regulations, which may be
changed by legislative, judicial or administrative action.
Each Series has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As
long as a Series qualifies for this tax treatment, it will not be required to
pay federal income taxes on amounts distributed to shareholders; but
shareholders, unless otherwise exempt, will pay taxes on the amount so
distributed.
Distributions of net investment company taxable income (generally, net
investment income plus the excess, if any, of net short-term capital gains over
net long-term capital losses) are taxed to shareholders as ordinary income.
Distributions will not be eligible for the dividends received deduction
otherwise available to corporate shareholders. Although neither Series expects
to realize any long-term capital gains, any distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses)
will be taxable to shareholders as long-term capital gains, regardless of the
length of time a shareholder has held the shares.
Under certain circumstances, shareholders of the Treasury Series may not be
required to pay state income tax on dividends to the extent such dividends are
derived from interest on U.S. Treasury obligations. State laws vary and
investors are encouraged to consult with their tax advisors on this issue.
Ordinarily, shareholders will include in their taxable income all dividends
declared by a Series in the year of payment. However, dividends declared payable
to shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by a Series in the year in which the dividends were
declared.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their own tax advisors concerning the application of state and local taxes to
investments in the Fund, which may differ from the federal income tax
consequences described above. Additional information concerning taxes is set
forth in the Statement of Additional Information.
9
<PAGE> 40
7 HOW TO REDEEM SHARES
Shareholders may redeem all or part of their Institutional Shares of either
Series on any business day of the Fund by transmitting a redemption order to
Alex. Brown by either of the methods outlined below. A redemption request is
effected at the net asset value next determined after tender of Institutional
Shares for redemption.
Shareholders may submit redemption orders by calling Alex. Brown at (410)
727-1700. Telephone redemption privileges are automatic. Both Alex. Brown and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring the
investor to provide certain personal identification information at the time the
account is opened and prior to effecting each transaction requested by
telephone. In addition, investors may be required to provide additional
telecopied instructions of redemption requests. Neither the Fund nor Alex. Brown
will be responsible for any loss, liability, cost or expense incurred in
following instructions received by telephone that either reasonably believes to
be genuine. During periods of extreme economic or market changes, shareholders
may experience difficulty in effecting telephone redemptions. In such event,
requests should be made by regular or express mail to Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202 or to the Fund's transfer agent at
its address listed under "General Information -- Custodian, Transfer Agent,
Accounting Services."
A shareholder may request that payment be made by wire transfer of federal
funds. In such case, if the redemption order is received by the Fund prior to
11:00 a.m. (Eastern Time) on a business day of the Fund, Institutional Shares
will be redeemed and payment will be made in federal funds wired to the
shareholder's bank on the same day. If the redemption order is received after
11:00 a.m. (Eastern Time), shares will be redeemed at the next computed net
asset value and payment will be made in federal funds wired to the shareholder's
bank on the next business day of the Fund. If a shareholder requests payment of
redemption proceeds by check, such payment will be sent promptly and in any
event within seven business days.
Dividends payable up to the date of redemption on redeemed shares will be paid
on the next dividend payment date. If all of the Institutional Shares of a
Series of the Fund in an Alex. Brown account have been redeemed on the dividend
payment date, the dividend will be paid in cash to the shareholder.
8 MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to its officers and to Alex. Brown, Investment Company Capital Corp.
(formerly Flag Investors Management Corp.) ("ICC"), the Fund's investment
advisor, and PNC Institutional Management Corporation ("PIMC"), the sub-advisor
to the Prime Series and the Tax-Free Series, subject to the investment
objectives and policies of the Fund and to general supervision of the Fund's
Board of Directors. Alex. Brown, ICC and PIMC also furnish or procure on behalf
of the Prime and Treasury Series all services necessary to the proper conduct of
such Series' business. Two Directors and all of the officers of the Fund are
officers or employees of Alex. Brown or ICC. A majority of the Board of
Directors of the Fund have no affiliation with Alex. Brown, ICC or PIMC.
10
<PAGE> 41
INVESTMENT ADVISOR
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland
21202, a wholly-owned subsidiary of Alex. Brown (described below), was organized
in 1987 and acts as the Fund's investment advisor pursuant to an Investment
Advisory Agreement dated as of April 4, 1990 (the "Advisory Agreement").
Pursuant to the terms of the Advisory Agreement, ICC supervises and manages the
Fund's operations and generally provides management and administrative services
for the Fund. ICC may delegate its duties under the Advisory Agreement, and has
delegated certain of such duties with respect to the Prime Series to PIMC as
described below. ICC is also investment advisor to, and Alex. Brown acts as
distributor for, several funds in the Flag Investors family of funds which, as
of June 30, 1994, had net assets of approximately $1 billion.
As compensation for investment advisory services for the fiscal year ended March
31, 1994, ICC received a fee from the Fund (net of fee waivers for the Treasury
Series) which represented .21% of the Fund's average net assets. Each Series
pays its share of the fee in proportion to its relative net assets. ICC may,
from time to time, voluntarily waive a portion of its advisory fee with respect
to any Series of the Fund to preserve or enhance the performance of the Series.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Treasury Series. (See "Custodian, Transfer
Agent, Accounting Services.")
SUB-ADVISOR
PIMC, Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809, acts as sub-advisor to the Prime Series pursuant to a sub-advisory
agreement dated as of April 1, 1992 (the "Sub-Advisory Agreement") between ICC
and PIMC. PIMC is a wholly-owned subsidiary of PNC, the Fund's custodian.
Subject to the oversight of ICC, PIMC is responsible for managing the Prime
Series' investments. PIMC was organized in 1977 to perform advisory services for
investment companies. PNC and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia,
Pennsylvania area since 1847. PIMC advises or manages approximately 65 open-end
investment portfolios with total assets of approximately $26 billion as of June
30, 1994. PIMC also serves as sub-advisor to the Fund's Tax-Free Series.
As compensation for its services under the Sub-Advisory Agreement for the fiscal
year ended March 31, 1994, PIMC received a fee from ICC, calculated daily and
paid monthly equal to .10% of the combined aggregate average net assets of the
Prime Series and the Tax-Free Series. If ICC waives a portion of its fee with
respect to the Prime Series (see "Investment Advisor"), PIMC has agreed to waive
a portion of its fee in the same proportion and for the same time periods as
ICC's waiver.
During the fiscal year ended March 31, 1994, the expenses borne by the Prime
Series and the Treasury Series, respectively, for the Institutional Shares,
including the fees to ICC, amounted to .30% of the Prime Series' average net
assets and .27% (net of fee waivers) of the Treasury Series' average net assets.
DISTRIBUTOR
The Fund has entered into a distribution agreement dated as of April 4, 1990
(the "Distribution Agreement") with Alex. Brown, 135 East Baltimore Street,
Baltimore, Maryland 21202. Alex. Brown is an investment banking firm which
offers a broad range of investment services to individual, institutional,
corporate and municipal clients. It is a wholly-owned subsidiary of Alex. Brown
Incorporated, which has engaged directly and through subsidiaries and affiliates
11
<PAGE> 42
in the investment business since 1800. Alex Brown is a member of the New York
Stock Exchange and other leading securities exchanges. Headquartered in
Baltimore, Maryland, Alex. Brown has 20 offices throughout the United States
and, through subsidiaries, maintains offices in London, England, Geneva,
Switzerland and Tokyo, Japan. Alex. Brown serves as the exclusive distributor
for shares of the Fund's three Series. Alex. Brown receives no compensation for
its services with respect to the Institutional Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other than
Fund shareholders.
9 CURRENT YIELD
From time to time the Fund advertises the "yield" and "effective yield" of the
Institutional Shares of either Series. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Series refers to the income generated by an investment in the
Series over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized," that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but when annualized, the income
earned by an investment in the Series is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
10 GENERAL INFORMATION
DESCRIPTION OF SHARES
Shares of the Fund are divided into three series, each with a par value of $.001
- -- the Prime Series, the Treasury Series and the Tax-Free Series. Each of the
Series currently issues one or more classes, which classes differ from each
other primarily in the allocation of certain expenses and the method of
distribution. Shares of the Fund have equal rights with respect to voting,
except that the holders of shares of a particular Series or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such Series or class. For example, holders of a particular Series or class will
have the exclusive right to vote on any investment advisory agreement or
investment restriction that relates only to such Series or class. The holders of
each Series have distinctive rights with respect to dividends and redemption
which are more fully described in this Prospectus. In the event of dissolution
or liquidation, holders of each Series will receive prorata, subject to the
rights of creditors, (a) the proceeds of the sale of the assets held in the
respective Series less (b) the liabilities of the Fund attributable to the
respective Series or allocated among all Series based on the respective
liquidation value of each Series. There will not normally be annual
shareholders' meetings. Shareholders may remove directors from office by votes
cast at a meeting of shareholders or by written consent. A meeting of
shareholders may be called at the request of the holders of 10% or more of the
Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and non-assessable.
The Board of Directors may create additional series or classes of Fund shares
without shareholder approval.
12
<PAGE> 43
CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC, a national banking association with offices at Airport Business Center, 200
Stevens Drive, Lester, Pennsylvania 19113, acts as custodian for the Fund's
portfolio securities and cash. PFPC Inc. ("PFPC"), an affiliate of PNC with
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809, provides accounting
services to the Prime Series. Investment Company Capital Corp., 135 East
Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080), the
Fund's investment advisor, also serves as the Fund's transfer and dividend
disbursing agent and provides accounting services to the Treasury Series. As
compensation for providing accounting services to the Treasury Series, ICC
receives from the Fund an annual fee equal to $55,000 for average daily net
assets of less than $250 million, plus a percentage of the Treasury Series'
average daily net assets in excess of $250 million at a maximum rate of .0020%
of net assets and declining at various asset levels to a minimum rate of .0005%
on net assets of $1 billion or more. For the period from January 1, 1994 through
March 31, 1994, ICC received an annualized fee equal to .0009% of the Treasury
Series' average net assets. (See the Statement of Additional Information.) Prior
to January 1, 1994, Alex. Brown, the Fund's distributor, provided accounting
services to the Treasury Series and for the period from April 1, 1993 through
December 31, 1993, received from the Fund an annualized fee equal to .0009% of
the Treasury Series' average net assets.
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to hold
annual meetings of shareholders. However, shareholders may remove directors from
office by votes cast at a meeting of shareholders or by written consent. A
meeting of shareholders may be called at the request of the holders of 10% or
more of the Fund's outstanding shares.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual statements are audited by
the Fund's independent accountants, Coopers & Lybrand.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact the Fund at
(800) 553-8080.
13
<PAGE> 44
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 45
ALEX. BROWN CASH RESERVE FUND, INC.
BOARD OF DIRECTORS
W. JAMES PRICE, Chairman
Managing Director Emeritus,
Alex. Brown & Sons Incorporated
Baltimore, Maryland
RICHARD T. HALE LOUIS E. LEVY
Managing Director, Formerly Partner,
Alex. Brown & Sons Incorporated KPMG Peat Marwick
Baltimore, Maryland New York, New York
ALONZO G. DECKER, JR. EUGENE J. McDONALD
Honorary Chairman of the Board and President and CEO,
Chairman of the Executive Committee, Duke Management Co.
Black and Decker Corp. Executive Vice President,
Towson, Maryland Duke University
Durham, North Carolina
N. BRUCE HANNAY
Business Consultant HARRY WOOLF
Port Ludlow, Washington Professor, Institute for
Advanced Study
JOHN F. KROEGER Princeton, New Jersey
Formerly Consultant, Wendell & Stockel
Associates, Inc.
Summit, New Jersey
- --------------------------------------------------------------------------------
OFFICERS
W. JAMES PRICE M. ELLIOTT RANDOLPH, JR. DIANA M. ELLIS
Chairman Vice President Treasurer
RICHARD T. HALE PAUL D. CORBIN MONICA M. HAUSNER
President Vice President Assistant Vice President
EDWARD J. VEILLEUX BRIAN C. NELSON LAURIE D. DEPRINE
Executive Vice President Vice President Assistant Secretary
& Secretary
- --------------------------------------------------------------------------------
Distributor Custodian
ALEX. BROWN & SONS PNC BANK
INCORPORATED Airport Business Center
135 East Baltimore Street 200 Stevens Drive
Baltimore, Maryland 21202 Lester, Pennsylvania 19113
(410) 727-1700
Transfer Agent
Investment Advisor INVESTMENT COMPANY CAPITAL CORP.
INVESTMENT COMPANY CAPITAL CORP. 135 East Baltimore Street
135 East Baltimore Street Baltimore, Maryland 21202
Baltimore, Maryland 21202 (800) 553-8080
Sub-Advisor Independent Accountants
PNC INSTITUTIONAL COOPERS & LYBRAND
MANAGEMENT CORP. 2400 Eleven Penn Center
400 Bellevue Parkway Philadelphia, Pennsylvania 19103
Wilmington, Delaware 19809
<PAGE> 46
LOGO
===============================================================================
Printed in U.S.A.
____________________
Alex. Brown | Third Class Mail |
Cash Reserve Fund, Inc. | U.S. POSTAGE |
Institutional Shares | PAID |
P.O. Box 17250 | Baltimore, Md. |
Baltimore, Maryland 21203 | Permit No. 8614 |
|____________________|
<PAGE> 47
Supplement dated June 12, 1995
to the Prospectus of Quality Cash Reserve Prime Shares
(A Class of Alex. Brown Cash Reserve Fund, Inc.)
dated August 1, 1994
The disclosure contained within the Prospectus of Quality Cash Reserve
Prime Shares dated August 1, 1994, is amended and supplemented by the following:
On June 1, 1995, the Fund's Board of Directors approved, subject to
shareholder approval, a proposal to increase the investment advisory fee payable
by the Fund, on behalf of each Series, to Investment Company Capital Corp.
("ICC").
The matter will be submitted to shareholders of each of the Fund's
Series at a meeting scheduled for July 25, 1995. Shareholders of record of the
Fund as of the close of business on June 9, 1995 will be entitled to vote on the
proposal relating to their Series. If such proposals are approved, the
investment advisory fee and total operating expenses of each Series will
increase, effective August 1, 1995, and the "Annual Fund Operating Expenses" and
"Example" appearing on page 2 of the Prospectus will be restated as shown below.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees ................................................ .28%
12b-1 Fees ..................................................... .60%
Other Expenses ................................................. .22%
-----
Total Fund Operating Expenses .................................. 1.10%
=====
Example of Quality Cash Reserve Prime Shares Expenses
The following is an illustration of the total transaction and operating
expenses that an investor in Quality Cash Reserve Prime Shares would bear over
different periods of time, assuming a hypothetical investment of $1,000, a 5%
annual return and redemption at the end of each time period:
1 year .................................................. $ 11
3 years ................................................. $ 36
5 years ................................................. $ 62
10 years ................................................ $142
This Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
In addition, the section entitled "Management of the Fund - Investment
Advisor" will be amended as follows:
"As compensation for providing investment advisory services to the
Fund, ICC is entitled to receive a fee from the Fund, calculated daily and paid
monthly, at the annual rate of .30% of the first $500 million of the Fund's
aggregate average daily net assets, .26% of the next $500 million of the Fund's
aggregate average daily net assets, .25% of the next $500 million of the Fund's
aggregate average daily net assets, .24% of the next $1 billion of the Fund's
aggregate average daily net assets, and .23% of the Fund's aggregate average
daily net assets in excess of $2.5 billion. Each Series pays its share of the
foregoing fee in proportion to its relative net assets. In addition, ICC is
entitled to receive an additional fee with respect to the Prime Series,
calculated daily and paid monthly, at the annual rate of .02% of the Prime
Series' average daily net assets. ICC may, from time to time, voluntarily waive
a portion of its fee with respect to any Series to preserve or enhance the
performance of the Series."
<PAGE> 48
QUALITY
CASH
RESERVE
PRIME
SHARES
A Class of Alex. Brown Cash Reserve Fund, Inc.
An open-end, diversified fund, designed as a convenient
means to earn a high level of current income from a
diversified, professionally managed portfolio of high
quality money market instruments while preserving capital
and liquidity.
August 1, 1994
Distributed by:
ALEX. BROWN & SONS INCORPORATED
PROSPECTUS
<PAGE> 49
QUALITY CASH RESERVE PRIME SHARES
(A Class of Alex. Brown Cash Reserve Fund, Inc.)
P.O. Box 17250
Baltimore, Maryland, 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund designed
to seek as high a level of current income as is consistent with preservation of
capital and liquidity. This Prospectus relates to the Quality Cash Reserve Prime
Shares (the "Shares"). Shares are available exclusively through broker-dealers
that provide certain shareholder services ("Participating Dealers"). These
include broker-dealers that have correspondent relationships with Alex. Brown &
Sons Incorporated ("Alex. Brown"), the Fund's distributor.
Other principal features of the Shares:
o Shares are sold without purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or cash;
and
o Wire and telephone transfers, free check redemptions and other convenient
cash management services are available.
For current yield information and for purchase and redemption information, call
any Participating Dealer.
The Fund's Statement of Additional Information and separate prospectuses for the
other Series and classes of the Fund may be obtained without charge from Alex.
Brown or any securities dealer that has entered into a dealer agreement with
Alex. Brown with respect to such other Series or classes.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW ABOUT
THE FUND PRIOR TO INVESTING AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1994 HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY
REFERENCE. IT IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE BY CALLING THE FUND
AT (800) 553-8080.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Table of Fees and Expenses .................. 2
2. Financial Highlights ........................ 3
3. The Fund and the Quality Cash Reserve Prime
Shares ..................................... 4
4. Investment Program .......................... 4
5. How to Invest in the Quality Cash Reserve
Prime Shares ............................... 6
6. How to Redeem Shares ........................ 7
7. Dividends and Taxes ......................... 8
8. Management of the Fund ...................... 9
9. Current Yield ............................... 11
10. General Information ......................... 11
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PRIME SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Prospectus Dated: August 1, 1994
<PAGE> 50
1 TABLE OF FEES AND
EXPENSES
The following table of fees and expenses is provided to assist investors
in understanding the various costs and expenses that an investor in the
Quality Cash Reserve Prime Shares may bear directly or indirectly. The
percentages shown below expressing Annual Fund Operating Expenses are based
on the actual expenses of the Quality Cash Reserve Prime Shares (1.06% of
average net assets) for the fiscal year ended March 31, 1994. Current
expenses may be greater or less than those shown. Due to the continuous
nature of Rule 12b-1 fees, long-term shareholders of the Fund may pay more
than the equivalent of the maximum front-end sales charges otherwise
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses
- --------------------------------
Sales Charge Imposed on Purchases ............ None
Sales Charge Imposed on Reinvested Dividends . None
Deferred Sales Charge ........................ None
Redemption Fees .............................. None
Annual Fund Operating Expenses
(as a percentage of average net assets)
- ---------------------------------------
Management Fees .............................. .21%
Distribution Fees ............................ .60%
Other Expenses ............................... .25%
-----
Total Fund Operating Expenses ................ 1.06%
=====
</TABLE>
EXAMPLE OF QUALITY CASH RESERVE PRIME SHARES EXPENSES
The following is an illustration of the total transaction and operating
expenses that an investor in Quality Cash Reserve Prime Shares would bear
over different periods of time, assuming a hypothetical investment of $1,000,
a 5% annual return on the investment, and redemption at the end of the
period:
<TABLE>
<CAPTION>
<S> <C>
1 year ....................................................... $ 11
3 years ...................................................... $ 34
5 years ...................................................... $ 60
10 years ...................................................... $137
</TABLE>
This Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
2
<PAGE> 51
2 Financial Highlights
The Fund has offered the Quality Cash Reserve Prime Shares since May 6,
1991. However, the Fund has offered other classes of the Prime Series since
1981. Historical financial information about the Fund is not fully applicable
to the Quality Cash Reserve Prime Shares because the expenses paid by the
Fund in the past may differ from those the Quality Cash Reserve Prime Shares
may incur. (See "Table of Fees and Expenses.") Nevertheless, historical
information about the Fund may be useful to investors if they take into
account the differences in expenses. Accordingly, the financial highlights
included in this table have been derived from the Fund's financial statements
for the periods indicated which have been audited by the Fund's independent
accountants. The financial statements and financial highlights for the fiscal
year ended March 31, 1994 and the report thereon are included in the
Statement of Additional Information which can be obtained at no charge by
calling the Fund at (800) 553-8080.
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Prime Series
-----------------------------------------------------------------
Quality Cash Reserve Prime Shares
---------------------------------
Year Ended March 31, May 6, 1991 Year Ended March 31,
--------------------------- through ------------------------------------------------
1994 1993 March 31, 1992* 1992** 1991** 1990
----------- ------------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at beginning
of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ------------ --------------- -------------- -------------- --------------
Income from Investment
Operations:
Net investment income ...... 0.0218 0.0253 0.0399 0.0485 0.0734 0.0846
Less Distributions:
Dividends from net
investment income and
short-term gains ......... (0.0218) (0.0253) (0.0399) (0.0485) (0.0734) (0.0846)
----------- ------------ --------------- -------------- -------------- --------------
Net asset value at end of
period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============ =============== ============== ============== ==============
Total Return ............... 2.20% 2.53% 4.30%*** 4.96% 7.59% 8.80%
Ratios to Average Net Assets:
Expenses ................... 1.06% 1.04% 0.96%*** 0.61% 0.59% 0.52%
Net investment income ...... 2.18% 2.53% 4.30%*** 4.84% 7.31% 8.42%
Supplemental Data:
Net assets at end of period $92,678,440 $101,321,868 $94,887,669 $1,264,629,485 $1,295,888,161 $1,312,276,151
Number of shares outstanding
at end of period ......... 92,678,268 101,321,668 94,887,669 1,264,629,485 1,295,888,161 1,312,276,151
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
Prime Series
--------------------------------------------------------------------------
For the
eleven
months
ended Year Ended April 30,
March 31, ------------------------------------------------------
1989+ 1988 1987 1986 1985
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at beginning
of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ----------- ----------- ------------ ------------
Income from Investment
Operations:
Net investment income ...... 0.0712 0.0647 0.0572 0.0729 0.0940
Less Distributions:
Dividends from net
investment income and
short-term gains ......... (0.0712) (0.0647) (0.0572) (0.0729) (0.0940)
------------- ----------- ------------ ------------ ------------
Net asset value at end of
period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== =========== ============ ============ ============
Total Return ............... 8.01%*** 6.67% 5.87% 7.54% 9.82%
Ratios to Average Net Assets:
Expenses ................... 0.54%*** 0.52% 0.55% 0.59% 0.58%
Net investment income ...... 7.81%*** 6.46% 5.71% 7.28% 9.38%
Supplemental Data:
Net assets at end of period $1,084,793,157 $874,051,953 $831,784,041 $686,611,968 $583,642,018
Number of shares outstanding
at end of period ......... 1,084,793,157 874,051,953 831,784,041 686,611,968 583,642,018
</TABLE>
- ------
*The Quality Cash Reserve Prime Shares commenced operations on May 6,
1991. Per share data under the heading Prime Series does not include data
for the Quality Cash Reserve Prime Shares.
**Financial information for the fiscal years ended March 31, 1992 and 1991,
respectively, is for the Prime Shares and the Flag Investors Prime Shares
classes only.
***Annualized.
+The Fund's fiscal year-end was changed to March 31.
3
<PAGE> 53
3 THE FUND AND THE QUALITY
CASH RESERVE PRIME SHARES
The Fund is a money market fund which seeks a high level of current income
consistent with preservation of capital and liquidity. The Fund consists of
three separate portfolios: the Prime Series, the Treasury Series and the
Tax-Free Series. This Prospectus relates exclusively to one of four classes
of shares currently offered by the Prime Series. The class of shares of the
Prime Series offered pursuant to this Prospectus has been designated as the
Quality Cash Reserve Prime Shares. All classes of the Prime Series share a
common investment objective, portfolio and advisory fee, but each class has
different expenses, shareholder qualifications and methods of distribution.
Expenses of the Fund which are not directly attributable to the operations of
any class or Series are prorated among all classes of the Fund based upon the
relative net assets of each class. Expenses of the Fund which are not
directly attributable to a specific class but are directly attributable to a
specific Series are prorated among all the classes of such Series based upon
the relative net assets of each such class. Expenses of the Fund which are
directly attributable to a class are charged against the income available for
distribution as dividends to such class.
Quality Cash Reserve Prime Shares are offered primarily to customers of
Participating Dealers that have correspondent relationships with Alex.
Brown as a convenient means of investing cash in their brokerage accounts.
Quality Cash Reserve Prime Shares are also offered through other
Participating Dealers that agree to provide certain shareholder services.
(See "How to Invest in the Quality Cash Reserve Prime Shares.")
4 INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Prime Series is to seek as high a level of
current income as is consistent with preservation of capital and liquidity.
The Prime Series endeavors to achieve this objective by investing in a
diversified portfolio of domestic money market instruments that satisfy
strict credit quality standards and that mature within one year or less from
the date of purchase.
PORTFOLIO INVESTMENTS
The Prime Series may invest in U.S. Treasury obligations consisting of
marketable securities and instruments issued by the U.S. Treasury, including
bills, notes, bonds and other obligations. In addition to U.S. Treasury
obligations and repurchase agreements collateralized by U.S. Treasury
securities, the Prime Series may invest in obligations issued or guaranteed
as to principal and interest by agencies or instrumentalities of the U.S.
Government. Some of these obligations are backed by the full faith and credit
of the U.S. Government (e.g., the Government National Mortgage Association),
others are supported by the issuing agency's right to borrow from the U.S.
Treasury (e.g., securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (e.g., the Federal National
Mortgage Association).
The Prime Series may also invest in a broad range of commercial and bank
obligations that the investment advisor, under guidelines established by the
Board of Directors, believes present minimal credit risk and that satisfy the
criteria for such obligations described below:
The Prime Series may invest in instruments consisting of commercial paper
and variable amount master demand notes. Eligible commercial paper is limited
to short term, unsecured promissory notes issued by corporations which (i)
are rated Prime-1 by Moody's Investor Services, Inc. ("Moody's") or A-1+ or
A-1 by Standard and Poor's Corporation ("S&P"), or (ii) if not rated, are of
comparable quality to Prime-1 or A-1+ or A-1 instruments as determined by the
Fund's investment advisor; and (iii) are otherwise "Eligible Securities" as
defined in Rule 2a-7 under the Investment Company Act of 1940. Variable
amount master demand notes are unsecured demand notes that permit investment
4
<PAGE> 54
of fluctuating amounts of money at variable rates of interest pursuant to
arrangements with issuers who meet the foregoing quality criteria. The interest
rate on a variable amount master demand note is periodically redetermined
according to a prescribed formula. Although there is no secondary market in
master demand notes, the payee may demand payment of the principal amount of the
note on relatively short notice. All master demand notes acquired by the Prime
Series will be payable within a prescribed notice period not to exceed seven
days. (See the Statement of Additional Information with respect to commercial
paper and bond ratings.)
The Prime Series may also invest in bank instruments, consisting mainly of
certificates of deposit and bankers' acceptances, that (i) are issued by U.S.
banks which satisfy applicable quality standards, or (ii) are fully insured
as to principal and interest by the Federal Deposit Insurance Corporation.
OTHER INVESTMENT PRACTICES
The Prime Series may enter into the following arrangements:
Repurchase Agreements under which the purchaser (for example, the Prime
Series) acquires ownership of an obligation and the seller agrees, at the
time of the sale, to repurchase the obligation at a mutually agreed upon time
and price, thereby determining the yield during the purchaser's holding
period. Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, repurchase agreements entered into by the
Prime Series will not have a stated maturity in excess of seven days from the
date of purchase. If the seller of a repurchase agreement fails to repurchase
the obligation in accordance with the terms of the agreement, the Prime
Series may incur a loss to the extent that the proceeds realized on the sale
of the underlying obligation are less than the repurchase price. In the event
of the insolvency of a seller that defaults on its repurchase obligation,
disposition of the securities underlying the repurchase agreement could be
delayed pending court or administrative action.
When-Issued Securities involving commitments by the Prime Series to
purchase portfolio securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Prime Series will generally
not pay for such securities or start earning interest on them until they are
received. When-issued commitments will not be used for speculative purposes
and will be entered into only with the intention of actually acquiring the
securities.
Reverse Repurchase Agreements involving the sale of money market
instruments held by the Prime Series, with an agreement to repurchase the
instruments at an agreed upon price and date. The Prime Series will employ
reverse repurchase agreements only when necessary to meet unanticipated net
redemptions so as to avoid liquidating other money market instruments during
unfavorable market conditions. The Prime Series will utilize reverse
repurchase agreements when the interest income to be earned from portfolio
investments which would otherwise have to be liquidated to meet redemptions
is greater than the interest expense incurred as a result of the reverse
repurchase transactions. Reverse repurchase agreements involve the risk that
the market value of securities retained by the Prime Series in lieu of
liquidation may decline below the repurchase price of the securities sold by
the Prime Series which it is obligated to repurchase.
INVESTMENT RESTRICTIONS
The Prime Series investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and
state regulatory limitations, the most significant of which are set forth
below. The Prime Series will not:
(1) purchase securities of any issuer (other than obligations of the U.S.
Government, its agencies or instrumentalities), if immediately after such
purchase more than 5% of the value of the Prime Series' assets would be
invested in such issuer;
(2) borrow money or issue senior securities, except that the Prime Series
may (i) borrow money from banks for temporary purposes in amounts up to 10%
of the value of its total assets at the time of borrowing, provided that any
such borrowings will be repaid prior to the purchase of additional portfolio
5
<PAGE> 55
securities, (ii) enter into reverse repurchase agreements in accordance with its
investment program and (iii) enter into commitments to purchase securities in
accordance with its investment program;
(3) lend money or securities except to the extent that the Prime Series'
investments may be considered loans; or
(4) purchase any commercial paper or variable rate demand notes which
would cause more than 25% of the value of the Prime Series' total assets at
the time of such purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry.
The investment objective of the Prime Series as described under
"Investment Objective" and the foregoing restrictions are matters of
fundamental policy except where noted and may not be changed without the
affirmative vote of a majority of the outstanding shares of the Prime Series.
5 HOW TO INVEST IN THE QUALITY CASH RESERVE PRIME SHARES
GENERAL INFORMATION ON PURCHASES
Quality Cash Reserve Prime Shares are offered primarily to customers of
Participating Dealers that have correspondent relationships with Alex. Brown,
but Quality Cash Reserve Prime Shares are also offered through other
Participating Dealers that provide certain shareholder services. Purchases of
Quality Cash Reserve Prime Shares may be made only through Participating
Dealers. The terms and conditions under which purchases may be effected are
governed by the investor's agreement with the Participating Dealer.
The minimum initial investment is $1,500. Subsequent investments must be
at least $100. Orders for purchase of Quality Cash Reserve Prime Shares are
accepted only on a "business day of the Fund" which means any day on which
PNC Bank, National Association ("PNC"), the Fund's custodian, and the New
York Stock Exchange are open for business. It is expected that during the
next twelve months, PNC and/or the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
An order to purchase Quality Cash Reserve Prime Shares is effective only
when a Participating Dealer receives it in proper form and the investor has
an available cash balance in his account for investment. The Fund reserves
the right to reject any order for purchase of Quality Cash Reserve Prime
Shares. Quality Cash Reserve Prime Shares are purchased at the net asset
value next determined after acceptance of the order.
The net asset value of the Prime Series is determined once daily as of
12:00 noon (Eastern Time) on each business day of the Fund. Because the Fund
uses the amortized cost method of valuing the portfolio securities of the
Prime Series and rounds the per share net asset value of shares of the Prime
Series, it is anticipated that the net asset value of the Prime Series will
remain constant at $1.00 per share, but there can be no assurance that this
objective can be met. Share purchases effected before 11:00 a.m. (Eastern
Time) begin to earn dividends on the same business day. Share purchases
received after 11:00 a.m. (Eastern Time) begin to earn dividends on the
following day. Payments transmitted by check are normally converted into
federal funds within two business days and are accepted subject to collection
at full face amount.
PURCHASES THROUGH AN ACCOUNT
Share purchases may be effected through an investor's account maintained
with a Participating Dealer, through procedures established in connection
with the requirements of the Fund and such Participating Dealer. A
Participating Dealer may impose minimum investor account requirements.
Although Participating Dealers do not impose sales charges for purchases of
Quality Cash Reserve Prime Shares, brokers may charge an investor's account
6
<PAGE> 56
fees for services provided to the account. (See "Management of the
Fund--Distributor.") Information concerning account requirements, services and
charges should be obtained from an investor's broker. This Prospectus should be
read in conjunction with any information received from a Participating Dealer.
AUTOMATIC INVESTMENT AND REDEMPTION PROGRAM
The Fund has established a special procedure whereby proceeds from sales
of securities will be combined with other available credit balances in a
Participating Dealer's customer's account (the "account") on settlement date
and invested in Quality Cash Reserve Prime Shares. In addition, all credit
balances in an account at the end of each day are invested on the next
business day of the Fund so long as the resulting Fund balance is $100 or
more. Additionally, Fund shares will be redeemed automatically to pay for
securities purchases in the account. Such redemption will be made on the
settlement date of the securities purchase.
The initial purchase requirement of $1,500 does not apply to those
shareholders who elect to take part in the Automatic Investment and
Redemption Program. Investors should contact a Participating Dealer for
more information.
6 HOW TO REDEEM SHARES
Shareholders may redeem all or part of their Quality Cash Reserve Prime
Shares on any business day of the Fund by transmitting a redemption order to
a Participating Dealer. A redemption request is effected at the net asset
value next determined after tender of shares for redemption. Redemption
orders received after 11:00 a.m. (Eastern Time) will be executed the
following business day at the net asset value of the Series to be redeemed
next determined after receipt of the order. The terms and conditions under
which redemptions may be effected are governed by the shareholder's agreement
with the Participating Dealer.
REDEMPTION BY TELEPHONE
Subject to terms and conditions contained in their Participating Dealer
Agreement, shareholders may submit redemption orders for $250 or more by
telephone to a Participating Dealer. Funds will be credited to the
shareholder's account with the Participating Dealer or invested as directed
by the shareholder. If a shareholder requests payment of redemption proceeds
by check, such payment will be sent promptly and in any event within seven
business days. During periods of extreme economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions.
In such event, requests should be made by one of the other methods described
below.
REDEMPTION BY CHECK
Shareholders who complete the necessary forms may establish special check
redemption privileges that entitle them to write checks drawn on the Fund
that will clear through the Fund's account with PNC, in any amount not less
than $250. The payee of the check may cash or deposit it in the same way as
an ordinary bank check. Shareholders are entitled to dividends on the shares
redeemed until the check has been presented to PNC for payment. If the amount
of the check exceeds the value of the Quality Cash Reserve Prime Shares in
the account, the check will be returned to the payee marked "non-sufficient
funds." Checks written in amounts less than $250 may also be returned. The
Fund in its discretion will honor such checks but will charge the account a
servicing fee of $15. Cancelled checks will not be returned to the
shareholder, but the amounts will be reflected on the shareholder's monthly
Alex. Brown statement of account. Since the total amount of shares in an
account may vary, shareholders should not attempt to redeem their entire
account by check.
The Fund reserves the right to terminate or alter check redemption
privileges at any time, to impose a service charge, or to charge for checks.
The Fund also may charge a shareholder's account for returned checks and for
effecting stop orders.
7
<PAGE> 57
If a shareholder desires check redemption privileges, the necessary forms
may be obtained through a Participating Dealer.
REDEMPTION BY WIRE
A shareholder who wishes to redeem $10,000 or more and who has previously
completed the necessary authorizations, may request that payment be made by
wire transfer of federal funds. In such case, once the redemption is
effected, payment will be made in federal funds wired to the shareholder's
bank on the same day. The Participating Dealer may subtract from the
redemption proceeds the cost of effecting the wire transfer.
REDEMPTION BY MAIL
Shareholders may redeem Quality Cash Reserve Prime Shares in any amount by
mailing a redemption request to a Participating Dealer. Payment for shares
redeemed by mail will be made by check and will ordinarily be mailed within
seven days after receipt by the Participating Dealer of a written redemption
request in good order. The request must include the following:
(a) a letter of instruction specifying the Participating Dealer account
number and the number of Quality Cash Reserve Prime Shares or dollar amount
to be redeemed (or that all Quality Cash Reserve Prime Shares credited to a
Participating Dealer account be redeemed), signed by all owners of the
Quality Cash Reserve Prime Shares in the exact names in which their account
is maintained;
(b) a guarantee of the signature of each registered owner by a member of
the Federal Deposit Insurance Corporation, a trust company, broker, dealer,
credit union (if authorized under state law), a securities exchange or
association, clearing agency or savings association; and
(c) any additional documents required by the Fund or transfer agent for
redemption by corporations, partnerships, trusts or fiduciaries.
ADDITIONAL INFORMATION ON REDEMPTION
Dividends payable up to the date of redemption on redeemed shares will be
paid on the next dividend payment date. If all of the shareholder's shares
have been redeemed on the dividend payment date, the dividend will be
credited in cash to the shareholder's account.
The Board of Directors may authorize redemption of all shares in an
account which has been reduced by the shareholder to less than $500, if the
Board of Directors determines that it is necessary to reduce disproportion-
ately burdensome expenses of servicing small accounts or is otherwise in the
best interest of the Fund. At least 60 days' prior notice will be given to
allow a shareholder to make an additional minimum investment set by the Board
of Directors to avoid redemption.
7 DIVIDENDS AND TAXES
DIVIDENDS
All of the net income earned on the Prime Series is normally declared as
dividends daily to the respective shareholders of record of the Prime Series.
Dividends on the Prime Series are normally payable on the first day that a
share purchase order is effective but not on the date that a redemption order
is effective. If a purchase order is received by Alex. Brown after 11:00 a.m.
(Eastern Time), the shareholder will receive dividends beginning on the
following day. Dividends are declared daily and reinvested monthly in the
form of additional full and fractional shares of the Prime Series at net
asset value, unless the shareholder has elected to have dividends paid in
cash.
TAXES
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
8
<PAGE> 58
detailed explanation of the tax treatment of the Fund or the shareholders, and
the discussion herein is not intended as a substitude for careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislation, judicial, or administrative action.
The Prime Series has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As long
as the Prime Series qualifies for this tax treatment, it will not be required
to pay federal income taxes on amounts distributed to shareholders; but
shareholders, unless otherwise exempt, will pay taxes on amounts so
distributed.
Distributions of net investment company taxable income (generally, net
investment income plus net short-term capital gains, if any) are taxed to
shareholders as ordinary income. Distributions will not be eligible for the
dividends received deduction otherwise available to corporate shareholders.
Although the Prime Series does not expect to realize any long-term capital
gains, any distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) will be taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held the shares.
Ordinarily, shareholders will include in their taxable income all
dividends declared by a Fund in the year of payment. However, dividends
declared payable to shareholders of record in December of one year, but paid
in January of the following year, will be deemed for tax purposes to have
been received by the shareholders and paid by the Prime Series in the year in
which the dividends were declared.
Shareholders will be advised annually as to the federal income tax status
of distributions made during the year. Shareholders are advised to consult
with their own tax advisors concerning the application of state and local
taxes to investments in the Prime Series, which may differ from the federal
income tax consequences described above. Additional information concerning
taxes is set forth in the Statement of Additional Information.
8 MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including
the Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to its officers and to Alex. Brown, Investment Company Capital
Corp. (formerly Flag Investors Management Corp.) ("ICC"), the Fund's
investment advisor, and PNC Institutional Management Corporation ("PIMC"),
the Prime Series' sub-advisor, subject to the investment objectives and
policies of the Fund and to general supervision by the Fund's Board of
Directors. Alex. Brown, ICC and PIMC also furnish or procure on behalf of the
Fund all services necessary to the proper conduct of the Fund's business. Two
Directors and all of the officers of the Fund are officers or employees of
Alex. Brown or ICC. A majority of the Board of Directors of the Fund have no
affiliation with Alex. Brown, ICC or PIMC.
INVESTMENT ADVISOR
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore,
Maryland 21202, a wholly-owned subsidiary of Alex. Brown (described below),
was organized in 1987 and acts as the Fund's investment advisor pursuant to
an Investment Advisory Agreement dated as of April 4, 1990 (the "Advisory
Agreement"). Pursuant to the terms of the Advisory Agreement, ICC supervises
and manages the Fund's operations and generally provides management and
administrative services for the Fund. ICC may delegate its duties under the
Advisory Agreement and has delegated certain of such duties to PIMC as
described below. ICC is also investment advisor to, and Alex. Brown acts as
distributor for, several funds in the Flag Investors family of funds which,
as of June 30, 1994, had net assets of approximately $1 billion.
9
<PAGE> 59
As compensation for its services for the fiscal year ended March 31, 1994,
ICC received a fee from the Fund which represented .21% of the Fund's
aggregate average net assets. Each Series pays its share of the fee in
proportion to its relative net assets. ICC may, from time to time,
voluntarily waive a portion of its advisory fee with respect to any Series of
the Fund to preserve or enhance the performance of the Series.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund's Treasury Series. (See "Custodian,
Transfer Agent, Accounting Services.")
SUB-ADVISOR
PIMC, Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809, acts as sub-advisor to the Prime Series pursuant to a
sub-advisory agreement dated as of April 1, 1992 between ICC and PIMC (the
"Sub-Advisory Agreement"). PIMC is a wholly-owned subsidiary of PNC, the
Fund's custodian. Subject to the oversight of ICC, PIMC is responsible for
managing the Prime Series' investments. PIMC was organized in 1977 to perform
advisory services for investment companies. PNC and its predecessors have
been in the business of managing the investments of fiduciary and other
accounts in the Philadelphia, Pennsylvania area since 1847. PIMC advises or
manages approximately 65 open-end investment portfolios with total assets
of approximately $26 billion as of June 30, 1994. PIMC also acts as
sub-advisor to the Fund's Tax-Free Series.
As compensation for its services under the Sub-Advisory Agreement for the
fiscal year ended March 31, 1994, PIMC received fees from ICC which
represented .10% of the Prime Series' and the Tax-Free Series' combined
average net assets. During such fiscal year, the expenses borne by the
Quality Cash Reserve Prime Shares class of the Prime Series, including the
fees to ICC, amounted to 1.06% of such class's average net assets. (See
"Table of Fees and Expenses.") If ICC voluntarily waives a portion of its fee
with respect to the Prime or the Tax Free Series (see "Investment Advisor"),
PIMC has agreed to waive a portion of its fee in the same proportion and for
the same time periods as ICC's waiver.
DISTRIBUTOR
The Fund has entered into a distribution agreement dated as of January 31,
1991 relating to the Quality Cash Reserve Prime Shares (the "Distribution
Agreement") with Alex. Brown, 135 East Baltimore Street, Baltimore, Maryland
21202. Alex. Brown is an investment banking firm which offers a broad range
of investment services to individual, institutional, corporate and municipal
clients. Alex. Brown is a wholly-owned subsidiary of Alex. Brown Incorporated
which has engaged directly and through subsidiaries in the investment
business since 1800. Alex. Brown is a member of the New York Stock Exchange
and other leading securities exchanges. Headquartered in Baltimore, Maryland,
Alex. Brown has 20 offices throughout the United States and, through
subsidiaries, maintains offices in London, England, Geneva, Switzerland and
Tokyo, Japan. Alex. Brown serves as the exclusive distributor for the Quality
Cash Reserve Prime Shares. As compensation for its services for the fiscal
year ended March 31, 1994, Alex. Brown received a fee from the Fund which
represented .60% of the aggregate net assets invested in Quality Cash Reserve
Prime Shares.
Alex. Brown expects to allocate on a proportional basis up to all of its
annual fee received from the Fund to Participating Dealers as compensation
for opening shareholder accounts, processing investor purchase and redemption
orders, responding to inquiries from Fund shareholders concerning the status
of their accounts and operations of the Fund, and communicating with the Fund
and its transfer agent on behalf of the Fund's shareholders. Additionally,
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other
than Fund shareholders. Alex. Brown will from time to time and from its own
resources pay or allow additional discounts or promotional incentives in the
form of cash or other compensation (including merchandise or travel) to
Participating Dealers.
10
<PAGE> 60
Alex. Brown is also distributor for all other classes of shares of the
Prime Series (currently, Alex. Brown Cash Reserve Prime Shares, Flag
Investors Cash Reserve Prime Shares and Alex. Brown Cash Reserve Prime
Institutional Shares). These classes differ primarily in their distribution
methods and related expenses. None of the other classes are offered primarily
in conjunction with brokerage accounts at Participating Dealers that have
correspondent relationships with Alex. Brown. However, Alex. Brown Cash
Reserve Prime Shares are available through Participating Dealers and are
allocated lower distribution and shareholder servicing charges.
9 CURRENT YIELD
From time to time the Fund advertises the "yield" and "effective yield" of
a particular Series or class. Both figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of a Series
or class refers to the income generated by an investment in that Series or
class over a seven-day period (which period will be stated in the
advertisement.) This income is then "annualized", that is, the amount of
income generated by the investment during that week is assumed to be
generated each week of a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The yield for
the Quality Cash Reserve Prime Shares may be obtained by calling any
Participating Dealer.
10 GENERAL INFORMATION
DESCRIPTION OF SHARES
Shares of the Fund are divided into three series, each with a par value of
$.001 - the Prime Series, the Treasury Series and the Tax-Free Series. Each
of the Series currently offers one or more classes of shares, which classes
differ from each other principally in the allocation of certain expenses and
the method of distribution. Shares of the Fund have equal rights with respect
to voting, except that the holders of shares of a particular Series or class
will have the exclusive right to vote on matters affecting only the rights of
the holders of such Series or class. For example, holders of a particular
Series will have the exclusive right to vote on any investment advisory
agreement or investment restriction that relates only to such Series. In the
event of dissolution or liquidation, holders of shares of each Series will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of the assets held in the respective Series less (b) the liabilities of
the Fund attributable to the respective Series or allocated among all Series
based on the respective liquidation value of each Series. There will not
normally be annual shareholders' meetings. Shareholders may remove directors
from office by votes cast at a meeting of shareholders or by written consent.
A meeting of shareholders may be called at the request of the holders of 10%
or more of the Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Fund's shares. The Fund's shares, when issued, will be fully paid and
non-assessable. The Board of Directors may create additional series or
classes of Fund shares without shareholder approval.
CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC, a national banking association with offices at Airport Business
Center, 200 Stevens Drive, Lester, Pennsylvania 19113, acts as custodian for
the Fund's portfolio securities and cash. Investment Company Capital Corp.,
135 East Baltimore Street, Baltimore, Maryland 21202 (telephone: (800)
553-8080) is the Fund's transfer and dividend disbursing agent and provides
accounting services to the Fund's Treasury Series. ICC also serves as the
Fund's investment advisor. PFPC Inc. ("PFPC"), an affiliate of PNC with
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offices at 400 Bellevue Parkway, Wilmington, Delaware 19809, provides accounting
services to the Prime Series. (See the Statement of Additional Information.)
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders may remove
directors from office by votes cast at a meeting of shareholders or by
written consent. A meeting of shareholders may be called at the request of
the holders of 10% or more of the Fund's outstanding shares.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact any
Participating Dealer.
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Printed in U.S.A.
Quality Cash Reserve Prime Shares
P.O. Box 17250
Baltimore, Maryland 21203
Third Class Mail
U.S. POSTAGE
PAID
Baltimore, Md.
Permit No. 8614