<PAGE>
[LOGO]
FLAG INVESTORS
CASH RESERVE PRIME SHARES
(Class A and Class B Shares)
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 Flag Investors Cash Reserve Prime
Shares--Class A and Class B (the "Flag Investors Shares") of the Prime Series
of the Fund. Flag Investors Shares are available through Alex. Brown & Sons
Incorporated ("Alex. Brown") as well as Participating Dealers and Shareholder
Servicing Agents. However, Flag Investors Class B Shares are available only
through the exchange of Class B shares of other funds in the Flag Investors
family of funds. (See "How to Invest in the Fund.")
The Fund's Statement of Additional Information and separate prospectuses
concerning the other Series and classes of shares of the Fund may be obtained
without charge from Alex. Brown, P.O. Box 515, Baltimore, Maryland 21203 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 Flag Investors Shares prior to investing and should be read and
retained for future reference. A Statement of Additional Information dated
August 1, 1994, as amended through March 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference. It is available upon request and without charge by calling the
Fund at (800) 553-8080.
For current yield information and for purchase and redemption information,
call your investment representative or (800) 553-8080.
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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 UNITED
STATES 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.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS
The date of this Prospectus is March 30, 1995
<PAGE>
FLAG INVESTORS
CASH RESERVE PRIME SHARES
(Class A and Class B Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
------
Page
1. Fund Expenses .................................... 2
2. Financial Highlights ............................. 3
3. Investment Program ............................... 6
4. Investment Restrictions .......................... 8
5. How to Invest in the Fund ........................ 9
6. How to Redeem Shares ............................. 14
7. Telephone Transactions ........................... 15
8. Dividends and Taxes .............................. 16
9. Management of the Fund ........................... 18
10. Investment Advisor ............................... 18
11. Distributor ...................................... 19
12. Custodian, Transfer Agent,
Accounting Services .............................. 20
13. Current Yield .................................... 21
14. General Information .............................. 21
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No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or its distributor.
This Prospectus does not constitute an offering by the Fund or by its
distributor in any jurisdiction in which such offering may not lawfully be
made.
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1
<PAGE>
1. Fund Expenses
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Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Flag Investors Flag Investors
Class A Class B
Shares Shares
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases .................... None* None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None None
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower) ........... None* 4.00%**
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</TABLE>
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Annual Fund Operating Expenses:
(as a percentage of average net assets)
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<TABLE>
<CAPTION>
<S> <C> <C>
Management Fees ......................................... .21% .21%
12b-1 Fees .............................................. .25% .75%
Other Expenses (including a .25% shareholder servicing
fee for Flag Investors Class B Shares) ................. .16% .41%***
------ ------
Total Operating Expenses ................................ .62% 1.37%
====== ======
</TABLE>
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* Flag Investors Class A Shares are not subject to a sales charge, however,
shareholders of other Flag Investors funds who exchange their Class A
shares of such funds for Flag Investors Class A Shares will retain
liability for any contingent deferred sales charge due on such shares upon
redemption. (See "How to Invest in the Fund -- Purchases by Exchange.")
** A declining contingent deferred sales charge will be imposed on redemptions
of Flag Investors Class B Shares made within six years of purchase. Flag
Investors Class B Shares will automatically convert to Flag Investors Class
A Shares six years after purchase. (See "How to Invest in the Fund -- Flag
Investors Class B Shares.")
*** 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>
<S> <C> <C> <C> <C>
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
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Flag Investors Class A Shares ................. $ 6 $20 $35 $ 80
Flag Investors Class B Shares ................. $54 $74 $98 $132*
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You would pay the following expenses on the same
investment, assuming no redemption: ........... 1 Year 3 Years 5 Years 10 Years
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Flag Investors Class B Shares ................. $14 $44 $78 $132*
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</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.
The Example shown in the table above should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
2
<PAGE>
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in Flag Investors Shares may bear directly or
indirectly. A person who purchases Flag Investors Shares through a financial
institution may be charged separate fees by the financial institution. (For
more complete descriptions of the various costs and expenses, see "How to
Invest in the Fund--Offering Price", "Investment Advisor and Sub-Advisor"
and "Distributor.")
The percentages shown above expressing Annual Fund Operating Expenses for
the Flag Investors Class A Shares are based on the actual expenses of the
Prime Series (.62% of average net assets) for the fiscal year ended March 31,
1994. The expenses for the Flag Investors Class B Shares, which were not
offered prior to the date of this Prospectus, are based on those of the Prime
Series plus the incremental 12b-1 and service fee costs. 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. ("NASD Rules").
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2. Financial Highlights
The financial highlights included in this table are a part of the Fund's
financial statements for the Prime Series for the indicated fiscal periods
and (except for the financial statements for the six-month period ended
September 30, 1994, which are unaudited) 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 of the Fund's
independent accountants thereon, and the unaudited financial statements for
the six-month period ended September 30, 1994, are included in the Statement
of Additional Information which can be obtained at no charge by calling the
Fund at (800) 767-FLAG.
3
<PAGE>
Prime Series
(For a Share Outstanding Throughout Each Period)
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<TABLE>
<CAPTION>
For the six
months ended
September 30,
1994 Year Ended March 31,
----------------- -----------------------------------------------------------
(Unaudited)(1) 1994(1) 1993(1) 1992(1)
----------------- --------------- --------------- ---------------
<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 and
short-term gains 0.0187 0.0262 0.0295 0.0485
Less Distributions:
Dividends from net
investment income and
short-term gains (0.0187) (0.0262) (0.0295) (0.0485)
Net asset value at end of -------------- -------------- -------------- --------------
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
Total Return ** 3.76%* 2.65% 2.99% 4.96%
Ratios to Average Net
Assets:
Expenses 0.61% 0.62% 0.63% 0.61%
Net investment income 3.73%* 2.62%* 2.95% 4.84%
Supplemental Data:
Net assets at end of
period $1,331,296,008(3) $1,368,451,627(2) $1,151,979,704 $1,264,629,485
Number of shares
outstanding at end of
period 1,331,293,958 1,368,449,549 1,151,977,279 1,264,629,485
</TABLE>
------
* Annualized.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
+ The Fund's fiscal year-end was changed to March 31.
(1) Per share information and ratios of the Flag Investors Class A Shares are
identical to the Prime Shares since January 5, 1989 (date Flag Investors
Class A Shares commenced operations).
(2) Net assets consist of: Prime Shares -- $1,350,334,979 and Flag Investors
Class A Shares -- $18,116,648.
(3) Net assets consist of: Prime Shares -- $1,315,477,378 and Flag Investors
Class A Shares -- $15,818,630.
4
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
For the
eleven
months
Ended
Year Ended March 31, March 31, Year Ended April 30,
------------------------------- ------------- ---------------------------------------------------
1991(1) 1990(1) 1989+(1) 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 and
short-term gains 0.0734 0.0846 0.0712 0.0647 0.0572 0.0729 0.0940
Less Distributions:
Dividends from net
investment income and
short-term gains (0.0734) (0.0846) (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 $ 1.00 $ 1.00
============== ============= ============== ============ ============== =========== ============
Total Return ** 7.59% 8.80% 8.01%* 6.67% 5.87% 7.54% 9.82%
Ratios to Average Net
Assets:
Expenses 0.59% 0.52% 0.54%* 0.52% 0.55% 0.59% 0.58%
Net investment income 7.31% 8.42% 7.81%* 6.46% 5.71% 7.28% 9.38%
Supplemental Data:
Net assets at end of
period $1,295,888,161 $1,312,276,151 $1,084,793,157 $874,051,953 $831,784,041 $686,611,968 $583,642,018
Number of shares
outstanding at end of
period 1,295,888,161 1,312,272,415 1,084,789,421 874,047,336 831,779,424 686,611,968 583,642,018
</TABLE>
5
<PAGE>
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3. Investment Program
The Fund is a money market fund which seeks as high a level of current
income as is consistent with preservation of capital and liquidity. This
Prospectus relates exclusively to the Flag Investors Class A and Class B
Shares, which are two of the five classes of shares currently offered by the
Prime Series.
.............................................................................
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 its objective by investing in a
diversified portfolio of high quality money market instruments with
maturities of one year or less from the date of purchase.
.............................................................................
Portfolio Investments
The Prime Series seeks to achieve its objective by investing in domestic
money market instruments that satisfy strict credit quality standards and
that mature within one year or less from the date of purchase. The Prime
Series may invest in U.S. Treasury obligations, obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government and a
broad range of bank and commercial 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
discussed below:
U.S. Treasury Obligations consisting of marketable securities and
instruments issued by the United States Treasury, including bills, notes,
bonds and other obligations.
Obligations of U.S. Government Agencies consisting of 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).
6
<PAGE>
Bank Instruments consisting mainly of certificates of deposit and bankers'
acceptances that (a) are issued by U.S. banks which satisfy applicable
quality standards; or (b) 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(+) 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 for information with respect to
commercial paper and bond ratings.)
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 it realizes 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
7
<PAGE>
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
instrument 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.
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4. 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 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 the Prime Series' assets would be
invested in such issuer;
(2) 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 the Prime Series may
(a) borrow money from banks for temporary purposes in amounts up to 10% of
the value of the Prime Series' total assets at the time of borrowing,
provided that any such borrowings will be repaid prior to the purchase of
additional portfolio securities by the Prime Series, (b)
8
<PAGE>
enter into reverse repurchase agreements in accordance with its investment
program, and (c) enter into commitments to purchase securities in
accordance with the Prime Series' investment program, which commitments may
be considered the issuance of senior securities; or
(4) lend money or securities except to the extent that the Prime Series'
investments may be considered loans.
The Prime Series' 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 Prime Series.
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5. How to Invest in the Fund
.............................................................................
General Information on Purchases
Flag Investors Class A Shares may be purchased from Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202, through any securities dealer
which has entered into a dealer agreement with Alex. Brown ("Participating
Dealers") or through any financial institution which has entered into a
Shareholder Servicing Agreement with the Fund ("Shareholder Servicing
Agents"). Flag Investors Class A Shares may also be purchased directly from
the Fund by completing the Application Form attached to this Prospectus and
returning it, together with payment of the purchase price, to the Fund at the
address shown on the Application Form. In addition, Flag Investors Class A
Shares may be purchased through the exchange of Class A Shares of other funds
in the Flag Investors family of funds (see "Purchases by Exchange" below).
Flag Investors Class B Shares may be purchased only through the exchange
of Class B Shares of other funds in the Flag Investors family of funds (see
"Purchases by Exchange" below). Exchanges may be effected through Alex. Brown
or any Participating Dealer or Shareholder Servicing Agent.
Purchase orders for Flag Investors Shares will be executed at a per share
price equal to the net asset value next determined after receipt of a
completed purchase order for such shares (the "Offering Price").
The minimum initial investment in Flag Investors Class A Shares is $2,000,
except that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Flag Investors Class A Shares' Automatic
9
<PAGE>
Investing Plan is $250. The minimum initial investment in Flag Investors
Class B Shares, which are available only through exchange, is $500. Each
subsequent investment must be at least $100 per class, except that the
minimum subsequent investment under the Flag Investors Class A Shares'
Automatic Investing Plan is $250 for quarterly investments and $100 for
monthly investments. (See "Purchases Through Automatic Investing Plan"
below.) There is no minimum investment requirement for qualified retirement
plans (i.e., 401(k) plans or pension and profit sharing plans). IRA accounts
are, however, subject to the $2,000 minimum initial investment requirement.
There is no minimum investment requirement for spousal IRA accounts. Orders
for purchases of Flag Investors Shares are accepted on any day on which PNC
Bank, National Association ("PNC"), the Fund's custodian, and the New York
Stock Exchange are open for business ("Business Day"). 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 Flag Investors Shares is effective only when Alex.
Brown, a Participating Dealer, or a Shareholder Servicing Agent 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 purchase of
Flag Investors Shares. Flag Investors Shares are purchased or exchanged at
the net asset value next determined after acceptance of the order.
The net asset value of Flag Investors Shares is determined once daily as
of 12:00 noon (Eastern Time) on each Business Day. Because the Prime Series
uses the amortized cost method of valuing its portfolio securities and rounds
the per share net asset value of shares, it is anticipated that the net asset
value of Flag Investors Shares 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. If purchases of Flag
Investors Shares are made by check, redemption of those shares may be
restricted. (See "How to Redeem Shares.")
10
<PAGE>
.............................................................................
Offering Price
Flag Investors Shares may be purchased or exchanged through Alex. Brown,
Participating Dealers or Shareholder Servicing Agents at net asset value.
Flag Investors Class B Shares are subject to a contingent deferred sales
charge described below.
............................................................................
Flag Investors Class B Shares
A contingent deferred sales charge will be imposed on certain Flag
Investors Class B Shares redeemed within six years of the initial purchase of
the original Class B shares tendered for exchange (the "Initial Purchase").
The charge is assessed on an amount equal to the lesser of the then-current
market value of the Flag Investors Class B Shares redeemed or the total cost
of such shares. Accordingly, even if the market value increases, the
contingent deferred sales charge will not be applied to dollar amounts
representing appreciation or reinvestment of dividends or capital gains
distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first
of any Flag Investors Class B Shares in the shareholder's account that
represent reinvested dividends and distributions and second of Flag Investors
Class B Shares held the longest during the six year period. The amount of the
contingent deferred sales charge, if any, will vary depending on the number
of years from the time of payment for the Initial Purchase until the
redemption of the Flag Investors Class B Shares (the "holding period"). For
purposes of determining this holding period, all payments during a month are
aggregated and deemed to have been made on the first day of the month. The
following table sets forth the rates of the contingent deferred sales charge.
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<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since Initial Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
----------------------------------------------------------------------------
<S> <C>
First ......................... 4.0%
Second ........................ 4.0%
Third ......................... 3.0%
Fourth ........................ 3.0%
Fifth ......................... 2.0%
Sixth ......................... 1.0%
Thereafter .................... None*
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</TABLE>
* As described more fully below, Flag Investors Class B Shares automatically
convert to Flag Investors Class A Shares six years after the beginning of the
calendar month in which the purchase order is accepted.
11
<PAGE>
There are other classes of Alex. Brown Cash Reserve Fund, Inc. that may be
purchased and redeemed without the payment of any sales charge.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Flag Investors Class B Shares (i)
following the death or initial determination of disability (as defined in the
Internal Revenue Code of 1986, as amended) of a shareholder; or (ii) to the
extent that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who
has attained the age of 70 1/2 . The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the
name of an indivdual person, (b) as a joint tenancy with rights of
survivorship, (c) as community property or (d) in the name of a minor child
under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder, or
his or her representative, must notify the Fund's transfer agent (the
"Transfer Agent") prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. For information on the
imposition and waiver of the contingent deferred sales charge, contact the
Transfer Agent at (800) 553-8080.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the Initial Purchase is accepted, Flag Investors
Class B Shares will automatically convert to Flag Investors Class A Shares
and will no longer be subject to the higher distribution and service fees.
Such conversion will be on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or other charge.
The conversion is not a taxable event to the shareholder.
For purposes of conversion to Flag Investors Class A Shares, shares
received as dividends and other distributions paid on Flag Investors Class B
Shares in the shareholder's account will be considered to be held in a
separate sub-account. Each time any Flag Investors Class B Shares in the
shareholder's account (other than those in the sub-account) convert to Flag
Investors Class A Shares, an equal pro rata portion of the Flag Investors
Class B Shares in the sub-account will also convert to Flag Investors Class A
Shares.
.............................................................................
Systematic Purchase Plan
The Fund has established a Systematic Purchase Plan pursuant to which
shareholders may elect to have a predetermined amount of their Flag Investors
Class A Shares redeemed, on a regular basis (for example, monthly), and the
proceeds of such redemption used to purchase (at net
12
<PAGE>
asset value plus any applicable front-end sales charge) shares of any other
fund or funds in the Flag Investors family of mutual funds selected in
advance by the shareholder. Shareholders may establish a Systematic Purchase
Plan at any time by completing a Systematic Purchase Plan Participation and
Authorization Form and delivering or mailing the completed form to Alex.
Brown, a Participating Dealer or a Shareholder Servicing Agent. For more
information and to obtain a form, shareholders should contact Alex. Brown, a
Participating Dealer or a Shareholder Servicing Agent.
..............................................................................
Purchases by Exchange
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Flag Investors Shares of the same
class. When a shareholder acquires Flag Investors Shares through an exchange
from shares of another fund in the Flag Investors family of funds, the Fund
will combine the period for which the original shares were held prior to the
exchange with the holding period of the shares acquired in the exchange for
purposes of determining what, if any, contingent deferred sales charge is
applicable upon redemption of the acquired shares.
Flag Investors Class A Shares may be exchanged for Class A shares of other
Flag Investors funds or for shares of Flag Investors Intermediate-Term Income
Fund, Inc. or Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.
upon payment of the applicable sales charges. In addition, Flag Investors
Class A Shares may be exchanged for Class B shares of other Flag Investors
funds at net asset value, subject to any contingent deferred sales charge.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 11:00 a.m. (Eastern
Time). Exchange requests received after 11:00 a.m. (Eastern Time) will be
effected on the next Business Day.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.)
The exchange privilege may be exercised only in those states where the
class of shares of such other funds may legally be sold. Investors should
receive and read the applicable prospectus prior to tendering shares for
exchange. The Fund may modify or terminate this offer of exchange at any time
on 60 days' prior written notice to shareholders.
13
<PAGE>
.............................................................................
Purchases Through Automatic Investing Plan
Shareholders may purchase Flag Investors Class A Shares regularly by means
of an Automatic Investing Plan with a pre-authorized check drawn on their
checking accounts. Under this plan, the shareholder may elect to have a
specified amount invested monthly or quarterly in Flag Investors Class A
Shares. The amount specified by the shareholder will be withdrawn from the
shareholder's checking account using the preauthorized check. This amount
will be invested in Flag Investors Class A Shares at net asset value.
Participation in the Automatic Investing Plan may be discontinued either by
the Fund or the shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investing Plan or
who wishes to obtain additional purchase information may do so by completing
the appropriate section of the Application Form attached to this Prospectus.
-----------------------------------------------------------------------------
6. How to Redeem Shares
Shareholders may redeem all or part of their Flag Investors Shares on any
Business Day by transmitting a redemption order through Alex. Brown, a
Participating Dealer, a Shareholder Servicing Agent or by regular or express
mail to the Transfer Agent. Shareholders may also redeem Flag Investors
Shares by telephone (in amounts up to $50,000). (See "Telephone Transactions"
below.) Redemption orders received after 11:00 a.m. (Eastern Time) will be
effected the following Business Day at the net asset value per share (reduced
by any applicable contingent deferred sales charge) 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, by check redemption
or by telephone will be restricted for a period of fifteen calendar days
unless the proceeds of redemption are used to purchase other securities
through Alex. Brown. Exchange privileges terminate upon redemption of shares.
Payment for redeemed shares will be made by check and will ordinarily be
mailed within seven days after receipt by Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or the Transfer Agent of a duly
authorized telephone redemption request or of a redemption request fully
completed and, as applicable, accompanied by the documents described below:
14
<PAGE>
(a) A letter of instructions, specifying the shareholder's account number with a
Participating Dealer, if applicable, and the number of shares or dollar
amount of Flag Investors Class A or Class B Shares to be redeemed, signed by
all owners of the shares in the exact names in which their account is
maintained;
(b) For redemptions in excess of $50,000, 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),
securities exchange or association, clearing agency or savings association;
and
(c) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption on redeemed shares will be
paid on the next dividend payable date. If all Flag Investors Shares in an
account have been redeemed on the dividend payment date, the dividend will be
remitted in cash to the shareholder.
The Board of Directors may authorize redemption of all Flag Investors
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
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.
------------------------------------------------------------------------------
7. Telephone Transactions
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Flag Investors Shares of either class in
amounts up to $50,000, by notifying the Transfer Agent by telephone at (800)
553-8080 on any Business Day between the hours of 8:30 a.m. and 5:30 p.m.
(Eastern Time) or by regular or express mail to its address listed under
"Custodian, Transfer Agent, Accounting Services." Telephone transaction
privileges are automatic. However, shareholders may specifically request that
no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 11:00 a.m. (Eastern Time) is
effective that day. Telephone orders placed after 11:00 a.m. (Eastern Time)
15
<PAGE>
will be effected on the following Business Day at the net asset value (less any
applicable contingent deferred sales charge on redemptions) next determined
after receipt of the order.
The Fund and the Transfer Agent 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 an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. Neither the Fund nor the Transfer Agent will be responsible for
any loss, liability, cost or expense for following instructions received by
telephone that either of them reasonably believes to be genuine. During
periods of extreme economic or market changes, shareholders may experience
difficulty in effecting telephone transactions. In such event, requests
should be made by regular or express mail. (See "How to Invest in the Fund --
Purchases by Exchange" and "How to Redeem Shares.")
-----------------------------------------------------------------------------
8. Dividends and Taxes
.............................................................................
Dividends
All of the net income earned on the Flag Investors Shares is normally
declared as dividends daily to the respective shareholders of record of such
shares. Dividends on Flag Investors Shares are normally payable on the first
day that a purchase or exchange order is effective but not on the date that a
redemption order is effective. If an order to purchase or exchange shares is
received by Alex. Brown, a Participating Dealer, Shareholder Servicing Agent
or the Fund after 11:00 a.m. (Eastern Time), dividends on the Flag Investors
Shares will commence on the following day. Dividends are declared daily and
reinvested monthly in the form of additional full and fractional Flag
Investors Shares of the same class at net asset value, unless a shareholder
has elected on his account application to have dividends paid in cash.
16
<PAGE>
.............................................................................
Taxes
The following is only a general summary of certain federal income 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. The
Statement of Additional Information sets forth further information regarding
taxes.
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 the amounts so
distributed.
Distributions of net investment company taxable income (generally, net
investment income plus short-term capital gains, if any) are taxed to
shareholders as ordinary income. 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 Flag Investors
Shares. Distributions from the Fund will not be eligible for the dividends
received deduction otherwise available for corporate shareholders.
Ordinarily, shareholders will include all dividends declared by a
Portfolio 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 on December 31 of 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, local or
other taxes to investments in the Prime Series, which may differ from the
federal income tax consequences described above.
17
<PAGE>
------------------------------------------------------------------------------
9. Management of the Fund
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, to Alex. Brown and to Investment Company Capital
Corp. ("ICC"), the Fund's investment advisor, subject always to the
investment objective and policies of the Fund and to general supervision by
the Fund's Board of Directors. Alex. Brown and ICC 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 or ICC.
The Fund's Directors and officers are as follows:
*W. James Price Chairman
*Richard T. Hale President and Director
James J. Cunnane Director
N. Bruce Hannay Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Harry Woolf Director
Edward J. Veilleux Executive Vice President
Brian C. Nelson Vice President and Secretary
Paul D. Corbin Vice President
M. Elliott Randolph, Jr. Vice President
Diana M. Ellis Treasurer
Monica M. Hausner Assistant Vice President
Laurie D. DePrine Assistant Secretary
------
* Messrs. Price and Hale are interested persons of the Fund within the meaning
of Section 2(a)(19) under the Investment Company Act of 1940.
-----------------------------------------------------------------------------
10. 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. In addition, ICC is responsible for
managing the Prime Series' investments. 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 December 31, 1994, had net assets of
approximately $3.8 billion.
18
<PAGE>
As compensation for its services for the fiscal year ended March 31, 1994,
ICC received from the Fund a fee equal to .21% of the Fund's aggregate
average daily 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.
Prior to November 1, 1994, PNC Institutional Management Corporation
("PIMC"), Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809, served as the sub-advisor to the Prime Series pursuant to a
sub-advisory agreement dated as of April 1, 1992 between ICC and PIMC. For
the fiscal year ended March 31, 1994, PIMC received a fee from ICC which
represented .10% of the combined aggregate average net assets of the Prime
Series and the Tax-Free Series, another series of the Fund for which PIMC
serves as sub-advisor. During such fiscal year, the expenses borne by the
Prime Series, including the fees to ICC, amounted to .62% of the Prime
Series' average net assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Prime Series. (See "Custodian, Transfer
Agent, Accounting Services.")
------------------------------------------------------------------------------
11. Distributor
Alex. Brown serves as the exclusive distributor for shares of the Fund's
three Series. 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 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 offices throughout the
United States and, through subsidiaries, maintains offices in London,
England, Geneva, Switzerland and Tokyo, Japan.
Pursuant to Distribution Agreements and Plans of Distribution in effect
for the Flag Investors Class A and Class B Shares, the Fund pays Alex. Brown
an annual distribution fee, paid monthly, equal to .25% of the Flag Investors
Class A Shares' average daily net assets and .75% of the Flag Investors Class
B Shares' average daily net assets. Alex. Brown may use a portion of this fee
to compensate its investment representatives for opening shareholder
accounts, processing investor purchases, exchanges 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 the
19
<PAGE>
Transfer Agent on behalf of the Fund's shareholders. Alex. Brown may also retain
Shareholder Servicing Agents, including securities dealers, banks and other
financial institutions, to provide services to shareholders. Alex. Brown bears
all expenses associated with advertisements, promotional materials, sales
literature and printing and mailing prospectuses to prospective shareholders.
Alex. Brown may retain, as profit, any amount of the distribution fee that is
not so expended. As compensation for distributing the Flag Investors Class A
Shares for the fiscal year ended March 31, 1994, Alex. Brown received a fee
equal to .25% of the Flag Investors Class A Shares' average daily net assets.
Flag Investors Class B Shares are also subject to a shareholder servicing
fee at an annual rate of .25% of the average daily net assets of the Flag
Investors Class B Shares. This fee is used to compensate Alex. Brown,
Participating Dealers and Shareholder Servicing Agents for services provided
and expenses incurred in maintaining shareholder accounts, responding to
shareholder inquiries and providing information on their investments.
Financial institutions that act as Shareholder Servicing Agents 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, these financial institutions may be required to register as dealers
pursuant to state securities laws.
------------------------------------------------------------------------------
12. 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 Prime Series. As compensation for providing
accounting services to the Prime Series, ICC receives from the Fund an annual
fee equal to $13,000 plus a percentage of the Prime Series' aggregate average
daily net assets in excess of $10 million at a maximum rate of .100% of net
assets and declining at various asset levels to a minimum of .001% on net
assets of $1 billion or more. (See the Statement of Additional Information.)
ICC also serves as the Fund's investment advisor.
20
<PAGE>
------------------------------------------------------------------------------
13. 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 income earned
in the period is assumed to be earned every seven days over a 52-week period
and is stated as a percentage of the investment. The "effective yield" is
calculated similarly but when annualized, the income earned by the investment
is assumed to be reinvested in Flag Investors Class A or Class B Shares and
thus compounded in the course of a 52-week period. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment. Yield may vary between classes as a result of
differences in expenses. The yield for Flag Investors Class A or Class B
Shares can be obtained by calling the Fund at (410) 234-3737.
------------------------------------------------------------------------------
14. 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 distribution fees, in some instances shareholder
servicing fees, and the method of distribution. The institutional class of
the Prime Series is available to certain institutional investors and the
Quality Cash Reserve class of the Prime Series is available to clients of
broker-dealers which have a correspondent relationship with Alex. Brown as
stated in the prospectuses for those classes. The Fund also offers Alex.
Brown Cash Reserve Fund Prime Shares which are subject to a .25% distribution
fee. 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. 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
21
<PAGE>
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 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.
.............................................................................
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 L.L.P.
.............................................................................
Shareholder Inquiries
Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, Alex. Brown, or any Participating Dealer or
Shareholder Servicing Agent.
22
<PAGE>
FLAG INVESTORS CASH RESERVE PRIME CLASS A SHARES
NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
Make check payable to "Flag Investors Cash Reserve Prime
Class A Shares" and mail with this application to:
Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Cash Reserve Prime Class A Shares
For assistance in completing this application please call: 1-800-553-8080
8:30 a.m. to 5:30 p.m., Eastern Time, Monday-Friday
To open an IRA account, call 1-800-767-3524 to request an IRA application
I wish to purchase Flag Investors Cash Reserve Prime Class A Shares in the
amount of $ .
The minimum initial purchase is $2,000, except that the minimum initial
purchase for shareholders of any other Flag Investors Fund or class is $500
and the minimum initial purchase for participants in the Flag Investors Cash
Reserve Prime Class A Shares' Automatic Investing Plan is $250. Each
subsequent purchase requires a $100 minimum, except that the minimum
subsequent purchase under the Flag Investors Cash Reserve Prime Class A
Shares' Automatic Investing Plan is $250 for quarterly purchases and $100 for
monthly purchases. The Fund reserves the right not to accept checks for more
than $50,000 that are not certified or bank checks.
-----------------------------------------------------------------------------
Your Account Registration (Please Print)
Existing Account No., if any:
-----------------------------------------------------------------------------
Individual or Joint Tenant
-----------------------------------------------------------------------------
First Name Initial Last Name
-----------------------------------------------------------------------------
Social Security Number
-----------------------------------------------------------------------------
Joint Tenant Initial Last Name
Corporations, Trusts, Partnerships, etc.
-----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
-----------------------------------------------------------------------------
Tax ID Number Date of Trust
-----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
-----------------------------------------------------------------------------
For the Benefit of
Gifts to Minors
-----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
-----------------------------------------------------------------------------
Minor's Name (only one)
-----------------------------------------------------------------------------
Social Security Number of Minor
under the ___________ Uniform Gifts to Minors Act
State of Residence
YOUR MAILING ADDRESS
-----------------------------------------------------------------------------
Street
-----------------------------------------------------------------------------
City State Zip
-----------------------------------------------------------------------------
Daytime Phone
<PAGE>
-----------------------------------------------------------------------------
Distribution Options
Please check appropriate boxes. If none of the options are elected, all
distributions will be reinvested in additional shares of the Fund at no sales
charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
<PAGE>
Automatic Investing Plan (OptionaL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $________ in Flag Investors Class A Shares for me, on a
monthly or quarterly basis, on or about the 20th of each month or if
quarterly, the 20th of January, April, July and October, and to draw a bank
draft in payment of the investment against my checking account. (Bank drafts
may be drawn on commercial banks only.)
Minimum Initial Investment: $250 Please attach a voided check.
Subsequent Investment (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
-----------------------------------------------------------------------------
Bank Name
----------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
----------------------------------------------------------------------------
Depositor's Signature Date
----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
----------------------------------------------------------------------------
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below.
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank:
-----------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------------
Bank Account No:
-----------------------------------------------------------------------------
Bank Account Name:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Signature and Taxpayer Certification
I have received a copy of the Fund's prospectus dated March 30, 1995. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not 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. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:
-----------------------------------------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
-----------------------------------------------------------------------------
Signature Date
-----------------------------------------------------------------------------
Signature (if joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name:____________________________ Dealer Code:_____________________
Dealer's Address:_________________________ Branch Code:_____________________
_________________________
Representative:___________________________ Rep. No.: ______________________
<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
________________________________________
ALEX. BROWN CASH RESERVE FUND, INC.
________________________________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS FOR THE APPROPRIATE CLASS OF SHARES, WHICH
MAY BE OBTAINED BY WRITING OR CALLING YOUR ALEX. BROWN
& SONS INCORPORATED INVESTMENT REPRESENTATIVE, ANY
PARTICIPATING DEALER OF THE FUND'S SHARES, ALEX. BROWN
& SONS INCORPORATED, P.O. BOX 17250, BALTIMORE,
MARYLAND 21203, OR THE FUND AT (800) 553-8080.
Statement of Additional Information dated August 1, 1994
as amended through March 30, 1995
Relating to Prospectuses dated August 1, 1994 for:
Alex. Brown Cash Reserve Fund, Inc.
Quality Cash Reserve Prime Shares
and
Institutional Shares
and Prospectus dated March 30, 1995 for:
Flag Investors Cash Reserve Prime Shares - Class A and Class B
<PAGE> 2
TABLE OF CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . .2
General Information About the Fund . . . . . . . . . . . . .3
The Fund and Its Shares . . . . . . . . . . . . . . . . .3
Directors and Officers. . . . . . . . . . . . . . . . . .4
The Investment Advisor. . . . . . . . . . . . . . . . . .6
The Sub-Advisor . . . . . . . . . . . . . . . . . . . . .8
Distributor . . . . . . . . . . . . . . . . . . . . . . .9
Expenses. . . . . . . . . . . . . . . . . . . . . . . . .12
Transfer Agent, Custodian, Accounting Services. . . . . .13
Sub-Accounting. . . . . . . . . . . . . . . . . . . . . .14
Principal Holders of Securities . . . . . . . . . . . . .14
Reports . . . . . . . . . . . . . . . . . . . . . . . . .15
Share Purchases and Redemptions. . . . . . . . . . . . . . .16
Purchases and Redemptions . . . . . . . . . . . . . . . .16
Net Asset Value Determination . . . . . . . . . . . . . .16
Dividends and Taxes. . . . . . . . . . . . . . . . . . . . .17
Dividends . . . . . . . . . . . . . . . . . . . . . . . .17
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .18
Current Yield. . . . . . . . . . . . . . . . . . . . . . . .21
Investment Program and Restrictions. . . . . . . . . . . . .22
Investment Restrictions . . . . . . . . . . . . . . . . .24
Portfolio Transactions . . . . . . . . . . . . . . . . . . .25
Financial Statements . . . . . . . . . . . . . . . . . . . .27
INTRODUCTION
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a mutual fund.
The rules and regulations of the Securities and Exchange Commission (the
"SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the company being considered for
investment. There is a Prospectus dated March 30, 1995 for the Flag Investors
Cash Reserve Prime Shares and there are Prospectuses dated August 1, 1994 for
the other classes of the Fund's shares which contains this information and
which may be obtained without charge from an Alex. Brown & Sons Incorporated
("Alex. Brown") investment representative or by writing Alex. Brown, P.O. Box
17250, Baltimore, Maryland 21203. Investors may also call (410) 727-1700 or
(except in the case of the Institutional Shares) dealers authorized by Alex.
Brown to distribute the respective classes of the Fund's shares. Some of the
information required to be in this Statement of Additional Information is also
included in the Fund's current Prospectuses; and, in order to avoid
repetition, reference will be made to sections of the Prospectuses. Unless
otherwise noted, the term "Prospectus" as used herein refers to the Prospectus
for each class of the Fund's shares. Additionally, the Prospectus and this
Statement of Additional Information omit certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted from the Prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
<PAGE> 3
GENERAL INFORMATION ABOUT THE FUND
The Fund and Its Shares
The Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended, (the
"1940 Act") and its shares are registered under the Securities Act of 1933.
The Fund was organized as a corporation under the laws of the State of
Maryland on November 19, 1980, reorganized as a business trust under the laws
of the Commonwealth of Massachusetts on August 30, 1985 and, following certain
changes in Maryland law, reorganized as a Maryland corporation effective April
5, 1990. Shares of the Fund are redeemable at the net asset value thereof
(less any applicable contingent deferred sales charge with respect to Flag
Investors Cash Reserve Prime Class B Shares) at the option of the holders
thereof or at the option of the Fund in certain circumstances. For
information concerning the methods of redemption and the rights of share
ownership, consult the Prospectus under the captions "General Information" and
"How to Redeem Shares."
The Fund offers three series of shares (each such series is
referred to herein as a "Series" and collectively as the "Series"):
o Prime Series
o Treasury Series
o Tax-Free Series
There are currently five classes of the Prime Series, designated
as the Alex. Brown Cash Reserve Prime Shares, the Flag Investors Cash Reserve
Prime Class A Shares, the Flag Investors Cash Reserve Prime Class B Shares,
the Alex. Brown Cash Reserve Prime Institutional Shares and the Quality Cash
Reserve Prime Shares. Flag Investors Cash Reserve Prime Class B Shares are
available only through the exchange of shares of other funds in the Flag
Investors family of funds and are subject to a contingent deferred sales
charge as described in the Prospectus for the shares. The Quality Cash
Reserve Prime Shares are offered primarily to broker-dealers that have
correspondent relationships with Alex. Brown. There are currently two classes
of the Treasury Series, designated as the Alex. Brown Cash Reserve Treasury
Shares and the Alex. Brown Cash Reserve Treasury Institutional Shares. The
Institutional Shares of the Prime and Treasury Series are offered primarily to
institutions. There is only one class of the Tax-Free Series, designated as
the Alex. Brown Cash Reserve Tax-Free Shares.
As used in the Prospectus, the term "majority of the outstanding
shares" of either the Fund or a particular Series or class means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Fund or such Series or class present or represented by proxy at a meeting, if
the holders of more than 50% of the outstanding shares of the Fund or such
Series or class are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of the Fund or such Series or class.
Shareholders do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all classes voting
together for the election of directors may elect all of the members of the
Board of Directors of the Fund. In such event, the remaining holders cannot
elect any members of the Board of Directors of the Fund.
The Board of Directors may classify or reclassify any unissued
shares of any class or classes in addition to those already authorized by
setting or changing in any one or more respects, from time to time, prior to
the issuance of such shares, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the 1940 Act.
<PAGE> 4
The Fund's Articles of Incorporation authorize the issuance of
five billion shares, each with a par value of $.001. The Board of Directors
may increase or (within limits) decrease the number of authorized shares
without shareholder approval. A share of a Series represents an equal
proportionate interest in such Series with each other share of that Series and
is entitled to a proportionate interest in the dividends and distributions
from that Series except to the extent such dividends and distributions may be
affected by differences in the expenses allocated to a particular class.
Additional information concerning the rights of share ownership is set forth
in the Prospectus.
The assets received by the Fund for the issue or sale of shares of
each Series and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Series, and
constitute the underlying assets of that Series. The underlying assets of
each Series are segregated and are charged with the expenses attributable to
that Series and with a share of the general expenses of the Fund as described
below under "Expenses." While the expenses of the Fund are allocated to the
separate books of account of each Series, certain expenses may be legally
chargeable against the assets of all Series. In addition, expenses of a
Series that are attributable to a particular class of shares offered by that
Series are allocated to that class. See "Expenses."
The Fund's Charter provides that the directors and officers of the
Fund will not be liable to the Fund or its shareholders for any action taken
by such director or officer while acting in his capacity as such, except for
any liability to which the director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The Fund's
Charter provides for indemnification by the Fund of the directors and officers
of the Fund except with respect to any matter as to which any such person did
not act in good faith in the reasonable belief that his action was in or not
opposed to the best interests of the Fund. Such person may not be indemnified
against any liability to the Fund or the Fund's shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. The Fund's Charter also authorizes the purchase of liability
insurance on behalf of the directors and officers.
As described in the Prospectus, the Fund will not normally hold
annual shareholders' meetings. Directors may be removed from office by a vote
of the holders of two-thirds of the outstanding shares at a meeting duly
called for that purpose, which meeting shall be held upon written request of
the holders of not less than 10% of the outstanding shares of the Fund. Upon
written request by ten or more shareholders, who have been such for at least
six months and who hold shares constituting 1% of the outstanding shares,
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a director, the Fund has undertaken to provide a list of
shareholders or to disseminate appropriate materials.
Except as otherwise disclosed in the Prospectus and in this
Statement of Additional Information, the directors shall continue to hold
office and may appoint their successors.
<PAGE> 5
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the last five years are set forth below. Unless
otherwise indicated, the address of each Director and executive officer is 135
East Baltimore Street, Baltimore, Maryland 21202.
*/W. JAMES PRICE, Director and Chairman of the Board
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida 33435-3343.
Director, Boca Research, Inc. (computer peripherals); Formerly, Managing
Director, Alex. Brown & Sons Incorporated; Director, CSX Corp. (transportation
and natural resources company) and PHH Corporation (business services).
*/RICHARD T. HALE, Director and President
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst.
JAMES J. CUNNANE, Director
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (a merchant banking firm), 1993-Present; Formerly,
Senior Vice-President and Chief Financial Officer, General Dynamics
Corporation (defense)(1989-1993) and Director, The Arch Fund (mutual fund).
N. BRUCE HANNAY, Director
201 Condon Lane, Port Ludlow, Washington 98365. Director, Plenum Publishing
Corp; Formerly, Director, Rohm & Haas Company (diversified chemicals) and
General Signal Corp. (control equipment & systems) and Consultant, SRI
International (nonprofit consulting organization).
JOHN F. KROEGER, Director
Swan Road, P.O. Box 464, Martingham, St. Michaels, Maryland 21663.
Director/Trustee, AIM Funds (registered investment companies); Formerly,
Consultant, Wendell & Stockel Associates, Inc. (consulting firm); General
Manager, Shell Oil Company.
LOUIS E. LEVY, Director
26 Farmstead Road, Short Hills, New Jersey 07078. Director, Kimberly-Clark
Corporation (personal consumer products) and Household International (banking
and finance); Chairman of the Quality Control Inquiry Committee, American
Institute of Certified Public Accountants; Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993; Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992; Partner, KPMG Peat Marwick,
retired 1990.
EUGENE J. MCDONALD, Director
Duke Management Company, Erwin Square, Suite 100, 2200 West Main Street,
Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education, research
and healthcare).
HARRY WOOLF, Director
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey 08540.
Professor-at-Large Emeritus, Institute for Advanced Study; Director, Merrill
Lynch Cluster C Funds (registered investment companies), ATL and Spacelabs
Medical Corp (medical equipment) and Family Health International (nonprofit
research and education); Trustee, Reed College (education); Formerly, Trustee,
Rockefeller Foundation.
*/ A Director who is an "interested person," as defined in the Investment
Company Act of 1940.
<PAGE> 6
EDWARD J. VEILLEUX, Executive Vice President
Principal, Alex. Brown & Sons Incorporated; President, Investment Company
Capital Corp. (registered investment advisor); Vice President, Armata
Financial Corp. (registered broker-dealer).
M. ELLIOTT RANDOLPH, JR., Vice President
Principal, Alex. Brown & Sons Incorporated, 1991 - Present; Principal,
Monument Capital Management, Inc., 1988-1991.
PAUL D. CORBIN, Vice President
Principal, Alex. Brown & Sons Incorporated, 1991 - Present; Senior Vice
President, First National Bank of Maryland, 1985-1991.
BRIAN C. NELSON, Vice President and Secretary
Vice President, Alex. Brown & Sons Incorporated, Investment Company Capital
Corp. (registered investment advisor) and Armata Financial Corp. (registered
broker-dealer).
DIANA M. ELLIS, Treasurer
Manager, Portfolio Accounting Department, Investment Company Capital Corp.
(registered investment advisor); Mutual Fund Accounting Department, Alex.
Brown & Sons Incorporated, 1991 - Present; Formerly, Accounting Manager,
Downtown Press Inc. (printer), 1987-1991.
MONICA M. HAUSNER, Assistant Vice President
Fixed Income Management Department, Alex. Brown & Sons Incorporated, 1992 -
Present; Formerly, Assistant Vice President, First National Bank of Maryland,
1984-1992.
LAURIE D. DEPRINE, Assistant Secretary
Asset Management Department, Alex. Brown & Sons Incorporated, 1991 - Present;
Prior thereto, Student, 1989-1991.
Directors and officers of the Fund are also directors and officers
of some or all of the investment companies managed, administered, advised or
distributed by Alex. Brown or its affiliates.
There are currently 13 funds in the Flag Investors/ISI Funds and
Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr.
Hale serves as President and Director of one fund, Vice President of one fund
and as a Director of 11 other funds in the Fund Complex. Mr. Price serves as
a Director of eight funds in the Fund Complex. Messrs. Cunnane, Hannay,
Kroeger, Levy, McDonald and Woolf serve on the Board of each fund in the Fund
Complex. Mr. Randolph serves as President of two funds and as a Vice
President of one fund in the Fund Complex. Mr. Corbin serves as a Vice
President of one fund and as Executive Vice President of two other funds in
the Fund Complex. Ms. Hausner serves as an Assistant Vice President of one
fund and as a Vice President of another fund in the Fund Complex. Mr.
Veilleux, Mr. Nelson, Ms. Ellis and Ms. DePrine serve as Vice President, Vice
President and Secretary, Treasurer, and Assistant Secretary, respectively, for
each of the funds in the Fund Complex.
Each director who is not an "interested person" receives an
aggregate annual fee (plus reimbursement for reasonable out-of-pocket expenses
incurred in connection with his attendance at Board and committee meetings)
from the Fund and from all Flag Investors/ISI Funds for which he serves.
Payment of such fees and expenses are allocated among all such funds described
above in proportion to their relative net assets. For the fiscal year ended
March 31, 1994 Non-Interested Directors fees attributable to the assets of the
Fund totalled $128,738.
<PAGE> 7
COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation From the Fund Total Compensation From the Fund
for the Fiscal Year ended March 31, and Fund Complex Paid to Directors
1994 For the Fiscal Year Ended
March 31, 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Richard T. Hale $0 $0
Vice Chairman
*W. James Price $0 $0
Vice Chairman
James J. Cunnane $0 $0 **
Director
N. Bruce Hannay $24,397 $39,000 for service on
Director 11 boards(1)
John F. Kroeger $25,592 $40,950 for service on
Director 11 boards(1)
Louis E. Levy $0 $0 ***
Director
Eugene J. McDonald $24,397 $39,000 for service on
Director 11 boards(1)
Harry Woolf $24,397 $39,000 for service on
Director 11 boards(1)
<FN>
* A Director who is an "interested person" as defined in the Investment Company Act.
** Elected to the Board on December 14, 1994.
*** Elected to the Board on June 17, 1994.
(1) Two other funds in the Fund Complex commenced operations after March 31, 1994.
</TABLE>
The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of five
years of service, each Participant will be entitled to receive an annual
retirement benefit equal to a percentage of the fee earned by him in his last
year of service. Upon retirement, each Participant will receive annually 10%
of such fee for each year that he served after completion of the first five
years, up to a maximum annual benefit of 50% of the fee earned by him in his
last year of service. The fee will be paid quarterly, for life, by each Fund
for which he serves. The Retirement Plan is unfunded and unvested. Messrs.
Hannay, Kroeger and Woolf have qualified but have not received benefits, and
no such benefits are being accrued for them since they have not yet retired.
The Fund has one Participant, a Director who retired effective December 31,
1994, who has qualified for the Retirement Plan and who will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Such
fee is allocated to each fund in the Fund Complex based upon the relative net
assets of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from
the Fund is permitted to defer a minimum of 50%, or up to all, of his annual
compensation pursuant to a Deferred Compensation Plan.
The Investment Advisor
Investment Company Capital Corp. ("ICC"), 135 East Baltimore Street,
Baltimore, Maryland 21202, a wholly-owned subsidiary of Alex. Brown (described
below), acts as the Fund's investment advisor pursuant to two separate
Investment Advisory Agreements, one dated as of April 4, 1990 with respect to
the Prime Series and the Treasury Series, and one dated as of October 5, 1990
with respect to the Tax-Free Series (the "Advisory Agreements"). ICC was
organized in 1987. The terms of the Advisory Agreements are the same except to
<PAGE> 8
the extent specified below. Pursuant to the terms of the Advisory Agreements,
ICC (a) supervises and manages the Fund's operations; (b) formulates and
implements continuing programs for the purchases and sales of securities,
consistent with the investment objective and policies of each Series; (c)
provides the Fund with such executive, administrative and clerical services as
are deemed advisable by the Fund's Board of Directors; (d) provides the Fund
with, or obtains for it, adequate office space and all necessary office
equipment and services; (e) obtains and evaluates pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign and otherwise, whether affecting the economy generally or any Series of
the Fund, and whether concerning the individual issuers whose securities are
included in the Fund's Series or the activities in which they engage, or with
respect to securities which ICC considers desirable for inclusion in the
portfolio of any of the Fund's Series; (f) determines which issuers and
securities shall be represented in the Portfolio of any of the Fund's Series;
(g) takes all actions necessary to carry into effect the Fund's purchase and
sale programs; (h) supervises the operations of the Fund's transfer and dividend
disbursing agent; (i) provides the Fund with such administrative and clerical
services for the maintenance of certain shareholder records as are deemed
advisable by the Fund's Board of Directors; and (j) arranges, but does not pay
for, the periodic updating of prospectuses and supplements thereto, proxy
material, tax returns, reports to the Fund's shareholders and reports to and
filings with the SEC and state Blue Sky authorities. ICC may delegate its duties
under the Advisory Agreement, and has delegated certain of such duties with
respect to the Tax-Free Series to PIMC as described below.
As compensation for its services for the Fund, ICC receives a fee
from the Fund, calculated daily and paid monthly, at the annual rate of .25%
of the first $500 million of the Fund's aggregate average daily net assets,
.21% of the next $500 million of the Fund's aggregate average daily net
assets, .20% of the next $500 million of the Fund's aggregate average daily
net assets and .19% of that portion of the Fund's aggregate average daily net
assets in excess of $1.5 billion. The rates set forth above were approved by
shareholders of the Prime Series and the Treasury Series, respectively, on
April 4, 1990 and by the shareholders of the Tax-Free Series on May 28, 1991.
For the fiscal years ended March 31, 1994, March 31, 1993 and March 31, 1992
the aggregate fees paid by the Fund to ICC (net of voluntary fee waivers of
$152,838 and $89,848 for the Treasury Series for the fiscal years ended March
31, 1994 and 1993 and $10,490 for the Tax-Free Series for the fiscal year
ended March 31, 1992 were $4,856,245, $4,809,834 and $5,091,900, respectively.
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.
The Advisory Agreements will continue in effect for an initial
term of two years, and from year to year thereafter if each such agreement is
specifically approved at least annually by the Fund's Board of Directors and
by a majority of the directors who are not parties to either Advisory
Agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Fund or ICC may terminate either
Advisory Agreement on 60 days' written notice without penalty. The Advisory
Agreements terminate automatically in the event of an "assignment," as defined
in the 1940 Act. The Advisory Agreements were most recently approved by the
Board of Directors in the foregoing manner on March 3, 1994.
ICC advises other mutual funds which, as of December 31, 1994, had
net assets of approximately $3.8 billion.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Prime Series and the Treasury
Series. (See "Transfer Agent, Custodian, Accounting Services.")
The Sub-Advisor
PNC Institutional Management Corporation ("PIMC") Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809 serves as a
sub-advisor to the Tax-Free Series pursuant to a sub-advisory agreement
between ICC and PIMC, dated as of June 1, 1991 (the "Sub-Advisory Agreement").
<PAGE> 9
PIMC is a wholly owned subsidiary of PNC Bank, National Association, a
national banking association ("PNC"). 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. PNC is a wholly-
owned, indirect subsidiary of PNC Bank Corp., a multi-bank holding company.
Pursuant to the terms of the Sub-Advisory Agreement, PIMC: (a)
provides the Fund with certain executive, administrative and clerical services
as deemed advisable by the Fund's Board of Directors; (b) formulates and
implements continuing programs for the purchase and sale of securities for the
Tax-Free Series; (c) determines which issuers and securities shall be
represented in the Tax-Free Series' portfolio; and (d) takes, on behalf of
such Series, all actions which appear to the Series to be necessary to carry
into effect such purchase and sale programs, including for the purchase and
sale of portfolio securities. Any investment program undertaken by PIMC will
at all times be subject to the policies and control of the Fund's Board of
Directors and the supervision of ICC. PIMC shall not be liable to the Tax-
Free Series or its shareholders for any act or omission by PIMC or for any
loss sustained by such Series or its shareholders except in the case of PIMC's
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
As compensation for its services under the Sub-Advisory Agreement,
PIMC receives a fee from ICC, calculated daily and paid monthly, at an annual
rate based upon the following levels of the aggregate average daily net assets
of the Tax-Free Series: .15% of the first $250 million, .13% of the next $250
million, .11% of the next $250 million, .09% of the next $250 million, .075%
of the next $3 billion and .06% of that portion of the aggregate average daily
net assets in excess of $4 billion. If ICC voluntarily waives a portion of
its fee with respect to the Tax-Free Series (see "Investment Advisor" above),
PIMC has agreed to waive a portion of its fee in the same proportion and for
the same time periods as ICC's waiver. Prior to November 1, 1994, PIMC served
as sub-advisor to the Prime Series pursuant to a sub-advisory agreement dated
as of April 1, 1992 between ICC and PIMC. As compensation for sub-advisory
services to the Prime Series and the Tax-Free Series, respectively, for the
fiscal years ended March 31, 1994 and March 31, 1993, ICC paid PIMC fees of
$1,740,475 and $1,596,607. As compensation for sub-advisory services to the
Tax-Free Series for the period from June 1, 1991 through March 31, 1992, ICC
paid PIMC fees (net of fee waivers) of $367,392.
The Sub-Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of those directors who are not parties to such
sub-advisory agreement or interested persons of any such party on March 19,
1991 and by shareholders of the Tax-Free Series on May 28, 1991. The Sub-
Advisory Agreement will continue in effect for an initial term of two-years,
and thereafter from year to year if it is specifically approved at least
annually by the Fund's Board of Directors and by the directors who are not
parties to such sub-advisory agreement or interested persons of any such party
by votes cast in person at a meeting called for such purpose. The Fund, ICC
or PIMC may terminate the Sub-Advisory Agreement on 60 days' written notice
without penalty. The Sub-Advisory Agreement terminates automatically in the
event of an "assignment," as defined in the 1940 Act. The Sub-Advisory
Agreement was most recently approved by the Board of Directors in the
foregoing manner on March 3, 1994.
Prior to April 1, 1992, A I M Advisors, Inc. ("A I M"), Eleven
Greenway Plaza, Suite 1919, Houston, Texas 77406 served as sub-advisor to the
Prime Series and the Treasury Series pursuant to a sub-advisory agreement
dated as of April 4, 1990 among the Fund, ICC and A I M. For sub-advisory
services to the Prime and Treasury Series for the fiscal year ended March 31,
1992, the aggregate fees paid to A I M by ICC were $2,213,930. Prior to June
1, 1991, A I M also served as a sub-advisor to the Fund's Tax-Free Series.
For the period from April 1, 1991 through May 31, 1991, with respect to the
Tax-Free Series, A I M received fees from ICC of $42,968, respectively, and
voluntarily waived fees of $10,490, respectively.
<PAGE> 10
Distributor
Alex. Brown serves as the distributor for each class of the Fund's
shares pursuant to five separate Distribution Agreements (the "Distribution
Agreements"), one relating to the Institutional Shares, one relating to the
Tax-Free Series, one relating to the Quality Cash Reserve Prime Shares, one
relating to the Flag Investors Cash Reserve Prime Class B Shares and one
relating to the other classes of the Fund's shares. The terms of each of the
Distribution Agreements are the same except to the extent specified below.
Pursuant to the Distribution Agreements, Alex Brown: (a) receives orders for
the purchase of the Fund's shares, accepts or rejects such orders on behalf of
the Fund in accordance with the Fund's currently effective Prospectus and
transmits such orders as are accepted to the Fund's transfer agent as promptly
as possible; (b) receives requests for redemption from holders of the Fund's
shares and transmits such redemption requests to the Fund's transfer agent as
promptly as possible; (c) responds to inquiries from the Fund's shareholders
concerning the status of their accounts; and (d) takes, on behalf of the Fund,
all actions which appear to the Fund's Board of Directors necessary to carry
into effect the distribution of the Fund's shares. Alex. Brown shall not be
liable to the Fund or its shareholders for any act or omission by Alex. Brown
or any loss sustained by the Fund or the Fund's shareholders except in the
case of Alex. Brown's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
As compensation for its services, Alex. Brown receives a
distribution fee from the Fund, calculated daily and paid monthly, at the
annual rate of .25% of the aggregate average daily net assets of all classes
of the Fund, excluding net assets attributable to the Institutional Shares,
the Quality Cash Reserve Prime Shares and the Flag Investors Cash Reserve
Prime Class B Shares. Alex. Brown receives no compensation with respect to
its services as distributor for the Institutional Shares (except to the extent
that compensation to ICC may be regarded as indirect compensation to Alex.
Brown) and none of Alex. Brown's compensation as distributor of the Fund's
shares is allocated to the Institutional Shares. As compensation for its
services with respect to the Quality Cash Reserve Prime Shares, Alex. Brown
receives a distribution fee from the Fund, calculated daily and paid monthly,
at the annual rate of .60% of the average daily net assets of the Quality Cash
Reserve Prime Shares. As compensation for its services with respect to the
Flag Investors Cash Reserve Prime Class B Shares, Alex. Brown receives a
distribution fee from the Fund calculated daily and paid monthly at the annual
rate of .75% of the average daily net assets of the Flag Investors Cash
Reserve Prime Class B Shares. In addition, Alex. Brown will receive a
shareholder servicing fee, paid monthly, at an annual rate equal to .25% of
the Flag Investors Cash Reserve Prime Class B Shares' average daily net
assets. The fees set forth above were approved, as appropriate, by
shareholders of the Prime Series and the Treasury Series on April 4, 1990, by
shareholders of the Tax-Free Series on May 28, 1991, by the sole shareholder
of the Quality Cash Reserve Prime Shares class on January 30, 1991 and by the
sole shareholder of the Flag Investors Cash Reserve Prime Class B Shares class
on February 27, 1995. As compensation for distribution services for the Prime
and Treasury Series (except the Institutional Shares, the Quality Cash Reserve
Prime Shares and the Flag Investors Cash Reserve Prime Class B Shares) for the
fiscal years ended March 31, 1994, March 31, 1993 and March 31, 1992, Alex.
Brown received from the Fund aggregate fees of $4,672,018, $4,457,422 and
$4,839,228, respectively. As compensation for distribution services for the
Tax-Free Series for the fiscal years ended March 31, 1994, March 31, 1993 and
March 31, 1992 Alex. Brown received from the Fund fees of $838,211, $746,743
and $743,935, respectively. As compensation for distribution services for the
Quality Cash Reserve Prime Shares for the fiscal years ended March 31, 1994
and March 31, 1993, Alex. Brown received from the Fund fees of $574,855 and
$570,251, respectively. The Flag Investors Cash Reserve Prime Class B Shares
were not offered in any fiscal period ended March 31, 1994.
Prior to February 28, 1995, sales of the Flag Investors Cash
Reserve Prime Class A Shares were subject to a sales charge, a portion of
which was paid as a commission to the Distributor. For the fiscal years ended
March 31, 1994, March 31, 1993 and March 31, 1992, Alex. Brown received
commissions of $1,811, $589 and $9,763, respectively from sales of such
<PAGE> 11
Shares. Sales of the Flag Investors Cash Reserve Prime Class B Shares are
subject to a contingent deferred sales charge to be paid as a commission to
the Distributor.
Pursuant to the Distribution Agreements, Alex. Brown may pay
certain promotional and advertising expenses and, except in the case of the
Institutional Shares, may compensate its investment representatives, certain
registered securities dealers and banks and other financial institutions for
services provided in connection with the processing of orders for purchase or
redemption of the Fund's shares and furnishing other shareholder services.
Payments by Alex. Brown to its investment representatives and to certain
registered securities dealers are paid by Alex. Brown out of fees received by
Alex. Brown from the Fund. Specifically, Alex. Brown may compensate its
investment representatives and certain registered securities dealers for
opening accounts, processing investor purchase and redemption orders,
responding to inquiries from Fund shareholders concerning the status of their
accounts and the operations of the Fund, and communicating with the Fund and
its transfer agent on behalf of Fund shareholders. Alex. Brown may also
enter into shareholder processing and servicing agreements ("Shareholder
Servicing Agreements") with any securities dealer who is registered under the
Securities Exchange Act of 1934 and is a member in good standing of the
National Association of Securities Dealers, Inc. and (except for the Quality
Cash Reserve Prime Shares) with banks and other financial institutions who may
wish to establish accounts or sub-accounts on behalf of their customers
(collectively, such securities dealers, banks and financial institutions are
referred to as "Shareholder Servicing Agents").
The Glass-Steagall Act and other applicable laws, among other
things, generally prohibit federally chartered or supervised banks from
engaging in the business of underwriting, selling or distributing securities.
Accordingly, Alex. Brown will engage banks as Shareholder Servicing Agents
only to perform administrative and shareholder servicing functions.
Management of the Fund believes that such laws should not preclude a bank from
acting as a Shareholder Servicing Agent. However, judicial or administrative
decisions or interpretations of such laws as well as changes in either federal
or state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates, could prevent a bank from
continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients would be permitted to
remain as Fund shareholders and alternate means for continuing the servicing
of such shareholders would be sought. In such event, changes in the operation
of the Fund might occur and shareholders serviced by such bank might no longer
be able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
For 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, its transfer agent
and Alex. Brown, Alex. Brown may make payments to Shareholder Servicing Agents
out of Alex. Brown's distribution fee in an amount not to exceed on an annual
basis .25% (with respect to all classes or Series other than the Institutional
Shares, the Quality Cash Reserve Prime Shares or the Flag Investors Cash
Reserve Prime Class B Shares), .60% (with respect to the Quality Cash Reserve
Prime Shares only) or .75% (with respect to the Flag Investors Cash Reserve
Prime Class B Shares only) of the average daily net assets of the respective
classes that such Shareholder Servicing Agent's customers maintain with the
Fund during the term of any Shareholder Servicing Agreement.
The fees payable to Shareholder Servicing Agents under Shareholder
Servicing Agreements will be negotiated by Alex. Brown. Alex. Brown will
report quarterly to the Fund's Board of Directors on the rate to be paid under
each such agreement and the amounts paid or payable under such agreements.
<PAGE> 12
The rate will be based upon Alex. Brown's analysis of: (1) the nature,
quality and scope of services being provided by the Shareholder Servicing
Agent; (2) the costs incurred by the Shareholder Servicing Agent in connection
with providing services to shareholders; (3) the amount of assets being
invested in shares of the Fund; and (4) the contribution being made by the
Shareholder Servicing Agent toward reducing the Fund's expense ratio. The
provisions of the Distribution Agreements authorizing payments by Alex. Brown
for advertisements, promotional materials, sales literature and printing and
mailing of prospectuses to other than Fund shareholders, payments by Alex.
Brown to its investment representatives and payments by Alex. Brown and the
Fund to Shareholder Servicing Agents may be deemed to constitute payments by
the Fund to support distribution. Accordingly, such Distribution Agreements
(except relating to the Institutional Shares which have not adopted a plan of
distribution and the Flag Investors Cash Reserve Prime Class B Shares which
have adopted a separate plan of distribution) constitute written plans
pursuant to Rule 12b-1 under the 1940 Act. All such plans together with the
plan of distribution for the Flag Investors Cash Reserve Prime Class B Shares
are hereafter collectively referred to as the "Plans."
The Distribution Agreements and the Plans will remain in effect
from year to year provided that each agreement and Plan is specifically
approved at least annually by the Fund's Board of Directors and by the
affirmative vote of a majority of the directors who are not parties to the
Distribution Agreement or any Shareholder Servicing Agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. In approving the Plans, the directors determined, in the exercise of
their business judgment and in light of their fiduciary duties as directors of
the Fund, that there was a reasonable likelihood that such Plans would benefit
the Fund and its shareholders. Although it is a primary objective of each
Plan to reduce expenses of the Fund by fostering growth in the Fund's net
assets, there can be no assurance that this objective of each Plan will be
achieved; however, based on the data and information presented to the Board of
Directors by Alex. Brown, the Board of Directors determined that there is a
reasonable likelihood that the benefits of growth in the size of the Fund can
be accomplished under the Plan.
The Distribution Agreements and Plans (except for the Flag
Investors Cash Reserve Prime Class B Shares) were most recently approved in
the foregoing manner on March 3, 1994. The Distribution Agreement and Plan
for the Flag Investors Cash Reserve Prime Class B Shares were approved by the
Fund's Board of Directors on September 22, 1994 and by the sole shareholder of
such class on March 29, 1995.
Each Plan will be renewed only if the directors make a similar
determination prior to each renewal term. The Plans may not be amended to
increase the maximum amount of payments by Alex. Brown to its investment
representatives or Shareholder Servicing Agents without shareholder approval,
and all material amendments to the provisions of any of the Distribution
Agreements relating to the Plan must be approved by a vote of the Board of
Directors and of the directors who have no direct or indirect interest in the
Plan, cast in person at a meeting called for the purpose of such vote.
When the Board of Directors of the Fund approved the Distribution
Agreements, the Plans and the form of Shareholder Servicing Agreement, the
Board of Directors requested and evaluated such information as it deemed
reasonably necessary to make an informed determination that the agreements and
Plans should be approved. The Board considered and gave appropriate weight to
all pertinent factors necessary to reach the good faith judgment that the
agreements and Plans would benefit the Fund and its shareholders.
During the continuance of the Plans, Alex. Brown will report in
writing to the Fund's Board of Directors annually the amounts and purposes of
such payments for services rendered to shareholders by its registered account
representatives or by securities dealers and financial institutions who have
executed Shareholder Servicing Agreements.
<PAGE> 13
The Plan relating to the Flag Investors Cash Reserve Prime Class B
Shares may be terminated at any time without penalty. The Fund or Alex. Brown
may terminate each of the Distribution Agreements on 60 days' written notice
without penalty. The Distribution Agreements terminate automatically in the
event of an "assignment", as defined in the 1940 Act. The services of Alex.
Brown to the Fund as Distributor are not exclusive, and it is free to render
similar services to others. The Fund has agreed that, should Alex. Brown
cease to have Distribution Agreements with the Fund, the Fund will cease to
use the words "Alex. Brown" or any trademark or identifying logotype
indicating that the Fund is distributed or administered by or otherwise
connected with Alex. Brown.
Some of the directors of the Fund are customers of, and have had
normal brokerage transactions with, Alex. Brown in the ordinary course of
business. All such transactions are made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated
persons. Additional transactions may be expected to take place in the future.
Alex. Brown also serves as the distributor for other mutual funds
in the Flag Investors family of funds (currently: Flag Investors Telephone
Income Fund, Inc., Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., Flag Investors Quality Growth Fund, Inc., Flag
Investors Total Return U.S. Treasury Fund Shares of Total Return U.S. Treasury
Fund, Inc., Flag Investors Managed Municipal Fund Shares of Managed Municipal
Fund, Inc., Flag Investors Intermediate-Term Income Fund, Inc., Flag Investors
Value Builder Fund, Inc., Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. and Flag Investors Real Estate Securities Fund, Inc.
Expenses
Alex. Brown and ICC furnish, without cost to the Fund, the
services of the President, Secretary and one or more Vice Presidents of the
Fund and such other personnel as are required for the proper conduct of the
Fund's affairs and to carry out their obligations under the Distribution
Agreements, the Investment Advisory Agreements and the Sub-Advisory Agreement.
PIMC (for the Tax-Free Series) and Alex. Brown (for the Prime Series and the
Treasury Series) maintain, at their own expense and without cost to the Fund,
trading functions in order to carry out their respective obligations to place
orders for the purchase and sale of portfolio securities for the Tax-Free,
Prime or Treasury Series, as appropriate. Alex. Brown bears the expenses of
printing and distributing prospectuses (other than those prospectuses
distributed to existing shareholders of the Fund) and any other promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Fund's shares, the
expenses of advertising in connection with such public offering and all legal
expenses in connection with the foregoing.
The Fund pays or causes to be paid all other expenses of the Fund,
including, without limitation: the fees of Alex. Brown and ICC; the charges
and expenses of any registrar, any custodian or depository appointed by the
Fund for the safekeeping of its cash, portfolio securities and other property,
and any share transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing certificates representing shares of the Fund; all costs
and expenses in connection with the registration and maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders (prospectuses distributed to prospective shareholders are paid
for by Alex. Brown); all expenses of shareholders' and directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
<PAGE> 14
Fund's shares; fees and expenses of legal counsel and of independent
accountants, in connection with any matter relating to the Fund; membership
dues of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and directors)
of the Fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the
Fund's operations unless otherwise explicitly assumed by Alex. Brown, ICC or
PIMC.
Expenses which are attributable to any of the Fund's three Series
are charged against the income of such Series in determining net income for
dividend purposes. Expenses of the Fund which are not directly attributable
to the operations of a particular Series are allocated among the Series based
upon the relative net assets of each Series. Expenses attributable to a class
of shares of a Series are allocated to that class. For the fiscal year ended
March 31, 1992, ICC voluntarily assumed expenses of $17,485 for the Flag
Investors Cash Reserve Prime Class A Shares.
If for any fiscal year the operating expenses of the Fund
(exclusive of any interest, taxes, brokerage commissions and extraordinary
expenses) should exceed 1% of the combined average daily net assets of all
three Series of the Fund, ICC will reimburse the Fund for such excess expenses
up to an amount equal to its aggregate fees from the Fund for such year. If
ICC is required to reimburse the Fund for such excess amount, PIMC has agreed
to reimburse ICC a proportionate amount of its aggregate fees from ICC for
such year. Additionally, ICC has agreed, if required by law, to reimburse the
Fund, to the extent required so that the amount of the ordinary expenses of
the Fund (excluding brokerage commissions, interest, taxes and extraordinary
expenses such as litigation costs) paid or incurred by any of the Fund's
Series do not exceed the expense limitations applicable to the Fund imposed by
the securities laws or regulations of any state or jurisdiction in which the
Fund's shares are registered or qualified for sale. Currently, the most
restrictive of such expense limitations requires ICC to reimburse the Fund, or
reduce its fees, to the extent required so that the amount of the ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as litigation costs) paid or incurred by any of
the Fund's Series do not exceed 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of the Fund's average
daily net assets and 1.5% of the Fund's average daily net assets in excess of
$100 million.
Transfer Agent, Custodian, Accounting Services
PNC acts as custodian for the Fund's portfolio securities and
cash. PFPC, an affiliate of PNC and PIMC, provides certain accounting
services for the Tax-Free Series. Prior to November 1, 1994, PFPC also
provided accounting services for the Prime Series. ICC, the Fund's investment
advisor, provides accounting services for the Prime Series and the Treasury
Series. In addition, ICC serves as the Fund's transfer and dividend
disbursing agent. PNC, PFPC and ICC receive such compensation from the Fund
(or, with respect to accounting fees, from the Tax-Free, Prime or Treasury
Series, as appropriate) for services in such capacities as are agreed to from
time to time by PNC, PFPC, ICC and the Fund. For the fiscal year ended March
31, 1994, PNC received custodian fees of $605,763 (including reimbursement for
out-of-pocket expenses) and PFPC received accounting services fees (including
reimbursement for out-of-pocket expenses) of $130,083 ($70,777 for the Prime
Series and $59,306 for the Tax-Free Series), respectively. As compensation
for providing accounting services to the Prime Series and the Treasury Series,
ICC receives an annual fee, calculated daily and paid monthly as shown below.
These fees became effective on September 22, 1994 with respect to the Treasury
Series and November 1, 1994 with respect to the Prime Series.
<PAGE> 15
Average Net Assets Incremental Annual Accounting Fee Per Series
------------------ --------------------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Prime Series and the Treasury Series, as
appropriate, will reimburse ICC for the following out-of-pocket expenses
incurred in connection with ICC's performance of accounting services for such
Series: express delivery, independent pricing and storage.
For the period from January 1, 1994 through March 31, 1994, ICC
received fees of $15,402 for providing accounting services to the Treasury
Series. Prior to January 1, 1994, Alex. Brown provided accounting services to
the Treasury Series and for the period from April 1, 1993 through December 31,
1993 received fees of $47,275.
As compensation for providing transfer agency services, the Fund
pays ICC up to $10.50 per account plus reimbursement for out-of-pocket
expenses incurred in connection therewith. Prior to April 1, 1994, PFPC
served as the Fund's transfer agent and for the fiscal year ended March 31,
1994, received fees (including reimbursement for out-of-pocket expenses) of
$1,418,194.
The address of ICC is 135 East Baltimore Street, Baltimore,
Maryland 21202 (telephone: 800-553-8080), the address of PNC is Airport
Business Center, 200 Stevens Drive, Lester, Pennsylvania 19113, and the
address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809. PFPC may
reimburse Alex. Brown for certain shareholder servicing functions performed by
Alex. Brown.
Sub-Accounting
The Fund and ICC have arranged for PFPC to offer sub-accounting
services to Fund shareholders and maintain information with respect to
underlying owners. Investors, such as financial institutions, investment
counselors and brokers, who purchase shares for the account of others, can
make arrangements through the Fund or ICC for these sub-accounting services.
Principal Holders of Securities
The names and addresses of the holders of 5% or more of the
outstanding shares of any class of the Fund as of December 20, 1994 and the
percentage of outstanding shares of such classes owned by such shareholders as
of such date are, to Fund management's knowledge, as follows:
<PAGE> 16
<TABLE>
<CAPTION>
Title of Class
and Name and Number of Shares Percent Owned Number of Percent
Address of Owned of Record of Record Shares Owned Owned of
Record Owner 1/ and Beneficially and Beneficially of Record Only Record Only
--------------- ---------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
Institutional Prime Shares
Provident National Bank 10,144,889 99.02% 10,144,889 99.02%
Airport Business Center
Lester, PA 19113
Institutional Treasury Shares
Provident National Bank 32,783,165 100% 32,783,165 100%
Airport Business Center
Lester, PA 19113
Flag Investors Cash Reserve Prime Class A Shares
Alex Brown & Sons 1,459,571 8.3% --- ---
Incorporated
P.O. Box 1346
Baltimore, MD 21203
</TABLE>
As of December 20, 1994, the directors and officers of the Fund as
a group (16 persons) owned an aggregate of less than 1% of the Fund's shares
or any class thereof.
Reports
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a schedule
of investments held in the Fund's portfolios and its financial statements.
The annual financial statements are audited by the Fund's independent
accountants. The Board of Directors has selected Coopers & Lybrand, L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, as the Fund's
independent accountants to audit the Fund's financial statements and review
the Fund's federal tax returns for the fiscal year ending March 31, 1995.
SHARE PURCHASES AND REDEMPTIONS
Purchases and Redemptions
A complete description of the manner by which the Fund's Shares
may be purchased or redeemed appears in the Prospectus for that class under
the headings "How to Invest in the Fund" and "How to Redeem Shares." The Fund
reserves the right to suspend the sale of Shares at any time.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday
closings, (c) the SEC has by order permitted such suspension, or (d) an
emergency as determined by the SEC exists making disposal of portfolio
securities or the valuation of the net assets of the Fund not reasonably
practicable.
Net Asset Value Determination
The net asset value of each of the Fund's Series is determined
once daily as of 12:00 noon Eastern time each day that PNC and the New York
Stock Exchange are open for business.
For the purpose of determining the price at which shares of each
class of each Series are issued and redeemed, the net asset value per share is
calculated immediately after the daily dividend declaration by: (a) valuing
all securities and instruments of such Series as set forth below; (b)
<PAGE> 17
deducting such Series' and class' liabilities; (c) dividing the resulting
amount by the number of shares outstanding of such class; and (d) rounding the
per share net asset value to the nearest whole cent. As discussed below, it
is the intention of the Fund to maintain a net asset value per share of $1.00
for each class of each Series.
The instruments held in each Series' portfolio are valued on the
basis of amortized cost. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation,
it may result in periods during which value, as determined by amortized cost,
is higher or lower than the price the Fund would receive if it sold all the
securities in its portfolios. During periods of declining interest rates, the
daily yield for any Series computed as described under "Dividends and Taxes"
below, may be higher than a like computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the Fund results in a lower aggregate portfolio value
for a Series on a particular day, a prospective investor in such Series would
be able to obtain a somewhat higher yield than would result from an investment
in a fund utilizing solely market values, and existing investors in such
Series would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the portfolio instruments based upon their
amortized cost, the calculation of the per share net asset value to the
nearest whole cent and the concomitant maintenance of the net asset value per
share of $1.00 for each class of each Series is permitted in accordance with
rules and regulations of the SEC applicable to money market funds, as amended,
effective June 1, 1991, which require the Fund to adhere to certain quality,
maturity and diversification conditions. The Fund maintains a dollar-weighted
average portfolio maturity of 120 days or less for each Series, purchases only
instruments having remaining maturities of one year or less and invests only
in securities determined by the Board of Directors to be of high quality with
minimal credit risk. The Board of Directors is required to establish
procedures designed to stabilize, to the extent reasonably possible, the
Fund's price per share at $1.00 for each class of each Series as computed for
the purpose of sales and redemptions. Such procedures include review of each
Series' portfolio holdings by the Board of Directors, at such intervals as it
may deem appropriate, to determine whether the net asset value calculated by
using available market quotations or other reputable sources for any class of
any Series deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing
shareholders of the relevant class or Series. In the event the Board of
Directors determines that such a deviation exists for any class of any Series,
it will take such corrective action as the Board of Directors deems necessary
and appropriate with respect to any class of such Series, including sales of
portfolio instruments prior to maturity to realize capital maturity;
withholding of dividends; redemption of shares in kind; or establishment of a
net asset value per share by using available market quotations.
DIVIDENDS AND TAXES
Dividends
All of the net income earned on the Treasury Series, the Prime
Series and the Tax-Free Series is declared daily as dividends to the
respective holders of record of shares of each class of each Series. The net
income of each Series for dividend purposes (from the time of the immediately
preceding determination thereof) consists of (a) interest accrued and discount
earned (including both original issue and market discount), if any, on the
assets of such Series and any general income of the Fund prorated to the
Series based on its relative net assets, less (b) amortization of premium and
accrued expenses for the applicable dividend period attributable directly to
such Series and general expenses of the Fund prorated to each such Series
based on its relative net assets. Expenses attributable to a class of a
Series are allocated to that class. Although realized gains and losses on the
<PAGE> 18
assets of each Series are reflected in the net asset value of such Series,
they are not expected to be of an amount which would affect the net asset
value of any Series of $1.00 per share for the purposes of purchases and
redemptions. Realized gains and losses may be declared and paid yearly or
more frequently. The amount of discount or premium on instruments in each
portfolio is fixed at time of their purchase. See "Net Asset Value
Determination" above.
Should the Fund incur or anticipate any unusual expense or loss or
depreciation which would adversely affect the net asset value per share or net
income per share of any class of a Series for a particular period, the Board
of Directors would at that time consider whether to adhere to the present
dividend policy described above or to revise it in light of then prevailing
circumstances. For example, if the net asset value per share of any class of
a Series was reduced, or was anticipated to be reduced, below $1.00, the Board
of Directors might suspend further dividend payments with respect to such
class or Series until the net asset value returns to $1.00. Thus, the expense
or loss or depreciation might result in a shareholder (i) receiving no
dividends for the period during which the shareholder held shares of such
class or Series or (ii) receiving upon redemption a price per share lower than
that which he paid.
Dividends on all classes of a Series are normally payable on the
first day that a share purchase or exchange order is effective but not on the
day that a redemption order is effective. However, if a purchase order is
received by Alex. Brown after 11:00 a.m. Eastern time on any business day, the
shareholder will receive dividends beginning the following business day. The
net income of each Series for dividend purposes is determined as of 12:00 noon
Eastern time each day that the Fund is open for business and immediately prior
to the determination of each Series' net asset value on that day. Dividends
are declared 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 summary of certain additional federal
income tax considerations generally affecting the Fund and its shareholders
that are not described in the Fund's Prospectus. No attempt is made to
present a detailed explanation of the federal, state or local tax treatment of
the Fund or its shareholders, and the discussion here and in the Fund's
Prospectus is not intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions
contemplated herein.
1. Generally
Through payment of all or substantially all of its net investment
company taxable income (generally, net investment income plus net short term
capital gains) plus, in the case of the Tax-Free Series, all or substantially
all of its net exempt interest income, to shareholders and by meeting certain
diversification of assets and other requirements of the Code, each Series
expects to qualify as a regulated investment company under Subchapter M of the
Code. This will enable each Series to be relieved from payment of income
taxes on that portion of its net investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders. Each Series also intends to meet
the distribution requirements of the Code to avoid the imposition of a 4%
federal excise tax.
In order to qualify for tax treatment as a regulated investment
company under the Code, each Series must distribute annually to its
shareholders at least the sum of 90% of its net interest income excludable
<PAGE> 19
from gross income plus 90% of its investment company taxable income and also
must meet several additional requirements. Among those requirements are the
following: (i) each Series must derive less than 30% of its gross income from
the sale or other disposition of stock or securities held for less than three
months; (ii) each Series must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities, or
certain other income; (iii) at the close of each quarter of each Series'
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other registered investment companies and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Series' assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; (iv) at the
close of each quarter of each Series' taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other registered investment companies) of any
one issuer or of two or more issuers which the Series controls and which are
engaged in the same, similar or related trades or businesses.
Each Series' policy is to distribute to its shareholders
substantially all of its investment company taxable income for each year.
Such dividends generally will be taxable to shareholders as ordinary income.
Dividends will be subject to taxation whether paid in the form of cash or
additional shares of a Series.
Since all of each Series' net investment income is expected to be
derived from earned interest, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporate shareholders.
Although no Series expects to recognize any long-term capital
gains, each Series' policy is to distribute substantially all of its net
capital gains (the excess of net long-term capital gains over net short-term
capital losses). Any such net capital gains distributions will be taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held shares. An ordinary income dividend or a distribution of net capital
gains received after the purchase of a Series' shares reduces the net asset
value of the shares by the amount of such dividend or distribution and will be
subject to income taxes.
Generally, when establishing an account, an investor must supply a
taxpayer identification number to the Series and certify that the investor is
not subject to backup withholding. Failure to do so will result in the
Series' having to withhold from distributions 31% of all amounts otherwise
payable. Backup withholding may also apply in certain other circumstances.
The amounts withheld will be credited against the shareholder's federal income
tax liability, and if withholding results in an overpayment of taxes, the
shareholder may obtain a refund from the Internal Revenue Service.
Dividends to shareholders who are non-resident individuals or
entities may be subject to a 30% United States withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Non-resident shareholders are urged to consult their
own tax advisors concerning the applicability of the U.S. withholding tax.
The Code imposes a 4% non-deductible federal excise tax on a
regulated investment company that fails to distribute by the end of any
calendar year 98% of its ordinary income for that year and 98% of its capital
gain net income (the excess of short and long term capital gains over short
and long term capital losses) for the one-year period ending on October 31 of
such calendar year, plus certain other amounts. Each Series intends to make
sufficient distributions of its ordinary income and capital gains net income
prior to the end of each calendar year to avoid liability for this excise tax.
<PAGE> 20
Any gain or loss recognized on a sale or redemption of shares of
the Series by a shareholder who is not a dealer in securities generally will
be treated as a long-term capital gain or loss if the shares have been held
for more than twelve months and otherwise generally will be treated as a
short-term capital gain or loss. Any loss recognized by a Shareholder upon
the sale or redemption of shares of the Series held for six months or less,
however, will be disallowed to the extent of any exempt-interest dividends
received by the Shareholder with respect to such shares. If shares on which a
net capital gain distribution has been received are subsequently sold or
redeemed, and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the
capital gain distribution.
Dividends and capital gains distributions may also be subject to
state and local taxes. Shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state, or local taxes.
2. Additional Considerations for Tax-Free Series
The following additional considerations relate to the Tax-Free
Series. The Tax-Free Series intends to invest in sufficient Municipal
Securities so that it will qualify to pay "exempt-interest dividends" (as
defined in the Code) to shareholders. The Tax-Free Series' dividends payable
from net tax-exempt interest earned from Municipal Securities will qualify as
exempt-interest dividends if, at the close of each quarter of the taxable year
of the Series, at least 50% of the value of the Series' total assets consists
of Municipal Securities. In addition, the Series must distribute an amount
equal to at least the sum of 90% of the net exempt-interest income and 90% of
the investment company taxable income earned by the Series during the taxable
year.
Exempt-interest dividends distributed to shareholders are not
includable in the shareholders' gross income for regular federal income tax
purposes. However, while such interest is exempt from regular federal income
tax, it may be subject to the alternative minimum tax (the "Alternative
Minimum Tax") imposed by Section 55 of the Code and in the case of corporate
shareholders, the environmental tax (the "Environmental Tax") imposed by
Section 59A of the Code. The Alternative Minimum Tax will be imposed at rates
of up to 28% in the case of noncorporate taxpayers and at the rate of 20% in
the case of corporate taxpayers, to the extent it exceeds the taxpayer's
regular tax liability. The Environmental Tax is imposed at the rate of 0.12%
and applies only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain Municipal Securities that are "private activity
bonds" which are issued after August 7, 1986, will generally constitute an
item of tax preference (and therefore potentially be subject to the
Alternative Minimum Tax and the Environmental Tax) for both corporate and non-
corporate taxpayers. The Fund intends, when possible, to avoid investing in
such Municipal Securities. Second, exempt-interest dividends derived from all
Municipal Securities, regardless of the date of issue, or whether derived from
private activity bonds, must be taken into account by corporate taxpayers in
determining the amount of their "adjusted current earnings," as defined in
Section 56(g) of the Code, which is used in calculating their alternative
minimum taxable income for purposes of determining the Alternative Minimum Tax
and the Environmental Tax.
The percentage of income that constitutes "exempt-interest
dividends" will be determined for each year for the Series and will be applied
uniformly to all dividends declared with respect to the Series during that
year. This percentage may differ from the actual percentage for any
particular day.
As noted, it is the present policy of the Series to invest only in
securities the interest on which is exempt from federal tax. However,
distributions of net investment income received by the Series from investments
in debt securities other than Municipal Securities and any net realized short-
term capital gains distributed by the Series will be taxable to shareholders
as ordinary income and will not be eligible for the dividends received
<PAGE> 21
deduction for corporate shareholders. Further, any distribution of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), such as gains from the sale of Municipal Securities held by
the Series for more than one year, will generally constitute taxable long-term
capital gains to shareholders.
Interest on indebtedness which is incurred or continued to
purchase or carry shares of an investment company which distributes exempt-
interest dividends during the year is not deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal
to a portion of exempt-interest dividends received or accrued during any
taxable year. Foreign corporations engaged in a trade or business in the
United States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends. Up to 85% of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual, depending upon the individual's "modified
adjusted gross income", which includes exempt-interest dividends. Further,
the Tax-Free Series may not be an appropriate investment for persons who are
"substantial users" of facilities financed by industrial development bonds or
are "related persons" to such users. A "substantial user" is defined
generally to include certain persons who regularly use a facility in their
trade or business. Such persons should consult with their own tax advisors
before investing in the Tax-Free Series.
Issuers of Municipal Securities (or the beneficiary of Municipal
Securities) may have made certain representations or covenants in connection
with the issuance of such Municipal Securities to satisfy certain requirements
of the Code that must be satisfied subsequent to the issuance of such
Municipal Securities. Investors should be aware that exempt-interest
dividends derived from such Municipal Securities may become subject to federal
income taxation retroactively to the date thereof if such representations are
determined to have been inaccurate or if the issuer of such Municipal
Securities (or the beneficiary of such Municipal Securities) fails to comply
with such covenants.
Receipt of exempt-interest dividends may also result in collateral
federal tax consequences to certain taxpayers. Prospective investors should
consult their own tax advisors as to such consequences.
CURRENT YIELD
Set forth below are the current, effective and taxable-equivalent
yields, as applicable, for each class or series of the Fund's shares for the
seven-day period ended March 31, 1994. The Flag Investors Cash Reserve Prime
Class B Shares were not offered during this period.
<TABLE>
<CAPTION>
Series or class Current Yield Effective Yield Taxable-Equivalent Yield***
--------------- ------------- --------------- ---------------------------
<S> <C> <C> <C>
Prime Series* 2.94% 2.98% N/A
Institutional Prime Shares 3.26% 3.31% N/A
Quality Cash Reserve Prime Shares 2.50% 3.53% N/A
Treasury Series** 2.78% 2.82% N/A
Institutional Treasury Series 3.04% 3.09% N/A
Tax-Free Series 1.73% 1.74% 2.52%
_______________________
* Other than the Institutional, Quality Cash Reserve Prime Shares or Flag
Investors Cash Reserve Prime Class B Shares classes.
** Other than the Institutional Shares class.
*** Assumes a tax rate of 31%.
</TABLE>
<PAGE> 22
The yield for each Series of the Fund can be obtained by calling
your sub-distributor or Alex. Brown at (410) 561-8686. Quotations of yield on
each Series of the Fund may also appear from time to time in the financial
press and in advertisements.
The current yields quoted will be the net average annualized yield
for an identified period, usually seven consecutive calendar days. Yield for
each Series or class will be computed by assuming that an account was
established with a single share of a Series (the "Single Share Account") on
the first day of the period. To arrive at the quoted yield, the net change in
the value of that Single Share Account for the period (which would include
dividends accrued with respect to the share, and dividends declared on shares
purchased with dividends accrued and paid, if any, but would not include
realized gains and losses or unrealized appreciation or depreciation) will be
multiplied by 365 and then divided by the number of days in the period, with
the resulting figure carried to the nearest hundredth of one percent. The
Fund may also furnish a quotation of effective yield for each Series or class
that assumes the reinvestment of dividends for a 365 day year and a return for
the entire year equal to the average annualized yield for the period, which
will be computed by compounding the unannualized current yield for the period
by adding 1 to the unannualized current yield, raising the sum to a power
equal to 365 divided by the number of days in the period, and then subtracting
1 from the result. In addition, the Fund may furnish a quotation of the Tax-
Free Series' taxable-equivalent yield, which will be computed by dividing the
tax-exempt portion of such Series' effective yield for a stated consecutive
seven day period by one minus the investor's income tax rate and adding the
product to the portion of the yield for the same consecutive seven day period
that is not tax-exempt. The resulting yield is what the investor would need
to earn from a taxable investment in order to realize an after-tax benefit
equal to the tax-free yield provided by the Tax-Free Series. Historical
yields are not necessarily indicative of future yields. Rates of return will
vary as interest rates and other conditions affecting money market instruments
change. Yields also depend on the quality, length of maturity and type of
instruments in each of the Fund's Series and each Series' or class' operating
expenses. Quotations of yields will be accompanied by information concerning
the average weighted maturity of the portfolio of a Series. Comparison of the
quoted yields of various investments is valid only if yields are calculated in
the same manner and for identical limited periods. When comparing the yield
for either Series of the Fund with yields quoted with respect to other
investments, shareholders should consider (a) possible differences in time
periods, (b) the effect of the methods used to calculate quoted yields, and
(c) the quality and average-weighted maturity of portfolio investments,
expenses, convenience, liquidity and other important factors.
INVESTMENT PROGRAM AND RESTRICTIONS
Information concerning the Fund's investment program is discussed
in the Fund's Prospectus.
Each Series may invest in instruments that have certain minimum
ratings of either Moody's Investor Services, Inc. ("Moody's") or Standard and
Poor's Corporation ("S&P") as permitted by the investment objective, policies
and restrictions of each such Series. See "Investment Program" in the
Prospectus. Investments of commercial paper may be precluded unless a
particular instrument is an "Eligible Security" as defined in Rule 2a-7 under
the 1940 Act. Rule 2a-7 defines "Eligible Security" as follows:
(i) a security with a remaining maturity of 397 days or less
that is rated (or that has been issued by an issuer that is rated with
respect to a class of Short-term debt obligations, or any security
within that class, that is comparable in priority and security with the
<PAGE> 23
security) by the Requisite NRSROs 1/ in one of the two highest rating
categories for Short-term debt obligations (within which there may be
sub-categories or gradations indicating relative standing); or
(ii) a security:
(A) that at the time of issuance was a Long-term security
but that has a remaining maturity of 397 calendar days or less,
and
(B) whose issuer has received from the Requisite NRSROs a
rating, with respect to a class of Short-term debt obligations (or
any security within that class) that is now comparable in priority
and security with the security, in one of the two highest rating
categories for Short-term debt obligations (within which there may
be sub-categories or gradations indicating relative standing); or
(iii) an Unrated Security that is of comparable quality to a
security meeting the requirements of paragraphs (a)(5)(i) or (ii) of
this section, as determined by the money market fund's board of
directors; provided, however, that:
(A) the board of directors may base its determination that
a Standby Commitment is an Eligible Security upon a finding that
the issuer of the commitment presents a minimal risk of default;
and
(B) a security that at the time of issuance was a Long-
term security but that has a remaining maturity of 397 calendar
days or less and that is an Unrated Security 2/ is not an Eligible
Security if the security has a Long-term rating from any NRSRO
that is not within the NRSRO's two highest categories (within
which there may be sub-categories or gradations indicating
relative standing).
The following is a description of the minimum ratings of S&P and
Moody's for instruments in which each Series may invest.
----------------
1/ "Requisite NRSRO" shall mean (a) any two nationally recognized statistical
rating organizations that have issued a rating with respect to a security or
class of debt obligations of an issuer, or (b) if only one NRSRO has issued
a rating with respect to such security or issuer at the time the Fund
purchases or rolls over the security, that NRSRO. At present the NRSROs are:
Standard & Poor's Corp., Moody's Investors Service, Inc., Duff and Phelps,
Inc., Fitch Investors Services, Inc. and, with respect to certain types of
securities, IBCA Limited and its affiliates, IBCA Inc. Subcategories or
gradations in ratings (such as a "+" or "-") do not count as rating
categories.
2/ An "unrated security" is a security (i) issued by an issuer that does not
have a current short-term rating from any NRSRO, either as to the particular
security or as to any other short-term obligations of comparable priority and
security; (ii) that was a long-term security at the time of issuance and
whose issuer has not received from any NRSRO a rating with respect to a class
of short-term debt obligations now comparable in priority and security; or
(iii) a security that is rated but which is the subject of an external
credit support agreement not in effect when the security was assigned its
rating, provided that a security is not an unrated security if any short-
term debt obligation issued by the issuer and comparable in priority and
security is rated by any NRSRO.
<PAGE> 24
Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years; (7) financial strength of a
parent company and the relationship which exists with the issuer; and (8)
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated P-1, P-2 or P-3.
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The reliability and quality of management is unquestioned. Relative strength
or weakness of the above factors determines whether the issuer's commercial
paper is rated A-1, A-2 or A-3.
Short Term Debt Ratings
Moody's - State and municipal notes, as well as other short-term
obligations, are assigned a Moody's Investment Grade (MIG) rating. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
evaluating bond risk may be less important over the short run.
MIG 1
Notes bearing this designation are of the best quality. Notes are
enjoying strong "protection" by established cash flows, superior
liquidity support or a demonstrated broad-based access to the market for
refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of
protection are ample although not as large as in the preceding group.
S&P - The note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will receive a
note rating. Notes rated "SP-1" have a strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are assigned a plus (+) designation.
Tax-Exempt Demand Ratings
Moody's - Issues which have demand features (i.e., variable rate
demand obligations) are assigned a VMIG symbol. This symbol reflects such
characteristics as payment upon periodic demand rather than fixed maturity,
and payment relying on external liquidity. The VMIG rating is modified by the
numbers 1, 2 or 3. VMIG1 represents the best quality in the VMIG category,
VMIG2 represents high quality, and VMIG3 represents favorable quality.
<PAGE> 25
S&P - "dual" ratings are assigned to all long-term debt issues
that have as part of their provisions a demand feature. The first rating
addresses the likelihood of repayment of principal and interest as due, and
the second rating addresses only the demand feature. The long-term debt
rating symbols are used for bonds to denote the long-term maturity, and the
commercial paper rating symbols are used to denote the put option (e.g.,
"AAA/A-1+").
Investment Restrictions
The most significant investment restrictions applicable to the
Fund's investment program are set forth in the Prospectus under the heading
"Investment Program - Investment Restrictions." Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of
shareholders (as that term is defined in the Prospectus under the heading
"General Information"), no Series will:
(1) buy common stocks or voting securities or invest in companies
for the purpose of exercising control or management; (2) mortgage, pledge or
hypothecate any assets except to secure permitted borrowings and reverse
repurchase agreements and then only in an amount up to 15% of the value of a
Series' total assets at the time of borrowing or entering into a reverse
repurchase agreement; (3) underwrite securities issued by any other person,
except to the extent that the purchase of securities and the later disposition
of such securities in accordance with a Series' investment program may be
deemed an underwriting; (4) invest in real estate (a Series may, however,
purchase and sell securities secured by real estate or interests therein or
issued by issuers which invest in real estate or interests therein); (5)
purchase oil, gas or mineral interests (a Series may, however, purchase and
sell the securities of companies engaged in the exploration, development,
production, refining, transporting and marketing of oil, gas or minerals); (6)
purchase or sell commodities or commodity futures contracts, purchase
securities on margin, make short sales or invest in puts or calls; or (7)
acquire for value the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
The following investment restrictions may be changed by a vote of
the majority of the Board of Directors of the Fund. No Series will: (1)
invest more than 10% of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in excess of seven
days; (2) invest in warrants if as a result more than 2% of the value of such
Series net assets would be invested in warrants which are not listed on a
recognized stock exchange, or more than 5% of such Series net assets would be
invested in warrants regardless of whether listed on such exchange; (3)
purchase any securities of unseasoned issuers which have been in operation
directly or through predecessors for less than three years; (4) invest in real
estate limited partnership interests or oil, gas or mineral leases; or (5)
purchase or retain the securities of any issuer if to the knowledge of the
Fund any officer or Director of the Fund, its investment advisor or sub-
advisors owns beneficially more than .5% of the outstanding securities of such
issuer and together they own beneficially more than 5% of the securities of
such issuer.
PORTFOLIO TRANSACTIONS
ICC and PIMC, for the Tax-Free Series, (the "Advisors") are
responsible for decisions to buy and sell securities for the Fund, broker-
dealer selection and negotiation of commission rates. Since purchases and
sales of portfolio securities by the Fund are usually principal transactions,
the Fund incurs little or no brokerage commissions. Portfolio securities are
normally purchased directly from the issuer or from a market maker for the
securities. The purchase price paid to dealers serving as market makers may
include a spread between the bid and asked prices. The Fund may also purchase
securities from underwriters at prices which include a commission paid by the
issuer to the underwriter. During the fiscal years ended March 31, 1994 and
March 31, 1993, the Fund incurred no brokerage commissions.
<PAGE> 26
The Fund does not seek to profit from short-term trading, and will
generally (but not always) hold portfolio securities to maturity. The Fund's
fundamental policies require that investments mature within one year or less,
and the amortized cost method of valuing portfolio securities requires that
the Fund maintain an average weighted portfolio maturity of 120 days or less.
Both policies may result in relatively high portfolio turnover, but since
brokerage commissions are not normally paid on money market instruments, the
high rate of portfolio turnover is not expected to have a material effect on
the Fund's net income or expenses.
The Advisors' primary consideration in effecting a security
transaction is to obtain the best net price and the most favorable execution
of the order. To the extent that the executions and prices offered by more
than one dealer are comparable, the Advisors may, at their discretion, effect
transactions with dealers that furnish statistical, research or other
information or services which are deemed by the Advisors to be beneficial to
the Fund's investment program. Certain research services furnished by dealers
may be useful to the Advisors with clients other than the Fund. Similarly,
any research services received by the Advisors through placement of portfolio
transactions of other clients may be of value to the Advisors in fulfilling
their obligations to the Fund. The Advisors are of the opinion that the
material received is beneficial in supplementing their research and analysis,
and, therefore, may benefit the Fund by improving the quality of their
investment advice. The advisory fee paid by the Fund is not reduced because
the Advisors receive such services. During the fiscal years ended March 31,
1994 and March 31, 1993, the Advisors directed no transactions to dealers and
paid no related commissions because of research services provided to the Fund.
The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Fund
has acquired during its most recent fiscal year. As of March 31, 1994, the
Fund held a repurchase agreement issued by J.P. Morgan & Co. valued at
$50,000,000 and a repurchase agreement issued by Morgan Stanley & Co. valued
at $126,028,000.
The Advisors and their affiliates manage several other investment
accounts, some of which may have objectives similar to that of the Fund. It
is possible that at times, identical securities will be acceptable for one or
more of such investment accounts. However, the position of each account in
the securities of the same issue may vary and the length of time that each
account may choose to hold its investment in the securities of the same issue
may likewise vary. The timing and amount of purchase by each account will
also be determined by its cash position. If the purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these accounts is considered at or about the same time, transactions in
such securities will be allocated in good faith among the Fund and such
accounts in a manner deemed equitable by the Advisors. The Advisors may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution. The
allocation and combination of simultaneous securities purchases on behalf of
the Fund's three series will be made in the same way that such purchases are
allocated among or combined with those of other such investment accounts.
Simultaneous transactions could adversely affect the ability of the Fund to
obtain or dispose of the full amount of a security which it seeks to purchase
or sell.
Portfolio securities will not be purchased from or sold to or
through any "affiliated person" of the Advisors, as defined in the 1940 Act.
In making decisions with respect to purchase of portfolio securities for the
Fund, the Advisors will not take into consideration whether a dealer or other
financial institution has executed a Shareholder Servicing Agreement with
Alex. Brown.
Provisions of the 1940 Act and rules and regulations thereunder
have been construed to prohibit the Fund's purchasing securities or
instruments from or through, or selling securities or instruments to or
through, any holder of 5% or more of the voting securities of any investment
company managed or advised by the Advisors. The Fund has obtained an order of
<PAGE> 27
exemption from the SEC which permits the Fund to engage in such transactions
with a 5% holder, if the 5% holder is one of the 50 largest U.S. banks
measured by deposits. Purchases from these 5% holders are subject to
quarterly review by the Fund's Board of Directors, including those directors
who are not "interested persons" of the Fund. Additionally, such purchases
and sales are subject to the following conditions:
(1) The Fund will maintain and preserve a written copy of the
internal control procedures for the monitoring of such
transactions, together with a written record of any such
transactions setting forth a description of the security purchased
or sold, the identity of the purchaser or seller, the terms of the
purchase or sale transactions and the information or materials
upon which the determinations to purchase or sell each security
were made;
(2) Each security to be purchased or sold by the Fund will be:
(i) consistent with the Fund's investment policies and objectives;
(ii) consistent with the interests of the Fund's shareholders; and
(iii) comparable in terms of quality, yield, and maturity to
similar securities purchased or sold during a comparable period of
time;
(3) The terms of each transaction will be reasonable and fair to
the Fund's shareholders and will not involve overreaching on the
part of any person; and
(4) Each commission, fee, spread or other remuneration received
by a 5% holder will be reasonable and fair compared to the
commission, fee, spread or other remuneration received by other
brokers or dealers in connection with comparable transactions
involving similar securities purchased or sold during a comparable
period of time and will not exceed the limitations set forth in
Section 17(e)(2) of the 1940 Act.
FINANCIAL STATEMENTS
See next page
<PAGE> 28
ALEX. BROWN CASH RESERVE FUND, INC.
PRIME SERIES
------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- --------- ---------------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 1.7%
U.S. Treasury Note
9.50% .................................. 05/15/94 $25,000 $ 25,183,397
---------------
TOTAL U.S. TREASURY NOTES ............. 25,183,397
---------------
CERTIFICATES OF DEPOSIT -- 2.7%
NBD Bank, N.A.
3.33% .................................. 07/11/94 40,000 39,972,450
---------------
TOTAL CERTIFICATES OF DEPOSIT ......... 39,972,450
---------------
COMMERCIAL PAPER -- 79.4%(a)
Automobile -- 1.5%
Daimler-Benz North America Corp.
3.77% .................................. 06/13/94 23,000 22,824,171
---------------
Business Credit Institutions -- 10.0%
Ciesco LP
3.40% .................................. 04/18/94 14,160 14,137,265
3.80% .................................. 06/20/94 10,000 9,915,556
C.I.T. Group Holdings, Inc.
3.25% .................................. 04/19/94 25,000 24,959,375
Corporate Asset Funding, Inc.
3.42% .................................. 04/04/94 8,000 7,997,720
3.10% .................................. 04/20/94 15,000 14,975,458
Corporate Receivables Corporation
3.45% .................................. 04/18/94 20,900 20,865,950
National Rural Utilities Coop. Finance
Corp.
3.40% .................................. 04/12/94 25,000 24,974,028
3.11% .................................. 04/14/94 30,000 29,966,308
---------------
147,791,660
---------------
Consumer Products -- 9.3%
Coca-Cola Co.
3.75% .................................. 06/23/94 35,000 34,697,396
Colgate-Palmolive Company
3.70% .................................. 04/26/94 37,900 37,802,618
Heinz (H.J.) Co.
3.40% .................................. 04/18/94 13,325 13,303,606
Nestle Capital Corp.
3.65% .................................. 06/01/94 24,000 23,851,567
Sara Lee Corp.
3.45% .................................. 04/14/94 25,000 24,968,854
3.50% .................................. 05/18/94 4,230 4,210,671
---------------
138,834,712
---------------
</TABLE>
<PAGE> 29
PRIME SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- --------- ---------------
<S> <C> <C> <C>
COMMERCIAL PAPER --continued
Chemicals -- 0.8%
American Cynamid Corp.
3.45% .................................. 04/07/94 $ 3,000 $ 2,998,275
3.45% .................................. 04/08/94 3,000 2,997,988
3.45% .................................. 04/11/94 1,000 999,042
3.45% .................................. 04/13/94 5,000 4,994,251
---------------
11,989,556
---------------
Commercial Printing -- 0.6%
R.R. Donnelley & Sons
3.45% .................................. 04/11/94 8,485 8,476,869
---------------
Computer & Office Equipment -- 2.1%
Hewlett-Packard Co.
3.40% .................................. 04/06/94 31,700 31,685,031
---------------
Construction, Machinery & Equipment -- 1.5%
Dover Corporation
3.45% .................................. 04/04/94 8,000 7,997,700
3.45% .................................. 04/05/94 15,000 14,994,250
---------------
22,991,950
---------------
Electric Services -- 2.6%
Citizens Utilities Co.
3.45% .................................. 05/02/94 26,000 25,922,758
3.35% .................................. 06/01/94 12,760 12,687,569
Southern California Edison Co.
3.43% .................................. 05/09/94 21,500 21,422,158
---------------
60,032,485
---------------
Financial Credit -- 10.7%
General Electric Capital Corp.
3.26% .................................. 04/15/94 20,000 19,974,644
3.37% .................................. 04/27/94 20,000 19,951,322
3.97% .................................. 08/22/94 22,000 21,653,066
Pitney Bowes Credit Corp.
3.20% .................................. 05/04/94 24,500 24,428,133
3.20% .................................. 05/05/94 23,850 23,777,920
Southwest Corporate Federal Credit Union
3.58% .................................. 04/25/94 20,000 19,952,267
U.S. Central Credit Union
4.00% .................................. 09/19/94 30,000 29,430,000
---------------
159,167,352
---------------
</TABLE>
<PAGE> 30
PRIME SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- --------- ---------------
<S> <C> <C> <C>
COMMERCIAL PAPER--continued
Insurance -- 12.8%
A.I. Credit Corp.
3.45% .................................. 04/13/94 $13,000 $ 12,985,050
Marsh & McLennan Companies Inc.
3.24% .................................. 04/05/94 10,000 9,996,400
3.27% .................................. 04/13/94 15,000 14,983,650
Metlife Funding, Inc.
3.75% .................................. 06/16/94 45,415 45,055,465
Prudential Funding Corp.
3.50% .................................. 05/11/94 27,000 26,895,000
3.20% .................................. 05/16/94 30,000 29,880,000
USAA Capital Corp.
3.37% .................................. 04/05/94 8,000 7,997,004
3.45% .................................. 04/29/94 20,000 19,946,333
3.50% .................................. 05/19/94 21,500 21,399,667
--------------
189,138,569
--------------
Personal Credit Institutions -- 6.0%
Associates Corp. of North America
3.25% .................................. 04/18/94 14,000 13,978,514
3.15% .................................. 05/11/94 30,000 29,895,000
American General Finance Corp.
3.18% .................................. 05/24/94 20,000 19,906,367
3.77% .................................. 06/14/94 25,000 24,806,264
--------------
88,586,145
--------------
Petroleum Refining -- 0.7%
Exxon Imperial U.S., Inc.
3.875% ................................. 04/04/94 9,989 9,985,774
--------------
Pharmaceuticals -- 8.4%
Eli Lilly & Co.
3.50% .................................. 04/07/94 47,000 46,972,583
Schering-Plough Corporation
3.30% .................................. 04/21/94 25,000 24,954,167
3.10% .................................. 05/31/94 15,000 14,922,500
Warner Lambert Co.
3.93% .................................. 07/20/94 9,000 8,891,925
3.93% .................................. 07/22/94 30,000 29,633,200
--------------
125,374,375
--------------
Railroad -- 1.7%
Norfolk Southern Corporation
3.40% .................................. 04/19/94 25,000 24,957,500
--------------
Services-Accounting Research -- 3.4%
Dun & Bradstreet Corporation
3.76% .................................. 05/24/94 25,000 24,861,611
3.80% .................................. 06/07/94 25,000 24,823,194
--------------
49,684,805
---------------
</TABLE>
<PAGE> 31
PRIME SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- -------- ---------------
<S> <C> <C> <C>
COMMERCIAL PAPER--continued
Services-Miscellaneous Amusement -- 0.7%
Walt Disney Company
3.65% .................................. 04/07/94 $10,000 $ 10,000,574
---------------
Telephone Communications -- 5.2%
American Telephone & Telegraph Co.
3.75% .................................. 06/22/94 23,100 22,902,688
3.35% .................................. 07/21/94 5,000 4,948,354
Ameritech Corp.
3.11% .................................. 05/16/94 30,000 29,883,375
3.17% .................................. 05/23/94 20,000 19,908,422
---------------
77,642,839
---------------
TOTAL COMMERCIAL PAPER ................ 1,179,164,367
---------------
VARIABLE RATE OBLIGATIONS -- 4.4%
Banks -- 3.4%
Bank One, Columbus N.A. Bank Note
3.68%(b) ............................... 04/05/94 50,000 50,000,000
---------------
Consumer Products -- 1.0%
Coca-Cola Master Note
3.589%(b) .............................. 04/06/94 15,000 15,000,000
---------------
TOTAL VARIABLE RATE OBLIGATIONS ....... 65,000,000
---------------
</TABLE>
<PAGE> 32
PRIME SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (concluded)
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- --------- ----------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 11.9%(c)
Morgan (J.P.) & Co.
3.65%(d) ..................... 04/04/94 $ 50,000 $ 50,000,000
Morgan Stanley & Co.
3.60%(e) ..................... 04/04/94 126,028 126,028,000
----------------
TOTAL REPURCHASE AGREEMENTS . 176,028,000
----------------
TOTAL INVESTMENTS -- 100.1% ......................... 1,485,348,214(f)
LIABILITIES IN EXCESS OF OTHER ASSETS, NET -- (0.1%) (780,698)
----------------
NET ASSETS -- 100.0% ................................ $ 1,484,567,516
================
Net Asset Value, Offering and Redemption Price Per:
Prime Share
($1,350,334,979 (divided by) 1,350,332,916 shares
outstanding) ........................................ $1.00
=====
Flag Investors Share
($18,116,648 (divided by) 18,116,633 shares
outstanding) ......................................... $1.00
=====
Institutional Prime Share
($23,437,449 (divided by) 23,437,512 shares
outstanding) ........................................ $1.00
=====
Quality Cash Share
($92,678,440 (divided by) 92,678,268 shares
outstanding) ........................................ $1.00
=====
</TABLE>
(a) Most commercial paper is traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at time
of purchase by the Fund.
(b) Master note is payable upon demand by the Fund upon no more than five
days' notice. Interest rates on master notes are redetermined weekly. Rates
shown are the rates in effect on March 31, 1994.
(c) Collateral on repurchase agreements is taken into possession by the Fund
upon entering into the repurchase agreement. The collateral is marked to
market daily to insure market value as being at least 102 percent of the
resale price of the repurchase agreement.
(d) Dated 3/31/94 to be repurchased on 4/4/94, collateralized by U.S.
Treasury Notes with a market value of $51,494,617.
(e) Dated 3/31/94 to be repurchased on 4/4/94, collateralized by U.S.
Treasury obligations with a total market value of $128,210,042.
(f) Aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
<PAGE> 33
ALEX. BROWN CASH RESERVE FUND, INC.
TREASURY SERIES
------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
---------- --------- --------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- 99.8%
U.S. Treasury Bills(a)-- 77.1%
3.170% ........................... 04/07/94 $26,200 $ 26,186,158
3.105% ........................... 04/07/94 14,600 14,592,445
3.180% ........................... 04/14/94 3,300 3,296,210
3.170% ........................... 04/14/94 3,800 3,795,650
3.165% ........................... 04/14/94 7,500 7,491,428
3.160% ........................... 04/14/94 17,300 17,280,259
3.005% ........................... 04/14/94 700 699,240
3.080% ........................... 04/14/94 30,000 29,966,633
3.100% ........................... 04/21/94 14,000 13,975,889
3.110% ........................... 04/21/94 2,500 2,495,680
3.090% ........................... 04/21/94 5,000 4,991,417
3.070% ........................... 04/21/94 18,500 18,468,447
2.935% ........................... 04/28/94 4,000 3,991,195
3.240% ........................... 04/28/94 40,000 39,902,800
3.010% ........................... 05/05/94 26,000 25,926,088
3.235% ........................... 05/05/94 22,000 21,932,784
2.960% ........................... 05/12/94 11,300 11,261,906
2.970% ........................... 05/12/94 2,000 1,993,235
3.230% ........................... 05/12/94 4,900 4,881,975
3.290% ........................... 05/12/94 20,000 19,925,061
3.350% ........................... 05/12/94 25,000 24,904,618
2.995% ........................... 05/19/94 20,000 19,920,133
3.320% ........................... 05/19/94 21,500 21,404,827
3.370% ........................... 05/19/94 22,000 21,901,147
3.470% ........................... 05/26/94 16,800 16,710,937
3.105% ........................... 06/02/94 25,000 24,866,312
3.290% ........................... 06/02/94 2,100 2,088,101
3.480% ........................... 06/02/94 9,000 8,946,060
3.485% ........................... 06/02/94 8,900 8,846,583
3.500% ........................... 06/02/94 8,000 7,951,778
3.410% ........................... 06/02/94 10,000 9,941,272
3.410% ........................... 06/09/94 10,600 10,530,720
3.475% ........................... 06/09/94 3,300 3,278,021
3.440% ........................... 06/16/94 2,600 2,581,118
3.470% ........................... 06/16/94 3,800 3,772,163
3.550% ........................... 06/23/94 18,500 18,348,583
--------------
Total U.S. Treasury Bills ........... 479,046,873
--------------
</TABLE>
<PAGE> 34
TREASURY SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (concluded)
March 31, 1994
<TABLE>
<CAPTION>
Par
Maturity (000) Value
--------- ------- ------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- continued
U.S. Treasury Notes -- 22.7%
5.375% ........................... 04/30/94 $14,700 $ 14,723,707
7.000% ........................... 05/15/94 15,000 15,064,305
5.125% ........................... 05/31/94 17,000 17,043,245
5.000% ........................... 06/30/94 24,000 24,076,876
8.500% ........................... 06/30/94 20,000 20,234,858
4.250% ........................... 07/31/94 50,000 50,072,061
--------------
Total U.S. Treasury Notes ............ 141,215,052
--------------
TOTAL U.S. TREASURY SECURITIES ..... 620,261,925
--------------
TOTAL INVESTMENTS -- 99.8% ............. 620,261,925(b)
OTHER ASSETS IN EXCESS OF LIABILITIES,
NET -- 0.2% ........................... 1,155,137
--------------
NET ASSETS -- 100.00% .................. $ 621,417,062
==============
Net Asset Value, Offering and Redemption
Price Per:
Treasury Share
($581,724,214 (divided by)
581,723,449 shares outstanding) ..... $1.00
=====
Institutional Treasury Share
($39,692,848 (divided by)
39,688,259 shares outstanding) ...... $1.00
=====
</TABLE>
------
(a) U.S. Treasury bills are traded on a discount basis. In such cases, the
interest rate shown represents yield at date of purchase.
(b) Aggregate cost for financial reporting and Federal tax purposes.
See Notes to Financial Statements.
<PAGE> 35
ALEX. BROWN CASH RESERVE FUND, INC.
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
ALABAMA -- 5.0%
Homewood Educational Building
Authority (Sanford University)
Series 1988 A (First Alabama Bank
LOC)
2.40% 04/07/94(b) .............. -- VMIG-1 $5,000 $ 5,000,000
Homewood Educational Building
Authority (Sanford University)
Series 1988 B (First Alabama Bank
LOC)
2.40% 04/07/94(b) .............. -- VMIG-1 5,000 5,000,000
McIntosh IDA (Ciba-Geigy
Corporation), Series 1985 A (Swiss
Bank LOC)
2.25% 04/07/94(b) .............. A-1+ -- 1,100 1,100,000
Mobile, Alabama Industrial
Development Board, Scott Paper
Company, Series B (Morgan Guaranty
LOC)
2.40% 04/07/94(b) .............. A-1+ P-1 2,800 2,800,000
Mobile, Alabama Industrial
Development Board, Scott Paper
Co., Series C (Morgan Guaranty
LOC)
2.40% 04/07/94(b) .............. A-1+ P-1 1,000 1,000,000
Montgomery BMC Special Care
Facilities Authority, VHA of
Alabama Inc., 1985B (AMBAC
Insurance)
2.20% 04/07/94(b) .............. A-1 VMIG-1 2,740 2,740,000
Montgomery BMC Special Care
Facilities Authority, VHA of
Alabama Inc., 1985E (AMBAC
Insurance)
2.20% 04/07/94(b) .............. A-1 VMIG-1 130 130,000
Montgomery BMC Special Care
Facilities Financing Authority,
VHA of Alabama Inc., Capital
Series H (AMBAC Insurance)
2.20% 04/07/94(b) .............. A-1 VMIG-1 1,100 1,100,000
-----------
18,870,000
-----------
ALASKA -- 3.2%
Alaska Housing Finance
Corporation, General Mortgage
Revenue, Series A
2.25% 04/07/94(b) .............. SP-1+ VMIG-1 4,000 4,000,000
Alaska Housing Finance
Corporation, General Mortgage
Revenue, Series 1991 C
2.15% 04/07/94(b) .............. SP-1+ VMIG-1 8,000 8,000,000
-----------
12,000,000
-----------
ARIZONA -- 6.7%
Apache County, Arizona PCR, Tucson
Electric 83A (Barclays Bank LOC)
2.25% 04/07/94(b) .............. A-1+ -- 7,500 7,500,000
</TABLE>
<PAGE> 36
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- -------------
<S> <C> <C> <C> <C>
ARIZONA -- continued
Maricopa County PCR, Palo Verde
Project, Southern California
Edison Company
2.85% 06/24/94(b) .............. A-1+ P-1 $4,000 $ 4,000,000
Maricopa County PCR (Public
Service of New Mexico) (Canadian
Imperial Bank LOC)
2.25% 04/07/94(b) .............. A-1+ P-1 5,100 5,100,000
Maricopa PCR (Arizona Public
Service), Series 1983a (Morgan
Guaranty LOC)
2.25% 04/07/94(b) .............. A-1+ P-1 8,700 8,700,000
-------------
25,300,000
-------------
ARKANSAS -- 0.3%
Arkansas Development Finance
Authority (Higher Education
Capital Asset Program) 1985 Series
A (FGIC Insurance)
2.20% 04/07/94(b) .............. A-1+ VMIG-1 1,100 1,100,000
-------------
CALIFORNIA -- 4.2%
California Health Facilities
Financing Series B (Scripps
Memorial Hospital)
2.15% 04/07/94(b) .............. A-1+ VMIG-1 5,600 5,600,000
Los Angeles County TRAN
3.00% 06/30/94(c) .............. SP-1+ MIG-1 9,400 9,410,161
State of California GO RAN
3.50% 06/28/94(c) .............. SP-1 MIG-1 1,000 1,001,172
-------------
16,011,333
-------------
COLORADO -- 5.9%
Arapahoe County, Colorado Capital
Improvement Trust Fund, Highway
Series 1986 J (Societe General
LOC)
2.90% 08/31/94(c) .............. SP-1+ -- 4,000 4,000,000
Colorado Health Facility Authority
(Boulder Community Hospital)
Series 1989B (MBIA Insurance)
2.20% 04/07/94(b) .............. A-1+ VMIG-1 6,200 6,200,000
Colorado Health Facility Authority
(North Colorado Medical Center)
(MBIA Insurance)
2.20% 04/07/94(b) .............. A-1+ VMIG-1 4,000 4,000,000
Colorado TRAN
3.25% 06/27/94(c) .............. SP-1+ VMIG-1 6,500 6,505,762
La Plata County PCR (Amoco)
2.85% 09/01/94(c) .............. A-1+ P-1 1,080 1,080,000
</TABLE>
<PAGE> 37
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
COLORADO -- continued
Moffat County PCR, Series 1984
Tri-State (CFC)
2.35% 04/07/94(b) .............. A-1+ P-1 $ 500 $ 500,000
--------------
22,285,762
--------------
CONNECTICUT -- 1.6%
Connecticut GO, Economic Recovery,
Series B
2.20% 04/07/94(b) .............. A-1+ VMIG-1 6,000 6,000,000
--------------
DELAWARE -- 1.9%
Delaware Economic Development
Authority (Hospital Billings)
Series A (MBIA Insurance LOC)
2.25% 04/07/94(b) .............. A-1+ VMIG-1 2,500 2,500,000
Delaware Economic Development
Authority (Hospital Billings)
Series B (MBIA Insurance LOC)
2.25% 04/07/94(b) .............. -- VMIG-1 4,700 4,700,000
--------------
7,200,000
--------------
DISTRICT OF COLUMBIA -- 1.1%
District of Columbia RB (Catholic
University of
America) Series 89A
2.30% 04/07/94(b) .............. -- VMIG-1 4,000 4,000,000
District of Columbia GO, Various
General Funds
Recovery, Series B-2
2.95% 04/01/94(b) .............. A-1+ VMIG-1 300 300,000
--------------
4,300,000
--------------
FLORIDA -- 6.9%
Dade County, Florida Water and
Sewer Revenue System (FGIC
Insurance)
2.25% 04/07/94(b) .............. A-1+ VMIG-1 16,000 16,000,000
Orange County TECP
2.75% 07/27/94(c) .............. A-1+ P-1 9,804 9,804,000
--------------
25,804,000
--------------
ILLINOIS -- 12.3%
Chicago GO Series 1992 (Canadian
Imperial Bank LOC)
2.20% 04/07/94(b) .............. A-1+ VMIG-1 600 600,000
Illinois Education Authority (Art
Institute of Chicago)
2.30% 04/07/94(b) .............. A-1+ VMIG-1 16,000 16,000,000
</TABLE>
<PAGE> 38
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
ILLINOIS -- continued
Illinois Health and Education
Authority (University of Chicago)
3.00% 08/30/94(c) .............. A-1+ VMIG-1 $11,400 $11,400,000
Illinois Health Facility Authority
(Northwestern
University) Series 1988
2.20% 04/07/94(b) .............. A-1+ -- 4,286 4,286,000
Illinois Health Facility Authority
(Swiss Bank LOC) .................
2.20% 04/07/94(b) .............. A-1+ VMIG-1 3,000 3,000,000
Illinois GO
3.25% 05/16/94(c) .............. SP-1+ MIG-1 7,700 7,705,395
3.50% 06/15/94(c) .............. SP-1+ MIG-1 3,200 3,204,454
--------------
46,195,849
--------------
INDIANA -- 1.4%
Indiana Health Facility
(Rehabilitation Hospital) (Toronto
Dominion LOC)
2.30% 04/07/94(b) .............. -- VMIG-1 5,500 5,500,000
--------------
IOWA -- 1.6%
Iowa Higher Education Loan
Authority, Private College
Facility (MBIA Insurance)
2.35% 04/07/94(b) .............. A-1+ VMIG-1 6,100 6,100,000
--------------
LOUISIANA -- 8.1%
Louisiana Public Facilities
Authority (Ciba-Geigy Corporation)
PCR Series 1985 (Credit Suisse
LOC) .............................
2.25% 04/07/94(b) .............. A-1+ -- 1,700 1,700,000
Parish of DeSoto PCR (Central
Louisiana Electric) (Swiss Bank
LOC)
2.15% 04/07/94(b) .............. A-1+ VMIG-1 5,000 5,000,000
Plaquemines Port, Harbor and
Terminal District (Tampa Electric)
2.60% 04/28/94(b) .............. A-1+ -- 2,800 2,800,000
Plaquemines Port, Harbor and
Terminal District (Tampa Electric)
Series D
2.30% 04/27/94(c) .............. A-1+ P-1 4,100 4,100,000
2.50% 05/16/94(c) .............. A-1+ P-1 5,000 5,000,000
South Louisiana Port Marine
Terminal Facility (Occidental
Petroleum) (Credit Suisse LOC)
2.25% 04/07/94(b) .............. A-1+ VMIG-1 6,000 6,000,000
St. James Parish PCR (Texaco),
Series A
(Credit Suisse LOC)
2.80% 08/16/94(c) .............. A-1+ VMIG-1 6,000 6,000,000
--------------
30,600,000
--------------
</TABLE>
<PAGE> 39
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
MARYLAND -- 0.5%
Montgomery County Housing, Single
Family
Mortgage Revenue Series
2.85% 03/23/95(b) .............. -- VMIG-1 $2,000 $ 2,000,000
--------------
MASSACHUSETTS -- 1.4%
Massachusetts Health and Education
Facility
Authority, Capital Assets Series D
(MBIA
Insurance) .......................
2.15% 04/07/94(b) .............. A-1+ VMIG-1 1,000 1,000,000
Massachusetts Health and
Educational Authority 85I (Harvard
University)
2.10% 04/07/94(b) .............. A-1+ VMIG-1 4,500 4,500,000
--------------
5,500,000
--------------
MICHIGAN -- 0.5%
Michigan State Housing Development
Authority, Rental Housing Revenue
1994C (Credit Suisse LOC)
3.10% 02/28/95(c) .............. A-1+ -- 2,000 2,000,000
--------------
MISSOURI -- 0.7%
City of Columbia Water and
Electric System (Toronto Dominion
LOC)
2.30% 04/07/94(b) .............. -- VMIG-1 2,000 2,000,000
Missouri Health & Education
Facilities Authority (Washington
University), Series 85A
2.35% 04/07/94(b) .............. A-1+ -- 600 600,000
--------------
2,600,000
--------------
MONTANA -- 2.9%
Montana Health Care Facility
Authority (Pooled Loan Program),
1985 Series A (FGIC Insurance)
2.50% 04/07/94(b) .............. A-1+ VMIG-1 11,207 11,207,000
--------------
NEBRASKA -- 0.6%
Nebraska Higher Education Loan
Program, Student Loan Program,
Series 1985 D (MBIA Insurance)
2.25% 04/07/94(b) .............. -- VMIG-1 1,000 1,000,000
Nebraska Higher Education Loan
Program, Student Loan Program,
Series 1985 E (MBIA Insurance)
2.25% 04/07/94(b) .............. -- VMIG-1 1,400 1,400,000
--------------
2,400,000
--------------
NEW HAMPSHIRE -- 0.7%
New Hampshire Higher Education and
Health Facility Authority, Series
1985E (AMBAC Insurance)
2.20% 04/07/94(b) .............. A-1 -- 2,800 2,800,000
--------------
</TABLE>
<PAGE> 40
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
NEW JERSEY -- 3.4%
New Jersey State TRAN
3.00% 06/15/94(c) .............. SP-1+ MIG-1 $12,800 $12,819,246
--------------
NEW MEXICO -- 0.4%
Alberquerque Health Facility
Authority (Sisters of Charity)
(Toronto Dominion LOC)
2.20% 04/07/94(b) .............. A-1+ VMIG-1 1,400 1,400,000
--------------
NEW YORK -- 3.6%
New York City RAN
3.25% 04/15/94(c) .............. SP-1 MIG-1 5,000 5,000,930
New York City RAN Series B
3.50% 06/30/94(c) .............. SP-1 MIG-1 8,800 8,815,518
--------------
13,816,448
--------------
NORTH CAROLINA -- 5.4%
Greenville Hospital System
Revenue, Series 83C
3.00% 05/01/94(c) .............. AA -- 3,220 3,220,000
Greenville Hospital System
Revenue, Series 93A
2.15% 04/07/94(b) .............. A-1+ -- 6,600 6,600,000
North Carolina Education Facility
Agency (Duke University)
2.15% 04/07/94(b) .............. A-1+ VMIG-1 1,300 1,300,000
North Carolina Medical Care (Duke
University Hospital Project)
Series A
2.15% 04/07/94(b) .............. A-1+ VMIG-1 1,000 1,000,000
Person County Industrial
Facilities Authority PCR (Carolina
Power and Light) 1992A
2.30% 04/07/94(b) .............. A-1 P-1 8,300 8,300,000
--------------
20,420,000
--------------
PENNSYLVANIA -- 4.7%
Emmaus General Authority Local
Government Revenue (National
Westminster LOC)
2.50% 04/07/94(b) .............. A-1+ -- 4,000 4,000,000
Emmaus General Authority PA Local
Government Revenue (Canadian
Imperial Bank LOC)
2.50% 04/07/94(b) .............. A-1+ -- 9,300 9,300,000
Health Care Facility Authority
(Sayre Hospital) VHA 1985 F (AMBAC
Insurance)
2.20% 04/07/94(b) .............. A-1 -- 2,000 2,000,000
Montgomery County Health and
Higher Education Facilities
Authority Hospital (AMBAC
Insurance)
2.30% 04/06/94(b) .............. A-1+ VMIG-1 2,600 2,600,000
--------------
17,900,000
--------------
</TABLE>
<PAGE> 41
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- --------------
<S> <C> <C> <C> <C>
TENNESSEE -- 0.3%
Clarksville Public Building
Authority, Series 90 (MBIA
Insurance)
2.25% 04/07/94(b) .............. A-1+ -- $ 500 $ 500,000
Knox County IDA (Lonas Properties,
Ltd. Project) (FGIC Insurance)
2.35% 04/15/94(b) .............. A-1+ VMIG-1 700 700,000
--------------
1,200,000
--------------
TEXAS -- 6.2%
Hale County PCR (Amoco)
2.85% 09/01/94(c) .............. A-1+ P-1 7,000 7,000,000
Harris County Health Facility
Authority (St. Lukes Hospital)
Series C
3.25% 04/01/94(b) .............. A-1+ -- 1,000 1,000,000
Harris County Health Facility
Development Corporation (San
Jacento Methodist Hospital)
(Morgan Guaranty LOC)
2.80% 06/01/94(b) .............. A-1+ VMIG-1 3,800 3,800,000
Harris County PCR (Exxon Corp.)
Series 1984A
2.60% 04/01/94(c) .............. A-1+ -- 1,300 1,300,000
Lower Neches Valley Authority PCR
(Chevron Inc.)
2.70% 08/15/94(c) .............. A-1+ -- 7,000 7,000,000
State of Texas TRAN
3.25% 08/31/94(c) .............. SP-1+ MIG-1 3,400 3,415,406
--------------
23,515,406
--------------
VIRGINIA -- 0.8%
Virginia Housing Development
Authority, Series 1993A
2.80% 11/04/94(c) .............. A-1+ VMIG-1 3,000 3,000,000
--------------
WISCONSIN -- 5.7%
City of Oak Creek (Wisconsin
Electric Power Co.)
2.50% 04/07/94(b) .............. -- P-1 11,500 11,500,000
Wisconsin State GO
3.25% 06/15/94(c) .............. SP-1+ MIG-1 10,000 10,027,037
--------------
21,527,037
--------------
WYOMING -- 1.5%
Lincoln County PCR (Exxon)
2.80% 04/01/94(b) .............. A-1+ P-1 700 700,000
</TABLE>
<PAGE> 42
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1994
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
------- --------- --------- -------------
<S> <C> <C> <C> <C>
WYOMING -- continued
Unita County PCR (Chevron) Series
93
2.55% 04/07/94(b) .............. A-1+ VMIG-1 $ 5,000 $ 5,000,000
-------------
5,700,000
-------------
TOTAL INVESTMENTS -- 99.5% ........ 377,072,081(d)
OTHER ASSETS IN EXCESS OF
LIABILITIES, NET -- 0.5% ......... 1,787,151
-------------
NET ASSETS -- 100.0% .............. $ 378,859,232
=============
Net Asset Value, Offering and
Redemption Price
per Share
($378,859,232 (divided by) 378,939,262 shares
outstanding) ............................... $ 1.00
=============
</TABLE>
<PAGE> 43
TAX-FREE SERIES
------------------------------------------------------------------------------
Statement of Net Assets -- (concluded)
March 31, 1994
INVESTMENT ABBREVIATIONS:
BAN Bond Anticipation Notes
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
LOC Letter of Credit
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RB Revenue Bonds
TAN Tax Anticipation Notes
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Notes
INSURANCE ABBREVIATIONS:
AMBAC AMBAC Indemnity Corp.
MBIA Municipal Bond Investors Assurance
FGIC Federal Guaranty Insurance Corporation
MOODY'S MUNICIPAL BOND RATINGS:
Aaa Bonds which are judged to be of the best quality.
Aa Bonds which are judged to be of high quality by all standards.
Issues are sometimes rated with a 1, 2 or 3 which denotes a high,
medium or low ranking within the rating.
MIG-1 Notes bearing this designation are of the best quality.
VMIG-1 Variable rate demand obligations bearing this designation are of
the best quality.
P-1 Commercial paper bearing this designation is of the best quality.
S&P MUNICIPAL BOND RATINGS:
AAA These are obligations of the highest quality.
AA These obligations have the second strongest capacity for payment of
debt service. Those issues determined to possess very strong safety
characteristics are denoted with a plus (+) sign.
SP-1 Notes which have a strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are assigned a plus (+) designation.
A-1 Commercial paper which has a strong degree of safety regarding timely
payment. Those issues determined to possess very strong safety
characteristics are denoted with a plus (+) sign.
A detailed description of the above ratings can be found in the
Fund's Statement of Additional Information.
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") are not covered by the
Independent Auditors' Report.
(b) Demand security; payable upon demand by the Fund with usually no more
than seven calendar days' notice. Interest rates are redetermined
periodically. Rates shown are the rates in effect on March 31, 1994.
(c) Security has an outstanding call, mandatory put or optional put by
the issuer. Par value and maturity date reflect such call or put.
(d) Aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
<PAGE> 44
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Statement of Operations
For the Year Ended March 31, 1994
<TABLE>
<CAPTION>
PRIME TREASURY TAX-FREE
SERIES SERIES SERIES
------ -------- --------
<S> <C> <C> <C>
Investment Income:
Interest income .................. $44,899,511 $20,899,658 $8,109,347
----------- ----------- ----------
Expenses:
Distribution fee (Note 2) ......... 3,732,292 1,514,581 838,211
Investment advisory fee (Note 2) .. 2,890,998 1,265,378 699,869
Transfer agent fees ............... 1,116,441 193,753 108,000
Registration fees ................. 378,676 87,102 57,334
Custodian fees .................... 346,885 175,000 83,878
Accounting fee (Note 2) ........... 70,777 62,677 59,306
Directors' fees ................... 74,837 36,901 17,000
Other expenses .................... 256,935 146,720 83,173
------------- ------------- ------------
Total expenses ................... 8,867,841 3,482,112 1,946,771
------------- ------------- ------------
Net investment income .............. 36,031,670 17,417,546 6,162,576
Net realized gain/(loss) on sales of
investments ....................... (384) 52,709 (43,790)
------------- ------------- ------------
Net increase in net assets resulting
from operations ................... $36,031,286 $17,470,255 $6,118,786
============= ============= ============
</TABLE>
See Notes to Financial Statements.
<PAGE> 45
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended March 31, 1994 AND 1993
<TABLE>
<CAPTION>
PRIME SERIES
-------------------------------
MARCH 31, MARCH 31,
1994 1993
-------------- --------------
<S> <C> <C>
Operations:
Net investment income .......................... $ 36,031,670 $ 36,708,027
Net realized gain/(loss) on sales of investments (384) 3,117
-------------- --------------
Net increase in net assets resulting from
operations .................................... 36,031,286 36,711,144
-------------- --------------
Dividends to shareholders from: ................
Net investment income: .........................
Prime, Treasury and Tax-Free Shares,
respectively ................................ (32,739,196) (33,336,144)
Institutional Shares .......................... (781,048) (814,365)
Flag Investors Shares ......................... (422,128) (155,718)
Quality Cash Shares ........................... (2,089,298) (2,401,800)
Net realized gains: ............................
Prime, Treasury and Tax-Free Shares,
respectively ................................ -- (5,328)
Institutional Shares .......................... -- (156)
Flag Investors Shares ......................... -- (24)
Quality Cash Shares ........................... -- (428)
-------------- --------------
Total distributions ............................ (36,031,670) (36,713,963)
-------------- --------------
Share transactions -- net ...................... 202,382,250 (99,208,230)
-------------- --------------
Net increase/(decrease) in net assets .......... 202,381,866 (99,211,049)
Net assets: ....................................
Beginning of year ............................. 1,282,185,650 1,381,396,699
-------------- --------------
End of year ................................... $1,484,567,516 $1,282,185,650
Net assets consist of: .........................
Capital (par value and additional paid in) ..... $1,484,565,328 $1,282,183,078
============== ==============
Undistributed net realized gain on sales of
investments ................................... 2,188 2,572
-------------- --------------
$1,484,567,516 $1,282,185,650
============== ==============
</TABLE>
See Notes to Financial Statements.
<PAGE> 46
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY SERIES TAX-FREE SERIES
MARCH 31, MARCH 31, MARCH 31 MARCH 31,
1994 1993 1994 1993
------------ --------------- -------------- --------------
<S> <C> <C> <C>
$17,417,546 $ 22,316,801 $ 6,162,576 $ 6,373,825
52,709 98,757 (43,790) (18,159)
------------ --------------- -------------- --------------
17,470,255 22,415,558 6,118,786 6,355,666
------------ --------------- -------------- --------------
(15,354,953) (18,743,974) (6,159,520) (6,373,825)
(2,082,594) (3,572,400) -- --
-- -- -- --
-- -- -- --
(69,098) (77,011) -- --
(7,743) (8,468) -- --
-- -- -- --
-- -- -- --
------------ --------------- -------------- --------------
(17,484,388) (22,401,851) (6,159,520) (6,373,825)
------------ --------------- -------------- --------------
(56,881,631) (110,575,506) 63,238,519 10,691,783
------------ --------------- -------------- --------------
(56,905,764) (110,581,799) 63,197,785 10,673,624
678,322,826 788,884,625 315,661,447 304,987,823
------------ --------------- -------------- --------------
$621,417,062 $ 678,322,826 $378,859,232 $315,661,447
============ =============== ============== =============
$621,412,135 $ 678,293,766 $378,939,261 $315,700,742
4,927 29,060 (80,029) (39,295)
------------ --------------- -------------- --------------
$621,417,062 $ 678,322,826 $378,859,232 $315,661,447
============ =============== ============== =============
</TABLE>
<PAGE> 47
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Financial Highlights
(For A Share Outstanding Throughout Each Year)
Prime and Flag Investors Shares:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of year . $ 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 year ....... $ 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
year .............. $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 year ........... 1,368,449,549 1,151,977,279 1,264,629,485 $1,295,888,161 1,312,272,415
</TABLE>
See Notes to Financial Statements.
<PAGE> 48
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Financial Highlights
(For A Share Outstanding Throughout Each Year)
Treasury Shares:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of year ..................... $ 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 year $ 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 year .... $581,724,214 $618,175,839 $725,010,207 $716,551,599 $272,467,125
Number of shares outstanding
at end of year ............. 581,723,449 618,152,465 725,010,207 716,551,599 272,509,276
</TABLE>
--------------
* Ratio of expenses to average net assets prior to partial fees assumed was
0.56% for the years ended March 31, 1994 and 1993.
See Notes to Financial Statements.
<PAGE> 49
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Financial Highlights
(For A Share Outstanding Throughout Each Period)
Institutional Prime and Institutional Treasury Shares:
<TABLE>
<CAPTION>
Institutional Prime Shares
----------------------------------------------
Year Ended March 31,
----------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period ............... $ 1.00 $ 1.00 $ 1.00
------------- ------------- -------------
Income from Investment Operations:
Net investment income ..... 0.0294 0.0327 0.0515
Less Distributions:
Dividends from net investment
income and short-term gains (0.0294) (0.0327) (0.0515)
------------- ------------- -------------
Net asset value at end of
period ................... $ 1.00 $ 1.00 $ 1.00
============= ============= =============
Total Return ............... 2.98% 3.32% 5.27%
Ratios to Average Net Assets:
Expenses .................. 0.30% 0.31% 0.32%
Net investment income ..... 2.94% 3.24% 5.34%
Supplemental Data:
Net assets at end of period . $23,437,449 $28,884,078 $21,867,108
Number of shares outstanding
at end of period ........ 23,437,939 28,884,132 21,867,108
</TABLE>
----------
* Commencement of operations.
** Annualized.
*** Ratio of expenses to average net assets prior to partial fees assumed was
0.29% and 0.27% for the years ended March 31, 1994 and 1993, respectively.
See Notes to Financial Statements.
<PAGE> 50
<TABLE>
<CAPTION>
INSTITUTIONAL TREASURY SHARES
-------------- ---------------------------------------------------------------
JUNE 4, 1990* YEAR ENDED MARCH 31, JUNE 4, 1990*
THROUGH ---------------------------------------------- THROUGH
MARCH 31, 1991 1994 1993 1992 MARCH 31, 1991
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------- ------------- ------------- --------------
0.0617 0.0282 0.0314 0.0504 0.0590
(0.0617) (0.0282) (0.0314) (0.0504) (0.0590)
------------ ------------- ------------- ------------- --------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============= ============= ==============
7.70%** 2.86% 3.19% 5.17% 7.36%**
0.35%** 0.27%*** 0.26%*** 0.27% 0.29%**
7.53%** 2.82% 3.16% 4.90% 7.02%**
$117,633,558 $39,692,848 $60,146,987 $63,834,323 $58,017,844
117,633,558 39,688,259 60,140,874 63,834,323 58,017,844
</TABLE>
<PAGE> 51
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Financial Highlights
(For A Share Outstanding Throughout Each Period)
Tax-Free Series and Quality Cash Shares:
<TABLE>
<CAPTION>
TAX-FREE SERIES
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period .................. $ 1.00 $ 1.00 $ 1.00
------------- -------------- -------------
Income from Investment Operations:
Net investment income ..... 0.0184 0.0213 0.0353
Less Distributions:
Dividends from net investment
income and short-term gains (0.0184) (0.0213) (0.0353)
-------------- -------------- ------------
Net asset value at end
of period $ 1.00 $ 1.00 $ 1.00
============= ============== ============
Total Return ............... 1.86% 2.15% 3.59%
Ratios to Average Net Assets:
Expenses .................. 0.58% 0.60% 0.56%
Net investment income ..... 1.84% 2.13% 3.49%
Supplemental Data:
Net assets at end of period . $378,859,232 $315,661,447 $304,987,823
Number of shares outstanding
at end of period ........ 378,939,262 315,700,742 305,008,959
</TABLE>
---------------
* Commencement of operations.
** Annualized.
*** Ratio to average net assets prior to partial fees assumed was 0.57% for
the year ended March 31, 1992.
See Notes to Financial Statements.
<PAGE> 52
<TABLE>
<CAPTION>
QUALITY CASH SHARES
-------------- ------------------------------------------------
DEC. 17, 1990* MAY 6, 1991*
THROUGH YEAR ENDED MARCH 31, THROUGH
-------------------------------
MARCH 31, 1991 1994 1993 MARCH 31, 1992
<S> <C> <C> <C>
-------------- ------------- -------------- --------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- ------------- -------------- --------------
0.0124 0.0218 0.0253 0.0399
(0.0124) (0.0218) (0.0253) (0.0399)
-------------- ------------ ------------- -------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============ ============= =============
4.35%** 2.20% 2.53% 4.30%**
0.53%** 1.06% 1.04% 0.96%**
4.25%** 2.18% 2.53% 4.30%**
$ 256,859,180 $92,678,440 $101,321,868 $94,887,669
256,895,680 92,678,268 101,321,668 94,887,669
</TABLE>
<PAGE> 53
ALEX. BROWN CASH RESERVE FUND, INC.
------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 1994
NOTE 1 -- Significant Accounting Policies
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended as a diversified, open-end
management investment company. The Fund is organized as a Maryland
corporation consisting of three different portfolios, the Prime Series, the
Treasury Series, and the Tax-Free Series. The Prime Series consists of four
different classes of shares: Alex. Brown Cash Reserve Prime Shares ("Prime
Shares"), Flag Investors Cash Reserve Prime Shares ("Flag Investors Shares"),
Quality Cash Reserve Prime Shares ("Quality Cash Shares") and Institutional
Prime Shares. The Treasury Series offers two classes of shares: Alex. Brown
Cash Reserve Treasury Shares ("Treasury Shares") and Institutional Treasury
Shares. The Tax-Free Series offers only one class of shares. Matters
affecting each class are voted on exclusively by such shareholders. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuation -- The Fund maintains a dollar weighted average
portfolio maturity of 90 days or less for each portfolio. The securities of
each portfolio are valued on the basis of amortized cost which approximates
market value. This method values a security at its cost on the date of
purchase and thereafter assumes a constant amortization to maturity of any
original issue or other discount or premium.
B. Security Transactions, Investment Income and Distributions --
Securities transactions are accounted for on a trade date basis. Realized
gains or losses on sales, if any, are computed on the basis of specific
identification of the securities sold. Interest income is recorded on an
accrual basis and includes, when applicable, the pro rata amortization of
premiums and accretion of discounts. Dividends to shareholders are declared
daily and distributions or reinvestments of the dividends are made monthly.
C. Repurchase Agreement -- The Prime Series may agree to purchase money
market instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will be
required on a daily basis to maintain the value of the securities subject to
the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book entry system.
D. Federal Income Taxes -- The Fund intends to continue to comply with the
requirements of the Internal Revenue Code necessary to continue to qualify as
a regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gains) which is distributed to shareholders. Each portfolio is treated as a
separate entity for federal income tax purposes. The Tax-Free Series has a
capital loss carryforward of $62,537 (which may be carried forward to offset
future taxable capital gains, if any) which begins to expire, if not
previously utilized, in 2000.
<PAGE> 54
Notes to Financial Statements -- (continued)
March 31, 1994
NOTE 1 -- concluded
E. Expenses -- Operating expenses directly attributable to a class of
shares are charged to that class' operations. Expenses of the Fund which are
not directly attributable to a specific class are prorated among the classes
to which the expense relates based on the relative net assets of each class.
NOTE 2 -- Advisory Fees and Other Transactions with Affiliates
The Fund has entered into an investment advisory agreement with Investment
Company Capital Corp. (formerly Flag Investors Management Corp.) ("ICC"), a
subsidiary of Alex. Brown & Sons Incorporated ("Alex. Brown"), with respect
to all Series and sub-advisory agreements with PNC Institutional Management
Corporation ("PIMC") with respect to the Prime and Tax-Free Series. Under the
terms of the investment advisory agreement, ICC receives a fee from the Fund,
calculated daily and paid monthly, at the following annual rates based upon
the Fund's aggregate average daily net assets, .25% of the first $500
million, .21% of the next $500 million, .20% of the next $500 million and
.19% of that portion in excess of $1.5 billion.
As compensation for its subadvisory services, PIMC receives a fee from
ICC, calculated daily and paid monthly, at the following annual rates based
upon the Prime and Tax-Free Series' aggregate average daily net assets; .15%
of the first $250 million, .13% of the next $250 million, .11% of the next
$250 million, .09% of the next $250 million, .075% of the next $3 billion and
.06% of that portion in excess of $4 billion. ICC may, from time to time,
voluntarily waive a portion of its advisory fee with respect to the Prime,
Treasury and Tax-Free Series to preserve or enhance the performance of the
Series' as compared to certain industry benchmarks, and, if ICC elects to so
waive a portion of its fee, PIMC has agreed that it would waive a portion of
its fee in the same proportion and for the same time periods as ICC waiver.
ICC voluntarily waived fees in the amount of $152,838 for the Treasury Series
for the year ended March 31, 1994.
Under the terms of these agreements, ICC and Alex. Brown will, if
necessary, reimburse the Fund for any fiscal year to the extent that expenses
(exclusive of any interest, taxes, brokerage commissions and extraordinary
expenses) do not exceed 1% of aggregate average daily net assets of the
Fund's three Series. The obligation of ICC to reimburse the Fund is limited
to the fees actually received by ICC for such fiscal year.
As compensation for its accounting services, Alex. Brown receives from the
Treasury Series an annual fee, calculated daily and paid monthly, based on
the Fund's average daily net assets. Alex. Brown received $62,677 for
accounting services for the year ended March 31, 1994.
<PAGE> 55
Notes to Financial Statements -- (continued)
March 31, 1994
NOTE 2 -- concluded
The Fund has entered into a distribution agreement with Alex. Brown. Under
the terms of the distribution agreement, Alex. Brown receives a fee from the
Prime Shares, Flag Investors Shares, Treasury Shares, and the Tax-Free
Series, at the annual rate of .25% of the aggregate average daily net assets
of these classes of shares. Alex. Brown also receives a fee from the Quality
Cash Shares at the annual rate of .60% of the aggregate average daily net
assets of the class.
Sales of the Flag Investors Shares are subject to a sales charge to be
paid as commission to broker/dealers distributing the Fund. For the year
ended March 31, 1994, Alex. Brown received commissions of $1,810.63 from
sales of the Flag Investors Shares. Such commissions are not an expense of
the Fund. They are deducted from, and are not included in, the proceeds from
sales of capital stock.
The Fund, pursuant to the sub-advisory agreement with PIMC, has agreed to
reimburse PIMC for certain costs incurred in providing accounting services to
the Prime and Tax-Free Series. For the year ended March 31, 1994, the Fund
paid $1,740,475 for sub-advisory and accounting services to PIMC.
NOTE 3 -- Capital Stock and Share Information
5,000,000,000 shares of $.001 par value capital stock were authorized
(2,500,000,000 Prime Series, 1,500,000,000 Treasury Series, 600,000,000
Tax-Free Series and 400,000,000 not classified). Changes in shares
outstanding during the years ended March 31, 1994 and 1993, respectively, are
listed on the following page.
<PAGE> 56
Notes to Financial Statements -- (concluded)
March 31, 1994
NOTE 3 -- concluded
<TABLE>
<CAPTION>
March 31, 1994 March 31, 1993
--------------- ---------------
<S> <C> <C>
Prime Series: ......................
Sold:
Prime Shares .................... 9,686,804,894 6,956,600,082
Flag Investors Shares ........... 19,779,192 20,015,951
Institutional Prime Shares* ..... 112,556,652 87,273,135
Psychiatrists' Prime Shares ..... -- --
Quality Cash Shares ............. 588,672,765 554,377,937
Issued as reinvestment of dividends:
Prime Shares .................... 30,696,236 31,802,207
Flag Investors Shares ........... 410,766 140,162
Institutional Prime Shares ...... -- --
Psychiatrists' Prime Shares* .... -- 31
Quality Cash Shares ............. 2,016,719 2,343,326
Redeemed:
Prime Shares .................... (9,503,242,285) (7,108,778,862)
Flag Investors Shares ........... (17,976,533) (12,431,747)
Institutional Prime Shares ...... (118,003,272) (80,256,111)
Psychiatrists' Prime Shares* .... -- (7,077)
Quality Cash Shares ............. (599,332,884) (550,287,264)
--------------- ---------------
Net increase/(decrease) ...... 202,382,250 (99,208,230)
=============== ===============
Treasury Series:*
Sold:
Treasury Shares ................. 3,008,800,861 2,760,813,188
Institutional Treasury Shares ... 1,065,032,301 952,321,034
Psychiatrists' Treasury Shares* . -- --
Issued as reinvestment of dividends:
Treasury Shares ................. 14,417,283 17,657,093
Institutional Treasury Shares ... -- --
Psychiatrists' Treasury Shares* . -- 97
Redeemed:
Treasury Shares ................. (3,059,647,160) (2,885,328,023)
Institutional Treasury Shares ... (1,085,484,916) (956,014,483)
Psychiatrists' Treasury Shares* -- (24,412)
--------------- ---------------
Net decrease ................. (56,881,631) (110,575,506)
=============== ===============
Tax-Free Series:
Sold .............................. 3,167,571,073 2,630,726,350
Issued as reinvestment of dividends 5,808,090 6,032,328
Redeemed .......................... (3,110,140,644) (2,626,066,895)
--------------- ---------------
Net increase ................. 63,238,519 10,691,783
=============== ===============
</TABLE>
---------------
* As of May 7, 1992, the Psychiatrists' Classes were no longer issuing new
shares and all outstanding shares were redeemed.
<PAGE> 57
Report of Independent Accountants
To The Shareholders and Board of Directors
Alex. Brown Cash Reserve Fund, Inc.:
We have audited the accompanying statements of net assets of Alex. Brown Cash
Reserve Fund, Inc. (comprised of the Prime, Treasury and Tax-Free Series) as
of March 31, 1994, and the related statements of operations and changes in
net assets and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
statement of changes in net assets for the year ended March 31, 1993 and the
financial highlights for each of the respective years (or periods) in the
period then ended were audited by other auditors whose report dated May 7,
1993, expressed an unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included physical inspection of
and confirmation by correspondence with the custodian of investments owned as
of March 31, 1994. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the 1994 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the respective Series comprising the Alex. Brown Cash Reserve
Fund, Inc. as of March 31, 1994, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
---------------------
COOPERS & LYBRAND
Baltimore, Maryland
April 29, 1994
<PAGE> 58
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
PRIME SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Par Value
Maturity (000) (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 3.8%
Harris Trust & Savings Bank
4.95% ............ 12/30/94 $55,000 $55,000,000
-----------
Total Certificates of Deposit........ 55,000,000
-----------
COMMERCIAL PAPER -- 82.4%(a)
Automobiles & Trucks -- 6.1%
Daimler-Benz North America
4.87% ................ 10/31/94 10,000 9,959,417
4.99% ................ 11/01/94 29,000 28,875,389
5.10% ................ 02/08/95 10,000 9,815,833
Ford Motor Credit Corp.
4.80% ................ 10/03/94 40,000 39,989,333
-----------
88,639,972
-----------
Beverage -- 4.4%
Anheuser-Busch, Inc.
4.62% ................ 10/11/94 30,000 29,961,500
Coca-Cola Co.
4.67% ................ 11/28/94 10,000 9,924,761
5.10% ................ 02/10/95 24,000 23,551,200
-----------
63,437,461
-----------
Chemicals -- 2.6%
Hoechst Celanese Corp.
4.85% ................ 11/09/94 32,500 32,329,240
4.85% ................ 11/14/94 5,500 5,467,397
-----------
37,796,637
-----------
Computers & Office Equipment -- 6.2%
Hewlett-Packard Finance Co.
5.40% ................ 03/30/95 39,000 37,947,000
Pitney Bowes Credit Corp.
5.05% ................ 12/05/94 22,000 21,799,403
5.06% ................ 01/09/95 30,000 29,578,333
-----------
89,324,736
-----------
Credit Union -- 1.9%
Empire Corporate Federal Credit Union
4.85% ................ 11/15/94 10,000 9,939,375
Mid-States Corporate Federal Credit Union
4.90% ................ 12/15/94 17,000 16,826,458
-----------
26,765,833
-----------
</TABLE>
<PAGE> 59
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
PRIME SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Par Value
Maturity (000) (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Electric Utility -- 2.8%
Citizens Utilities Co.
4.75% ................ 10/04/94 $40,000 $39,984,167
----------
Electrical & Electronics --3.2%
Intel Corp.
4.95% ................ 11/28/94 47,000 46,638,100
-----------
Finance--Business -- 13.1%
C.I.T. Group Holdings, Inc.
4.75% ................ 10/03/94 50,000 49,986,806
Ciesco LP
4.625% ............... 11/02/94 10,000 9,958,889
4.80% ................ 11/17/94 35,000 34,780,667
Corporate Asset Funding, Inc.
4.75% ................ 10/05/94 30,000 29,984,167
4.84% ................ 11/17/94 20,000 19,873,622
National Rural Utilities
Coop. Finance Corp.
5.08% ................ 12/27/94 44,725 44,175,926
-----------
188,760,077
-----------
Finance--Consumer -- 3.0%
American General Finance Corp.
4.73% ................ 10/04/94 15,000 14,994,088
General Electric Capital Corp.
5.08% ................ 02/06/95 29,000 28,476,196
------------
43,470,284
-----------
Food -- 7.1%
Heinz (H.J.) Co.
5.05% ................ 11/28/94 21,810 21,632,551
Sara Lee Corp.
4.79% ................ 11/16/94 28,500 28,325,564
4.80% ................ 11/21/94 22,060 21,909,992
Unilever Capital Corp.
4.67% ................ 11/28/94 30,000 29,774,283
------------
101,642,390
------------
Household Products -- 1.6%
Colgate-Palmolive Co.
4.93% ................ 10/24/94 23,700 23,625,352
------------
</TABLE>
<PAGE> 60
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
PRIME SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Par Value
Maturity (000) (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- (continued)
Insurance -- 6.8%
A.I. Credit Corp. .....
4.75% ................ 10/06/94 $15,000 $ 14,990,104
5.08% ................ 02/14/95 15,000 14,712,133
A.I.G. Funding, Inc.
4.62% ................ 10/31/94 10,000 9,961,500
Lincoln National
4.80% ................ 11/08/94 19,000 18,903,733
Prudential Funding Corp.
4.70% ................ 10/26/94 40,000 39,869,444
--------------
98,436,914
--------------
Integrated Oil -- 4.5%
Chevron Oil Finance Corp.
4.73% ................ 10/03/94 15,000 14,996,058
Exxon Credit Corp.
4.80% ................ 10/18/94 25,000 24,943,333
4.62% ................ 10/24/94 25,000 24,926,208
--------------
64,865,599
--------------
Miscellaneous Services -- 4.3%
Dun & Bradstreet Corp.
4.80% ................ 11/15/94 13,000 12,922,000
Kaiser Foundation Hospital
5.10% ................ 01/12/95 10,000 9,854,083
Walt Disney Co.
4.72% ................ 11/07/94 30,000 29,854,467
5.12% ................ 02/01/95 10,000 9,825,067
--------------
62,455,617
--------------
Oil Transportation -- 1.7%
Colonial Pipeline Co.
4.80% ................ 10/27/94 24,500 24,415,067
--------------
Pharmaceuticals -- 3.2%
Warner-Lambert Co.
4.87% ................ 12/12/94 24,000 23,766,240
4.87% ................ 12/14/94 22,000 21,779,768
--------------
45,546,008
--------------
</TABLE>
<PAGE> 61
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
PRIME SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Par Value
Maturity (000) (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail -- 1.0%
Melville Corporation
4.65% ................ 12/01/94 15,000 14,881,813
--------------
Telephone -- 8.9%
American Telephone & Telegraph Co.
5.04% ................ 12/14/94 $25,000 $ 24,741,000
Ameritech Corp.
4.70% ................ 10/24/94 26,000 25,921,928
Bell-Atlantic Financial Services, Inc.
4.63% ................ 11/04/94 10,000 9,956,272
BellSouth Capital Funding Corp.
5.29% ................ 01/23/95 19,350 19,025,855
4.95% ................ 01/30/95 10,000 9,833,625
5.07% ................ 02/14/95 15,000 14,712,700
U.S. West Communications, Inc.
4.92% ................ 11/30/94 24,000 23,803,200
--------------
127,994,580
--------------
Total Commercial Paper .................... 1,188,680,607
--------------
VARIABLE RATE OBLIGATIONS -- 10.1%
Bank -- 3.5%
Bank One, Columbus N.A.
Bank Note
5.02%(b) .... 10/04/94 50,000 50,000,000
--------------
Beverage -- 1.0%
Coca-Cola Co. Master Note
4.925%(b) ............. 10/05/94 15,000 15,000,000
--------------
Telephone --2.1%
AT & T Capital Corp.
5.15% ................. 01/26/95 30,000 30,008,899
--------------
U.S. Government Agency -- 3.5%
Federal National Mortgage Association
5.44% ................ 10/07/94 50,000 50,000,000
--------------
Total Variable Rate Obligations .............. 145,008,899
--------------
REPURCHASE AGREEMENTS -- 7.0%(c)
Morgan Stanley & Co.
5.25%(d) ............. 10/03/94 100,280 100,280,000
--------------
Total Repurchase Agreements ................. 100,280,000
--------------
</TABLE>
<PAGE> 62
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
PRIME SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Value
(Note 1)
--------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 103.3% ...................... $1,488,969,506(e)
LIABILITIES IN EXCESS OF OTHER
ASSETS, NET -- (3.3)% .......................... (47,223,905)
----------------
NET ASSETS -- 100.0% ............................ $1,441,745,601
================
Net Asset Value and Redemption Price Per:
Prime Share
($1,315,477,378 (divided by) 1,315,475,342
shares outstanding) .......................... $1.00
=======
Flag Investors Share
($15,818,630 (divided by) 15,818,616 shares
outstanding) ................................. $1.00
=======
Institutional Prime Share
($8,867,323 (divided by) 8,867,386 shares
outstanding) ................................. $1.00
=======
Quality Cash Share
($101,582,270 (divided by) 101,582,100 shares
outstanding) ................................. $1.00
=======
-------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
(a) Most commercial paper is traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at time
of purchase by the Fund.
(b) Master note is payable upon demand by the Fund upon no more than five days'
notice. Interest rates on master notes are redetermined weekly. Rates shown
are the rates in effect on September 30, 1994.
(c) Collateral on repurchase agreements is taken into possession by the Fund
upon entering into the repurchase agreement. The collateral is marked to
market daily to insure market value as being at least 102 percent of the
resale price of the repurchase agreement.
(d) Dated 9/30/94 to be repurchased on 10/03/94, collateralized by U.S. Treasury
Notes with a market value of $102,420,480.
(e) Also aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
<PAGE> 63
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TREASURY SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Par Value
Maturity (000) (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- 99.5%
U.S. Treasury Bills(a)--67.5%
4.160% ............... 10/06/94 $ 4,000 $ 3,997,689
4.170% ............... 10/06/94 6,700 6,696,120
4.200% ............... 10/06/94 14,500 14,491,542
4.220% ............... 10/06/94 1,000 999,414
4.225% ............... 10/13/94 7,800 7,789,015
4.350% ............... 10/13/94 11,300 11,283,615
4.250% ............... 10/20/94 30,000 29,932,708
4.300% ............... 10/20/94 27,000 26,938,725
4.405% ............... 10/27/94 6,800 6,778,367
4.305% ............... 11/03/94 9,000 8,964,484
4.395% ............... 11/03/94 3,400 3,386,302
4.420% ............... 11/03/94 5,500 5,477,716
4.460% ............... 11/03/94 15,500 15,436,631
4.470% ............... 11/03/94 14,700 14,639,767
4.490% ............... 11/10/94 28,000 27,860,311
4.500% ............... 11/10/94 40,000 39,800,000
4.470% ............... 11/17/94 6,700 6,660,900
4.500% ............... 11/17/94 30,000 29,823,750
4.510% ............... 11/17/94 5,500 5,467,616
4.495% ............... 11/25/94 5,400 5,362,916
4.500% ............... 11/25/94 19,200 19,068,000
4.525% ............... 12/01/94 4,000 3,969,330
4.530% ............... 12/01/94 2,500 2,480,810
4.550% ............... 12/08/94 5,500 5,452,731
4.650% ............... 12/08/94 12,200 12,092,843
4.595% ............... 12/15/94 7,300 7,230,118
4.610% ............... 12/15/94 2,600 2,575,029
4.585% ............... 12/22/94 11,600 11,478,854
4.605% ............... 01/05/95 12,000 11,852,640
4.675% ............... 01/12/95 13,300 13,122,103
4.600% ............... 01/19/95 6,000 5,915,667
4.875% ............... 01/19/95 3,000 2,955,312
4.710% ............... 01/26/95 3,700 3,643,362
U.S. Treasury Bills -- (concluded)
4.715% ............... 01/26/95 $15,000 $ 14,770,144
5.145% ............... 03/16/95 6,500 6,345,793
--------------
Total U.S. Treasury Bills ....................... 394,740,324
--------------
U.S. Treasury Notes--32.0%
9.500% ............... 10/15/94 25,000 25,045,013
4.250% ............... 10/31/94 45,000 44,989,706
8.250% ............... 11/15/94 45,000 45,161,104
4.625% ............... 11/30/94 25,000 24,994,237
4.250% ............... 01/31/95 11,800 11,772,623
5.500% ............... 02/15/95 15,000 15,018,317
3.875% ............... 02/28/95 20,000 19,890,920
--------------
Total U.S. Treasury Notes ....................... 186,871,920
--------------
TOTAL INVESTMENTS -- 99.5% 581,612,244(b)
OTHER ASSETS
IN EXCESS OF LIABILITIES,
NET -- 0.5% ................................. 2,897,191
--------------
NET ASSETS -- 100.0% ............................. $ 584,509,435
==============
Net Asset Value and Redemption
Price Per:
Treasury Share
($546,055,608 divided by 546,068,061
shares outstanding) ......................... $1.00
=====
Institutional Treasury Share
($38,453,827 divided by 38,457,029
shares outstanding) ......................... $1.00
=====
</TABLE>
-------------------------------------------------------------------------------
(a) U.S. Treasury bills are traded on a discount basis. In such cases, the
interest rate shown represents the yield at the date of purchase.
(b) Also aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
<PAGE> 64
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA -- 9.4%
Alabama Parish
Industrial Development Board
Pollution Control Revenue
(Alabama Power Company)
3.80%, 10/01/94 (b) ........ A-1/VMIG-1 $ 11,800 $11,800,000
Homewood Educational
Building Authority
(Sanford University)
(First Alabama Bank
LOC) Series 1988A
3.70%, 10/07/94 (b) ........ NR/VMIG-1 5,000 5,000,000
Series 1988B
3.70%, 10/07/94 (b) ........ NR/VMIG-1 5,000 5,000,000
Industrial Development Board
of Mobile (Alabama Power
Company) Series 1994
3.80%, 10/01/94 (b) ........ A-1/P-1 9,800 9,800,000
McIntosh Industrial
Development Authority
(Ciba-Geigy Corporation)
Series 1985A (Swiss Bank
LOC)
3.75%, 10/07/94 (b) ........ A-1+/NR 1,100 1,100,000
-------------
32,700,000
ALASKA -- 6.3%
Alaska Housing Finance
Corporation, General
Mortgage Revenue
Series A
3.90%, 10/07/94 (b) ........ SP-1+/VMIG-1 4,000 4,000,000
Series 1991C
3.85%, 10/07/94 (b) ........ NR/VMIG-1 8,000 8,000,000
City of Valdez Marine Air
Terminal (Atlantic
Richfield) Series C
3.25%, 10/20/94 (c) ........ A-1/VMIG-1 10,000 10,000,000
-------------
22,000,000
ARIZONA -- 5.9%
Apache County Pollution
Control Revenue (Tucson
Electric) 83A (Barclays Bank
LOC)
3.80%, 10/07/94 (b) ........ A-1+/NR $ 13,800 $13,800,000
Phoenix GO Series 1994
3.80%, 10/03/94 (b) ........ A-1+/VMIG-1 1,500 1,500,000
3.80%, 10/05/94 (b) ........ A-1+/VMIG-1 1,100 1,100,000
Maricopa County Pollution
Control Corp., Palo Verde
Project (Southern California
Edison Project)
3.25%, 10/26/94 (c) ........ A-1+/P-1 4,000 4,000,000
-------------
20,400,000
-------------
ARKANSAS -- 0.3%
Arkansas Development Finance
Authority (Higher Education
Capital Asset Program) 1985
Series A (FGIC Insurance)
3.65%, 10/07/94 (b) ........ A-1+/VMIG-1 1,100 1,100,000
-------------
CALIFORNIA -- 4.5%
Los Angeles County TRANS
4.50%, 06/30/95 (c) ........ SP-1+/MIG-1 15,440 15,523,529
-------------
COLORADO -- 5.3%
Arapahoe County Capital
Improvement Trust Fund,
Highway Revenue Bonds
(Societe Generale LOC)
3.90%, 02/28/95 (c) ........ SP-1+/NR 1,500 1,500,234
Series M
3.90%, 02/28/95 (c) ........ SP-1+/NR 8,500 8,500,000
</TABLE>
<PAGE> 65
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
COLORADO -- (continued)
Colorado Health Facility
(North Colorado Medical
Center) (MBIA Insurance LOC)
3.65%, 10/07/94 (b) ........ A-1+/VMIG-1 $ 2,100 $ 2,100,000
Colorado TRAN
4.50%, 06/27/95 (b) ........ SP-1+/MIG-1 6,000 6,014,400
Moffat County Pollution
Control Revenue Bonds,
Series 1984 (Tri-State)
3.65%, 10/07/94 (b) ........ A-1+/P-1 500 500,000
-------------
18,614,634
-------------
CONNECTICUT -- 3.7%
Connecticut GO Economic
Recovery Notes, Series B
3.70%, 10/07/94 (b) ........ A-1+/VMIG-1 12,800 12,800,000
-------------
DELAWARE -- 2.1%
Delaware Economic
Development Authority
(Hospital Billings)
VRDN (MBIA
Insurance) Series A
3.75%, 10/07/94 (b) ........ A-1+/VMIG-1 2,500 2,500,000
Series B
3.75%, 10/07/94 ............ A-1+/VMIG-1 4,700 4,700,000
-------------
7,200,000
-------------
DISTRICT OF COLUMBIA -- 1.1%
District of Columbia,
Catholic University of
America 89A
3.65%, 10/07/94 (b).......... --/VMIG-1 4,000 4,000,000
-------------
FLORIDA -- 0.8%
City of Gainesville Utilities
System, Series C, TECP
3.30%, 10/21/94 (c) ........ A-1+/P-1 2,900 2,900,000
-------------
</TABLE>
<PAGE> 66
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS -- 14.2%
Chicago, Illinois GO, Series
1992 (Canadian Imperial Bank
LOC)
3.65%, 10/07/94 (b) ........ A-1+/VMIG-1 $ 7,200 $ 7,200,000
Illinois Education Authority
(Art Institute of Chicago)
3.90%, 10/07/94 (b) ........ A-1+/VMIG-1 14,900 14,900,000
Illinois Health and Education
Authority (University of
Chicago)
3.80%, 02/23/95 (c) ........ A-1+/VMIG-1 11,400 11,400,000
Illinois Health Facilities
Authority (Highland Park
Hospital) Series 1991A (FGIC
Insurance)
3.75%, 06/01/95 (c) ........ A-1+/VMIG-1 7,500 7,500,000
Illinois Health Facility
(University Chicago
Hospital) (MBIA Insurance)
3.85%, 10/07/94 (b) ........ A-1+/VMIG-1 6,300 6,300,000
Illinois Health Facility
Authority Pooled Loan
(Swiss Bank LOC)
3.70%, 10/07/94 (b) ........ A-1+/VMIG-1 2,100 2,100,000
-------------
49,400,000
-------------
INDIANA -- 5.6%
Indiana Health Facility
(Rehabilitation Hospital)
(Toronto Dominion LOC)
3.75%, 10/07/94 (b) ........ NR/VMIG-1 5,500 5,500,000
Petersburg Pollution Control
Refunding Revenue Bonds
(Indianapolis Power & Light
Company)
3.30%, 10/21/94 (c) ........ A-1+/P-1 6,325 6,325,000
3.10%, 11/14/94 (c) ........ A-1+/P-1 7,500 7,500,000
-------------
19,325,000
</TABLE>
<PAGE> 67
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
-------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
-------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
IOWA -- 3.1%
Iowa Higher Education Loan
Authority, Private College
Facility (MBIA Insurance)
3.80%, 10/07/94 (b) ........ A-1+/VMIG-1 $ 6,100 $ 6,100,000
Polk County (Hospital
Equipment Authority) (MBIA
Insurance)
3.60%, 10/07/94 (b) ........ A-1+/VMIG-1 4,800 4,800,000
-------------
10,900,000
-------------
KENTUCKY -- 1.7%
County of Jefferson,
Pollution Control Revenue
(Louisville Gas and
Electric) 1992
3.25%, 10/26/94 (c) ........ A-1+/VMIG-1 3,500 3,500,000
Trimble County Pollution
Control Revenue Bonds,
1992, Series A (Louisville
Gas & Electric Co. Project)
3.30%, 11/17/94 (c) ........ A-1+/VMIG-1 2,300 2,300,000
-------------
5,800,000
-------------
LOUISIANA -- 8.6%
Louisiana Public Facilities
Authority (Ciba-Geigy
Corporation) PCR Series 1985
(Credit Suisse LOC)
3.75%, 10/07/94 (b) ........ A-1+/-- 1,700 1,700,000
Louisiana Public Facilities
Authority, Hospital Revenue
Series 85 (MBIA Insurance)
3.60%, 10/07/94 (b) ........ A-1+/VMIG-1 8,400 8,400,000
Parish of Desoto, Pollution
Control Revenue (Central
Louisiana Electric) (Swiss
Bank LOC)
3.60%, 10/07/94 (b) ........ A-1+/VMIG-1 3,000 3,000,000
</TABLE>
<PAGE> 68
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
-------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
-------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
LOUISIANA -- (continued)
Plaquemines Port, Harbor and
Terminal District (Tampa
Electric)
3.15%, 11/14/94 (c) ........ A-1+/NR $ 5,000 $ 5,000,000
3.35%, 11/17/94 (c) ........ A-1+/NR 2,800 2,800,000
Series D
3.35%, 11/17/94 (c) ........ A-1+/NR 4,100 4,100,000
Plaquemines Port, Harbor and
Terminal District (Marine
Terminal Facilities Revenue
Refunding Bonds)
4.30%, 03/01/95 (c) ........ NR/P-1 5,000 5,006,048
-------------
30,006,048
-------------
MARYLAND -- 0.6%
Montgomery County Housing,
Single Family Revenue
Mortgage, Series B
2.85%, 09/22/95 (c) ........ NR/VMIG-1 2,000 2,000,000
-------------
MASSACHUSETTS -- 0.6%
Massachusetts Health and
Education Authority 851
(Harvard University)
3.35%, 10/07/94 (b) ........ A-1+/VMIG-1 2,000 2,000,000
-------------
MICHIGAN -- 0.6%
Michigan State Housing
Development Authority,
Rental Housing Revenue
Bonds, 1994C (Credit Suisse
LOC)
3.10%, 02/28/95 (c) ........ A-1+/-- 2,000 2,000,000
-------------
MINNESOTA -- 1.7%
City of Becker Pollution
Control Revenue (Northern
States Power Company)
3.65%, 02/23/95 (c) ........ A-1+/VMIG-1 5,800 5,800,000
-------------
</TABLE>
<PAGE> 69
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
MISSOURI -- 3.6%,
City of Columbia Water and
Electric System (Toronto
Dominion LOC)
3.60%, 10/07/94 (b) ......... NR/VMIG-1 $ 2,000 $ 2,000,000
Kansas City Health Facility
Authority (Baptist Health
System) System 1988A (Swiss
Bank LOC)
3.70%, 10/07/94 (b) ......... A-1+/VMIG-1 3,700 3,700,000
Missouri Environmental
Improvement, Pollution
Control Revenue (National
Rural Utilities) Series M
3.65%, 10/07/94 (b) ......... A-1+/VMIG-1 7,000 7,000,000
-------------
12,700,000
-------------
NEBRASKA -- 0.7%
Nebraska Higher Education
Loan Program, Student Loan
Program (MBIA Insurance)
Series 1985D
3.70%, 10/07/94 (b) ........ NR/VMIG-1 1,000 1,000,000
Series 1985E
3.70%, 10/07/94 (b) ........ NR/VMIG-1 1,400 1,400,000
-------------
2,400,000
-------------
NEW MEXICO -- 1.3%
Albuquerque Health
Facility Authority
(Sisters of Charity)
(Toronto Dominion LOC)
3.70%, 10/07/94 (b) ........ A-1+/VMIG-1 3,100 3,100,000
-------------
Farmington Pollution Control
Revenue (Arizona Public
Service) (Union Bank of
Switzerland LOC)
3.80%, 10/01/94 (b) ........ A-1+/VMIG-1 1,600 1,600,000
-------------
4,700,000
-------------
</TABLE>
<PAGE> 70
==============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK -- 1.1%
New York City GO
(FGIC Insurance)
3.95%, 10/01/94 (b) ........ A-1+/VMIG-1 $ 3,600 3,600,000
3.65%, 10/01/94 (b) ........ NR/VMIG-1 200 200,000
-------------
3,800,000
-------------
NORTH CAROLINA -- 1.4%
North Carolina Medical Care
(Duke University
Hospital Project)
Series A
3.50%, 10/07/94 (b) ........ A-1+/VMIG-1 $ 1,000 $ 1,000,000
Person County Industrial
Facilities Authority,
Pollution Control Revenue
Bond (Carolina Power and
Light) 1992A
3.65%, 10/07/94 (b) ........ A-1/P-1 4,000 4,000,000
-------------
5,000,000
-------------
PENNSYLVANIA -- 1.7%
Beaver County Industrial
Development Authority,
Pollution Control Revenue
Refunding Bonds (Toronto
Dominion LOC)
3.20%, 11/09/94 (c) ........ A-1+/NR 6,000 6,000,000
-------------
SOUTH CAROLINA -- 2.6%
Rock Hill Combined Utility
System Revenue Bond, Series
1994 (FGIC Insurance)
3.65%, 10/07/94 (b) ........ A-1+/VMIG-1 9,125 9,125,000
-------------
TEXAS -- 4.8%
Brazos River Harbor
Navigation District
(Dow Chemical Co.)
3.25%, 10/26/94 (c) ........ A-1/P-1 4,950 4,950,000
Harris County Health
Facilities Development Corp.
(San Jacinto Methodist)
(Morgan Guaranty LOC)
3.35%, 12/01/94 (c) ........ A-1+/VMIG-1 7,000 7,000,000
Harris County Health
Facilities Development
Corporation, Revenue Bonds
(Methodist Hospital)
3.80%, 10/01/94 (b) ........ A-1+/NR 1,000 1,000,000
</TABLE>
<PAGE> 71
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
-------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
-------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Rating(a)
----------- Par Value
S&P/Moody's (000) (Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS -- (continued)
Harris County Health
Facility Authority (St.
Lukes Hospital) Series C
3.80%, 10/01/94 (b) ........ A-1+/NR $ 3,800 $ 3,800,000
-------------
16,750,000
-------------
VERMONT -- 5.4%
Vermont GO TECP
3.05%, 10/17/94 (c) ........ A-1+/P-1 15,000 15,000,000
Vermont Student Loans, 1985
(National Westminster LOC)
3.15%, 10/07/94 (b) ........ A-1+/VMIG-1 4,000 4,000,000
-------------
19,000,000
-------------
VIRGINIA -- 0.9%
Virginia Housing Development
Authority, Series 1993A
2.80%, 11/04/94 (c) ........ A-1+/VMIG-1 3,000 3,000,000
-------------
TOTAL INVESTMENTS -- 99.6% ............................ 346,944,210(d)
OTHER ASSETS IN EXCESS OF
LIABILITIES, NET -- 0.4% ............................. 1,252,026
-------------
NET ASSETS -- 100.0% .................................. $ 348,196,236
=============
Net Asset Value and Redemption
Price Per Share .......................................
($348,196,236 divided by 348,284,380 shares
outstanding) ....................................... $1.00
=====
</TABLE>
<PAGE> 72
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC. September 30, 1994
-------------------------------------------------------------------------------
TAX-FREE SERIES Statement of Net Assets
-------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
BAN Bond Anticipation Notes
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
LOC Letter of Credit
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RB Revenue Bonds
TAN Tax Anticipation Notes
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Notes
-------------------------------------------------------------------------
INSURANCE ABBREVIATIONS:
AMBAC AMBAC Indemnity Corp.
MBIA Municipal Bond Investors Assurance
FGIC Federal Guaranty Insurance Corporation
MOODY'S MUNICIPAL BOND RATINGS:
Aaa Bonds which are judged to be of the best quality.
Aa Bonds which are judged to be of high quality by all standards.
Issues are sometimes rated with a 1, 2 or 3 which denotes a high,
medium or low ranking within the rating.
MIG-1 Notes bearing this designation are of the best quality.
VMIG-1 Variable rate demand obligations bearing this designation are
of the best quality.
P-1 Commercial paper bearing this designation is of the best quality.
NR Not rated.
S&P MUNICIPAL BOND RATINGS:
AAA These are obligations of the highest quality.
AA These obligations have the second strongest capacity for payment
of debt service. Those issues determined to possess very strong
safety characteristics are denoted with a plus (+) sign.
SP-1 Notes which have a strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics are assigned a plus (+) designation.
A-1 Commercial paper which has a strong degree of safety regarding
timely payment. Those issues determined to possess very strong
safety characteristics are denoted with a plus (+) sign.
NR Not rated.
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P").
(b) Demand security; payable upon demand by the Fund with usually no
more than seven calendar days' notice. Interest rates are
redetermined periodically. Rates shown are the rates in effect on
September 30, 1994.
(c) Security has an outstanding call, mandatory put or optional put
by the issuer. Par value and maturity date reflect such call
or put.
(d) Also aggregate cost for financial reporting and federal tax
purposes.
See Notes to Financial Statements.
<PAGE> 73
================================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the six months ended September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
------------- ------------- ------------
<S> <C> <C> <C>
Investment Income:
Interest income .................................... $30,976,980 $12,529,384 $5,229,007
------------- ------------- ------------
Expenses: ...........................................
Distribution fees (Note 2) ......................... 1,931,262 704,242 457,327
Investment advisory fee (Note 2) ................... 1,485,596 523,102 380,679
Transfer agent fees ................................ 596,256 92,658 48,713
Custodian fees ..................................... 179,097 87,739 45,840
Registration fees .................................. 147,630 43,633 36,347
Accounting fee (Note 2) ............................ 35,582 30,993 30,031
Directors' fees .................................... 38,716 18,501 8,041
Other expenses ..................................... 124,327 70,796 35,386
------------- ------------- ------------
Total expenses .................................... 4,538,466 1,571,664 1,042,364
------------- ------------- ------------
Net investment income ............................... 26,438,514 10,957,720 4,186,643
Net realized loss on sales of investments ........... (31) (21,009) (8,115)
------------- ------------- ------------
Net increase in net assets resulting from operations.. $26,438,483 $10,936,711 $4,178,528
============= ============= ============
</TABLE>
See Notes to Financial Statements.
<PAGE> 74
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
For the six months ended September 30, 1994 and the year ended March 31, 1994
<TABLE>
<CAPTION>
Prime Series Treasury Series Tax-Free Series
----------------------------- ------------------------------ ------------------------------
September 30, March 31, September 30, March 31, September 30, March 31,
1994* 1994 1994* 1994 1994* 1994
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income ........ $ 26,438,514 $ 36,031,670 $ 10,957,720 $ 17,417,546 $ 4,186,643 $ 6,162,576
Net realized gain/(loss) on
sales of investments ........ (31) (384) (21,009) 52,709 (8,115) (43,790)
--------------- --------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ... 26,438,483 36,031,286 10,936,711 17,470,255 4,178,528 6,118,786
--------------- --------------- ------------- ------------- ------------- -------------
Dividends to shareholders from
net investment income:
Prime, Treasury and Tax-Free
Shares, respectively ..... (24,189,598) (32,739,196) (9,847,932) (15,354,953) (4,186,643) (6,159,520)
Institutional Shares ........ (323,704) (781,048) (1,109,788) (2,062,594) -- --
Flag Investors Shares ....... (350,269) (422,128) -- -- -- --
Quality Cash Shares ......... (1,574,943) (2,089,298) -- -- -- --
Dividends to shareholders from
net realized gains:
Prime, Treasury and Tax-Free
Shares, respectively ...... -- -- -- (69,098) -- --
Institutional Shares ........ -- -- -- (7,743) -- --
Flag Investors Shares ....... -- -- -- -- -- --
Quality Cash Shares ......... -- -- -- -- -- --
--------------- --------------- ------------- ------------- ------------- -------------
Total distributions .......... (26,438,514) (36,031,670) (10,957,720) (17,494,388) (4,186,643) (6,159,520)
Share transactions-net ....... (42,821,884) 202,382,250 (36,886,618) (56,881,631) (30,654,881) 63,238,519
--------------- --------------- ------------- ------------- ------------- -------------
Net increase/(decrease) in net
assets ....................... (42,821,915) 202,381,866 (36,907,627) (56,905,764) (30,662,996) 63,197,785
Net assets:
Beginning of period .......... 1,484,567,516 1,282,185,650 621,417,062 678,322,826 378,859,232 315,661,447
--------------- --------------- ------------- ------------- ------------- -------------
End of period ................ $ 1,441,745,601 $ 1,484,567,516 $ 584,509,435 $ 621,417,062 $ 348,196,236 $ 378,859,232
=============== =============== ============= ============= ============= =============
Net assets consist of:
Capital (par value and
additional paid in) ......... $ 1,441,743,444 $ 1,484,565,328 $ 584,525,517 $ 621,412,135 $ 348,284,380 $ 378,939,261
Undistributed net realized
gain/(loss) on sales of
investments ................. 2,157 2,188 (16,082) 4,927 (88,144) (80,029)
--------------- --------------- ------------- ------------- ------------- -------------
$ 1,441,745,601 $ 1,484,567,516 $ 584,509,435 $ 621,417,062 $ 348,196,236 $ 378,859,232
=============== =============== ============= ============= ============= =============
</TABLE>
------
*Unaudited.
See Notes to Financial Statements.
<PAGE> 75
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Prime and Flag Investors Shares:**
<TABLE>
<CAPTION>
Six months
ended Year ended March 31,
September 30, -----------------------------------------------------------------------------------
1994* 1994 1993 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 .. 0.0187 0.0262 0.0295 0.0485 0.0734 0.0846
Less Distributions:
Dividends from net
investment income
and short-term gains . (0.0187) (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 $ 1.00
============== ============== ============== ============== ============= ===============
Total Return ............ 3.76%(1) 2.65% 2.99% 4.96% 7.59% 8.80%
Ratios to Average Net
Assets:
Expenses .............. 0.61%(1) 0.62% 0.63% 0.61% 0.59% 0.52%
Net investment income . 3.73%(1) 2.57% 2.95% 4.84% 7.31% 8.42%
Supplemental Data:
Net assets at end of
period ............... $1,331,296,008 $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 ............... 1,331,293,958 1,368,449,549 1,151,977,279 1,264,629,485 1,295,888,161 1,312,272,415
============== ============== ============== +============= ============== ==============
</TABLE>
------
(1)Annualized.
* Unaudited.
** Per share information and ratios of the Flag Investors Shares are identical
to the Prime Shares since January 5, 1989 (date Flag Investors Shares
commenced operations).
See Notes to Financial Statements.
<PAGE> 76
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Institutional Prime Shares:
<TABLE>
<CAPTION>
Six months June 4, 1990**
ended Year ended March 31, through
September 30, ---------------------------------------------- March 31,
1994* 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------
<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 ................. 0.0203 0.0145 0.0327 0.0515 0.0617
Less Distributions:
Dividends from net
investment income and short-term gains (0.0203) (0.0145) (0.0327) (0.0515) (0.0617)
---------- ----------- ----------- ----------- ------------
Net asset value at end of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== =========== =========== ============
Total Return ............................ 4.09%(1) 2.98% 3.32% 5.27% 7.70(1)
Ratios to Average Net Assets:
Expenses .............................. 0.29%(1) 0.30% 0.31% 0.32% 0.35(1)
Net investment income ................. 3.95% 2.94% 3.24% 5.34% 7.53(1)
Supplemental Data:
Net assets at end of period ........... $8,867,323 $23,437,449 $28,884,078 $21,867,108 $117,633,558
Number of shares outstanding at end of
period ............................... 8,867,386 23,437,939 28,884,132 21,867,108 117,633,558
========== =========== =========== =========== ============
</TABLE>
------
(1) Annualized.
* Unaudited.
** Commencement of operations.
See Notes to Financial Statements.
<PAGE> 77
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Quality Cash Shares:
<TABLE>
<CAPTION>
Six months May 6, 1991**
ended Year ended March 31, through
September 30, --------------------------- March 31,
1994* 1994 1993 1992
------------------------------------------------------------------------------------------------------------
<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 .................. 0.0165 0.0218 0.0253 0.0399
Less Distributions:
Dividends from net investment income and
short-term gains ...................... (0.0165) (0.0218) (0.0253) (0.0399)
------------ ----------- ----------- -----------
Net asset value at end of period ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ =========== =========== ===========
Total Return ............................. 3.32%(1) 2.20% 2.53% 4.30(1)
Ratios to Average Net
Assets:
Expenses ............................... 1.05%(1) 1.06% 1.04% 0.96(1)
Net investment income .................. 3.30%(1) 2.18% 2.53% 4.30(1)
Supplemental Data:
Net assets at end of period ............ $101,582,270 $92,678,440 $101,121,868 $94,887,669
Number of shares outstanding at end of
period ................................ 101,582,100 92,678,268 101,321,668 94,887,669
============ =========== =========== ===========
</TABLE>
------
(1) Annualized.
* Unaudited.
** Commencement of operations.
See Notes to Financial Statements.
<PAGE> 78
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Treasury Shares:
<TABLE>
<CAPTION>
Six months
ended Year ended March 31,
September 30, --------------------------------------------------------------------------------
1994* 1994 1993 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 and
short-term gains ......... 0.0176 0.0255 0.0285 0.0477 0.0698 0.0829
Less Distributions:
Dividends from net investment
income and short-term
gains .................... (0.0176) (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 $ 1.00
============ ============= =========== ============ ============ =============
Total Return ................ 3.53%(1) 2.58% 2.89% 4.88% 7.21% 8.61%
Ratios to Average Net Assets:
Expenses ................... 0.53%(1)(2) 0.54%(2) 0.55%(2) 0.55% 0.56% 0.41%
Net investment income ...... 3.50%(1) 2.55%(1) 2.87%(1) 4.76% 6.82% 8.25%
Supplemental Data:
Net assets at end of period. $546,055,608 $581,724,214 $618,175,839 $725,010,207 $716,551,599 $272,467,125
Number of shares outstanding
at end of period ......... 546,068,061 581,723,448 618,152,465 725,010,207 716,551,559 272,509,276
</TABLE>
------------
(1) Annualized.
(2) Ratio of expenses to average net assets prior to partial fee waivers was
0.57% (annualized) for the six months ended September 30, 1994 and 0.56% for
the years ended March 31, 1994 and 1993, respectively.
* Unaudited.
See Notes to Financial Statements.
<PAGE> 79
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- Continued
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Institutional Treasury Shares:
<TABLE>
<CAPTION>
Six months June 4, 1990**
ended Year ended March 31, through
September 30, -------------------------------------------- March 31,
1994* 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------------
<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 ...................... 0.0189 0.0282 0.0314 0.0504 0.0590
Less Distributions:
Dividends from net
investment income and short-term gains ... (0.0189) (0.0282) (0.0314) (0.0504) (0.0590)
--------- ----------- ----------- ----------- -----------
Net asset value at end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ============
Total Return ................................ 3.80%(1) 2.86% 3.19% 5.17% 7.36%(1)
Ratios to Average Net Assets:
Expenses ................................... 0.28%(1)(2) 0.27%(2) 0.26%(2) 0.27% 0.29%(1)
Net investment income ...................... 3.74%(1) 2.82% 3.16% 4.90% 7.02%(1)
Supplemental Data:
Net assets at end of period ................ $38,453,827 $39,692,848 $60,146,987 $63,834,323 $58,017,844
Number of shares outstanding at end of
period ................................... 38,457,029 39,688,259 60,140,874 63,834,323 58,017,844
=========== =========== =========== =========== ============
</TABLE>
------------
(1) Annualized.
(2) Ratio of expenses to average net assets prior to partial fees assumed was
0.31% (annualized), 0.29% and 0.27% for the six months ended September 30,
1994 and for the years ended March 31, 1994 and 1993, respectively.
* Unaudited.
** Commencement of operations.
See Notes to Financial Statements.
<PAGE> 80
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONCLUDED
-------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Tax-Free Series:
<TABLE>
<CAPTION>
Six months Dec 17, 1990**
ended Year ended March 31, through
September 30, -------------------------------------------------- March 31,
1994* 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------------
<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 .................. 0.0115 0.0184 0.0213 0.0353 0.0124
Less Distributions:
Dividends from net investment income and
short-term gains ..................... (0.0115) (0.0184) (0.0213) (0.0353) (0.0124)
------------ ------------ ------------- ------------ ------------
Net asset value at end of
period ............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ............................ 2.30%(1) 1.86% 2.15% 3.59% 4.35%(1)
Ratios to Average Net Assets:
Expenses ............................... 0.57%(1) 0.58% 0.60% 0.56%(2) 0.53%(1)
Net investment income .................. 2.29%(1) 1.84% 2.13% 3.49% 4.25%(1)
Supplemental Data:
Net assets at end of period ............ $348,196,236 $378,859,232 $315,661,447 $304,987,823 $256,895,180
Number of shares outstanding at end of
period ............................... 348,284,380 378,939,262 315,700,742 305,008,959 256,895,680
============ ============ ============ ============ ============
</TABLE>
------------
(1) Annualized.
(2) Ratio to average net assets prior to partial fees assumed was 0.57% for the
year ended March 31, 1992.
* Unaudited.
** Commencement of operations.
See Notes to Financial Statements.
<PAGE> 81
===============================================================================
ALEX. BROWN CASH RESERVE FUND, INC.
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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September 30, 1994
(Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended as a diversified, open-end
management investment company. The Fund is organized as a Maryland
corporation consisting of three different portfolios, the Prime Series, the
Treasury Series, and the Tax-Free Series. The Prime Series consists of four
different classes of shares: Alex. Brown Cash Reserve Prime Shares ("Prime
Shares"), Flag Investors Cash Reserve Prime Shares ("Flag Investors Shares"),
Quality Cash Reserve Prime Shares ("Quality Cash Shares") and Alex. Brown
Cash Reserve Institutional Prime Shares ("Institutional Prime Shares"). The
Treasury Series offers two classes of shares: Alex. Brown Cash Reserve
Treasury Shares ("Treasury Shares") and Alex. Brown Cash Reserve
Institutional Treasury Shares ("Institutional Treasury Shares"). The Tax-Free
Series offers only one class of shares. Matters affecting each class are
voted on exclusively by such shareholders. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of
its financial statements.
A. Security Valuation -- The Fund maintains a dollar weighted average
portfolio maturity of 90 days or less for each portfolio. The securities of
each portfolio are valued on the basis of amortized cost which approximates
market value. This method values a security at its cost on the date of
purchase and thereafter assumes a constant amortization to maturity of any
original issue or other discount or premium.
B. Security Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales, if any, are computed on the basis of specific identification
of the securities sold. Interest income is recorded on an accrual basis and
includes, when applicable, the pro rata amortization of premiums and
accretion of discounts. Dividends to shareholders are declared daily and
distributions or reinvestments of the dividends are made monthly.
C. Repurchase Agreement -- The Prime Series may agree to purchase money
market instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will be
required on a daily basis to maintain the value of the securities subject to
the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book entry system.
D. Federal Income Taxes -- The Fund intends to continue to comply with
the requirements of the Internal Revenue Code necessary to continue to
qualify as a regulated investment company and, as such, will not be subject
to federal income taxes on otherwise taxable income (including net realized
capital gains) which is distributed to shareholders. Each portfolio is
treated as a separate entity for federal income tax purposes. The Tax-Free
Series has a capital loss carryforward of $88,144 (which may be carried
forward to offset future taxable capital gains, if any) which begins to
expire, if not previously utilized, in 2000.
E. Expenses -- Operating expenses directly attributable to a class of
shares (distribution and transfer agent fees) are charged to that class'
operations. Expenses of the Fund which are not directly attributable to a
specific class are prorated among the classes to which the expense relates
based on the relative net assets of each class.
<PAGE> 82
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ALEX. BROWN CASH RESERVE FUND, INC.
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NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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September 30, 1994
(Unaudited)
NOTE 2 -- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with Investment
Company Capital Corp. (formerly Flag Investors Management Corp.) ("ICC"), a
subsidiary of Alex. Brown & Sons Incorporated ("Alex. Brown"), with respect to
all Series and sub-advisory agreements with PNC Institutional Management
Corporation ("PIMC") with respect to the Prime and Tax-Free Series. Under the
terms of the investment advisory agreement, ICC receives a fee from the Fund,
calculated daily and paid monthly, at the following annual rates based upon the
Fund's aggregate average daily net assets, .25% of the first $500 million, .21%
of the next $500 million, .20% of the next $500 million and .19% of that portion
in excess of $1.5 billion.
As compensation for its subadvisory services, PIMC will receive a fee from
ICC, calculated daily and paid monthly, at the following annual rates based upon
the Prime and Tax-Free Series' aggregate average daily net assets, .15% of the
first $250 million, .13% of the next $250 million, .11% of the next $250
million, .09% of the next $250 million, .075% of the next $3 billion and .06% of
that portion in excess of $4 billion. ICC may, from time to time, voluntarily
waive a portion of its advisory fee with respect to the Prime, Treasury and
Tax-Free Series to preserve or enhance the performance of the Series as compared
to certain industry benchmarks, and, if ICC elects to so waive a portion of its
fee, PIMC has agreed that it would waive a portion of its fee in the same
proportion and for the same time periods as ICC waiver. ICC voluntarily waived
fees in the amount of $126,660 for the Treasury Series for the six months ended
September 30, 1994.
Under the terms of these agreements, ICC and Alex. Brown will, if necessary,
reimburse the Fund for any fiscal year to the extent that expenses (exclusive of
any interest, taxes, brokerage commissions and extraordinary expenses) exceed 1%
of aggregate average daily net assets of the Fund's three Series. The obligation
of ICC to reimburse the Fund is limited to the fees actually received by ICC for
such fiscal year.
As compensation for its accounting services, Alex. Brown receives from the
Treasury Series an annual fee, calculated daily and paid monthly, based on the
Fund's average daily net assets. Alex. Brown received $30,993 for accounting
services for the six months ended September 30, 1994.
The Fund has entered into a distribution agreement with Alex. Brown. Under
the terms of the distribution agreement, Alex. Brown receives a fee from the
Prime Shares, Flag Investors Shares, Treasury Shares, and the Tax-Free Series,
at the annual rate of .25% of the aggregate average daily net assets of these
classes of shares. Alex. Brown also receives a fee from the Quality Cash Shares
at the annual rate of .60% of the aggregate average daily net assets of the
class.
Sales of the Flag Investors Shares are subject to a sales charge to be paid
as commission to subdistributors of the Fund. For the six months ended September
30, 1994, Alex. Brown received commissions of $1,506 from sales of the Flag
Investors Shares. Such commissions are not an expense of the Fund. They are
deducted from, and are not included in, the proceeds from sales of capital
stock.
The Fund, pursuant to the sub-advisory agreement with PIMC, has agreed to
reimburse PIMC for certain costs incurred in providing accounting services to
the Prime and Tax-Free Series. For the six months ended September 30, 1994, the
Fund paid $898,355 for sub-advisory and accounting services to PIMC.
NOTE 3 -- CAPITAL STOCK AND SHARE INFORMATION
5,000,000,000 shares of $.001 par value capital stock were authorized
(2,500,000,000 Prime Series, 1,500,000,000 Treasury Series, 600,000,000 Tax-Free
Series and 400,000,000 not classified). Changes in shares outstanding during the
six months ended September 30, 1994 and the year ended March 31, 1994,
respectively, are listed on the following page.
<PAGE> 83
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ALEX. BROWN CASH RESERVE FUND, INC.
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NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
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September 30, 1994
(Unaudited)
NOTE 3 -- Continued
<TABLE>
<CAPTION>
September 30, 1994
(Unaudited) March 31, 1994
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<S> <C> <C>
PRIME SERIES:
Sold:
Prime Shares ........................ 4,538,752,643 9,686,804,894
Flag Investors Shares .............. 7,486,575 19,779,192
Institutional Prime Shares ......... 30,282,615 112,556,652
Quality Cash Shares ................ 236,286,289 588,672,765
Issued as reinvestment of dividends:
Prime Shares ........................ 23,817,827 30,696,236
Flag Investors Shares .............. 339,055 410,766
Institutional Prime Shares ......... -- --
Quality Cash Shares ................ 1,570,455 2,016,719
Redeemed:
Prime Shares ........................ (4,597,428,043) (9,503,242,285)
Flag Investors Shares .............. (10,123,647) (17,976,533)
Institutional Prime Shares ......... (44,852,741) (118,003,272)
Quality Cash Shares ................ (228,952,912) (599,332,884)
------------------ ---------------
Net increase/(decrease) ........... (42,821,884) 202,382,250
================== ===============
TREASURY SERIES:
Sold:
Treasury Shares .................... 1,281,534,156 3,008,800,861
Institutional Treasury Shares ...... 515,813,704 1,065,032,301
Issued as reinvestment of dividends:
Treasury Shares .................... 9,595,496 14,417,283
Institutional Treasury Shares ...... -- --
Redeemed:
Treasury Shares .................... (1,326,785,040) (3,059,647,160)
Institutional Treasury Shares ...... (517,044,934) (1,085,484,916)
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Net decrease ...................... (36,886,618) (56,881,631)
================== ===============
TAX-FREE SERIES: ....................
Sold ............................... 1,659,083,726 3,167,571,073
Issued as reinvestment of dividends 4,071,419 5,808,090
Redeemed ........................... (1,693,810,026) (3,110,140,644)
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Net increase/(decrease) ........... (30,654,881) 63,238,519
================== ===============
</TABLE>
NOTE 4 -- SUBSEQUENT EVENT
Effective November 1, 1994, ICC will perform all advisory services for the
Prime Series pursuant to its existing investment advisory agreement with the
Fund dated April 4, 1990.
Effective on or about November 1, 1994, ICC will also provide accounting
services to the Prime Series. As compensation for providing such services, ICC
will receive from the Fund an annual fee equal to $13,000, plus a percentage of
the Prime Series' average daily net assets in excess of $10 million at a maximum
rate of .100% of net assets and declining at various asset levels to a minimum
rate of .001% on net assets of $1 billion or more.
Effective immediately, the accounting fees for the Treasury Series will be
based on the same levels of compensation as those described above for the Prime
Series.
