<PAGE>
Supplement dated May 27, 1997
to the following Prospectus:
Alex. Brown Cash Reserve Fund, Inc.
(Institutional Shares)
dated May 27, 1996
The above prospectus is hereby amended and supplemented as follows:
Alex. Brown Incorporated ("Alex. Brown") has entered into an Agreement
and Plan of Merger with Bankers Trust New York Corporation ("Bankers Trust"),
dated as of April 6, 1997, under which Alex. Brown would merge with and into a
subsidiary of Bankers Trust (the "Merger"). Bankers Trust is a registered bank
holding company subject to the Bank Holding Company Act of 1956, as amended
("BHCA"), and the rules and regulations thereunder. The Board of Governors of
the Federal Reserve System has promulgated rules and regulations pursuant to its
authority under the BHCA (and taking into consideration certain provisions of
the National Banking Act of 1933 generally referred to as the Glass-Steagall
Act) that govern the relationship between bank holding company affiliates and
mutual funds, such as the Fund. After the Merger, Alex. Brown and its affiliates
would be permitted under the BHCA to continue to provide investment advisory
services to the Fund, as well as services to Fund shareholders who are Alex.
Brown customers. However, depending on the nature and extent of any regulatory
relief granted in connection with the Merger, individuals affiliated with Alex.
Brown might not be able to serve as officers and directors of the Fund and the
Fund will likely have to engage an independent distributor. Alex. Brown does not
believe such changes, if necessary, would substantially affect the operation of
the Fund or the services received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
P. O. Box 17250
Baltimore, Maryland 21203 ALEX. BROWN
CASH RESERVE
FUND, INC.
INSTITUTIONAL
SHARES
PRIME SERIES
TREASURY SERIES
TAX-FREE SERIES
PROSPECTUS
May 27, 1997
|-----------------|
| BULK RATE |
| U.S. POSTAGE |
| PAID |
| Baltimore, M.D. |
| Permit No. 8614 |
|-----------------|
LOGO ALEX. BROWN
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
INSTITUTIONAL SHARES
P. O. Box 17250
Baltimore, Maryland 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed to seek as high a level of current income as is consistent with
preservation of capital and liquidity. The class of shares of the Fund
offered by this Prospectus may be purchased only by eligible institutions.
The Fund offers:
o PRIME SERIES -- a portfolio invested in U.S. Treasury obligations,
repurchase agreements backed by such instruments, obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government,
domestic bank instruments and commercial paper of the highest quality;
o TREASURY SERIES -- a portfolio invested in U.S. Treasury bills, notes,
bonds and other obligations issued by the U.S. Treasury; and
o TAX-FREE SERIES -- a portfolio invested in high quality, short-term
municipal obligations.
Other principal features of the Fund:
o No direct or indirect purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or
cash; and
o Wire and telephone transfers.
For current yield information and for purchase and redemption information,
call (410) 895-5995.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW ABOUT
THE FUND PRIOR TO INVESTING AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1996, AS
AMENDED THROUGH MAY 27, 1997, HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS HEREBY INCORPORATED BY REFERENCE. IT IS AVAILABLE UPON
REQUEST AND WITHOUT CHARGE BY CALLING THE FUND AT (800) 553-8080.
TABLE OF CONTENTS
PAGE
1. Table of Fees and Expenses 2
2. Financial Highlights 3
3. The Fund and the Institutional Shares 6
4. Investment Program 6
5. How to Invest in Institutional Shares
of the Fund 10
6. Dividends and Taxes 11
7. How to Redeem Institutional Shares 13
8. Management of the Fund 13
9. Current Yield 15
10. General Information 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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 Dated: May 27, 1997
<PAGE>
TABLE OF FEES AND
1 EXPENSES
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses that an investor in Institutional
Shares of the Prime, Treasury or Tax-Free Series of the Fund may bear directly
and indirectly. The percentages shown below expressing Annual Fund Operating
Expenses for the Institutional Shares of the Prime Series ("Prime Institutional
Shares") and the Treasury Series ("Treasury Institutional Shares") are restated
using current, rather than historical, expenses. The Expenses and Example for
the Institutional Shares of the Tax-Free Series ("Tax-Free Institutional
Series"), which have not been offered prior to the date of this Prospectus, are
based on the restated expenses for the Alex. Brown Cash Reserve Shares of the
Tax-Free Series ("Treasury Institutional Shares"), another class of shares
offered by the Tax-Free Series, less 12b-1 fees of .25%. Actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
PRIME TREASURY TAX-FREE
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
----------------- ----------------- -----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Maximum Sales Charge Imposed on Purchases ................... None None None
Maximum Sales Charge Imposed on Reinvested Dividends ........ None None None
Maximum Deferred Sales Charge ............................... None None None
Redemption Fees ............................................. None None None
AS A % OF AVERAGE
ANNUAL FUND OPERATING EXPENSES DAILY NET ASSETS
- ------------------------------ ----------------------------------------------------------
Management Fees (See "Management of the Fund -- Investment
Advisor") ................................................. .27% .25% .28%
12b-1 Fees (See "Management of the Fund -- Distributor") ..... None None None
Other Expenses ............................................... .10% .10% .10%
------ ------ ------
Total Fund Operating Expenses ................................ .37% .35% .38%
====== ====== ======
</TABLE>
EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and
redemption at the end of each time period, an investor in Institutional
Shares of any Series would have paid transaction and operating expenses at
the end of each year as follows:
<TABLE>
<CAPTION>
PRIME TREASURY TAX-FREE
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
--------------- --------------- ---------------
<S> <C> <C> <C>
1 year ......... $ 4 $ 4 $ 4
3 years ........ $12 $11 $12
5 years ........ $21 $20 --
10 years ....... $48 $45 --
</TABLE>
THE EXPENSES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE>
2 FINANCIAL HIGHLIGHTS
The Fund has offered the Prime Institutional Shares and the Treasury
Institutional Shares since June 4, 1990. The Fund has not offered the Tax-Free
Institutional Shares prior to the date of this Prospectus. However, the Fund has
offered another class of the Tax-Free Series since December 17, 1990. Historical
financial information about this class is not fully applicable to the Tax-Free
Institutional Shares because the expenses paid by the class differ from those
the Tax-Free Institutional Shares will incur. (See "Table of Fees and
Expenses"). Accordingly, the financial highlights included in these tables are a
part of the Fund's financial statements for the periods indicated and, except
for the financial statements for the six-month period ended September 30, 1996,
have been audited by the Fund's independent accountants. The financial
statements and financial highlights for the fiscal year ended March 31, 1996 and
the report of the Fund's independent accountants thereon and the unaudited
financial statements for the six-month period ended September 30, 1996 are
included in the Statement of Additional Information which can be obtained at no
charge by calling the Fund at (800) 553-8080.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PRIME INSTITUTIONAL SHARES
------------------------------------
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
SEPTEMBER 30, -------------
1996 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning
of period ................. $ 1.00 $ 1.00
-------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........ 0.0252 0.0548
LESS DISTRIBUTIONS:
Dividends from net investment
income and/or short-term
gains ..................... (0.0252) (0.0548)
Net asset value at end of
period .................... $ 1.00 $ 1.00
============== =============
TOTAL RETURN
Based on net asset value per
share ........................ 5.07%** 5.62%
RATIOS TO AVERAGE DAILY NET
ASSETS:
Expenses ..................... 0.35%** 0.35%
Net investment income ........ 5.02%** 5.32%
SUPPLEMENTAL DATA:
Net assets at end of period .. $55,411,841 $53,699,315
Number of shares outstanding
at end of period .......... 55,412,061 53,699,535
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRIME INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
JUNE 4, 1990*
THROUGH
MARCH 31,
1995 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 ........ 0.0472 0.0294 0.0327 0.0515 0.0617
LESS DISTRIBUTIONS:
Dividends from net investment
income and/or short-term
gains ..................... (0.0472) (0.0294) (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:
Based on net asset value per
share ........................ 4.82% 2.98% 3.32% 5.27% 7.70%**
RATIOS TO AVERAGE DAILY NET
ASSETS:
Expenses ..................... 0.36% 0.30% 0.31% 0.32% 0.35%**
Net investment income ........ 4.57% 2.94% 3.24% 5.34% 7.53%**
SUPPLEMENTAL DATA:
Net assets at end of period .. $11,904,716 $23,437,449 $28,884,078 $21,867,108 $117,633,558
Number of shares outstanding
at end of period .......... 11,904,663 23,437,512 28,884,132 21,867,108 117,633,558
</TABLE>
- ------
* The Prime Institutional Shares commenced operations on June 4, 1990.
** Annualized.
3
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TREASURY INSTITUTIONAL SHARES
------------------------------------
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
SEPTEMBER 30, -------------
1996 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning
of period ................. $ 1.00 $ 1.00
-------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........ 0.0227 0.0523
LESS DISTRIBUTIONS:
Dividends from net investment
income and/or short-term
gains ..................... (0.0227) (0.0523)
-------------- -------------
Net asset value at end of
period .................... $ 1.00 $ 1.00
============== =============
TOTAL RETURN:
Based on net asset value per
share ........................ 4.87%** 5.36%
RATIOS TO AVERAGE DAILY NET
ASSETS:
Expenses ..................... 0.33%** 0.33%
Net investment income ........ 4.84%** 5.12%
SUPPLEMENTAL DATA:
Net assets at end of period .. $46,534,756 $51,822,757
Number of shares outstanding
at end of period .......... 46,524,573 51,813,226
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TREASURY INSTITUTIONAL SHARES
-------------------------------------------------------------------------------
June 4, 1990*
through
March 31,
1995 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 ........ 0.0438 0.0282 0.0314 0.0504 0.0590
Less Distributions:
Dividends from net investment
income and/or short-term
gains ..................... (0.0438) (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:
Based on net asset value per
share ........................ 4.47% 2.86% 3.19% 5.17% 7.36%**
Ratios to Average Daily Net
Assets:
Expenses ..................... 0.30%(1) 0.27%(1) 0.26%(1) 0.27% 0.29%**
Net investment income ........ 4.15%(2) 2.82%(2) 3.16%(2) 4.90% 7.02%**
Supplemental Data:
Net assets at end of period .. $14,051,995 $39,692,848 $60,146,987 $63,834,323 $58,017,844
Number of shares outstanding
at end of period .......... 14,046,467 39,688,259 60,140,874 63,834,323 58,017,844
</TABLE>
- ------
* The Treasury Institutional Shares commenced operations on June 4, 1990.
** Annualized.
(1) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.31%, 0.29% and 0.27% for the years ended March 31, 1995, 1994 and
1993, respectively.
(2) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.14%, 2.80% and 3.15% for the years ended March 31, 1995,
1994 and 1993, respectively.
4
<PAGE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE TAX-FREE
SHARES
-------------------------------------
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
SEPTEMBER 30, --------------
1996 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value at beginning
of period ................ $ 1.00 $ 1.00
-------------- --------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 0.0241 0.0318
LESS DISTRIBUTIONS:
Dividends from net investment
income and/or short-term
gains .................... (0.0241) (0.0318)
-------------- --------------
Net asset value at end of
period ................... $ 1.00 $ 1.00
============== ==============
TOTAL RETURN:
Based on net asset value per
share .................... 2.87%** 3.23%
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses .................... 0.63%** 0.60%
Net investment income ....... 2.85%** 3.16%
SUPPLEMENTAL DATA:
Net assets at end of period . $557,523,848 $571,507,000
Number of shares outstanding
at end of period ......... 557,597,126 571,593,265
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE TAX-FREE SHARES
-----------------------------------------------------------------------------------
DEC. 17, 1990*
THROUGH
1995 1994 1993 1992 MARCH 31, 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 ....... 0.0271 0.0184 0.0213 0.0353 0.0124
LESS DISTRIBUTIONS:
Dividends from net investment
income and/or short-term
gains .................... (0.0271) (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
Based on net asset value per
share .................... 2.75% 1.86% 2.15% 3.59% 4.35%**
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses .................... 0.57% 0.58% 0.60% 0.56%(1) 0.53%**
Net investment income ....... 2.74% 1.84% 2.13% 3.49%(2) 4.25%**
SUPPLEMENTAL DATA:
Net assets at end of period . $475,384,229 $378,859,232 $315,661,447 $304,987,823 $256,895,180
Number of shares outstanding
at end of period ......... 475,474,913 378,939,262 315,700,742 305,008,959 256,895,680
</TABLE>
- ------
* Date operations commenced.
** Annualized.
(1) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.57% for the year ended March 31, 1992.
(2) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 3.48% for the year ended March 31, 1992.
5
<PAGE>
THE FUND AND
3 THE INSTITUTIONAL SHARES
The Fund is a money market fund that seeks a high level of current income
consistent with preservation of capital and liquidity. The Fund has three
separate portfolios that offer Institutional Shares: the Prime Series, the
Treasury Series and the Tax-Free Series (the "Series"). This Prospectus relates
exclusively to one of five classes of shares currently offered by the Prime
Series and one of two classes of shares currently offered by each of the
Treasury Series and the Tax-Free Series. The classes of shares of the Fund
offered pursuant to this Prospectus are designed primarily for institutions as
an economical and convenient means for the investment of short-term funds that
they hold for their own account or hold or manage for others. Such institutions
include banks and trust companies, savings institutions, corporations, insurance
companies, investment counselors, pension funds, employee benefit plans, trusts,
estates and educational, religious and charitable institutions. The other
classes of shares of the Fund are offered to both individual and institutional
investors.
All classes of each Series share a common investment objective, portfolio and
advisory fee, but each class has different expenses, shareholder
qualifications and methods of distribution. Expenses of the Fund that are not
directly attributable to the operations of any class or Series are prorated
among all classes of the Fund based upon the relative net assets of each
class. Expenses of the Fund that are not directly attributable to a specific
class but are directly attributable to a specific Series are prorated among
all the classes of such Series based upon the relative net assets of each
such class. Expenses of the Fund that are directly attributable to a class
are charged against the income available for distribution as dividends to
such class.
4 INVESTMENT PROGRAM
INVESTMENT OBJECTIVES
The investment objective of each Series of the Fund is to seek as high a
level of current income as is consistent with preservation of capital and
liquidity. The Tax-Free Series seeks income exempt from federal income taxes.
Each Series endeavors to achieve its objective by investing in a diversified
portfolio of domestic money market instruments that satisfy strict credit
quality standards and that mature within one year or less from the date of
purchase. The Tax-Free Series endeavors to achieve its objective by investing
in a diversified portfolio of high quality, short-term municipal obligations.
(See "Portfolio Investments -- Treasury Series -- Prime Series -- Tax-Free
Series.")
PORTFOLIO INVESTMENTS
-- TREASURY SERIES
The Treasury Series may invest in U.S. Treasury obligations consisting of
marketable securities and instruments issued by the U.S. Treasury, including
bills, notes, bonds and other obligations. It is management's intention to
have 100% of the Treasury Series' assets invested in such instruments at all
times. In unusual circumstances, up to 10% of the Treasury Series' assets may
be invested in repurchase agreements collateralized by U.S. Treasury
obligations. Such investments will be made only when it is necessary to
ensure that the Treasury Series is fully invested while satisfying its
liquidity requirements.
6
<PAGE>
-- PRIME SERIES
In addition to the U.S. Treasury obligations described above and repurchase
agreements collateralized by U.S. Treasury securities, the Prime Series may
invest in obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government. Some of these
obligations are backed by the full faith and credit of the U.S. Government
(e.g., the Government National Mortgage Association), others are supported by
the issuing agency's right to borrow from the U.S. Treasury (e.g., securities
of Federal Home Loan Banks) and still others are backed only by the credit of
the instrumentality (e.g., the Federal National Mortgage Association).
The Prime Series may also invest in a broad range of commercial and bank
obligations that the investment advisor, under guidelines established by the
Board of Directors, believes present minimal credit risk and that satisfy the
criteria for such obligations described below:
The Prime Series may invest in instruments consisting of commercial paper and
variable amount master demand notes. Eligible commercial paper is limited to
short-term, unsecured promissory notes issued by corporations that (i) are rated
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1+ or A-1 by
Standard & Poor's Ratings Group ("S&P"); or (ii) if not rated by Moody's or S&P,
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, as amended.
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 also invest in bank instruments consisting mainly of
certificates of deposit and bankers' acceptances that (i) are issued by U.S.
banks that satisfy applicable quality standards; or (ii) are fully insured as
to principal and interest by the Federal Deposit Insurance Corporation.
-- TAX-FREE SERIES
The Tax-Free Series may invest in municipal securities consisting of (i) debt
obligations issued by or on behalf of public authorities to obtain funds to
be used for various public purposes (including the construction of a wide
range of public facilities), for refunding outstanding obligations, for
general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain types of industrial development
bonds issued by or on behalf of public authorities to obtain funds to provide
for the construction, equipment, repair or improvement of privately operated
facilities ("private activity bonds"); provided that the interest paid on
such debt obligations and private activity bonds, in the opinion of bond
counsel, is exempt from federal income taxes.
The Tax-Free Series invests in high quality municipal securities that the
investment advisor
7
<PAGE>
believes, under guidelines established by the Board of Directors, present
minimal credit risk and that at the time of purchase are rated within the two
highest credit categories assigned by the recognized rating agencies,
including: (1) bonds rated Aaa or Aa by Moody's or AAA or AA by S&P; (2)
municipal commercial paper rated Prime-1 or Prime-2 by Moody's or A-1+, A-1
or A-2 by S&P (provided that such purchases would be further limited unless
the instrument meets the definition of "Eligible Security" as defined in Rule
2a-7 under the Investment Company Act of 1940); (3) municipal notes and
floating and variable rate demand obligations rated SP-1 or higher by S&P or
MIG2 or VMIG or higher by Moody's; and (4) obligations secured by letters of
credit providers rated within the two highest categories by any nationally
recognized bank rating agency approved by the Fund's Board of Directors. The
Series may purchase unrated securities if they are determined by the
investment advisor, under guidelines established by the Board of Directors,
to be of comparable value to those obligations rated in the categories
described above.
The Tax-Free Series may hold cash reserves pending investment of such
reserves in municipal securities.
It is a fundamental policy of the Tax-Free Series to have its assets invested so
that at least 80% of the Series' income will be exempt from federal income
taxes, and it is the Tax-Free Series' present intention (but it is not a
fundamental policy) to invest its assets so that 100% of its annual interest
income will be tax-exempt. From time to time, for temporary defensive purposes,
however, the Fund may invest up to all of its assets in taxable short-term
investments that meet the criteria for investment for the Treasury or Prime
Series as described above.
The Tax-Free Series will seek to avoid the purchase of private activity bonds
the interest on which will be considered to be an item of preference for
purposes of alternative minimum tax liability for individuals under the Internal
Revenue Code of 1986, as amended (the "Code"). The income from any such
investments will not be counted toward the 80% minimum discussed in the
preceding paragraph. (See "Dividends and Taxes.")
OTHER INVESTMENT PRACTICES
The Fund may enter into the following arrangements with respect to any
Series:
WHEN-ISSUED SECURITIES involving commitments by a Series to purchase
portfolio securities on a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a
stated price and yield. A Series will generally not pay for such securities
or start earning interest on them until they are received. When-issued
commitments will not be used for speculative purposes and will be entered
into only with the intention of actually acquiring the securities.
The Prime Series and the Treasury Series may also enter into the following
arrangements:
REPURCHASE AGREEMENTS under which the purchaser (for example, a
Series of the Fund) acquires ownership of an obligation and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the
purchaser's holding period. Although the underlying collateral for repurchase
agreements may have maturities exceeding one year, repurchase agreements
entered into by a Series will not have a stated maturity in excess of seven
days from the date of purchase. A Series may enter into repurchase agreements
with institutions that the Fund's Board of Directors believes present
8
<PAGE>
minimal credit risk. If the seller of a repurchase agreement fails to
repurchase the obligation in accordance with the terms of the agreement, the
Series of the Fund that entered into the repurchase agreement may incur a
loss to the extent that the proceeds realized on the sale of the underlying
obligation are less than the repurchase price. In the event of the insolvency
of a seller that defaults on its repurchase obligation, disposition of the
securities underlying the repurchase agreement could be delayed pending court
or administrative action.
The Prime Series may also enter into the following arrangements:
REVERSE REPURCHASE AGREEMENTS involving the sale of money market instruments
held by the Prime Series, with an agreement to repurchase the instruments at
an agreed upon price and date. The Prime Series will employ reverse
repurchase agreements only when necessary to meet unanticipated net
redemptions so as to avoid liquidating other money market instruments during
unfavorable market conditions. The Prime Series will utilize reverse
repurchase agreements when the interest income to be earned from portfolio
investments that 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 that it is obligated to repurchase.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment restrictions
that reflect self-imposed standards as well as federal regulatory limitations,
the most significant of which are set forth below:
(1) No Series may purchase securities of any issuer (other than obligations
of the U.S. Government, its agencies or instrumentalities and any municipal
securities guaranteed by the U.S. Government) if immediately after such
purchase more than 5% of the value of such Series' assets would be invested
in such issuer;
(2) No Series may borrow money or issue senior securities, except that (i)
any Series may borrow money from banks for temporary purposes in amounts up
to 10% of the value of such Series' total assets at the time of borrowing,
provided that any such borrowings are repaid prior to the purchase of
additional portfolio securities, (ii) the Prime Series may enter into reverse
repurchase agreements in accordance with its investment program and (iii) any
Series of the Fund may enter into commitments to purchase securities in
accordance with its investment program;
(3) No Series may lend money or securities except to the extent that a
Series' investments may be considered loans;
(4) The Prime Series may not purchase any commercial paper or variable rate
demand notes that would cause more than 25% of the value of the Series' total
assets at the time of such purchase to be invested in the securities of one
or more issuers conducting their principal business activities in the same
industry; and
(5) The Tax-Free Series may not purchase any securities (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, certificates of deposit and guarantees of banks) that
would cause more than 25% of the value of the Series' total net assets at the
time of such purchase to be invested in: (i) securities of one or more
issuers conducting their principal activities in the same state; (ii) securi-
9
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ties, the interest on which is paid from revenues of projects with similar
characteristics; or (iii) industrial development bonds the obligors of which
are in the same industry.
The investment objectives of each Series of the Fund as described under
"Investment Objectives" and the foregoing restrictions are matters of
fundamental policy except where noted and may not be changed without the
affirmative vote of a majority of the outstanding shares of the Series
affected. The Treasury Series has a policy, which may be changed by the
Fund's Board of Directors and without shareholder approval, of limiting
investments in U.S. Government obligations to U.S. Treasury obligations.
HOW TO INVEST IN
INSTITUTIONAL SHARES
5 OF THE FUND
GENERAL INFORMATION ON PURCHASES
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counselors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) may purchase Institutional Shares of any Series
through Alex. Brown & Sons Incorporated ("Alex. Brown"). Institutions
interested in establishing an account with the Fund should contact Alex.
Brown for details at (410) 727-1700.
The minimum initial investment in Institutional Shares of any Series of the
Fund is $1,000,000; there is no minimum for clients of investment advisory
affiliates of Alex. Brown; and there is no minimum for subsequent investments
in the same Series. Orders for the purchase of Institutional Shares are
accepted only on a "business day of the Fund," which means any day on which
PNC Bank, National Association ("PNC"), the Fund's custodian, and the New
York Stock Exchange are open for business. It is expected that during the
next twelve months, PNC and/or the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
Orders to purchase Institutional Shares are executed at the net asset value
of the Series selected as next determined after the order is effective.
Because the Fund uses the amortized cost method of valuing the portfolio
securities of each Series and rounds the per share net asset value of shares
of each Series, it is anticipated that the net asset value of each Series
will remain constant at $1.00 per share, but there can be no assurance that
this objective can be met.
The net asset value of all shares of each of the Fund's Series is determined
daily as of 12:00 noon (Eastern Time) on each business day of the Fund. An order
placed in the manner described below will be effective the same day if federal
funds are wired to the Fund's custodian before the close of business on that
day. Share purchases for the Treasury Series and the Tax- Free Series effected
before 11 a.m. (Eastern Time) and share purchases for the Prime Series effected
before 12:00 noon (Eastern Time) begin to earn dividends on the same business
day. Share purchases received after 12:00 noon (Eastern Time) begin to earn
dividends on the following day. Orders to purchase shares of the Treasury Series
or the Tax-Free Series received between 11:00 a.m. (Eastern Time) and 12:00 noon
(Eastern Time) will be rejected.
Institutions may place orders to purchase Institutional Shares either by
calling Alex. Brown at (410) 727-1700 and then wiring federal funds, or by
wiring federal funds with the necessary instructions as described below. A
shareholder
10
<PAGE>
who places an order by telephone will be asked to furnish:
--The shareholder's Fund account number
--The amount to be invested
--The Series selected for investment (Prime Series, Treasury Series or
Tax-Free Series)
Federal Funds should be wired to:
PNC Bank
a/c Alex. Brown & Sons Incorporated
Acct. #5918197
Philadelphia, PA 19103
referring in the wire to:
--Alex. Brown Cash Reserve Fund, Inc. (Institutional Shares)
--The Fund account number (and, if available, the shareholder account
number)
--The amount to be invested
--Either the Prime Series, the Treasury Series or the Tax-Free Series
Other Information
Periodic statements of account from Alex. Brown will reflect all dividends,
purchases and redemptions of Institutional Shares. The Fund and Alex. Brown
have arranged for PNC to offer sub-accounting services to Fund shareholders
and maintain information with respect to underlying share owners.
The Fund reserves the right to reject any order for the purchase of
Institutional Shares.
6 DIVIDENDS AND TAXES
DIVIDENDS
All of the net income earned on each Series is normally declared as dividends
daily to the respective shareholders of record of each Series. Dividends on
each Series are normally payable on the first day that a share purchase order
is effective but not on the date that a redemption order is effective.
Dividends are declared daily and reinvested monthly in the form of additional
full and fractional shares of the same Series at net asset value, unless the
shareholder has elected to have dividends paid in cash.
TAXES
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders,
and the discussion herein is not intended as a substitute for careful tax
planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial or administrative action.
Each Series of the Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As long as a Series qualifies for
this tax treatment, it will not be required to pay federal income taxes on
amounts distributed to shareholders; but shareholders, unless otherwise
exempt, will pay taxes on taxable amounts so distributed.
The Tax-Free Series intends to qualify to pay "exempt-interest dividends" to
its shareholders, by satisfying certain Code requirements described in the
Statement of Additional Information. So long as these and certain other
requirements are met, dividends of the Tax-Free Series derived from net
tax-exempt interest income will be exempt-interest dividends that are
excluded from the gross income of such Series'
11
<PAGE>
shareholders for federal income tax purposes. Exempt-interest dividends may,
however, have collateral federal income tax consequences, including
alternative minimum tax consequences. (See the Statement of Additional
Information.)
Current federal tax law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt-interest
dividends. All or a portion of the interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares is not deductible for
federal income tax purposes. Furthermore, entities or persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by "private activity bonds" or "industrial development bonds" should
consult their tax advisors before purchasing shares. (See the Statement of
Additional Information.)
Distributions of net investment company taxable income (generally, net
investment income plus the excess, if any, of net short-term capital gains
over net long-term capital losses) are taxed to shareholders as ordinary
income. Distributions will not be eligible for the dividends received
deduction otherwise available to corporate shareholders. Although no Series
expects to realize any long-term capital gains, any distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) will be taxable to shareholders as long-term capital gains,
regardless of the length of time a shareholder has held the shares.
Ordinarily, shareholders will include in their taxable income all dividends
declared by a Series in the year of payment. However, dividends declared
payable to shareholders of record in December of one year, but paid in
January of the following year, will be deemed for tax purposes to have been
received by the shareholders and paid by a Series in the year in which the
dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Institutional Shares is a taxable event
for the shareholder.
Shareholders of the Treasury Series may not be required to pay state income tax
on dividends to the extent such dividends are derived from interest on U.S.
Treasury obligations. State laws vary and investors are encouraged to consult
with their tax advisors on this issue.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their own tax advisors concerning the application of state and local taxes to
investments in the Fund, which may differ from the federal income tax
consequences described above. Additional information concerning taxes is set
forth in the Statement of Additional Information.
HOW TO REDEEM
7 INSTITUTIONAL SHARES
Shareholders may redeem all or part of their Institutional Shares of any
Series on any business day of the Fund by transmitting a redemption order to
Alex. Brown by either of the methods outlined below. A redemption request is
effected at the net asset value next determined after tender of Institutional
Shares for redemption.
12
<PAGE>
Shareholders may submit redemption orders by calling Alex. Brown at (410)
727-1700. Telephone redemption privileges are automatic. Both Alex. Brown and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring the
investor to provide certain personal identification information at the time the
account is opened and prior to effecting each transaction requested by
telephone. In addition, investors may be required to provide additional
telecopied instructions of redemption requests. The Fund or Alex. Brown may be
liable for any losses due to unauthorized or fraudulent telephone instructions
if either of them does not employ these procedures. During periods of extreme
economic or market changes, shareholders may experience difficulty in effecting
telephone redemptions. In such event, requests should be made by regular or
express mail to Alex. Brown or to the Fund's transfer agent at their addresses
listed on page 17 of this Prospectus.
Redemption orders for the Treasury Series and the Tax-Free Series received
after 11:00 a.m. (Eastern Time) and redemption orders for the Prime Series
received after 12:00 noon (Eastern Time) will be executed on the following
Business Day of the Fund at the net asset value of the Series to be redeemed
next determined after the receipt of the order.
Dividends payable up to the date of redemption on redeemed shares will be
paid on the next dividend payment date. If all of the Institutional Shares of
a Series of the Fund in an Alex. Brown account have been redeemed on the
dividend payment date, the dividend will be paid in cash to the shareholder.
8 MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to its officers, to Alex. Brown and to Investment Company Capital
Corp. ("ICC"), the Fund's investment advisor, and PNC Institutional Management
Corporation ("PIMC"), the sub-advisor to the Tax-Free Series, subject to the
investment objectives and policies of each series of the Fund and to general
supervision of the Fund's Board of Directors. Alex. Brown, ICC and PIMC also
furnish or procure on behalf of the Fund all services necessary to the proper
conduct of the Fund's business. A majority of the Board of Directors of the Fund
have no affiliation with Alex. Brown, ICC or PIMC.
INVESTMENT ADVISOR
Investment Company Capital Corp., an indirect subsidiary of Alex. Brown
Incorporated (described below), was organized in 1987 and acts as the Fund's
investment advisor. ICC supervises and manages the Fund's operations and
generally provides management and administrative services for the Fund. ICC may
delegate its
13
<PAGE>
duties and has delegated certain of such duties for the Tax-Free Series to
PIMC as described below. ICC is also investment advisor to, and Alex. Brown
acts as distributor for, several funds in the Flag Investors family of funds
which, as of April 30, 1997, had net assets of approximately $1.8 billion.
Pursuant to a new advisory agreement, which became effective August 22, 1995,
ICC is entitled to receive a fee from the Fund, calculated daily and payable
monthly, at the following annual rates based upon the Fund's aggregate
average daily net assets: .30% of the first $500 million, .26% of the next
$500 million, .25% of the next $500 million, .24% of the next $1 billion,
.23% of the next $1 billion and .22% of that portion in excess of $3.5
billion. Each Series pays its share of the foregoing fee in proportion to its
relative net assets. In addition, ICC is entitled to receive an additional
fee with respect to the Prime Series and the Tax-Free Series, calculated
daily and paid monthly, at the annual rate of .02% of the Prime Series'
average daily net assets and .03% of the Tax-Free Series' average daily net
assets. As compensation for providing investment advisory services to the
Fund for the period from August 22, 1995 through March 31, 1996, ICC received
an annualized fee equal to .27% of the Prime Series' average daily net
assets, .25% of the Treasury Series' average daily net assets and .28% of the
Tax-Free Series' average daily net assets. ICC may, from time to times,
voluntarily waive a portion of its advisory fee with respect to any Series to
preserve or enhance the performance of the Series. ICC also serves as the
Fund's transfer and dividend disbursing agent and provides accounting
services to the Prime and Treasury Series. (See "Custodian, Transfer Agent
and Accounting Services.")
SUB-ADVISOR
PIMC acts as sub-advisor to the Tax-Free Series pursuant to a sub-advisory
agreement between ICC and PIMC. PIMC is a wholly-owned subsidiary of PNC, the
Fund's custodian. Subject to the oversight of ICC, PIMC is responsible for
managing the Tax-Free Series' investments. PIMC was organized in 1977 to perform
advisory services for investment companies. PNC and its predecessors have been
in the business of managing the investments of fiduciary and other accounts in
the Philadelphia, Pennsylvania area since 1847. PIMC advises or manages
approximately 45 open-end investment portfolios with total assets of
approximately $34.4 billion as of April 30, 1997.
As compensation for its services as sub-advisor to the Tax-Free Series for the
fiscal year ended March 31, 1996, PIMC received a fee from ICC equal to .14% of
the average daily net assets of the Tax-Free Series. If ICC voluntarily waives a
portion of its fee with respect to the Tax-Free Series, PIMC has agreed to waive
a portion of its fee in the same proportion and for the same time periods as
ICC's waiver.
In the fiscal year ended March 31, 1996 the expenses borne by the Prime Series
and the Treasury Series for the Institutional Shares, including the fees to ICC,
amounted to .35% of the Prime Series' average daily net assets and .33% of the
Treasury Series' average daily net assets.
DISTRIBUTOR
Alex. Brown & Sons Incorporated serves as the exclusive distributor for shares
of the Fund's three Series. Alex. Brown is
14
<PAGE>
an investment banking firm that 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.
Alex. Brown receives no compensation for its services with respect to the
Institutional Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other
than Fund shareholders.
9 CURRENT YIELD
From time to time the Fund advertises the "yield" and "effective yield" of
the Institutional Shares of a particular Series. Both yield figures are based
on historical earnings and are not intended to indicate future performance.
The "yield" of the Series refers to the income generated by an investment in
the Series over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized," that is, the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but when
annualized, the income earned by an investment in the Series is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Tax-Free
Series may also advertise a taxable-equivalent yield or effective yield,
which are calculated by applying a stated income tax rate to the Series'
tax-exempt income for the same periods and annualized as described above.
10 GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is an open-end diversified management investment company. The Fund was
reorganized under the laws of the State of Maryland on April 5, 1990. The Fund
is authorized to issue $7.25 billion shares of common stock, with a par value of
$.001 per share. Shares of the Fund are divided into three series -- 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, which may affect performance. For information
regarding the other classes of shares, please call (800) 553-8080. 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.
15
<PAGE>
In the event of dissolution or liquidation, holders of each Series will receive
prorata, subject to the rights of creditors, (a) the proceeds of the sale of the
assets held in the respective Series less (b) the liabilities of the Fund
attributable to the respective Series or allocated among all Series based on the
respective liquidation value of each Series.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and
non-assessable. The Board of Directors may create additional series or
classes of Fund shares without shareholder approval.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Investment Company Capital Corp., the Fund's investment advisor, also serves as
the Fund's transfer and dividend disbursing agent and provides accounting
services to the Prime Series and the Treasury Series. As compensation for
providing accounting services to the Prime Series and the Treasury Series for
the fiscal year ended March 31, 1996, ICC received from the Fund an annual fee
equal to .01% of the Prime Series' average daily net assets and .02% of the
Treasury Series' average daily net assets. PNC, a national banking association,
acts as custodian for the Fund's portfolio securities and cash. PFPC Inc., an
affiliate of PNC with offices at 400 Bellevue Parkway, Wilmington, Delaware
19809, provides accounting services to the Tax-Free Series. (See the Statement
of Additional Information.)
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders may remove
directors from office by votes cast at a meeting of shareholders or by
written consent. A meeting of shareholders may be called at the request of
the holders of 10% or more of the Fund's outstanding shares.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, Coopers & Lybrand L.L.P.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact the Fund
at (800) 553-8080.
16
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
BOARD OF DIRECTORS
CHARLES W. COLE, JR.
Chairman
RICHARD T. HALE EUGENE J. McDONALD
Director Director
JAMES J. CUNNANE REBECCA W. RIMEL
Director Director
JOHN F. KROEGER TRUMAN T. SEMANS
Director Director
LOUIS E. LEVY CARL W. VOGT, ESQ.
Director Director
- -----------------------------------------------------------------------------
OFFICERS
RICHARD T. HALE M. ELLIOTT RANDOLPH, JR. JOSEPH A. FINELLI
President Vice President Treasurer
EDWARD J. VEILLEUX PAUL D. CORBIN LAURIE D. COLLIDGE
Executive Vice President Vice President Assistant Secretary
MONICA M. HAUSNER
Vice President
SCOTT J. LIOTTA
Vice President and Secretary
- -----------------------------------------------------------------------------
Distributor Custodian
ALEX. BROWN & SONS PNC BANK
INCORPORATED Airport Business Center
One South Street 200 Stevens Drive
Baltimore, Maryland 21202 Lester, Pennsylvania 19113
(410) 727-1700
Investment Advisor Fund Counsel
INVESTMENT COMPANY CAPITAL CORP. Morgan, Lewis & Bockius LLP
One South Street 2000 One Logan Square
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
Sub-Advisor Independent Accountants
Tax-Free Series COOPERS & LYBRAND L.L.P.
PNC Institutional Management Corp. 2400 Eleven Penn Center
400 Bellevue Parkway Philadelphia, Pennsylvania 19103
Wilmington, Delaware 19809
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
(800) 553-8080
(C) BY ALEX. BROWN & SONS INCORPORATED
17
<PAGE>
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, 1996
as amended through May 27, 1997.
Relating to Prospectuses dated August 1, 1996 for:
Alex. Brown Cash Reserve Fund, Inc.
(Prime Series, Treasury Series and Tax-Free Series)
Quality Cash Reserve Prime Shares
and Flag Investors Cash Reserve Prime Shares
(Class A and Class B)
and Prospectus dated May 27, 1997 for:
Institutional Shares
(Prime Series, Treasury Series and Tax-Free Series)
<PAGE>
TABLE OF CONTENTS
Introduction................................................................. 1
General Information About the Fund........................................... 1
The Fund and Its Shares................................................ 1
Directors and Officers................................................. 3
The Investment Advisor................................................. 7
The Sub-Advisor........................................................ 8
Distributor............................................................ 9
Expenses............................................................... 12
Transfer Agent, Custodian and Accounting Services...................... 13
Sub-Accounting......................................................... 15
Principal Holders of Securities........................................ 15
Reports................................................................ 16
Share Purchases and Redemptions.............................................. 17
Purchases and Redemptions.............................................. 17
Net Asset Value Determination.......................................... 17
Dividends and Taxes.......................................................... 18
Dividends.............................................................. 18
Taxes.................................................................. 19
Current Yield................................................................ 22
Investment Program and Restrictions.......................................... 23
Investment Restrictions................................................ 25
Portfolio Transactions....................................................... 25
Financial Statements......................................................... 27
<PAGE>
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 May 27, 1997 for the Institutional
Shares and there are Prospectuses dated August 1, 1996 for the other classes of
the Fund's shares which contain 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.
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 through broker-dealers that have correspondent
relationships with Alex. Brown. There are currently two classes of the Treasury
1
<PAGE>
Series, designated as the Alex. Brown Cash Reserve Treasury Shares and the Alex.
Brown Cash Reserve Treasury Institutional Shares. There are currently two
classes of the Tax-Free Series, designated as the Alex. Brown Cash Reserve
Tax-Free Shares and the Alex. Brown Cash Reserve Tax-Free Institutional Shares.
The Institutional Shares of each Series are offered primarily to institutions.
The Alex. Brown Cash Reserve Tax-Free Institutional Shares were not offered
prior to the date of this Statement of Additional Information.
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.
The Fund's Articles of Incorporation authorize the issuance of
7.25 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.
2
<PAGE>
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.
Directors and Officers
The directors and executive officers of the Fund, their dates
of birth 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 One South Street, Baltimore, Maryland 21202.
*CHARLES W. COLE, JR., Director and Chairman of the Board (11/11/35)+
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Chairman, Investment Company Capital Corp. (registered
investment advisor); Director, Provident Bankshares Corporation and Provident
Bank of Maryland; Formerly, President and Chief Executive Officer, Chief
Administrative Officer, and Director, First Maryland Bancorp, The First National
Bank of Maryland and First Omni Bank; Director, York Bank and Trust Company.
*RICHARD T. HALE, Director and President (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor); Chartered
Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director, Investment Company
Capital Corp. (registered investment advisor).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present; Formerly, Senior
Vice-President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993 and Director, The Arch Fund (registered investment
company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM Funds
(registered investment companies); Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm); General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
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.
- --------
* Messrs. Cole, Hale and Semans are "interested persons," as defined in the
1940 Act.
3
<PAGE>
EUGENE J. MCDONALD, Director (7/14/32)
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 health care);
Director, Central Carolina Bank & Trust (banking), Key Funds (registered
investment companies), and AMBAC Treasurers Trust (registered investment
company).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street, Suite 1700,
Philadelphia, PA 19103. President and Chief Executive Officer, The Pew
Charitable Trusts; Director and Executive Vice President, The Glenmede Trust
Company; Formerly, Executive Director, The Pew Charitable Trusts.
CARL W. VOGT, Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington, D.C.
20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law); Director, Yellow
Corporation (trucking); Formerly, Chairman and Member, National Transportation
Safety Board; Director, National Railroad Passenger Corporation (Amtrak) and
Member, Aviation System Capacity Advisory Committee (Federal Aviation
Administration).
EDWARD J. VEILLEUX, Executive Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Vice President, Armata Financial
Corp. (registered broker- dealer); Executive Vice President, Investment Company
Capital Corp. (registered investment advisor).
M. ELLIOTT RANDOLPH, JR., Vice President (1/10/42)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present.
PAUL D. CORBIN, Vice President (7/24/52)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present.
MONICA M. HAUSNER, Vice President (10/26/61)
Vice President, Fixed Income Management Department, Alex. Brown & Sons
Incorporated, March 1992- Present; Formerly, Assistant Vice President, First
National Bank of Maryland, 1984-1992.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65)+
Manager, Fund Administration, Alex. Brown & Sons Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994- July 1996; and
Supervisor, Brown Brothers Harriman & Co. (domestic and global custody) August
1991- April 1994.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated and Vice President, Investment
Company Capital Corp., (registered investment advisor), September 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds (registered
investment companies) and Vice President, Delaware Management Company, Inc.
(investments), 1980-1995.
- ------
+ Mr. Liotta is Mr. Cole's son-in-law.
4
<PAGE>
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated, 1991-Present.
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 12 funds in the Flag Investors/ISI Funds
and Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr.
Hale serves as Chairman of three funds, as President and director of one fund,
and as a director of each of the other funds in the Fund Complex. Mr. Semans
serves as Chairman of five funds and as a director of five other funds in the
Fund Complex. Mr. Cole serves as Chairman of one Fund and as a Director of seven
other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and McDonald
serve as directors of each fund in the Fund Complex. Ms. Rimel as a director of
ten funds 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 a Vice President of three funds in the Fund
Complex. Mr. Veilleux serves as Executive Vice President of one fund and Vice
President of each of the other funds in the Fund Complex. Mr. Liotta serves as
Vice President and Secretary, Mr. Finelli serves as Treasurer and Ms. Collidge
serves as Assistant Secretary of each of the funds in the Fund Complex.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and directors of the Fund who are officers or
directors of Alex. Brown or ICC may be considered to have received remuneration
indirectly. Each director who is not an "interested person" receives an
aggregate annual fee (plus reimbursement for reasonable out-of-pocket expenses
incurred in connection with his or her attendance at Board and committee
meetings) from the Fund and from all Flag Investors/ISI Funds for which he or
she serves. In addition, the Chairman of the Fund Complex's Audit Committee
receives an aggregate annual fee from the Fund Complex. 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, 1996
Non-Interested Directors' fees attributable to the assets of the Fund totalled
$206,622. The following table shows aggregate compensation payable to each of
the Fund's directors by the Fund and the Fund Complex, respectively, and pension
or retirement benefits accrued as part of Fund expenses in the fiscal year ended
March 31, 1996.
5
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation from Pension or Retirement Total Compensation from the
Position the Fund for the Fiscal Year Benefits Accrued as Part of Fund and the Fund Complex
Ended March 31, 1996 Fund Expenses Payable to Directors for the
Fiscal Year Ended
March 31, 1996
- -------------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
W. James Price * $0 $0 $0
Chairman
Richard T. Hale * $0 $0 $0
Vice Chairman
Truman T. Semans* $0 $0 $0
Director
Charles W. Cole*/** $0 + $0
Director
James J. Cunnane $27,072(1) + $39,000 for service
Director on 13 Boards(2)
N. Bruce Hannay *** $22,434(1) + $32,572 for service
Director on 13 Boards(2)
John F. Kroeger $31,945(1) + $45,950 for service
Director on 13 Boards(2)
Louis E. Levy $27,072(1) + $39,000 for service
Director on 13 Boards(2)
Eugene J. McDonald $27,072(1) + $39,000 for service
Director on 13 Boards(2)
Rebecca W. Rimel**** $28,098 + $29,250 for service
Director on 6 Boards(3)
Carl W. Vogt** $8,434 + $9,750 for service
Director on 5 Boards(3)
Harry Woolf $27,072 + $39,000 for service
Director on 13 Boards(2)
* A director who is, or may be, an "interested person" as defined in the 1940 Act.
** Elected to the Board on December 18, 1996.
*** Retired on January 31, 1996 and is now deceased.
**** Elected to the Board on July 25, 1995.
+ The Fund Complex has adopted a retirement plan for eligible directors, as described below. The actuarially
computed pension expense for the year ended March 31, 1996 was approximately $7,000.
1 Of amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald, Vogt, Woolf and Ms. Rimel, $27,072, $0,
$0, $14,625, $27,072, $8434, $27,072 and $28,098 was deferred pursuant to a Deferred Compensation Plan.
2 One of these funds ceased operations on May 17, 1995.
3 Ms. Rimel and Mr. Vogt receive proportionately higher compensation from each fund for which they serve as a Director
</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
six years of service, each Participant will be entitled to receive an annual
retirement benefit equal to a percentage of the fee earned by him or her in his
or her last year of service. Upon retirement, each Participant will receive
annually 10% of such fee for each year that he or she served after completion of
the first five years, up to a maximum annual benefit of 50% of the fee earned by
him or her in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. Mr. Kroeger has qualified but has not received benefits.
The Fund has two Participants, a director who retired effective December 31,
1994 and a director who retired effective December 31, 1996, who have qualified
for the Retirement Plan by serving thirteen years and fourteen years,
respectively, as directors in the Fund Complex and each of whom will be paid a
quarterly
6
<PAGE>
fee of $4,875 by the Fund Complex for the rest of his life. Another Participant
who retired on January 31, 1996 and died on June 2, 1996 was paid fees of $3,214
under the Retirement Plan in the fiscal year ended March 31, 1996. Such fees are
allocated to each fund in the Fund Complex based upon the relative net assets of
such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his or her last
year of service, as described above. The approximate credited years of service
at December 31, 1996 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger,
14 years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; for Mr. Vogt, 1
year; and for Ms. Rimel, 1 year.
Estimated Annual Benefits
Years of Service Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
Any director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his or her annual compensation pursuant
to a Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and
Vogt and Ms. Rimel have each executed a Deferred Compensation Agreement.
Currently, the deferring directors may select various Flag Investors and Alex.
Brown Cash Reserve Funds in which all or part of their deferral account shall be
deemed to be invested. Distributions from the deferring directors' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of ten years.
The Investment Advisor
Investment Company Capital Corp. ("ICC"), an indirect
subsidiary of Alex. Brown Incorporated, acts as the Fund's investment advisor
pursuant to three separate Investment Advisory Agreements dated as of August 22,
1995, one relating to the Prime Series, one relating to the Treasury Series and
one relating to the Tax-Free Series (the "Advisory Agreements"). ICC was
organized in 1987. The terms of the Advisory Agreements are the same except to
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
7
<PAGE>
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 Agreements, 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 following annual
rates based upon the Fund's aggregate average daily net assets: .30% of the
first $500 million, .26% of the next $500 million, .25% of the next $500
million, .24% of the next $1 billion, .23% of the next $1 billion and .22% of
that portion in excess of $3.5 billion. In addition, the Advisor is entitled to
receive an additional fee with respect to the Prime Series' as well as an
additional fee with respect to the Tax-Free Series, calculated daily and paid
monthly, at the annual rate of .02% of the Prime Series' average daily net
assets and .03% of the Tax-Free Series' average daily net assets. ICC may, from
time to time, voluntarily waive a portion of its advisory fee with respect to
any Series to preserve or enhance the performance of the Series. The rates set
forth above were approved by the Fund's Board of Directors on June 1, 1995, and
by shareholders of the Prime Series, the Treasury Series and the Tax-Free
Series, respectively, on August 22, 1995.
In the fiscal year ended March 31, 1996, ICC served as the
Fund's investment advisor pursuant to both current and prior investment advisory
agreements, in effect for such periods. For that fiscal year, the aggregate fees
paid by the Fund to ICC were $8,033,576.
Prior to August 1, 1995, ICC served 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. For the fiscal
years ended March 31, 1995 and March 31, 1994, the aggregate fees paid by the
Fund to ICC (net of voluntary fee waivers of $156,200 and $152,838 for the
Treasury Series for the fiscal years ended March 31, 1995 and March 31, 1994)
were $4,941,395 and $4,856,245, respectively.
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 any 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.
ICC advises other mutual funds which, as of April 30, 1997,
had net assets of approximately $1.8 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 and Accounting Services.")
8
<PAGE>
The Sub-Advisor
PNC Institutional Management Corporation ("PIMC") 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"). 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 providing sub-advisory
services to the Tax-Free Series for the fiscal year ended March 31, 1996, ICC
paid PIMC fees of $742,568. As compensation for providing sub-advisory services
to the Prime Series and the Tax-Free Series, respectively, for the fiscal years
ended March 31, 1995 (with respect to the Prime Series for the period from April
1, 1994 through October 30, 1994) and March 31, 1994, ICC paid PIMC fees of
$1,377,476 and $1,740,475.
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 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 26, 1997.
9
<PAGE>
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 (except the Institutional Shares), 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. Alex. Brown receives a distribution fee from the Fund,
calculated daily and paid monthly, at the annual rates of .60% of the average
daily net assets of the Quality Cash Reserve Prime Shares and .75% of the
average daily net assets of the Flag Investors Cash Reserve Prime Class B
Shares. In addition, Alex. Brown receives 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, 1996, March 31, 1995 and March 31, 1994, Alex. Brown received from the Fund
aggregate fees of 6,327,179, $4,672,018 and $4,457,422, respectively. As
compensation for distribution services for the Tax-Free Series (except the
Institutional Shares) for the fiscal years ended March 31, 1996, March 31, 1995
and March 31, 1994, Alex. Brown received from the Fund fees of $1,345,261,
$838,211 and $746,743, respectively. As compensation for distribution services
for the Quality Cash Reserve Prime Shares for the fiscal years ended March 31,
1996, March 31, 1995 and March 31, 1994, Alex. Brown received from the Fund fees
of $738,961, $574,855 and $570,251, respectively.
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 period from April 1, 1994
through February 27, 1995 and for the fiscal year ended March 31, 1995 and March
31, 1994, Alex. Brown received commissions of $376 and $1,811, respectively from
sales of such 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.
10
<PAGE>
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.
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 its distribution fee.
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.
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
11
<PAGE>
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." Amounts allocated to Shareholder Servicing Agents may not
exceed amounts payable to Alex. Brown under the Plans with respect to shares
held by or on behalf of customers of such entities.
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 were most recently
approved in the foregoing manner on March 26, 1997.
For the fiscal year ended March 31, 1996, the Fund paid
$5,575,592, $1,549,949 and $1,345,261, respectively, to Alex. Brown, the Fund's
distributor, pursuant to the 12b-1 plans of the Alex. Brown Cash Reserve classes
of the Prime Series, Treasury Series and Tax-Free Series, respectively. Alex.
Brown, in turn, paid certain distribution-related expenses including one or more
of the following: advertising expenses; printing and mailing of prospectuses to
other than current shareholders; compensation to dealers and sales personnel;
and interest, carrying or other financing charges.
For the same period, the Fund paid $738,961 to Alex. Brown,
pursuant to the 12b-1 plan of the Quality Cash Reserve Prime Shares, and $19,190
and $70 to Alex. Brown, pursuant to the 12b-1 plans of the Flag Investors Cash
Reserve Prime Class A Shares and Flag Investors Cash Reserve Prime Class B
Shares, respectively.
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
12
<PAGE>
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.
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 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., Flag Investors
Real Estate Securities Fund, Inc. and Flag Investors Equity Partners 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 ICC (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
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<PAGE>
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 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.
Transfer Agent, Custodian and Accounting Services
PNC acts as custodian for the Fund's portfolio securities and
cash. PFPC Inc. ("PFPC"), an affiliate of PNC and PIMC, provides certain
accounting services for the Tax-Free 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, 1996, PNC received
custodian fees of $610,914 (including reimbursement for out-of-pocket expenses)
and, with respect to the Tax-Free Series, PFPC received accounting fees
(including reimbursement for out-of-pocket expenses) of $63,181, respectively.
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<PAGE>
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.
Prime and Treasury Series
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 fiscal year ended March 31, 1996 and for the period
from November 10, 1995 through March 31, 1995, ICC received fees of $150,692 and
$58,826, respectively, for providing accounting services to the Prime Series.
For the fiscal years ended March 31, 1996, March 31, 1995 and for the period
from January 1, 1994 through March 31, 1994, ICC received fees of $122,841,
$90,083 and $15,402, respectively, 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 $15.17 per account per year plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended March 31, 1996, such fees totalled $1,105,948 for Prime Series, $234,288
for Treasury Series and $154,031 for Tax-Free Series, respectively.
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.
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Principal Holders of Securities
To Fund managements knowledge, no persons owned beneficially
5% or more of the outstanding shares of any Series of the Fund as of March 10,
1997.
As of March 10, 1997, 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.
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<PAGE>
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, 1997.
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
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) 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
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<PAGE>
portfolio maturity of 90 days or less for each Series, purchases only
instruments having remaining maturities of 397 days 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 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. If a purchase order for any Series
is received by Alex. Brown after 12:00 noon Eastern time on any business day,
the shareholder will receive dividends beginning the following business day.
(Purchase orders for the Treasury Series or the Tax-Free Series received between
11:00 a.m. Eastern time and 12:00 noon Eastern time will be rejected.) 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
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<PAGE>
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 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
gains 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.
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<PAGE>
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.
If for any taxable year, the Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate income tax rates without any deduction for distribution to
shareholders, and all such distributions generally will be taxable to
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally 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.
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.
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<PAGE>
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 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
21
<PAGE>
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. 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, 1996. The Institutional Tax-Free
Shares were not offered in any period ended March 31, 1996.
<TABLE>
<CAPTION>
Series or class Current Yield Effective Yield Taxable-Equivalent Yield***
- --------------- ------------- --------------- ------------------------
<S> <C> <C> <C>
Prime Series* 4.72% 4.83% N/A
Institutional Prime Shares 4.97% 5.10% N/A
Quality Cash Reserve Prime Shares 4.50% 4.60% N/A
Flag Investors Cash Reserve Prime B Shares 4.72% 4.83% N/A
Treasury Series** 4.46% 4.55% N/A
Institutional Treasury Shares 4.73% 4.84% N/A
Tax-Free Series 2.75% 2.80% 4.06%
</TABLE>
- -----------------------
* Other than the Institutional, Quality Cash Reserve Prime Shares or Flag
Investors Cash Reserve Prime Class B Shares.
** Other than the Institutional Shares.
*** Assumes a tax rate of 31%.
The yield for each Series of the Fund can be obtained by
calling your sub-distributor or Alex. Brown at (410) 895-5995. 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
22
<PAGE>
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
security) by the Requisite NRSROs(2) 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
- ---------------
(2) "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 Ratings Group, 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.
23
<PAGE>
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 (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(3) 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
Moody's and S&P for instruments in which each Series may invest.
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.
- -----------------
(3) 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.
24
<PAGE>
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.
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 this Statement of Additional
Information under the heading "General Information About the Fund"), 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
25
<PAGE>
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 restriction may be changed by a vote
of the majority of the Board of Directors of the Fund. No Series will 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.
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, 1996, March 31, 1995 and
March 31, 1994, the Fund incurred no brokerage commissions.
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 90 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, 1996, March 31, 1995 and March
31, 1994, 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, 1996, the
Fund held a 5.37% repurchase agreement issued by Goldman Sachs & Co. valued at
$83,000,000 and a 5.33% repurchase agreement issued by Morgan Stanley & Co.
valued at $100,000,000.
26
<PAGE>
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 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.
27
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
----------------- Par
S&P Moody's (000) Value
------ --------- --------- --------------
COMMERCIAL PAPER -- 87.5%(b)
<S> <C> <C> <C> <C>
Automobiles & Trucks -- 4.9%
Ford Motor Credit Corp.
5.50% 4/1/96 ...................... A-1 P-1 $15,000 $ 15,000,000
PACCAR Financial Corp.
5.32% 4/18/96 ..................... A-1+ P-1 11,000 10,972,366
5.30% 4/24/96 ..................... A-1+ P-1 10,000 9,966,139
5.03% 5/16/96 ..................... A-1+ P-1 5,000 4,968,562
5.03% 5/23/96 ..................... A-1+ P-1 11,000 10,920,079
Toyota Motor Credit Corp.
5.31% 4/22/96 ..................... A-1+ P-1 30,000 29,907,075
5.30% 5/2/96 ...................... A-1+ P-1 15,450 15,379,488
5.00% 5/20/96 ..................... A-1+ P-1 15,000 14,897,917
5.00% 5/22/96 ..................... A-1+ P-1 15,000 14,893,750
------------
126,905,376
------------
Beverages -- 1.9%
Anheuser-Busch Companies, Inc.
5.34% 4/18/96 ..................... A-1+ P-1 15,000 14,962,175
4.90% 10/21/96 .................... A-1+ P-1 20,000 19,447,389
4.75% 10/28/96 .................... A-1+ P-1 15,000 14,584,375
------------
48,993,939
------------
Chemicals, General -- 2.1%
E.I. duPont de Nemours
5.31% 4/29/96 ..................... A-1+ P-1 25,000 24,896,750
5.02% 6/17/96 ..................... A-1+ P-1 15,000 14,833,167
5.03% 7/19/96 ..................... A-1+ P-1 5,000 4,923,851
5.50% 8/1/96 ...................... A-1+ P-1 10,000 9,813,611
------------
54,467,379
------------
Chemicals, Specialty -- 1.3%
Air Products & Chemicals
5.48% 4/16/96 .................... A-1 P-1 9,000 8,979,450
5.35% 6/17/96 .................... A-1 P-1 15,000 14,828,354
5.125% 7/11/96 .................... A-1 P-1 9,000 8,870,594
------------
32,678,398
------------
Computer & Office Equipment -- 7.9%
Hewlett-Packard
5.35% 4/18/96 ..................... A-1+ P-1 10,000 9,974,736
5.24% 4/19/96 ..................... A-1+ P-1 10,000 9,973,800
5.22% 4/26/96 ..................... A-1+ P-1 20,500 20,425,687
4.97% 6/19/96 ..................... A-1+ P-1 10,000 9,890,936
4.95% 6/25/96 ..................... A-1+ P-1 15,000 14,824,688
5.04% 7/19/96 ..................... A-1+ P-1 9,750 9,601,215
</TABLE>
28
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
----------------- Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Computer & Office Equipment -- continued
Pitney Bowes Credit Corp.
5.24% 4/18/96 ..................... A-1+ P-1 $10,000 $ 9,975,256
5.11% 4/30/96 ..................... A-1+ P-1 15,000 14,938,254
5.14% 5/2/96 ...................... A-1+ P-1 10,000 9,955,739
5.02% 10/3/96 ..................... A-1+ P-1 15,000 14,613,042
5.03% 10/3/96 ..................... A-1+ P-1 15,000 14,612,271
5.02% 10/4/96 ..................... A-1+ P-1 20,000 19,481,267
5.04% 10/4/96 ..................... A-1+ P-1 17,000 16,557,320
Xerox Credit Corp.
5.10% 5/8/96 ...................... A-1 P-1 20,000 19,895,167
5.05% 8/29/96 ..................... A-1 P-1 10,000 9,789,583
--------------
204,508,961
--------------
Credit Unions -- 2.5%
Central Corp. Credit
5.39% 4/15/96 ..................... A-1+ P-1 24,225 24,174,222
Mid-States Corporate Federal Credit
Union
5.33% 4/12/96 ..................... A-1+ P-1 18,000 17,970,685
5.33% 4/23/96 ..................... A-1+ P-1 8,000 7,973,942
U.S. Central Credit Union
5.30% 4/17/96 ..................... A-1+ P-1 15,000 14,964,667
--------------
65,083,516
--------------
Defense & Aircraft -- 2.1%
Rockwell International Corp.
5.31% 4/30/96 ..................... A-1+ P-1 55,000 54,764,939
--------------
Electrical & Electronics -- 2.9%
General Electric Company
5.43% 4/4/96 ...................... A-1+ P-1 25,000 24,988,687
5.42% 5/2/96 ...................... A-1+ P-1 25,000 24,883,319
5.07% 5/3/96 ...................... A-1+ P-1 10,000 9,954,933
Motorola Inc.
5.06% 4/25/96 ..................... A-1+ P-1 15,000 14,949,400
--------------
74,776,339
--------------
Electric Utility -- 1.4%
Indianapolis Power & Light
5.17% 4/2/96 ...................... A-1+ P-1 10,700 10,698,463
Northern States Power
5.35% 4/17/96 ..................... A-1+ P-1 25,000 24,940,556
--------------
35,639,019
--------------
</TABLE>
29
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
----------------- Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Entertainment -- 2.6%
Walt Disney Co. .......................
5.18% 7/15/96 ..................... A-1 P-1 $10,000 $ 9,848,917
5.18% 8/14/96 ..................... A-1 P-1 15,000 14,708,625
5.20% 9/10/96 ..................... A-1 P-1 20,000 19,532,000
5.18% 12/6/96 ..................... A-1 P-1 10,000 9,641,717
5.18% 12/9/96 ..................... A-1 P-1 15,000 14,456,100
--------------
68,187,359
--------------
Finance/Commercial -- 0.4%
CIT Group Holdings Inc.
5.32% 4/8/96 ...................... A-1 P-1 10,000 9,989,656
--------------
Finance/Consumer -- 2.2%
USAA Capital Corp.
5.32% 4/3/96 ...................... A-1+ P-1 7,000 6,997,931
5.12% 4/10/96 ..................... A-1+ P-1 15,000 14,980,800
5.02% 5/20/96 ..................... A-1+ P-1 10,000 9,931,672
5.05% 6/6/96 ...................... A-1+ P-1 8,500 8,421,304
5.05% 6/14/96 ..................... A-1+ P-1 18,006 17,819,088
--------------
58,150,795
--------------
Finance/Diversified -- 0.5%
General Electric Capital Corp.
5.15% 4/4/96 ...................... A-1+ P-1 12,000 11,994,850
--------------
Food -- 6.0%
Campbell Soup Co.
5.34% 6/6/96 ...................... A-1+ P-1 25,000 24,755,250
4.98% 10/4/96 ..................... A-1+ P-1 10,000 9,742,700
Cargill, Inc.
5.35% 4/2/96 ...................... A-1+ P-1 10,000 9,998,514
5.08% 4/30/96 ..................... A-1+ P-1 8,000 7,967,262
5.02% 5/8/96 ...................... A-1+ P-1 10,000 9,948,406
5.02% 5/20/96 ..................... A-1+ P-1 10,000 9,931,672
5.23% 6/17/96 ..................... A-1+ P-1 10,000 9,888,136
5.23% 6/18/96 ..................... A-1+ P-1 20,000 19,773,367
H.J.Heinz
5.37% 4/1/96 ...................... A-1 P-1 10,000 10,000,000
Hershey Foods
5.10% 4/26/96 ..................... A-1+ P-1 20,000 19,929,167
Kellogg Company
5.09% 4/16/96 ..................... A-1+ P-1 4,122 4,113,258
5.25% 6/3/96 ...................... A-1+ P-1 21,000 20,807,062
--------------
156,854,794
--------------
</TABLE>
30
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
----------------- Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Household Products -- 5.8%
Clorox Company ........................
5.33% 4/8/96 ...................... A-1+ P-1 $20,000 $ 19,979,272
5.30% 4/22/96 ..................... A-1+ P-1 15,000 14,953,625
5.03% 5/28/96 ..................... A-1+ P-1 5,000 4,960,179
Colgate-Palmolive Co.
5.35% 4/4/96 ...................... A-1 P-1 15,000 14,993,313
5.09% 7/12/96 ..................... A-1 P-1 10,000 9,855,783
Procter & Gamble Co.
5.23% 4/12/96 ..................... A-1+ P-1 18,200 18,170,915
5.23% 4/17/96 ..................... A-1+ P-1 15,000 14,965,133
5.07% 5/13/96 ..................... A-1+ P-1 14,000 13,917,190
5.07% 6/11/96 ..................... A-1+ P-1 20,000 19,800,017
5.00% 6/12/96 ..................... A-1+ P-1 9,000 8,910,000
5.07% 6/14/96 ..................... A-1+ P-1 12,000 11,874,940
--------------
152,380,367
--------------
Insurance, Property & Casualty -- 4.3%
A.I. Credit Corp.
5.00% 5/7/96 ...................... A-1+ P-1 15,000 14,925,000
5.00% 5/13/96 ..................... A-1+ P-1 20,000 19,883,333
AIG Funding Inc.
5.30% 4/19/96 ..................... A-1+ P-1 15,000 14,960,250
5.30% 5/20/96 ..................... A-1+ P-1 10,000 9,927,861
5.20% 7/31/96 ..................... A-1+ P-1 15,000 14,737,833
Chubb Capital Corp.
5.55% 4/12/96 ..................... A-1+ P-1 24,200 24,160,473
Marsh & McLennan Companies Inc.
5.15% 9/27/96 ..................... A-1+ P-1 15,000 14,615,896
--------------
113,210,646
--------------
Integrated Oil -- 3.7%
Amoco Co.
5.18% 4/18/96 ..................... A-1+ P-1 17,106 17,064,157
Exxon Imperial U.S. Inc.
5.28% 4/17/96 ..................... A-1+ P-1 25,000 24,941,422
5.30% 4/26/96 ..................... A-1+ P-1 30,000 29,889,583
Shell Oil Co.
5.37% 4/4/96 ...................... A-1+ P-1 25,000 24,988,812
--------------
96,883,974
--------------
Oil Transportation -- 0.6%
Colonial Pipeline
5.25% 4/11/96 ..................... A-1+ P-1 6,600 6,590,375
5.12% 4/12/96 ..................... A-1+ P-1 10,000 9,984,356
--------------
16,574,731
--------------
</TABLE>
31
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
----------------- Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Paper -- 1.3%
Kimberly-Clark Corp. ..................
5.13% 4/19/96 ..................... A-1+ P-1 $ 5,850 $ 5,834,995
5.30% 5/1/96 ...................... A-1+ P-1 20,000 19,911,667
5.27% 5/7/96 ...................... A-1+ P-1 8,000 7,957,840
--------------
33,704,502
--------------
Pharmaceuticals -- 8.9%
Abbott Laboratories
5.33% 4/25/96 ..................... A-1+ P-1 20,000 19,928,933
Eli Lilly & Co.
5.11% 4/23/96 ..................... A-1+ P-1 15,000 14,953,158
5.30% 5/23/96 ..................... A-1+ P-1 10,000 9,923,444
4.92% 6/17/96 ..................... A-1+ P-1 10,000 9,894,767
5.21% 6/20/96 ..................... A-1+ P-1 15,000 14,826,333
4.95% 8/20/96 ..................... A-1+ P-1 15,000 14,709,187
4.78% 8/22/96 ..................... A-1+ P-1 10,000 9,810,128
Pfizer Inc.
5.15% 4/4/96 ...................... A-1+ P-1 3,000 2,998,713
5.13% 4/17/96 ..................... A-1+ P-1 20,000 19,954,400
Schering-Plough Corp.
5.25% 5/24/96 ..................... A-1+ P-1 20,000 19,845,417
Warner-Lambert Co.
5.25% 6/10/96 ..................... A-1+ P-1 15,000 14,846,875
5.33% 6/12/96 ..................... A-1+ P-1 12,200 12,069,948
5.35% 6/18/96 ..................... A-1+ P-1 25,000 24,710,208
5.03% 7/30/96 ..................... A-1+ P-1 14,500 14,256,883
5.05% 7/30/96 ..................... A-1+ P-1 10,000 9,831,667
4.80% 8/8/96 ...................... A-1+ P-1 10,000 9,828,000
4.87% 9/3/96 ...................... A-1+ P-1 10,000 9,790,319
--------------
232,178,380
--------------
Publishing -- 6.8%
Dun & Bradstreet Corp.
5.30% 5/21/96 ..................... A-1+ P-1 20,000 19,852,778
Gannett Co.
5.22% 4/9/96 ...................... A-1 P-1 30,000 29,965,200
5.30% 4/11/96 ..................... A-1 P-1 26,200 26,161,428
5.27% 4/17/96 ..................... A-1 P-1 25,000 24,941,444
Knight-Ridder Inc.
5.60% 4/2/96 ...................... A-1+ P-1 25,000 24,996,111
5.25% 4/26/96 ..................... A-1+ P-1 10,000 9,963,542
5.07% 5/28/96 ..................... A-1+ P-1 25,000 24,799,312
McGraw-Hill, Inc.
5.50% 4/4/96 ...................... A-1 P-1 7,500 7,496,563
RR Donnelley & Sons
5.25% 4/26/96 ..................... A-1+ P-1 10,000 9,963,542
--------------
178,139,920
--------------
</TABLE>
32
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
------------------ Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Railroad -- 1.5%
Norfolk Southern Corporation
5.03% 6/7/96 ...................... A-1+ P-1 $12,500 $ 12,382,983
5.23% 6/21/96 ..................... A-1+ P-1 26,364 26,053,762
--------------
38,436,745
--------------
Retail, Specialty -- 2.0%
Toys "R" Us
5.30% 4/26/96 ..................... A-1 P-1 27,000 26,900,625
5.37% 5/6/96 ...................... A-1 P-1 25,000 24,869,479
--------------
51,770,104
--------------
Structured Finance -- 6.5%
CIESCO, L.P.
5.32% 4/11/96 ..................... A-1+ P-1 25,000 24,963,014
5.15% 5/8/96 ...................... A-1+ P-1 40,000 39,788,278
5.07% 5/23/96 ..................... A-1+ P-1 15,000 14,890,150
Corporate Asset Funding Company, Inc.
5.15% 4/4/96 ...................... A-1+ P-1 30,000 29,987,125
5.38% 4/22/96 ..................... A-1+ P-1 20,000 19,937,233
5.15% 5/2/96 ...................... A-1+ P-1 20,000 19,911,306
5.27% 5/23/96 ..................... A-1+ P-1 20,000 19,847,756
--------------
169,324,862
--------------
Telephone -- 7.0%
AT&T
5.50% 4/10/96 ..................... A-1+ P-1 10,000 9,986,250
5.30% 4/30/96 ..................... A-1+ P-1 15,000 14,935,958
5.18% 7/9/96 ...................... A-1+ P-1 15,000 14,786,325
Ameritech Capital Funding Corp.
5.07% 6/6/96 ...................... A-1+ P-1 30,000 29,721,150
5.02% 6/7/96 ...................... A-1+ P-1 20,000 19,813,144
5.20% 12/10/96 .................... A-1+ P-1 15,000 14,451,833
Ameritech Corp.
5.14% 4/12/96 ..................... A-1+ P-1 10,000 9,984,294
BellSouth Capital Fund
5.00% 5/7/96 ...................... A-1+ P-1 15,000 14,925,000
BellSouth Telecommunications
5.16% 4/23/96 ..................... A-1+ P-1 18,300 18,242,294
GTE North Inc.
5.48% 4/9/96 ...................... A-1+ P-1 20,000 19,975,644
Southwestern Bell Telephone Co.
5.32% 6/7/96 ...................... A-1+ P-1 15,000 14,851,483
--------------
181,673,375
--------------
</TABLE>
33
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating (a)
------------------ Par
S&P Moody's (000) Value
------ --------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
Waste Management -- 0.4%
WMX Technologies
4.78% 11/1/96 ..................... A-1 P-1 $ 10,000 $ 9,715,856
---------------
TOTAL COMMERCIAL PAPER ........... 2,276,988,782
---------------
VARIABLE RATE NOTE -- 1.9%
Coca-Cola Master Note
5.382%(c) 7/22/96 .................. A-1+ P-1 50,000 50,000,000
---------------
FEDERAL HOME LOAN BANK -- 0.6%
FHLB
5.18% 4/24/96 ..................... AAA -- 15,000 14,950,358
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 3.1%
FNMA
Discount Note
5.30% 4/16/96 ..................... -- P-1 25,000 24,944,792
5.18% 5/2/96 ...................... -- P-1 15,000 14,933,092
4.95% 9/5/96 ...................... -- P-1 10,000 9,784,125
Note
5.68% 10/7/96 ..................... AAA Aaa 20,000 20,017,657
5.39% 12/4/96 ..................... AAA Aaa 10,000 10,016,832
--------- ---------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION ................... 80,000 79,696,498
--------- ---------------
REPURCHASE AGREEMENTS -- 7.0%(d)
Goldman Sachs & Co.
5.37%(e) 4/1/96 ................... -- -- 83,000 83,000,000
Morgan Stanley & Co.
5.33%(f) 4/1/96 ................... -- -- 100,000 100,000,000
---------------
TOTAL REPURCHASE AGREEMENTS ........................... 183,000,000
---------------
TOTAL INVESTMENTS -- 100.1% ................................... $2,604,635,638(g)
LIABILITIES IN EXCESS OF OTHER ASSETS, NET -- (0.1%) .......... (1,855,863)
---------------
NET ASSETS -- 100.0% .......................................... $2,602,779,775
===============
</TABLE>
34
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
Value
-----
Net Asset Value, Offering and Redemption Price Per:
Prime Share
($2,386,681,216 / 2,386,684,392 shares outstanding)............... $1.00
=====
Flag Investors Class A Share
($5,976,831 / 5,976,824 shares outstanding)....................... $1.00
=====
Flag Investors Class B Share
($10,200 / 10,200 shares outstanding)............................. $1.00
=====
Institutional Prime Share
($53,699,315 / 53,699,535 shares outstanding)..................... $1.00
=====
Quality Cash Reserve Prime Share
($156,412,213 / 156,412,393 shares outstanding)................... $1.00
=====
- ------
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") are not covered by the Independent
Accountant's Report.
(b) 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.
(c) Master note is payable upon demand by the Fund with no more than five days'
notice. Interest rates on master notes are redetermined weekly. Rates shown
are the rates in effect on March 31, 1996.
(d) 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.
(e) Dated 3/29/96 to be repurchased on 4/1/96, collateralized by U.S. Treasury
Notes with a market value of $84,660,143.
(f) Dated 3/29/96 to be repurchased on 4/1/96, collateralized by U.S. Treasury
Notes with a market value of $102,042,479.
(g) Aggregate cost for financial reporting and federal tax purposes.
MOODY'S RATINGS:
Aaa Bonds that are judged to be of the best quality.
P-1 Commercial paper bearing this designation is of the best quality.
S&P RATINGS:
AAA These are obligations of the highest quality.
A-1 Commercial paper that 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.
See Notes to Financial Statements.
35
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
TREASURY SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1996
<TABLE>
<CAPTION>
Maturity Par
Date (000) Value
-------- ----- -----
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- 99.5%
U.S. Treasury Bills(a) -- 70.0%
4.900% .................................. 4/4/96 $20,000 $ 19,991,833
5.000% .................................. 4/4/96 20,000 19,991,667
5.035% .................................. 4/11/96 36,000 35,949,650
4.900% .................................. 4/18/96 8,300 8,280,795
4.990% .................................. 4/18/96 12,300 12,271,017
5.000% .................................. 4/18/96 44,700 44,594,458
5.230% .................................. 4/25/96 14,200 14,150,489
4.790% .................................. 5/2/96 15,800 15,734,829
4.940% .................................. 5/2/96 8,600 8,563,417
4.975% .................................. 5/2/96 8,000 7,965,728
4.985% .................................. 5/2/96 10,500 10,454,927
5.045% .................................. 5/2/96 9,000 8,960,901
5.200% .................................. 5/2/96 9,500 9,457,461
5.245% .................................. 5/2/96 8,600 8,561,158
4.840% .................................. 5/9/96 5,000 4,974,456
4.955% .................................. 5/9/96 20,500 20,392,779
4.980% .................................. 5/9/96 10,000 9,947,433
4.985% .................................. 5/9/96 3,000 2,984,214
4.745% .................................. 5/16/96 16,200 16,103,914
4.950% .................................. 5/16/96 20,000 19,876,250
5.000% .................................. 5/16/96 4,000 3,975,000
4.930% .................................. 5/23/96 45,600 45,275,277
4.750% .................................. 5/30/96 7,600 7,540,836
4.755% .................................. 5/30/96 15,000 14,883,106
4.730% .................................. 6/6/96 7,600 7,534,095
4.850% .................................. 6/6/96 21,500 21,308,829
4.880% .................................. 6/6/96 1,500 1,486,580
4.910% .................................. 6/6/96 29,400 29,135,351
4.955% .................................. 6/20/96 6,500 6,428,428
4.950% .................................. 7/5/96 8,500 8,388,969
4.965% .................................. 7/11/96 2,500 2,465,176
4.990% .................................. 7/11/96 3,400 3,352,401
4.980% .................................. 7/25/96 9,500 9,348,871
5.000% .................................. 7/25/96 5,000 4,920,139
5.055% .................................. 7/25/96 38,200 37,583,150
------------
Total U.S. Treasury Bills .................... 502,833,584
------------
</TABLE>
36
<PAGE>
TREASURY SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Maturity Par
Date (000) Value
-------- ----- -----
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- continued
U.S. Treasury Notes -- 29.5%
5.500% .................................. 4/30/96 $110,000 $ 110,039,830
4.250% .................................. 5/15/96 20,000 19,972,141
7.375% .................................. 5/15/96 31,700 31,784,833
5.875% .................................. 5/31/96 15,000 15,019,026
7.625% .................................. 5/31/96 15,000 15,056,100
7.875% .................................. 7/15/96 20,000 20,147,390
-------------
Total U.S. Treasury Notes .................... 212,019,320
-------------
TOTAL U.S. TREASURY SECURITIES .......... 714,852,904
-------------
TOTAL INVESTMENTS -- 99.5% ........................ 714,852,904(b)
OTHER ASSETS LESS LIABILITIES, NET -- 0.5% ........ 3,784,011
-------------
NET ASSETS -- 100.0% .............................. $ 718,636,915
=============
Net Asset Value, Offering and Redemption Price Per:
Treasury Share
($666,814,158 / 666,762,028 shares outstanding) . $1.00
=====
Institutional Treasury Share
($51,822,757 / 51,813,226 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) Aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
37
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
ALABAMA -- 2.7%
Health Care Facility Authority of The City of Huntsville,
Health Care Facilities Revenue Series 1994-B (MBIA
Insurance)
3.30% 4/7/96 (b) ................................... A-1+ -- $ 5,100 $ 5,100,000
Homewood Educational Building Authority (Sanford
University), Series 1988 A (First Alabama Bank LOC)
3.50% 4/7/96 (b) ................................... -- VMIG-1 4,720 4,720,000
Homewood Educational Building Authority (Sanford
University), Series 1988 B (First Alabama Bank LOC)
3.50% 4/7/96 (b) ................................... -- VMIG-1 5,665 5,665,000
------------
15,485,000
------------
ALASKA -- 1.8%
City of Valdez, Marine Terminal Revenue Refunding Bonds
(Arco Transportation Alaska, Inc. Project)
3.30% 6/10/96 (c) .................................. A-1 VMIG-1 10,500 10,500,000
------------
ARIZONA -- 2.4%
Salt River Project, Agricultural Improvement and Power
District
3.35% 8/14/96 (c) .................................. A-1+ P-1 13,698 13,698,000
------------
ARKANSAS -- 1.4%
Arkansas State Development Health Care Authority
Facilities (Sisters of Mercy) (Abm-AMRO Bank N.V. LOC)
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 8,100 8,100,000
------------
COLORADO -- 7.3%
Colorado Health Facilities Authority, Hospital Revenue,
Adjustable Rate (Sisters of Charity)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 6,000 6,000,000
Colorado State Housing Finance Authority, Multi-Family
Housing Bonds -- Winridge Project (SunTrust Bank LOC)
3.40% 4/7/96 (b) ................................... A-1+ -- 7,000 7,000,000
Colorado TRAN
4.50% 6/27/96 (c) .................................. SP-1+ -- 15,000 15,026,465
4.50% 6/27/96 (c) .................................. SP-1+ -- 4,400 4,411,890
</TABLE>
38
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
COLORADO -- continued
Moffat County Pollution Control Revenue Bonds, Series
1984 (Tri-State)
3.40% 4/7/96 (b) ................................... A-1+ P-1 $ 9,100 $ 9,100,000
------------
41,538,355
------------
FLORIDA -- 3.1%
Sunshine State Government Financing Authority,
Commercial Paper Notes
3.35% 4/30/96 ...................................... A-1+ -- 3,000 3,000,000
3.45% 8/13/96 (c) .................................. -- -- 8,975 8,975,000
3.40% 8/14/96 (c) .................................. A-1+ -- 5,700 5,700,000
------------
17,675,000
------------
GEORGIA -- 6.0%
Cobb County Housing Authority RB (Post Mill Project)
Series 1995 DN (FNMA LOC)
3.35% 4/7/96 (b) ................................... A-1+ -- 7,000 7,000,000
Dekalb County Housing Authority, Multifamily Clairmont
Crest Project (FNMA LOC)
3.30% 4/7/96 (b) ................................... A-1+ -- 4,000 4,000,000
Georgia Municipal Association, Pooled Bonds
(MBIA Insurance)
3.20% 4/7/96 (b) ................................... A-1+ VMIG-1 12,100 12,100,000
Smyrna Housing Authority RB (Post Valley Project)
Series 1995 DN (FNMA LOC)
3.35% 4/7/96 (b) ................................... A-1+ -- 11,000 11,000,000
------------
34,100,000
------------
IDAHO -- 1.2%
Idaho Health Facility Authority (Holy Cross Health
System)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 7,000 7,000,000
------------
ILLINOIS -- 11.5%
Illinois Development Finance Authority PCRB Commonwealth
Edison CO Project, Series 94C (Abm-AMRO Bank N.V. LOC)
3.30% 4/7/96 (b) ................................... A-1+ P-1 15,500 15,500,000
Illinois Education Facility Authority, Museum of Science
and Industry (Northern Trust LOC)
3.40% 4/5/96 (b) ................................... -- VMIG-1 1,300 1,300,000
</TABLE>
39
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
ILLINOIS -- continued
Illinois Health Facilities Authority, Gottlieb Health
Resources (Harris Trust LOC)
3.40% 4/7/96 (b) ................................... -- VMIG-1 $ 9,900 $ 9,900,000
Illinois Health Facilities Authority, Revenue Bonds
(Rush-Presbyterian-St. Luke's Medical Center)
3.35% 4/30/96 (c) .................................. A-1+ VMIG-1 3,000 3,000,000
Illinois Health Facilities Authority, Variable Rate
Demand Revenue Bonds, Revolving Fund Pooled Financing
Program (The University of Chicago Project)
3.25% 8/6/96 (c) ................................... A-1+ VMIG-1 11,400 11,400,000
Illinois Health Facility Authority, Carle Foundation
Project (FGIC Insurance)
3.40% 4/7/96 (b) ................................... -- VMIG-1 5,950 5,950,000
Illinois State Revenue Anticipation Certificates
4.50% 5/10/96 (c) .................................. SP-1 MIG-1 11,600 11,608,315
Illinois State Revenue Anticipation Certificates
4.50% 6/10/96 (c) .................................. SP-1+ MIG-1 6,600 6,006,665
Illinois State Toll Highway Authority, Toll Highway
Priority Series B (MBIA Insurance)
3.30% 4/7/96 (b) ................................... A-1+ VMIG-1 1,400 1,400,000
------------
66,064,980
------------
INDIANA -- 5.6%
Indiana Health Facilities Financing Authority, Hospital
Revenue Bonds
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 5,000 5,000,000
Indiana Health Facility Authority, Hospital Revenue
(Methodist Hospital)
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 6,900 6,900,000
Indianapolis, Indiana Gas Utility System, Citizens Gas
and Coke Utility
3.45% 8/14/96 (c) .................................. A-1+ P-1 10,000 10,000,000
Petersburg Pollution Control Revenue (Indianapolis
Power and Light) (AMBAC Insurance)
3.30% 4/7/96 (b) ................................... -- VMIG-1 10,000 10,000,000
------------
31,900,000
------------
IOWA -- 2.2%
Council Bluffs, Iowa Pollution Control Revenue (Illinois
Gas and Electric Company)
3.45% 4/7/96 (b) ................................... A-1+ VMIG-1 7,700 7,700,000
Louisa County Pollution Control Revenue, Refunding Bonds
(Rabo Bank Nederland LOC)
3.30% 4/7/96 (c) ................................... A-1+ VMIG-1 5,000 5,000,000
-----------
12,700,000
-----------
</TABLE>
40
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
KANSAS -- 0.5%
Burlington Pollution Control Refunding Revenue Bonds
(Kansas City Power & Light Company) (Toronto Dominion
LOC)
3.20% 6/13/96 (c) .................................. A-1+ P-1 $ 3,150 $ 3,150,000
------------
LOUISIANA -- 6.4%
East Baton Rouge Parish (Georgia Pacific Corp.)
Pollution Control Revenue Bonds (Toronto Dominion LOC)
3.30% 4/7/96 (b) ................................... -- P-1 2,700 2,700,000
Louisiana Offshore Terminal Authority, Deepwater Port
Refunding Revenue Bonds (Union Bank of Switzerland LOC)
3.35% 4/7/96 (b) ................................... A-1+ -- 3,300 3,300,000
Louisiana Public Facilities Authority, College and
Equipment Series A (Societe Generale LOC)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 10,750 10,750,000
Plaquemines Port, Harbor and Terminal District, Marine
Terminal Facilities Revenue Refunding Bonds
(Electro-Coal Transfer Corporation)
3.45% 5/14/96 (b) .................................. -- P-1 5,000 5,000,000
Plaquemines Port, Harbor and Terminal District, Marine
Terminal Facilities Revenue Refunding Bonds
3.50% 4/1/96 (c) ................................... P-1 -- 15,000 15,000,000
------------
36,750,000
------------
MARYLAND -- 4.5%
Maryland State Community Development Administration,
Department of Housing and Community Development,
Single Family Program First Series RB
3.45% 10/1/96 (c) .................................. VMIG-1 -- 7,500 7,500,000
Maryland State Health & Higher Education Authority
(Daughters of Charity)
3.40% 4/7/96 (b) ................................... VMIG-1 -- 11,000 11,000,000
Montgomery County General Obligations
3.30% 4/1/96 (c) ................................... A-1+ P-1 7,000 7,000,000
------------
25,500,000
------------
MASSACHUSETTS -- 2.0%
Massachusetts State Housing Finance, Multi-Family
Series A
3.25% 4/7/96 (b) ................................... A-1+ -- 11,400 11,400,000
-----------
</TABLE>
41
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
MINNESOTA -- 1.5%
City of Rochester, Minnesota, Health Care Facility
(Mayo Medical Center)
3.20% 6/13/96 (c) .................................. A-1+ -- $3,000 $ 3,000,000
Regents of The University of Minnesota, Bonds
3.25% 6/14/96 (c) .................................. A-1+ VMIG-1 3,300 3,300,000
Regents of The University of Minnesota, Commercial Paper
Certificates
3.25% 6/14/96 (c) .................................. A-1+ P-1 2,000 2,000,000
------------
8,300,000
------------
MISSOURI -- 3.8%
Missouri Environmental Improvement, Pollution Control
Revenue, National Rural Utilities Series M
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 5,800 5,800,000
Missouri Health and Educational Facilities Authority,
Health Facilities Refunding Revenue Bonds (Sisters of
Mercy)
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 8,000 8,000,000
Missouri Health and Educational Facilities Authority,
Health Facility Revenue (Sisters of Mercy)
3.40% 4/7/96 (b) ................................... A-1+ VMIG-1 8,000 8,000,000
------------
21,800,000
------------
NEW JERSEY -- 0.3% ....................................
Mercer County Improvement Revenue Bonds (Credit
Suisse LOC)
3.00% 4/7/96 (b) ................................... A-1+ MIG-1 1,800 1,800,000
------------
NEW MEXICO -- 0.5%
Albuquerque Health Facility Authority (Sisters of
Charity) (Toronto Dominion LOC)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 3,000 3,000,000
------------
NEW YORK -- 0.1%
New York Local Government Assistance Corporation,
Variable Rate Bonds (Societe Generale LOC)
3.15% 4/7/96 (b) ................................... A-1+ VMIG-1 100 100,000
Triborough Bridge and Tunnel Authority (FGIC Insurance)
3.10% 4/7/96 (b) ................................... A-1+ VMIG-1 600 600,000
------------
700,000
------------
</TABLE>
42
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
NORTH CAROLINA -- 2.0%
City of Winston-Salem, G.O. Water and Sewer Revenue
3.30% 4/7/96 (b) ................................... A-1+ VMIG-1 $ 2,600 $ 2,600,000
North Carolina Education Facility Agency (Duke
University)
3.25% 4/7/96 (b) ................................... A-1+ VMIG-1 500 500,000
North Carolina Educational Facilities Finance Agency
(Duke University Project) Series 1987 A
3.25% 4/7/96 (b) ................................... A-1+ VMIG-1 3,000 3,000,000
North Carolina Medical Care (Duke University Hospital
Project) Series A
3.25% 4/7/96 (b) ................................... A-1+ VMIG-1 1,000 1,000,000
North Carolina Medical Care Community Hospital
(Moses Cone Memorial Hospital)
3.35% 4/7/96 (b) ................................... A-1+ -- 4,000 4,000,000
------------
11,100,000
------------
OKLAHOMA -- 1.4%
Oklahoma Industries Authority, Hospital Revenue, Medical
Practice Facility (St. Anthony) (Morgan Guaranty LOC)
3.65% 6/3/96 (c) ................................... -- VMIG-1 5,665 5,665,000
Oklahoma Industries Authority, Hospital Revenue, (St.
Anthony Parking Garage) (Morgan Guaranty LOC)
3.65% 6/3/96 (c) ................................... -- VMIG-1 2,425 2,425,000
------------
8,090,000
------------
OREGON -- 0.5%
City of Klamath Falls, Electric Revenue Bonds (Escrowed
in U.S. Treasuries)
4.40% 5/1/96 (c) ................................... SP-1+ -- 3,000 3,000,000
------------
SOUTH CAROLINA -- 1.2%
South Carolina Jobs Economic Development Authority,
Hospital Facilities Revenue Bonds (Wachovia LOC)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 6,600 6,600,000
------------
TENNESSEE -- 5.0%
Metropolitan Nashville Airport Authority, Airport
Improvement Revenue Refunding Bonds (FGIC Insurance)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 8,900 8,900,000
State of Tennessee GO, BANS Series A
3.50% 4/7/96 (b) ................................... SP-1+ VMIG-1 19,600 19,600,000
------------
28,500,000
------------
</TABLE>
43
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
TEXAS -- 17.7%
Austin Utility System, Travis and Williamson Counties
(Swiss Bank LOC)
3.25% 5/10/96 ...................................... A-1+ P-1 $ 6,900 $ 6,900,000
3.25% 6/14/96 (c) .................................. -- -- 3,900 3,900,000
Board of Regents, Texas A & M University
System
3.25% 8/13/96 (c) .................................. A-1+ P-1 7,000 7,000,000
Dallas Area Rapid Trans Sales Tax Revenue Series A
(Credit Suisse LOC)
3.25% 6/14/96 (c) .................................. A-1+ P-1 5,000 5,000,000
Harris County Health Facilities Hospital Readily
Adjustable Revenue Bonds (San Jacinto Methodist
Hospital Project) (Morgan Guaranty LOC)
3.35% 6/1/96 (c) ................................... -- VMIG-1 11,250 11,250,000
Harris County Health Facility Development Corporation
(Texas Children's Hospital)
3.30% 4/7/96 (b) ................................... -- VMIG-1 700 700,000
Harris County Toll Road Series G
3.30% 4/7/96 (b) ................................... A-1+ VMIG-1 8,700 8,700,000
Harris County Toll Road Series H
3.30% 4/7/96 (b) ................................... A-1+ VMIG-1 10,300 10,300,000
Lower Colorado River Authority TECP
3.25% 5/9/96 (c) ................................... A-1+ P-1 9,000 9,000,000
Red River Authority (Southwestern Public Service)
(Union Bank of Switzerland LOC)
3.25% 4/7/96 (b) ................................... A-1+ MIG-1 5,600 5,600,000
State of Texas, Tax and Revenue Anticipation Notes
4.75% 8/30/96 (c) .................................. SP-1+ MIG-1 27,205 27,315,284
Texas Higher Education Authority, Facilities Revenue
Series 85B (FGIC Insurance)
3.35% 4/7/96 (b) ................................... A-1+ VMIG-1 5,250 5,250,000
-------------
100,915,284
-------------
UTAH -- 2.3%
Intermountain Power Agency, Power Supply Revenue and
Refunding Bonds (Swiss Bank LOC)
3.25% 8/12/96 (c) .................................. A-1+ VMIG-1 13,000 13,000,000
-------------
VERMONT -- 0.6%
State of Vermont General Obligation Revenue
Anticipation Notes Series F
3.35% 4/30/96 (c) .................................. A-1+ P-1 3,600 3,600,000
-------------
</TABLE>
44
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
<TABLE>
<CAPTION>
Rating(a) Par
S&P Moody's (000) Value
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
WASHINGTON -- 1.0%
Chelan County Public Utility District No. 1 (Chelan
Hydro Consolidated System) Series 1995A DN (MBIA
Insurance)
3.25% 4/7/96 (b) ................................... A-1+ VMIG-1 $ 3,590 $ 3,590,000
Port of Seattle, Washington, Industrial Development
Bonds (Sysco)
3.45% 4/7/96 (b) ................................... A-1 P-1 2,000 2,000,000
-------------
5,590,000
-------------
WISCONSIN -- 3.0%
Pleasant Prairie Village Pollution Control Refunding
Revenue Bonds (Wisconsin Electric Power Company
Project)
3.40% 4/7/96 (b) ................................... A-1+ P-1 10,000 10,000,000
Wisconsin Health and Education Facilities Authority
(Daughters of Charity Health Center)
3.40% 4/7/96 (b) ................................... -- VMIG-1 7,000 7,000,000
-------------
17,000,000
-------------
TOTAL INVESTMENTS --99.5% ................................................... 568,556,619(d)
-------------
OTHER ASSETS IN EXCESS OF LIABILITIES, NET -- 0.5% ........................... 2,950,381
-------------
NET ASSETS -- 100.0% ........................................................ $571,507,000
=============
Net Asset Value, Offering and Redemption Price per
Share ($571,507,000 / 571,593,265 shares outstanding) ...................... $1.00
============= =========== =====
</TABLE>
- ------
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") are not covered by the Independent
Accountant's Report.
(b) Demand Security; payable upon demand by the Fund, usually with no more than
seven calendar days' notice. Interest rates are redeterminded periodically.
Rates shown are the rates in effect on March 31, 1996.
(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.
45
<PAGE>
TAX-FREE SERIES
- -------------------------------------------------------------------------------
Statement of Net Assets -- (continued)
March 31, 1996
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.
See Notes to Financial Statements.
46
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- -------------------------------------------------------------------------------
Statement of Operations
For the year ended March 31, 1996
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
-------------- ------------- -----------
<S> <C> <C> <C>
Investment Income (Note 1):
Interest income ................. $120,275,367 $36,310,501 $20,235,536
-------------- ------------- -----------
Expenses:
Distribution fee (Note 2) ....... 5,575,592 1,549,949 1,345,261
Investment advisory fees (Note 2) . 5,134,900 1,542,437 1,356,239
Transfer agent fees ............. 1,105,948 234,288 154,031
Custodian fees .................. 272,140 153,691 84,589
Accounting fees (Note 2) ........ 150,692 122,841 63,181
Directors' fees ................. 99,134 26,796 35,201
Registration fees ............... 169,236 54,148 81,232
Legal fees ...................... 65,876 25,067 21,107
Printing & postage fees ......... 181,021 77,172 32,758
Other expenses .................. 125,781 60,321 49,266
-------------- ------------- -----------
Total expenses................ 12,880,320 3,846,710 3,222,865
Less: Fees waived (Note 2).... (59,331) -- --
-------------- ------------- -----------
Net expenses .............. 12,820,989 3,846,710 3,222,865
-------------- ------------- -----------
Net investment income ................ 107,454,378 32,463,791 17,012,671
Net realized gain/(loss) from security
transactions ....................... (6,050) 51,785 4,419
-------------- ------------- -----------
Net increase in net assets resulting
from operations .................... $107,448,328 $32,515,576 $17,017,090
============== ============= ===========
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Prime Series
-------------------------------
March 31, March 31,
1996 1995
--------------- --------------
<S> <C> <C>
Increase/(Decrease) in net assets
Operations:
Net investment income ............................. $ 107,454,378 $ 64,805,363
Net realized gain/(loss) on sales of investments .. (6,050) 355
-------------- ---------------
Net increase in net assets resulting from operations 107,448,328 64,805,718
Distributions to shareholders from:
Net investment income:
Prime, Treasury and Tax-Free Shares, respectively. (99,181,255) (59,535,578)
Institutional Shares ........................... (1,334,079) (635,062)
Flag Investors Class A Shares .................. (402,702) (699,891)
Flag Investors Class B Shares .................. (300) --
Quality Cash Reserve Prime Shares .............. (6,536,042) (3,934,832)
-------------- ---------------
Total distributions ............................ (107,454,378) (64,805,363)
Capital share transactions, net - (Note 3) .......... 1,016,482,516 101,735,438
-------------- ---------------
Total increase/(decrease) in net assets ........... 1,016,476,466 101,735,793
Net assets:
Beginning of year .............................. 1,586,303,309 1,484,567,516
-------------- ---------------
End of year .................................... $2,602,779,775 $1,586,303,309
============== ===============
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
<TABLE>
<CAPTION>
Treasury Series Tax-Free Series
- ----------------------------------- ----------------------------------
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
- ------------- ------------- ------------ --------------
<S> <C> <C> <C>
$ 32,463,791 $ 24,429,870 $ 17,012,671 $ 10,545,966
51,785 4,522 4,419 (10,654)
- ------------ ------------ -------------- -------------
32,515,576 24,434,392 17,017,090 10,535,312
(30,565,630) (22,548,414) (17,012,671) (10,545,966)
(1,898,161) (1,881,456) -- --
-- -- -- --
-- -- -- --
-- -- -- --
- ------------ -------------- -------------- --------------
(32,463,791) (24,429,870) (17,012,671) (10,545,966)
192,365,923 (95,202,377) 96,118,352 96,535,651
- ------------ -------------- -------------- --------------
192,417,708 (95,197,855) 96,122,771 96,524,997
526,219,207 621,417,062 475,384,229 378,859,232
- ------------ -------------- -------------- --------------
$718,636,915 $526,219,207 $571,507,000 $475,384,229
============ ============== ============== ==============
</TABLE>
49
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
Alex. Brown Cash Reserve Prime Shares
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
<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 .... 0.0524 0.0442 0.0262 0.0295 0.0485
Less Distributions:
Dividends from net investment
income and/or short-term
gains ................. (0.0524) (0.0442) (0.0262) (0.0295) (0.0485)
-------------- -------------- -------------- -------------- --------------
Net asset value at end of
year ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ============== ==============
Total Return:
Based on net asset value per
share ................. 5.36% 4.51% 2.65% 2.99% 4.96%
Ratios to Average Daily Net
Assets:
Expenses ................. 0.60% 0.61% 0.62% 0.63% 0.61%
Net investment income .... 5.21% 4.46% 2.62% 2.95% 4.84%
Supplemental Data:
Net assets at end of year. $2,386,681,216 $1,472,079,739 $1,350,334,979 $1,470,711,552 $1,505,012,086
Number of shares outstanding
at end of year ........ 2,386,684,392 1,472,077,488 1,350,332,916 1,470,709,489 1,505,010,023
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
Flag Investors Cash Reserve Prime Shares -- Class A
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------- ------------- ------------
<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 ....... 0.0524 0.0442 0.0262 0.0295 0.0485
Less Distributions:
Dividends from net investment
income and/or short-term
gains .................... (0.0524) (0.0442) (0.0262) (0.0295) (0.0485)
------------ ------------ ------------- ------------- ------------
Net asset value at end of
year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============ ============= ============= ============
Total Return:
Based on net asset value per
share .................... 5.36% 4.51% 2.65% 2.99% 4.96%
Ratios to Average Daily Net
Assets:
Expenses .................... 0.60% 0.61% 0.62% 0.63% 0.61%
Net investment income ....... 5.25% 4.26% 2.62% 2.95% 4.84%
Supplemental Data:
Net assets at end of year.... $5,976,831 $7,726,696 $18,116,648 $10,392,282 $7,350,424
Number of shares outstanding
at end of year ........... 5,976,824 7,726,698 18,116,633 10,392,267 7,350,409
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Financial Highlights
(for a share outstanding throughout the period)
Flag Investors Cash Reserve Prime Shares -- Class B
April 3, 1995*
through
March 31, 1996
--------------
Per Share Operating
Performance:
Net asset value at beginning
of year ............... $ 1.00
--------
Income from Investment
Operations:
Net investment income .... 0.0361
Less Distributions:
Dividends from net invest-
ment income ........... (0.0361)
--------
Net asset value at end of
year .................. $ 1.00
========
Total Return:
Based on net asset value
per share ............. 3.69%**
Ratios to Average Daily Net
Assets:
Expenses ................. 1.38%**
Net investment income .... 4.30%**
Supplemental Data:
Net assets at end of year . $ 10,200
Number of shares outstand-
ing at end of year .... 10,200
- ------
* Commencement of operations.
** Annualized.
See Notes to Financial Statements.
52
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Financial Highlights
(for a share outstanding throughout the period)
Alex. Brown Cash Reserve Prime Institutional Shares
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- ------------
<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 .......... 0.0548 0.0472 0.0294 0.0327 0.0515
Less Distributions:
Dividends from net investment
income and/or short-term
gains ....................... (0.0548) (0.0472) (0.0294) (0.0327) (0.0515)
------------- ------------- ------------- ------------- ------------
Net asset value at end of year . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= ============
Total Return:
Based on net asset value per share 5.62% 4.82% 2.98% 3.32% 5.27%
Ratios to Average Daily Net Assets:
Expenses ....................... 0.35% 0.36% 0.30% 0.31% 0.32%
Net investment income .......... 5.32% 4.57% 2.94% 3.24% 5.34%
Supplemental Data:
Net assets at end of year ...... $53,699,315 $11,904,716 $23,437,449 $28,884,078 $21,867,108
Number of shares outstanding at
end of year.................. 53,699,535 11,904,663 23,437,512 28,884,132 21,867,108
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
PRIME SERIES
- -------------------------------------------------------------------------------
Financial Highlights
(for a share outstanding throughout the period)
Quality Cash Reserve Prime Shares
<TABLE>
<CAPTION>
Year ended March 31, May 6, 1991*
---------------------------------------------------------------- through
1996 1995 1994 1993 March 31, 1992
-------------- ------------- ------------- -------------- --------------
<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 .... 0.0493 0.0402 0.0218 0.0253 0.0399
Less Distributions:
Dividends from net
investment income and/or
short-term gains ..... (0.0493) (0.0402) (0.0218) (0.0253) (0.0399)
-------------- ------------- ------------- -------------- --------
Net asset value at end of
year ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============= ============= ============== ========
Total Return:
Based on net asset value
per share ........... 5.04% 4.09% 2.20% 2.53% 4.30%**
Ratios to Average Daily Net
Assets:
Expenses ................ 0.90%(1) 0.96% 1.06% 1.04% 0.96%**
Net investment income ... 4.91%(2) 4.04% 2.18% 2.53% 4.30%**
Supplemental Data:
Net assets at end of year . $156,412,213 $94,592,158 $92,678,440 $101,321,868 $94,887,669
Number of shares
outstanding at end of
year................... 156,412,393 94,591,979 92,678,268 101,321,668 94,887,669
</TABLE>
- ----------
* Commencement of operations.
** Annualized.
1 Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.95% for the year ended March 31, 1996,
2 Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.86% for the year ended March 31, 1996.
See Notes to Financial Statements.
54
<PAGE>
TREASURY SERIES
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
Alex. Brown Cash Reserve Treasury Shares
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- -------------- -------------- -------------- --------------
Income from Investment
Operations:
Net investment income ....... 0.0494 0.0411 0.0255 0.0285 0.0477
Less Distributions:
Dividends from net investment
income and/or short-term
gains .................... (0.0494) (0.0411) (0.0255) (0.0285) (0.0477)
-------------- -------------- -------------- -------------- --------------
Net asset value at end of
year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ============== ==============
Total Return:
Based on net asset value per
share........................ 5.05% 4.19% 2.58% 2.89% 4.88%
Ratios to Average Daily Net
Assets:
Expenses .................... 0.58% 0.55%* 0.54%* 0.55%* 0.55%
Net investment income ....... 4.94% 4.09% 2.55% 2.87% 4.76%
Supplemental Data:
Net assets at end of year ... $666,814,158 $512,167,212 $581,724,214 $618,175,839 $725,010,207
Number of shares outstanding
at end of year.............. 666,762,028 512,162,864 581,723,448 618,152,465 725,010,207
</TABLE>
- ------
* Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.56% for the years ended March 31, 1995, 1994, and 1993.
See Notes to Financial Statements.
55
<PAGE>
TREASURY SERIES
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
Alex. Brown Cash Reserve Treasury Institutional Shares
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<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 .......... 0.0523 0.0438 0.0282 0.0314 0.0504
Less Distributions:
Dividends from net investment
income and/or short-term
gains........................ (0.0523) (0.0438) (0.0282) (0.0314) (0.0504)
------------- ------------- ------------- ------------- -------------
Net asset value at end of year.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= =============
Total Return:
Based on net asset value per
share......................... 5.36% 4.47% 2.86% 3.19% 5.17%
Ratios to Average Daily Net Assets:
Expenses ....................... 0.33% 0.30%(1) 0.27%(1) 0.26%(1) 0.27%
Net investment income .......... 5.12% 4.15%(2) 2.82%(2) 3.16%(2) 4.90%
Supplemental Data:
Net assets at end of year ...... $51,822,757 $14,051,995 $39,692,848 $60,146,987 $63,834,323
Number of shares outstanding at
end of year ................. 51,813,226 14,046,467 39,688,259 60,140,874 63,834,323
</TABLE>
- ------
(1) Ratio of expenses to average daily net assets prior to
partial fee waivers assumed was 0.31%, 0.29% and 0.27% for
the years ended March 31, 1995, 1994, and 1993, respectively.
(2) Ratio of net investment income to average daily net assets
prior to partial fee waivers assumed was 4.14%, 2.80% and
3.15% for the years ended March 31, 1995, 1994, and 1993,
respectively.
See Notes to Financial Statements.
56
<PAGE>
TAX-FREE SERIES
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
Alex. Brown Cash Reserve Tax-Free Shares
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
<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 .... 0.0318 0.0271 0.0184 0.0213 0.0353
Less Distributions:
Dividends from net
investment income
and/or short-term
gains.................. (0.0318) (0.0271) (0.0184) (0.0213) (0.0353)
-------------- -------------- -------------- -------------- --------------
Net asset value at end
of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ============== ==============
Total Return:
Based on net asset value
per share.............. 3.23% 2.75% 1.86% 2.15% 3.59%
Ratios to Average Daily Net
Assets:
Expenses ................ 0.60% 0.57% 0.58% 0.60% 0.56%(1)
Net investment income ... 3.16% 2.74% 1.84% 2.13% 3.49%(2)
Supplemental Data:
Net assets at end of year . $571,507,000 $475,384,229 $378,859,232 $315,661,447 $304,987,823
Number of shares
outstanding at end
of year................ 571,593,265 475,474,913 378,939,262 315,700,742 305,008,959
</TABLE>
- ------
(1) Ratio of expenses to average daily net assets prior to partial fees
assumed was 0.57% for the year ended March 31, 1992.
(2) Ratio of net investment income to average daily net assets prior to
partial fees assumed was 3.48% for the year ended March 31, 1992.
57
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 1996
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 five
different classes of shares: Alex. Brown Cash Reserve Prime Shares ("Prime
Shares"), Flag Investors Cash Reserve Prime Shares Class A ("Flag Investors
Class A Shares"), Flag Investors Cash Reserve Prime Shares Class B ("Flag
Investors Class B 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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. 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
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, 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.
58
<PAGE>
Notes to Financial Statements -- (continued)
March 31, 1996
NOTE 1 -- CONCLUDED
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 $87,648 (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 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 TRANSACTIONS WITH OTHER AFFILIATES
The Fund has entered into an investment advisory agreement with Investment
Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown Financial Corp.,
with respect to all Series, and a sub-advisory agreement with PNC
Institutional Management Corporation ("PIMC") with respect to the 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: .30% of the
first $500 million, .26% of the next $500 million, .25% of the next $500
million, .24% of the next $1 billion, .23% of the next $1 billion and .22% of
that portion in excess of $3.5 billion. In addition, the Advisor is entitled
to receive an additional fee with respect to the Prime Series, calculated
daily and paid monthly, at the annual rate of .02% of the Prime Series'
average daily net assets as well as an additional fee with respect to the
Tax-Free Series, calculated daily and paid monthly, at the annual rate of
.03% of the Tax-Free Series' average daily net assets. Prior to August 23,
1995, ICC received 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 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.
59
<PAGE>
Notes to Financial Statements -- (continued)
March 31, 1996
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 Tax-Free Series. For the year ended March 31, 1996, the Fund paid PIMC
$723,599 for sub-advisory and accounting services for the Tax-Free Series. No
advisory fees were waived for the year ended March 31, 1996.
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 each 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 any ICC waiver. No advisory fees were waived for
the year ended March 31, 1996.
Under the terms of these agreements, ICC and the Fund's distributor 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 each
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, ICC receives from the Prime
and Treasury Series an annual fee, calculated daily and paid monthly, based
on the Fund's average daily net assets. ICC received $150,692 and $122,841
for accounting services for the year ended March 31, 1996 for the Prime and
Treasury Series, respectively.
As compensation for its transfer agent services, ICC receives from the
Fund's three series a per account fee, calculated and paid monthly. ICC
received $1,105,948, $234,288 and $154,031 for transfer agent services for
the year ended March 31, 1996 for Prime, Treasury and Tax-Free Series,
respectively.
The Fund has entered into a distribution agreement with Alex. Brown & Sons
Incorporated ("Alex. Brown"). Under the terms of the distribution agreement,
Alex. Brown receives a fee from the Prime Shares, Flag Investors Class A
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 and Flag Investors
Class B Shares at the annual rate of .60% and 1.00%, respectively, of the
aggregate average daily net assets of the class. Alex. Brown voluntarily
waived distribution fees in the amount of $59,331 for the Quality Cash Shares
for the year ended March 31, 1996.
The Fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense for the year
ended March 31, 1996 was approximately $72,000, $26,000 and $18,000 for the
Prime, Treasury and Tax-Free Series, respectively.
NOTE 3 -- CAPITAL STOCK AND SHARE INFORMATION
The Fund is authorized to issue up to 6,400,000,000 shares of $.001 par
value capital stock (3,550,000,000 Prime Series, 1,500,000,000 Treasury
Series, 1,000,000,000 Tax-Free Series and 350,000,000 not classified).
Changes in shares outstanding during the years ended March 31, 1996 and March
31, 1995 are listed on the following page.
60
<PAGE>
Notes to Financial Statements -- (continued)
March 31, 1996
NOTE 3 -- CONCLUDED
March 31, 1996 March 31, 1995
---------------- ----------------
Prime Series:
Sold:
Prime Shares .................. 19,439,463,533 10,195,279,007
Flag Investors Class A Shares . 12,118,053 16,905,684
Flag Investors Class B Shares . 24,535 --
Institutional Prime Shares .... 213,159,539 60,472,629
Quality Cash Shares ........... 1,285,040,597 509,661,769
Issued as reinvestment of dividends:
Prime Shares .................. 93,103,137 57,178,155
Flag Investors Class A Shares . 374,561 666,245
Institutional Prime Shares .... 753,855 40,493
Quality Cash Shares ........... 6,300,386 3,847,996
Redeemed:
Prime Shares .................. (18,617,959,766) (10,130,712,590)
Flag Investors Class A Shares . (14,242,488) (27,961,864)
Flag Investors Class B Shares . (14,335) --
Institutional Prime Shares .... (172,118,522) (72,045,971)
Quality Cash Shares ........... (1,229,520,569) (511,596,054)
---------------- ----------------
Net increase ............. 1,016,482,516 101,735,499
================ ================
Treasury Series:
Sold:
Treasury Shares ............... 4,043,423,430 2,727,755,716
Institutional Treasury Shares . 396,793,576 854,592,222
Issued as reinvestment of dividends:
Treasury Shares ............... 28,890,267 21,562,879
Institutional Treasury Shares . 417,316 8
Redeemed: ........................
Treasury Shares ............... (3,917,714,533) (2,818,879,180)
Institutional Treasury Shares . (359,444,133) (880,234,022)
---------------- ----------------
Net increase/(decrease) .. 192,365,923 (95,202,377)
================ ================
Tax-Free Series:
Sold ............................. 4,817,984,787 3,571,743,009
Issued as reinvestment of dividends 16,116,851 10,051,311
Redeemed ......................... (4,737,983,286) (3,485,258,669)
---------------- ----------------
Net increase ............. 96,118,352 96,535,651
================ ================
NOTE 4 -- NET ASSETS
At March 31, 1996, net assets consisted of:
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
-------------- -------------- ------------
<S> <C> <C> <C>
Paid-in-capital ......................... $2,602,785,854 $718,571,065 $571,594,648
Undistributed net realized gain/(loss) on
sales of investments ................... (6,079) 65,850 (87,648)
-------------- -------------- ------------
$2,602,779,775 $718,636,915 $571,507,000
============== ============== ============
</TABLE>
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
Alex. Brown Cash Reserve Fund, Inc.:
We have audited the accompanying statements of net assets of Alex. Brown Cash
Reserve Fund, Inc. (consisting of the Prime, Treasury and Tax-Free Series) as
of March 31, 1996, and the related statement of operations for the year then
ended and the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the three
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each
of the respective years in the period ended March 31, 1993 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 confirmation of
investments owned as of March 31, 1996 by correspondence with the custodian.
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 financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
each of the respective series comprising the Alex. Brown Cash Reserve Fund,
Inc. as of March 31, 1996, and the results of their operations for the year
then ended and the changes in their net assets for each of the two years in
the period then ended and their financial highlights for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 10, 1996
62
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Rating Par
PRIME SERIES S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper - 84.9%(a)
Automobiles & Trucks - 2.6% PACCAR Financial Corp.
5.33% 10/21/96 A-1+ P-1 $10,000 $ 9,970,389
5.40% 10/28/96 A-1+ P-1 9,000 8,963,550
5.29% 11/18/96 A-1+ P-1 5,000 4,964,733
Toyota Motor Credit Corp.
5.32% 10/31/96 A-1+ P-1 15,000 14,933,500
5.25% 11/8/96 A-1+ P-1 15,000 14,916,875
5.36% 12/13/96 A-1+ P-1 14,000 13,847,836
- --------------------------------------------------------------------------------
67,596,883
- --------------------------------------------------------------------------------
Beverages - 3.1%
Anheuser-Busch Companies Inc.
5.28% 10/7/96 A-1+ P-1 15,000 14,986,800
5.34% 10/7/96 A-1+ P-1 17,300 17,284,603
4.90% 10/21/96 A-1+ P-1 20,000 19,945,556
4.75% 10/28/96 A-1+ P-1 15,000 14,946,563
5.25% 1/1/97 A-1+ P-1 15,000 14,781,250
- --------------------------------------------------------------------------------
81,944,772
- --------------------------------------------------------------------------------
Chemicals, General - 3.8%
E.I. duPont de Nemours
5.35% 10/18/96 A-1+ P-1 10,000 9,974,736
5.40% 11/22/96 A-1+ P-1 15,000 14,883,000
5.30% 11/27/96 A-1+ P-1 15,000 14,874,125
5.29% 12/18/96 A-1+ P-1 10,000 9,885,383
5.30% 12/20/96 A-1+ P-1 25,000 24,705,556
5.38% 1/30/97 A-1+ P-1 10,000 9,819,172
5.46% 3/26/97 A-1+ P-1 16,000 15,572,907
- --------------------------------------------------------------------------------
99,714,879
- --------------------------------------------------------------------------------
Chemicals, Specialty - 1.2%
Air Products & Chemicals, Inc.
5.35% 10/25/96 A-1 P-1 11,000 10,960,767
5.33% 11/5/96 A-1 P-1 20,000 19,896,361
- --------------------------------------------------------------------------------
30,857,128
- --------------------------------------------------------------------------------
Computer & Office Equipment - 7.4%
Hewlett-Packard
5 42% 10/9/96 A-1+ P-1 15,000 14,981,933
5.35% 10/30/96 A-1+ P-1 20,000 19,913,806
5.40% 12/3/96 A-1+ P-1 10,000 9,905,500
================================================================================
63
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (continued)
Computer & Office Equipment (concluded)
Pitney Bowes Credit Corp.
5.02% 10/3/96 A-1+ P-1 $15,000 $ 14,995,817
5.03% 10/3/96 A-1+ P-1 15,000 14,995,808
5.02% 10/4/96 A-1+ P-1 20,000 19,991,633
5.04% 10/4/96 A-1+ P-1 17,000 16,992,860
5.35% 2/19/97 A-1+ P-1 19,000 18,601,871
5.52% 2/19/97 A-1+ P-1 14,775 14,455,565
5.50% 3/21/97 A-1+ P-1 10,000 9,738,750
Xerox Credit Corp.
5.32% 11/8/96 A-1 P-1 20,480 20,364,993
5.32% 12/5/96 A-1 P-1 19,700 19,510,771
- --------------------------------------------------------------------------------
194,449,307
- --------------------------------------------------------------------------------
Credit Unions - 2.5%
Mid-States Corporate Federal Credit Union
5.37% 10/1/96 A-1+ P-1 20,500 20,469,420
U.S. Central Credit Union
5.30% 10/10/96 A-1+ P-1 15,000 14,980,125
5.40% 10/23/96 A-1+ P-1 15,000 14,950,500
5.31% 12/3/96 A-1+ P-1 15,000 14,860,613
- --------------------------------------------------------------------------------
65,260,658
- --------------------------------------------------------------------------------
Defense & Aircraft - 0.9%
Rockwell International Corp.
5.28% 10/29/96 A-1+ P-1 25,000 24,897,333
- --------------------------------------------------------------------------------
Electrical & Electronics - 3.5%
Emerson Electric Co.
5.32% 10/25/96 A-1+ P-1 25,000 24,911,332
Motorola Inc.
5.32% 10/7/96 A-1+ P-1 20,000 19,982,267
5.28% 10/24/96 A-1+ P-1 15,000 14,949,400
5.35% 10/25/96 A-1+ P-1 17,000 16,939,367
5.32% 11/8/96 A-1+ P-1 15,000 14,915,767
- --------------------------------------------------------------------------------
91,698,133
- --------------------------------------------------------------------------------
Electric Utility - 1.0%
Northern States Power Co.
5.30% 11/4/96 A-1+ P-1 7,000 6,964,961
5.27% 11/22/96 A-1+ P-1 19,000 18,855,368
- --------------------------------------------------------------------------------
25,820,329
- --------------------------------------------------------------------------------
64
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (continued)
Entertainment - 2.8%
Walt Disney Co.
5.24% 10/9/96 A-1 P-1 $15,000 $14,982,533
5.28% 10/11/96 A-1 P-1 15,000 14,978,000
5.40% 10/15/96 A-1 P-1 10,000 9,979,000
5.18% 12/6/96 A-1 P-1 10,000 9,905,033
5.18% 12/9/96 A-1 P-1 15,000 14,851,075
5.38% 1/29/97 A-1 P-1 10,000 9,820,667
- --------------------------------------------------------------------------------
74,516,308
- --------------------------------------------------------------------------------
Finance, Commercial - 2.2%
CIT Group Holdings Inc.
5.29% 12/10/96 A-1 P-1 40,000 39,588,555
PHH Corp.
5.42% 10/30/96 A-1 P-1 20,000 19,912,678
- --------------------------------------------------------------------------------
59,501,233
- --------------------------------------------------------------------------------
Finance, Consumer - 3.6%
USAA Capital Corp.
5.27% 10/30/96 A-1+ P-1 10,000 9,957,547
5.44% 11/4/96 A-1+ P-1 18,000 17,907,520
5.40% 11/14/96 A-1+ P-1 22,000 21,854,800
5.30% 11/27/96 A-1+ P-1 10,000 9,916,083
5.40% 12/17/96 A-1+ P-1 20,000 19,769,000
5.27% 12/20/96 A-1+ P-1 10,000 9,882,889
5.47% 1/2/97 A-1+ P-1 7,423 7,318,107
- --------------------------------------------------------------------------------
96,605,946
- --------------------------------------------------------------------------------
Finance, Diversified - 3.3%
General Electric Capital Corp.
5.28% 10/7/96 A-1+ P-1 15,000 14,986,800
5.30% 11/27/96 A-1+ P-1 15,000 14,874,125
5.36% 1/3/97 A-1+ P-1 15,000 14,790,067
5.35% 1/17/97 A-1+ P-1 15,000 14,759,250
5.31% 1/23/97 A-1+ P-1 15,000 14,747,775
5.49% 2/5/97 A-1+ P-1 13,875 13,606,276
- --------------------------------------------------------------------------------
87,764,293
- --------------------------------------------------------------------------------
Food - 8.4%
Campbell Soup Co.
4.98% 10/4/96 A-1+ P-1 10,000 9,995,850
5.46% 12/5/96 A-1+ P-1 15,000 14,852,125
5.47% 12/16/96 A-1+ P-1 17,000 16,803,688
65
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (continued)
Food (concluded)
Cargill, Inc.
5.45% 10/8/96 A-1+ P-1 $15,000 $ 14,984,104
5.32% 11/4/96 A-1+ P-1 20,000 19,899,511
5.36% 12/12/96 A-1+ P-1 15,000 14,839,200
5.39% 12/18/96 A-1+ P-1 20,000 19,766,433
H.J. Heinz
5.25% 10/3/96 A-1+ P-1 9,000 8,997,375
5.33% 10/18/96 A-1+ P-1 15,900 15,859,981
Hershey Foods
5.26% 10/15/96 A-1+ P-1 10,500 10,478,522
5.26% 10/18/96 A-1+ P-1 27,500 27,431,693
Kellogg Company
5.33% 11/14/96 A-1+ P-1 25,000 24,837,138
5.33% 11/15/96 A-1+ P-1 10,000 9,933,375
5.33% 11/27/96 A-1+ P-1 15,000 14,873,413
- --------------------------------------------------------------------------------
223,552,408
- --------------------------------------------------------------------------------
Household Products - 2.8%
Clorox Company
5.30% 11/26/96 A-1+ P-1 23,540 23,345,926
Colgate-Palmolive Co.
5.35% 10/8/96 A-1 P-1 22,000 21,977,114
Procter & Gamble Co.
5.30% 11/18/96 A-1 P-1 10,200 10,127,920
5.38% 12/20/96 A-1 P-1 17,730 17,518,028
- --------------------------------------------------------------------------------
72,968,988
- --------------------------------------------------------------------------------
Insurance, Property & Casualty - 3.8%
Chubb Capital Corp.
5.27% 10/11/96 A-1+ P-1 18,000 17,973,650
5.33% 10/17/96 A-1+ P-1 18,069 18,026,197
Marsh & McClennan Companies Inc.
5.48% 12/13/96 A-1+ P-1 20,000 19,777,756
5.65% 2/10/97 A-1+ P-1 10,000 9,792,833
5.60% 2/27/97 A-1+ P-1 15,000 14,652,333
5.63% 3/20/97 A-1+ P-1 20,000 19,468,278
- --------------------------------------------------------------------------------
99,691,047
- --------------------------------------------------------------------------------
Integrated Oil - 0.9%
Shell Oil Co.
5.25% 11/22/96 A-1+ P-1 25,000 24,810,417
- --------------------------------------------------------------------------------
Machinery & Tools - 1.7%
Dover Corp.
5.35% 10/24/96 A-1+ -- 20,000 19,931,639
5.40% 10/25/96 A-1+ -- 20,000 19,928,000
================================================================================
66
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (continued)
Machinery & Tools (concluded)
Illinois Tool Works
5.35% 10/1/96 A-1+ P-1 $ 5,000 $ 5,000,000
- --------------------------------------------------------------------------------
44,859,639
- --------------------------------------------------------------------------------
Oil Transportation - 3.2%
Colonial Pipeline
5.43% 10/15/96 A-1+ P-1 17,000 16,964,102
5.45% 10/16/96 A-1+ P-1 20,200 20,154,129
5.39% 11/12/96 A-1+ P-1 15,000 14,905,675
5.43% 12/16/96 A-1+ P-1 6,500 6,425,488
5.44% 1/15/97 A-1+ P-1 12,000 11,807,787
5.47% 2/6/97 A-1+ P-1 14,500 14,217,991
- --------------------------------------------------------------------------------
84,475,172
- --------------------------------------------------------------------------------
Paper - 0.4%
Weyerhaeuser Co.
5.31% 12/3/96 A-1 P-1 11,600 11,492,207
- --------------------------------------------------------------------------------
Pharmaceuticals - 8.8%
Abbott Laboratories
5.33% 10/22/96 A-1+ P-1 10,059 10,027,725
5.32% 10/23/96 A-1+ P-1 25,000 24,918,722
5.33% 10/23/96 A-1+ P-1 13,429 13,385,259
Eli Lilly & Co.
5.28% 11/15/96 A-1+ P-1 10,000 9,934,000
5.33% 2/6/97 A-1+ P-1 12,000 11,772,587
5.57% 2/24/97 A-1+ P-1 7,500 7,330,579
Pfizer, Inc.
5.30% 10/10/96 A-1+ P-1 15,000 14,980,125
Schering-Plough Corp.
5.32% 9/18/96 A-1+ P-1 19,700 19,589,374
5.41% 11/14/96 A-1+ P-1 4,400 4,370,906
5.40% 11/19/96 A-1+ P-1 10,000 9,926,500
5.42% 11/26/96 A-1+ P-1 7,000 6,940,982
5.27% 11/26/96 A-1+ P-1 15,000 14,877,033
Warner-Lambert Co.
5.27% 10/4/96 A-1+ P-1 40,000 39,982,433
5.30% 10/30/96 A-1+ P-1 15,000 14,935,958
5.27% 12/6/96 A-1+ P-1 20,000 19,806,767
5.25% 1/15/97 A-1+ P-1 10,000 9,845,417
- --------------------------------------------------------------------------------
232,624,367
- --------------------------------------------------------------------------------
Publishing - 0.7%
Knight-Ridder Inc.
5.35% 10/18/96 A-1+ P-1 7,500 7,481,052
67
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (continued)
Publishing (concluded)
RR Donnelley & Sons, Inc.
5.27% 10/7/96 A-1+ P-1 $12,000 $ 11,989,460
- --------------------------------------------------------------------------------
19,470,512
- --------------------------------------------------------------------------------
Railroad - 1.1%
Norfolk Southern Corp.
5.42% 10/29/96 A-1+ P-1 30,000 29,873,533
- --------------------------------------------------------------------------------
Retail, General - 1.9%
J.C. Penney Fund Co.
5.28% 10/29/96 A-1+ P-1 20,000 19,920,800
5.39% 11/13/96 A-1+ P-1 15,000 14,903,429
Wal-Mart Stores
5.27% 10/29/96 A-1+ P-1 15,000 14,938,517
- --------------------------------------------------------------------------------
49,762,746
- --------------------------------------------------------------------------------
Structured Finance - 4.5% CIESCO, L.P.
5.28% 10/30/96 A-1+ P-1 10,000 9,957,466
5.32% 11/26/96 A-1+ P-1 25,000 24,793,111
Corporate Asset Funding Company, Inc.
5.27% 10/10/96 A-1+ P-1 11,000 10,985,508
5.43% 10/16/96 A-1+ P-1 20,000 19,954,750
5.30% 10/25/96 A-1+ P-1 20,000 19,929,333
5.37% 11/21/96 A-1+ P-1 20,000 19,847,850
5.35% 12/20/96 A-1+ P-1 15,000 14,821,667
- --------------------------------------------------------------------------------
120,289,685
- --------------------------------------------------------------------------------
Telephone - 5.7%
Ameritech Capital Funding Corp.
5.34% 10/30/96 A-1+ P-1 20,000 19,913,966
5.29% 12/6/96 A-1+ P-1 25,000 24,757,542
5.20% 12/10/96 A-1+ P-1 15,000 14,848,333
5.40% 1/27/97 A-1+ P-1 15,000 14,734,500
Ameritech Corp.
5.27% 10/18/96 A-1+ P-1 10,000 9,975,114
5.40% 12/2/96 A-1+ P-1 15,000 14,860,500
BellSouth Telecommunications
5.27% 10/11/96 A-1+ P-1 8,000 7,988,289
5.28% 10/24/96 A-1+ P-1 8,000 7,973,013
Southwestern Bell Telephone Co.
5.39% 10/25/96 A-1+ P-1 25,000 24,910,167
5.31% 10/31/96 A-1+ P-1 11,580 11,528,759
- --------------------------------------------------------------------------------
151,490,183
- --------------------------------------------------------------------------------
68
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Rating Par
PRIME SERIES (continued) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Commercial Paper (concluded)
Waste Management - 3.1%
WMX Technologies
4.78% 11/1/96 A-1 P-1 $10,000 $ 9,958,838
5.32% 11/5/96 A-1 P-1 15,000 14,922,417
5.50% 12/11/96 A-1 P-1 15,000 14,837,292
5.35% 1/24/97 A-1 P-1 15,000 14,743,646
5.67% 4/11/97 A-1 P-1 15,000 14,546,400
5.54% 5/13/97 A-1 P-1 15,000 14,482,933
- --------------------------------------------------------------------------------
83,491,526
- --------------------------------------------------------------------------------
Total Commercial Paper 2,249,479,632
- --------------------------------------------------------------------------------
Variable Rate Note - 4.7%
Associates Corp. Master Note
5.20%(b) 12/1/96 A-1+ P-1 75,000 75,000,000
Coca-Cola Master Note
5.46%(b) 1/17/97 A-1+ P-1 50,000 50,000,000
- --------------------------------------------------------------------------------
Total Variable Rate Note 125,000,000
- --------------------------------------------------------------------------------
Federal Home Loan Bank - 1.3%
FHLB
6.00% 11/1/96 AAA -- 25,000 24,885,042
5.28% 1/6/97 AAA -- 10,000 9,857,733
- --------------------------------------------------------------------------------
Total Federal Home Loan Bank 34,742,775
- --------------------------------------------------------------------------------
Federal National Mortgage Association - 3.9%
FNMA
Discount Note
5.32% 10/3/96 -- P-1 10,000 9,997,044
5.46% 11/15/96 -- P-1 9,000 8,998,663
Note
5.68% 10/7/96 -- P-1 20,000 20,000,561
5.31% 10/18/96 -- P-1 20,000 20,000,000
5.39% 12/4/96 -- P-1 10,000 10,004,361
5.63% 12/19/96 -- P-1 20,000 20,000,000
5.45% 2/13/97 -- P-1 15,000 15,000,000
- --------------------------------------------------------------------------------
Total Federal National Mortgage Association 104,000,629
- --------------------------------------------------------------------------------
69
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Rating Par
PRIME SERIES (concluded) S&P Moody's (000) Value
- --------------------------------------------------------------------------------
Repurchase Agreements - 5.2%(c)
Goldman Sachs
5.65%(d) 10/1/96 -- -- $ 38,600 $ 38,600,000
Morgan Stanley & Co.
5.65%(e) 10/1/96 -- -- 100,000 100,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreements 138,600,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0% 2,651,823,036(f)
LIABILITIES IN EXCESS OF OTHER ASSETS, NET - 0.0% (307,662)
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $2,651,515,374
================================================================================
Net Asset Value, Offering and Redemption Price Per:
Prime Share
($2,396,184,930 / 2,396,188,105 shares outstanding) $1.00
================================================================================
Flag Investors Class A Share
($6,071,072 / 6,070,838 shares outstanding) $1.00
================================================================================
Flag Investors Class B Share
($599 / 599 shares outstanding) $1.00
================================================================================
Prime Institutional Share
($55,411,841 / 55,412,061 shares outstanding) $1.00
================================================================================
Quality Cash Reserve Prime Share
($193,846,932 / 193,847,114 shares outstanding) $1.00
================================================================================
(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 those in effect on September 30, 1996.
(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 9/30/96 to be repurchased on 10/1/96, collateralized by U.S. Treasury
Notes with a market value of $39,372,757.
(e) Dated 9/30/96 to be repurchased on 10/1/96, collateralized by U.S. Treasury
Notes with a market value of $101,280,062.
(f) Aggregate cost for financial reporting and federal tax purposes.
MOODY'S RATINGS:
Aaa Bonds that are judged to be of the best quality. P-1 Commercial paper
bearing this designation is of the best quality.
S&P RATINGS:
AAA Obligations that are of the highest quality.
A-1 Commercial paper that 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.
See Notes to Financial Statements.
70
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Maturity Par
TREASURY SERIES Date (000) Value
================================================================================
U.S. Treasury Securities - 99.5%
U.S. Treasury Bills(a) - 71.0%
5.150% 10/3/96 $ 8,700 $ 8,697,511
5.175% 10/3/96 38,000 37,989,075
5.110% 10/10/96 26,100 26,066,657
5.110% 10/10/96 9,900 9,887,353
5.130% 10/10/96 1,100 1,098,589
4.900% 10/17/96 32,000 31,930,311
5.145% 10/24/96 12,000 11,960,555
5.180% 10/24/96 3,000 2,990,072
5.000% 11/7/96 10,000 9,948,611
5.000% 11/7/96 24,800 24,672,556
5.020% 11/7/96 1,000 994,841
5.060% 11/7/96 1,600 1,591,679
5.095% 11/7/96 1,900 1,890,051
5.030% 11/14/96 12,000 11,926,227
5.170% 11/14/96 20,000 19,873,500
5.190% 11/14/96 30,200 30,008,431
4.970% 11/21/96 50,000 49,647,958
4.990% 11/21/96 18,000 17,872,755
5.000% 11/21/96 4,800 4,766,000
5.035% 11/21/96 4,000 3,971,468
4.970% 11/29/96 18,000 17,853,385
5.030% 11/29/96 4,000 3,967,026
5.100% 11/29/96 27,700 27,468,474
5.040% 12/5/96 30,000 29,727,000
5.045% 12/5/96 1,300 1,288,158
5.090% 12/5/96 22,500 22,293,219
5.110% 12/5/96 25,000 24,769,340
5.160% 12/5/96 14,800 14,662,113
5.050% 12/12/96 10,800 10,690,920
5.060% 12/12/96 13,100 12,967,428
5.220% 1/9/97 12,500 12,318,750
- --------------------------------------------------------------------------------
Total U.S. Treasury Bills 485,790,013
- --------------------------------------------------------------------------------
71
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Maturity Par
TREASURY SERIES (concluded) Date (000) Value
================================================================================
U.S. Treasury Securities (concluded)
U.S. Treasury Notes - 28.5%
6.875% 10/31/96 $55,300 $ 55,367,766
4.375% 11/15/96 40,000 39,955,377
7.250% 11/15/96 65,000 65,142,877
7.500% 12/31/96 34,800 34,940,750
- --------------------------------------------------------------------------------
Total U.S. Treasury Notes 195,406,770
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN U.S. TREASURY SECURITIES - 99.5% 681,196,783(b)
OTHER ASSETS LESS LIABILITIES, NET - 0.5% 3,508,360
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $684,705,143
================================================================================
Net Asset Value, Offering and Redemption Price Per:
Treasury Share
($638,170,387 / 638,110,342 shares outstanding) $1.00
================================================================================
Treasury Institutional Share
($46,534,756 / 46,524,573 shares outstanding) $1.00
================================================================================
(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) Aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
72
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Alabama - 3.6%
Alabama Housing Finance Authority Multi-
Family Housing Revenue (Heatherbrooke
Project), Series C (FNMA LOC)
3.85% 10/7/96(a) A-1+ -- $ 9,900 $ 9,900,000
Homewood Educational Building Authority
(Sanford University), Series 1988 A
(First Alabama Bank LOC)
3.95% 10/7/96(a) -- VMIG-1 4,720 4,720,000
Homewood Educational Building Authority
(Sanford University), Series 1988 B
(First Alabama Bank LOC)
3.95% 10/7/96(a) -- VMIG-1 5,665 5,665,000
- ----------------------------------------------------------------------------------------
20,285,000
- ----------------------------------------------------------------------------------------
Arizona - 2.9%
Salt River Project, Agricultural Improvement
and Power District
3.65% 10/11/96(b) A-1+ P-1 16,198 16,198,000
- ----------------------------------------------------------------------------------------
Arkansas - 1.5%
Arkansas State Development Authority Health
Care Facility (Sisters of Mercy)
(ABN-Amro Bank N.V. LOC)
3.80% 10/7/96(a) A-1+ VMIG-1 8,100 8,100,000
- ----------------------------------------------------------------------------------------
Colorado - 4.6%
Colorado Health Facility Authority (Boulder
Community Hospital),Series 1989 B (MBIA
Insurance)
3.80% 10/7/96(a) A-1+ VMIG-1 4,685 4,685,000
Colorado State General Fund TRAN
4.50% 6/27/97(b) SP-1+ MIG-1 15,000 15,071,995
Moffat County PCR Bonds, Series 1984
(Tri-State)
3.95% 10/7/96(a) A-1+ P-1 6,100 6,100,000
- ----------------------------------------------------------------------------------------
25,856,995
- ----------------------------------------------------------------------------------------
Florida - 1.6%
Sunshine State Government Financing Authority
3.60% 10/15/96(b) A-1+ -- 8,975 8,975,000
- ----------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Georgia - 7.1%
Burke County Development Authority
PCR (Georgia Power Co. Vogtle Project)
4.00% 10/1/96(a) A-1 VMIG-1 $ 6,900 $ 6,900,000
Clayton County Housing Authority,
Multi-Family Housing Revenue Refunding
(Chateau Forest Apartments Project)
(FGICInsurance)
3.90% 10/7/96(a) A-1+ VMIG-1 10,300 10,300,000
Cobb County Housing Authority RB(Post Mill
Project), Series 1995 DN (FNMALOC)
3.85% 10/7/96(a) A-1+ -- 6,100 6,100,000
Dekalb County Multi-Family Housing Bonds
(Camden Brooke Project) (FNMALOC)
3.85% 10/7/96(a) -- VMIG-1 4,500 4,500,000
Smyrna Housing Authority RB(Post Valley
Project), Series 1995 DN (FNMALOC)
3.85% 10/7/96(a) A-1+ -- 12,000 12,000,000
- ----------------------------------------------------------------------------------------
39,800,000
- ----------------------------------------------------------------------------------------
Idaho - 4.1%
Custer County PCR (Amoco Project)
3.40% 10/1/96(b) A-1+ VMIG-1 6,000 6,000,000
Idaho State TAN
4.50% 6/30/97(b) SP-1+ MIG-1 17,000 17,073,118
- ----------------------------------------------------------------------------------------
23,073,118
- ----------------------------------------------------------------------------------------
Illinois - 14.3%
Chicago Tender Notes, Series A (Morgan
Guaranty LOC)
3.65% 10/31/96(b) A-1+ VMIG-1 12,600 12,600,000
Cook County Tender Notes Capital Equipment,
Series A (Northern Trust LOC)
3.90% 10/7/96(a) SP-1+ VMIG-1 4,800 4,800,000
Illinois Development Finance Authority PCR
(Commonwealth Edison Co. Project),
Series 94C (ABN-Amro Bank N.V. LOC)
3.85% 10/7/96(a) A-1+ P-1 7,700 7,700,000
Illinois Development Finance Authority RB
(Chicago Symphony Orchestra Project)
(Northern Trust LOC)
3.90% 10/7/96(a) A-1 VMIG-1 11,300 11,300,000
</TABLE>
74
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Illinois (continued)
Illinois Educational Facilities Authority
Adjustable Demand RB (John F. Kennedy
Health Care Foundation) (Harris
Trust & Savings Bank LOC)
3.75% 2/13/97(b) A-1+ -- $12,800 $12,800,000
Illinois Health Facilities Authority
(Evanston Hospital Corp.), Series 96
3.95% 8/15/97(b) A-1+ VMIG-1 5,000 5,000,000
Illinois Health Facilities Authority RB
(Lutheran Institute), Series 1985 DN
(Credit Suisse LOC)
3.50% 10/7/96(a) A-1+ VMIG-1 13,000 13,000,000
Illinois Health Facilities Authority
Variable Rate Demand RB, Revolving
Fund Pooled Financing Program
(The University of Chicago Project)
3.75% 1/30/97(b) A-1+ VMIG-1 11,400 11,400,000
Illinois State Toll Highway Authority,
Toll Highway Priority, Series B
(Societe Generale LOC)
3.80% 10/7/96(a) A-1+ VMIG-1 1,400 1,400,000
- ----------------------------------------------------------------------------------------
80,000,000
- ----------------------------------------------------------------------------------------
Indiana - 8.4%
Evansville Hospital Authority
Hospital Revenue (Daughters of Charity,
St. Mary's Medical Center)
3.85% 10/7/96(a) A-1+ VMIG-1 7,000 7,000,000
Hamilton County Hospital Authority RB
(Daughters of Charity), Series 1983 D
3.85% 10/7/96(a) A-1+ VMIG-1 4,660 4,660,000
Indiana Health Facilities Financing
Authority Hospital RB (Methodist Hospital)
(Credit Suisse LOC)
3.90% 10/7/96(a) A-1+ VMIG-1 5,000 5,000,000
Indianapolis Gas Utility System, Citizens'
Gas and Coke Utility
3.70% 10/11/96(b) A-1+ P-1 5,000 5,000,000
</TABLE>
75
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Petersburg PCR (Indianapolis Power & Light
Company) (AMBAC Insurance)
3.80% 10/7/96(a) -- VMIG-1 $14,100 $14,100,000
Petersburg Refunding PCR (Indianapolis
Power & Light Company)
3.70% 12/13/96(b) A-1+ VMIG-1 7,500 7,500,000
Purdue University, Trustees of Student
Fee Bonds
3.80% 10/7/96(a) A-1+ VMIG-1 3,600 3,600,000
- ----------------------------------------------------------------------------------------
46,860,000
- ----------------------------------------------------------------------------------------
Iowa - 4.9%
Council Bluffs PCR (Illinois Gas
and Electric Company)
3.90% 10/7/96(a) A-1+ VMIG-1 7,600 7,600,000
Louisa County Refunding PCR
(Rabo Bank Nederland LOC)
3.80% 10/7/96(a) A-1+ VMIG-1 19,500 19,500,000
- ----------------------------------------------------------------------------------------
27,100,000
- ----------------------------------------------------------------------------------------
Louisiana - 5.5%
East Baton Rouge Parish (Georgia Pacific
Corp.) PCR (Toronto Dominion LOC)
3.80% 10/7/96(a) -- P-1 2,700 2,700,000
Louisiana Offshore Terminal Authority
Deepwater Port Refunding RB
(Union Bank of Switzerland LOC)
3.90% 10/7/96(a) A-1+ -- 3,300 3,300,000
Louisiana Public Facilities Authority
College and Equipment, Series A (Societe
Generale LOC)
3.90% 10/7/96(a) A-1+ VMIG-1 10,600 10,600,000
Plaquemines Port, Harbor and Terminal
Facilities Refunding RB
(Electro-Coal Transfer Corporation Project)
3.55% 11/20/96(b) -- P-1 2,600 2,600,000
3.65% 12/2/96(b) -- P-1 11,325 11,325,000
- ----------------------------------------------------------------------------------------
30,525,000
- ----------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Maryland - 3.4%
Maryland Health & Higher Education
Facility Authority (Daughters of Charity,
National Health System, St. Agnes Hospital)
3.85% 10/7/96(a) A-1+ VMIG-1 $ 5,200 $ 5,200,000
Maryland State Community Development
Administration, Department of Housing and
Community Development, Single Family
Program, First Series RB
3.45% 10/1/96(b) -- VMIG-1 7,500 7,500,000
Maryland State Health & Higher Education
Authority (Daughters of Charity)
3.85% 10/7/96(a) -- VMIG-1 3,300 3,300,000
University of Maryland University
Revenue, Revolving Equipment Loan Series
(Student Loan Marketing Assoc. LOC)
3.70% 10/7/96(a) A-1+ VMIG-1 3,200 3,200,000
- ----------------------------------------------------------------------------------------
19,200,000
- ----------------------------------------------------------------------------------------
Massachusetts - 2.5%
Massachusetts Health and Education
Facility Authority (Capital Assets),
Series D (MBIA Insurance)
3.85% 10/7/96(a) A-1+ VMIG-1 14,000 14,000,000
- ----------------------------------------------------------------------------------------
Minnesota - 2.2%
Becker PCR (Northern States Power
Company - Sherbourne Generating
Station Project)
3.65% 11/1/96(b) A-1+ VMIG-1 6,700 6,700,000
Regents of The University of Minnesota TECP
3.65% 10/25/96(b) A-1+ P-1 3,300 3,300,000
3.65% 10/25/96(b) A-1+ P-1 2,000 2,000,000
- ----------------------------------------------------------------------------------------
12,000,000
- ----------------------------------------------------------------------------------------
Missouri - 1.1%
Missouri Environmental Improvement
PCR (National Rural Utilities),
Series M
3.95% 10/7/96(a) A-1+ VMIG-1 5,800 5,800,000
- ----------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
New Jersey - 1.5%
Gloucester County Pollution Control
Authority Refunding RB
(Mobil Oil Refining Corporation Project)
3.50% 10/7/96(a) A-1+ VMIG-1 $3,000 $ 3,000,000
Mercer County Improvement RB
(Credit Suisse LOC)
3.60% 10/7/96(a) A-1+ VMIG-1 1,800 1,800,000
New Jersey Economic Development Authority
PCR Refunding Bonds
(Public Service Electric & Gas Co. Project)
(Swiss Bank LOC)
3.50% 10/7/96(a) A-1+ VMIG-1 3,300 3,300,000
- ----------------------------------------------------------------------------------------
8,100,000
- ----------------------------------------------------------------------------------------
New York - 0.1%
Triborough Bridge and Tunnel Authority
(FGIC Insurance)
3.80% 10/7/96(a) A-1+ VMIG-1 600 600,000
- ----------------------------------------------------------------------------------------
North Carolina - 0.2%
North Carolina Educational Facilities
Finance Agency (Duke University)
3.75% 10/7/96(a) A-1+ VMIG-1 500 500,000
North Carolina Educational Facilities
Finance Agency (Duke University),
Series 1987 A
3.75% 10/7/96(a) A-1+ VMIG-1 800 800,000
- ----------------------------------------------------------------------------------------
1,300,000
- ----------------------------------------------------------------------------------------
Ohio - 2.2%
Clermont County Adjustable Rate Hospital
Facilities RB (Mercy Health System)
3.95% 10/7/96(a) A-1+ VMIG-1 6,436 6,436,000
Ohio Air Pollution Control Variable Rate
Demand Refunding RB (PPG Industries)
4.05% 10/7/96(a) A-1 VMIG-1 6,000 6,000,000
- ----------------------------------------------------------------------------------------
12,436,000
- ----------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Oklahoma - 2.0%
Oklahoma Industries Authority Hospital
Revenue, St. Anthony Parking Garage B
(Morgan Guaranty LOC)
3.65% 12/3/96(b) -- VMIG-1 $ 2,365 $ 2,365,000
Oklahoma Industries Authority, Medical
Practice Facility RB (SSM Health Care)
(Morgan Guaranty LOC)
3.65% 12/3/96(b) -- VMIG-1 5,560 5,560,000
Oklahoma Water Resources Board, State
Loan Program RB (Swiss Bank LOC)
3.70% 3/3/97(b) A-1+ -- 3,000 3,000,000
- ----------------------------------------------------------------------------------------
10,925,000
- ----------------------------------------------------------------------------------------
Pennsylvania - 0.3%
Philadelphia Higher Education & Hospital
Authority (Children's Hospital of
Philadelphia Project)
4.00% 10/1/96(a) A-1+ -- 1,500 1,500,000
- ----------------------------------------------------------------------------------------
Tennessee - 1.6%
Metropolitan Nashville Airport Authority,
Airport Improvement Refunding RB
(Societe Generale LOC)
3.85% 10/7/96(a) A-1+ VMIG-1 8,900 8,900,000
- ----------------------------------------------------------------------------------------
Texas - 13.4%
Austin Utility System (Travis and
Williamson Counties) (Swiss Bank LOC)
3.65% 10/25/96(b) A-1+ P-1 3,900 3,900,000
Dallas Area Rapid Transportation Sales
Tax Revenue, Series A (Credit Suisse LOC)
3.65% 10/25/96(b) A-1+ P-1 5,000 5,000,000
Gulf Coast Waste Disposal Authority
PCR (Exxon)
3.90% 10/1/96(a) A-1+ VMIG-1 2,100 2,100,000
Harris County Health Facilities Development
Hospital RB (San Jacinto Methodist
Hospital Project) (Morgan Guaranty LOC)
3.60% 12/2/96(b) -- VMIG-1 20,250 20,247,971
</TABLE>
79
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Harris County Toll Road, Series H
3.80% 10/7/96(a) A-1+ VMIG-1 $ 3,800 $ 3,800,000
Hockley County Industrial Development
Corp. (Amoco Project)
3.60% 11/1/96(b) A-1+ P-1 8,000 8,000,000
Lower Neches Valley Authority
(Chevron Inc.)
3.65% 2/18/97(b) A-1+ -- 6,500 6,500,000
State of Texas Public Finance Authority GO
3.70% 12/12/96(b) A-1+ P-1 9,600 9,600,000
State of Texas TRAN
4.75% 8/29/97(b) SP-1+ MIG-1 5,000 5,034,285
Texas Higher Education Authority
Facilities Revenue, Series 85B
(FGIC Insurance)
3.90% 10/7/96(a) A-1+ VMIG-1 5,150 5,150,000
Yoakum County Industrial Development
Adjustable Rate PCR
(Amoco Company Project)
3.60% 11/1/96(b) A-1+ VMIG-1 5,265 5,265,000
- ----------------------------------------------------------------------------------------
74,597,256
- ----------------------------------------------------------------------------------------
Utah - 3.7%
Intermountain Power Agency, Power Supply
RB (Morgan Guaranty LOC)
3.93% 6/16/97(b) A-1+ VMIG-1 7,500 7,500,000
Intermountain Power Agency, Power Supply
RB (Swiss Bank LOC)
3.50% 10/15/96(b) A-1+ VMIG-1 13,000 13,000,000
- ----------------------------------------------------------------------------------------
20,500,000
- ----------------------------------------------------------------------------------------
Virginia - 0.1%
Hampton Roads Regional Jail Authority,
Variable Rate Demand RB (Regional Jail
Facility) (Wachovia LOC)
3.90% 10/7/96(a) A-1+ VMIG-1 800 800,000
- ----------------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
========================================================================================
<S> <C> <C> <C> <C>
Washington - 3.0%
Chelan County Public Utility District
No.1 (Chelan Hydro Consolidated
System), Series 1995 A DN
(Credit Suisse LOC)
3.80% 10/7/96(a) A-1+ VMIG-1 $ 3,475 $ 3,475,000
King County Sewer Revenue Notes
3.70% 10/1/96(b) A-1 P-1 8,500 8,500,000
King County Sewer Revenue Notes,
Series A
3.70% 12/12/96(b) A-1 P-1 5,000 5,000,000
- ----------------------------------------------------------------------------------------
16,975,000
- ----------------------------------------------------------------------------------------
Wisconsin - 2.5%
Pleasant Prairie Village Refunding PCR
(Wisconsin Electric Power Company Project)
3.85% 10/7/96(a) A-1+ P-1 10,000 10,000,000
Wisconsin Health Facilities
Authority RB
(Daughters of Charity, St. Mary's Hospital)
3.85% 10/7/96(a) -- VMIG-1 3,800 3,800,000
- ----------------------------------------------------------------------------------------
13,800,000
- ----------------------------------------------------------------------------------------
Wyoming - 1.3%
Sweetwater County PCR
(Idaho Power Co.), Series B
4.08% 10/7/96(a) A-1 VMIG-1 7,100 7,100,000
- ----------------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-FREE SERIES (continued) Value
========================================================================================
<S> <C>
TOTAL INVESTMENTS - 99.6% $555,306,369(c)
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 0.4% 2,217,479
- ----------------------------------------------------------------------------------------
NET ASSETS - 100.0% $557,523,848
- ----------------------------------------------------------------------------------------
Net Asset Value, Offering and
Redemption Price Per Share
($557,523,848 / 557,597,126 shares outstanding) $1.00
========================================================================================
(a) Demand security; payable upon demand by the Fund with usually no more than
seven (7) calendar days'notice. Interest rates are redetermine periodically.
Rates shown are those in effect on September 30, 1996.
(b) Security has an outstanding call, mandatory put or optional put by the
issuer. Par value and maturity date reflect such call or put.
(c) Aggregate cost for financial reporting and federal tax purposes.
</TABLE>
See Notes to Financial Statements.
82
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Rating Par
TAX-FREE SERIES (concluded)
================================================================================
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 Financial Guaranty Insurance Corporation
MOODY'S MUNICIPAL BOND RATINGS:
Aaa Bonds that are judged to be of the best quality.
Aa Bonds that are judged to be of high quality by all standards. Issues
are sometimes rated with a 1, 2 or 3, which denote 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 Obligations that are of the highest quality.
AA Obligations that 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 that 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 that 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.
See Notes to Financial Statements.
83
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Operations (Unaudited)
For the six months ended September 30, 1996
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income (Note 1):
Interest income $73,729,458 $18,174,027 $10,020,531
Expenses:
Distribution fee (Note 2) 3,661,677 820,459 720,001
Investment advisory fee (Note 2) 3,651,417 869,155 794,633
Transfer agent fee 540,474 120,000 78,087
Custodian fee 156,070 75,001 45,661
Accounting fee (Note 2) 78,911 62,795 31,922
Directors' fees 48,158 12,534 24,066
Registration fees 84,868 25,073 48,877
Legal fees 28,894 12,534 10,027
Printing and postage fees 191,225 47,300 37,777
Other expenses 65,107 53,946 26,958
Total expenses 8,506,801 2,098,797 1,818,009
Less: Fees waived (Note 2) (57,988) -- --
Net expenses 8,448,813 2,098,797 1,818,009
Net investment income 65,280,645 16,075,230 8,202,522
Net realized gain from security
transactions -- 8,567 12,136
Net increase in net assets resulting
from operations $65,280,645 $16,083,797 $ 8,214,658
</TABLE>
See Notes to Financial Statements.
84
<PAGE>
ALEX. BROWN CASH RESERVE FUND. INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets September 30, 1996
<TABLE>
<CAPTION>
PRIME SERIES
- ---------------------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, March 31,
1996(1) 1996
---------------- ----------
<S> <C> <C>
Increase/(Decrease) in Net Assets
Operations:
Net investment income $ 65,280,645 $ 107,454,378
Net realized gain/(loss) on sales of investments -- (6,050)
-------------- --------------
Net increase in net assets resulting
from operations 65,280,645 107,448,328
Distributions to Shareholders From:
Net investment income:
Alex. Brown Cash Reserve Prime, Treasury and
Tax-Free Shares, respectively (59,516,901) (99,181,255)
Alex. Brown Cash Reserve Institutional Shares (1,619,636) (1,334,079)
Flag Investors Class A Shares (140,207) (402,702)
Flag Investors Class B Shares (132) (300)
Quality Cash Reserve Prime Shares (4,003,769) (6,536,042)
-------------- --------------
Total distributions (65,280,645) (107,454,378)
Capital Share Transactions, net -- (Note 3) 48,735,599 1,016,482,516
-------------- --------------
Total increase/(decrease) in net assets 48,735,599 1,016,476,466
Net Assets:
Beginning of period 2,602,779,775 1,586,303,309
-------------- --------------
End of period $2,651,515,374 $2,602,779,775
============== ==============
</TABLE>
- -----------
(1) Unaudited.
85
<PAGE>
ALEX. BROWN CASH RESERVE FUND. INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
TREASURY SERIES TAX-FREE SERIES
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
September 30, March 31, September 30, March 31,
1996(1) 1996 1996(1) 1996
---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Increase/(Decrease) in Net Assets
Operations:
Net investment income $ 16,075,230 $ 32,463,791 $ 8,202,522 $ 17,012,671
Net realized gain/(loss) on sales of investments 8,567 51,785 12,136 4,419
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations 16,083,797 32,515,576 8,214,658 17,017,090
Distributions to Shareholders From:
Net investment income:
Alex. Brown Cash Reserve Prime, Treasury and
Tax-Free Shares, respectively (14,857,570) (30,565,630) (8,201,671) (17,012,671)
Alex. Brown Cash Reserve Institutional Shares (1,217,660) (1,898,161) -- --
Flag Investors Class A Shares -- -- -- --
Flag Investors Class B Shares -- -- -- --
Quality Cash Reserve Prime Shares -- -- -- --
------------ ------------ ------------ ------------
Total distributions (16,075,230) (32,463,791) (8,201,671) (17,012,671)
Capital Share Transactions, net -- (Note 3) (33,940,339) 192,365,923 (13,996,139) 96,118,352
------------ ------------ ------------ ------------
Total increase/(decrease) in net assets (33,931,772) 192,417,708 (13,983,152) 96,122,771
Net Assets:
Beginning of period 718,636,915 526,219,207 571,507,000 475,384,229
------------ ------------ ------------ ------------
End of period $684,705,143 $718,636,915 $557,523,848 $571,507,000
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
86
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
ALEX. BROWN CASH RESERVE PRIME SHARES
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
================================================================================
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
Income from Investment Operations:
Net investment income 0.0239
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0239)
-------
Net asset value at end of period $ 1.00
=======
Total Return:
Based on net asset value per share 4.82%(2)
Ratios to Average Daily Net Assets:
Expenses 0.60%(2)
Net investment income 4.77%(2)
Supplemental Data:
Net assets at end of period $2,396,184,930
Number of shares outstanding at
end of period 2,396,188,105
- -----------
(1) Unaudited.
(2) Annualized.
87
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE PRIME SHARES (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31,
==================================================================================================================================
1996 1995 1994 1993 1992
<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 0.0524 0.0442 0.0262 0.0295 0.0485
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0524) (0.0442) (0.0262) (0.0295) (0.0485)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return:
Based on net asset value per share 5.36% 4.51% 2.65% 2.99% 4.96%
Ratios to Average Daily Net Assets:
Expenses 0.60% 0.61% 0.62% 0.63% 0.61%
Net investment income 5.21% 4.46% 2.62% 2.95% 4.84%
Supplemental Data:
Net assets at end of period $2,386,681,216 $1,472,079,739 $1,350,334,979 $1,470,711,552 $1,505,012,086
Number of shares outstanding at
end of period 2,386,684,392 1,472,077,488 1,350,332,916 1,470,709,489 1,505,010,023
</TABLE>
See Notes to Financial Statements.
88
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS A
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
---------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
Income from Investment Operations:
Net investment income 0.0239
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0239)
Net asset value at end of period $ 1.00
Total Return:
Based on net asset value per share 4.82%(2)
Ratios to Average Daily Net Assets:
Expenses 0.60%(2)
Net investment income 4.77%(2)
Supplemental Data:
Net assets at end of period $6,071,072
Number of shares outstanding at end of period 6,070,838
- --------------------------------------------------------------------------------
- --------------
(1) Unaudited.
(2) Annualized.
89
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS A (continued)
- -----------------------------------------------------------------------------------------------------------------------
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<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 0.0524 0.0442 0.0262 0.0295 0.0485
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0524) (0.0442) (0.0262) (0.0295) (0.0485)
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return:
Based on net asset value per share 5.36% 4.51% 2.65% 2.99% 4.96%
Ratios to Average Daily Net Assets:
Expenses 0.60% 0.61% 0.62% 0.63% 0.61%
Net investment income 5.25% 4.26% 2.62% 2.95% 4.84%
Supplemental Data:
Net assets at end of period $5,976,831 $7,726,696 $18,116,648 $10,392,282 $7,350,424
Number of shares outstanding at end of period 5,976,824 7,726,698 18,116,633 10,392,267 7,350,409
</TABLE>
See Notes to Financial Statements.
90
<PAGE>
<TABLE>
ALEX. BROWN CASH RESERVE FUND, INC. ALEX. BROWN CASH RESERVE FUND, INC.
- ------------------------------------------------------------------- -------------------------------------------------------------
(For a share outstanding throughout each period)
<CAPTION>
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS B FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS B (continued)
- ------------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C>
April 3, 1995(2)
Six months ended through
September 30, 1996(1) March 31, 1996
- ------------------------------------------------------------------- -------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00 $ 1.00
------- -------
Income from Investment Operations:
Net investment income 0.0200 0.0361
Less Distributions:
Dividends from net investment income (0.0200) (0.0361)
------- -------
Net asset value at end of period $ 1.00 $ 1.00
======= =======
Total Return:
Based on net asset value per share 4.07%(3) 3.69%(3)
Ratios to Average Daily Net
Assets:
Expenses 1.35%(3) 1.38%(3)
Net investment income 4.02%(3) 4.30%(3)
Supplemental Data:
Net assets at end of period $ 599 $10,200
Number of shares outstanding at end
of period 599 10,200
- ------------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
- ------------
(1) Unaudited.
(2) Commencement of operations.
(3) Annualized.
See Notes to Financial Statements.
91
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
ALEX. BROWN CASH RESERVE PRIME INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
-----------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
Income from Investment Operations:
Net investment income 0.0252
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0252)
Net asset value at end of period $ 1.00
Total Return:
Based on net asset value per share 5.07%(2)
Ratios to Average Daily Net Assets:
Expenses 0.35%(2)
Net investment income 5.02%(2)
Supplemental Data:
Net assets at end of period $55,411,841
Number of shares outstanding at end of period 55,412,061
- --------------------------------------------------------------------------------
- ------------
(1) Unaudited.
(2) Annualized.
92
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE PRIME INSTITUTIONAL SHARES (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<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 0.0548 0.0472 0.0294 0.0327 0.0515
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0548) (0.0472) (0.0294) (0.0327) (0.0515)
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return:
Based on net asset value per share 5.62% 4.82% 2.98% 3.32% 5.27%
Ratios to Average Daily Net Assets:
Expenses 0.35% 0.36% 0.30% 0.31% 0.32%
Net investment income 5.32% 4.57% 2.94% 3.24% 5.34%
Supplemental Data:
Net assets at end of period $53,699,315 $11,904,716 $23,437,449 $28,884,078 $21,867,108
Number of shares outstanding at end of period 53,699,535 11,904,663 23,437,512 28,884,132 21,867,108
</TABLE>
See Notes to Financial Statements.
93
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
QUALITY CASH RESERVE PRIME SHARES
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
- --------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
Income from Investment Operations:
Net investment income 0.0225
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0225)
Net asset value at end of period $ 1.00
Total Return:
Based on net asset value per share 4.47%(3)
Ratios to Average Daily Net Assets:
Expenses 0.89%(3,4)
Net investment income 4.48%(3,5)
Supplemental Data:
Net assets at end of period $193,846,933
Number of shares outstanding at end of period 193,847,114
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Commencement of operations.
(3) Annualized.
(4) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.95% and 0.95% for the six months ended September 30, 1996 and the year
ended March 31, 1996, respectively.
(5) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.42% and 4.86% for the six months ended September 30, 1996
and the year ended March 31, 1996, respectively.
94
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY CASH RESERVE PRIME SHARES (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
May 6, 1991(2)
through
Year ended March 31, March 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<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 0.0493 0.0402 0.0218 0.0253 0.0399
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0493) (0.0402) (0.0218) (0.0253) (0.0399)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return:
Based on net asset value per share 5.04% 4.09% 2.20% 2.53% 4.30%(3)
Ratios to Average Daily Net Assets:
Expenses 0.90%(4) 0.96% 1.06% 1.04% 0.96%(3)
Net investment income 4.91%(5) 4.04% 2.18% 2.53% 4.30%(3)
Supplemental Data:
Net assets at end of period $156,412,213 $94,592,158 $92,678,440 $101,321,868 $94,887,669
Number of shares outstanding at
end of period 156,412,393 94,591,979 92,678,268 101,321,668 94,887,669
</TABLE>
See Notes to Financial Statements.
95
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- -----------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
ALEX. BROWN CASH RESERVE TREASURY SHARES
- -----------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
- -----------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
------
Income from Investment Operations:
Net investment income 0.0143
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0143)
-------
Net asset value at end of period $ 1.00
Total Return:
Based on net asset value per share 4.62%(2)
Ratios to Average Daily Net Assets:
Expenses 0.58%(2)
Net investment income 4.59%(2)
Supplemental Data:
Net assets at end of period $638,170,387
Number of shares outstanding at end of period 638,110,342
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Annualized.
(3) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.56% for the years ended March 31, 1995, 1994 and 1993, respectively.
(4) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.08%, 2.53% and 2.86% for the years ended March 31, 1995,
1994 and 1993, respectively.
96
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE TREASURY SHARES (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<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 0.0494 0.0411 0.0255 0.0285 0.0477
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0494) (0.0411) (0.0255) (0.0285) (0.0477)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return:
Based on net asset value per share 5.05% 4.19% 2.58% 2.89% 4.88%
Ratios to Average Daily Net Assets:
Expenses 0.58% 0.55%(3) 0.54%(3) 0.55%(3) 0.55%
Net investment income 4.94% 4.09%(4) 2.55%(4) 2.87%(4) 4.76%
Supplemental Data:
Net assets at end of period $666,814,158 $512,167,212 $581,724,214 $618,175,839 $725,010,207
Number of shares outstanding at end of period 666,762,028 512,162,864 581,723,448 618,152,465 725,010,207
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
97
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
ALEX. BROWN CASH RESERVE TREASURY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
- --------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
------
Income from Investment Operations:
Net investment income 0.0227
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0227)
-------
Net asset value at end of period $ 1.00
=======
Total Return:
Based on net asset value per share 4.87%(2) Ratios to Average Daily Net
Assets:
Expenses 0.33%(2)
Net investment income 4.84%(2)
Supplemental Data:
Net assets at end of period $46,534,756
Number of shares outstanding at end of period 46,524,573
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Annualized.
(3) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.31%, 0.29% and 0.27% for the years ended March 31, 1995, 1994 and
1993, respectively.
(4) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.14%, 2.80% and 3.15% for the years ended March 31, 1995,
1994 and 1993, respectively.
98
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE TREASURY INSTITUTIONAL SHARES (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<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 0.0523 0.0438 0.0282 0.0314 0.0504
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0523) (0.0438) (0.0282) (0.0314) (0.0504)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return:
Based on net asset value per share 5.36% 4.47% 2.86% 3.19% 5.17%
Ratios to Average Daily Net Assets:
Expenses 0.33% 0.30%(3) 0.27%(3) 0.26%(3) 0.27%
Net investment income 5.12% 4.15%(4) 2.82%(4) 3.16%(4) 4.90%
Supplemental Data:
Net assets at end of period $51,822,757 $14,051,995 $39,692,848 $60,146,987 $63,834,323
Number of shares outstanding at end of period 51,813,226 14,046,467 39,688,259 60,140,874 63,834,323
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
99
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
ALEX. BROWN CASH RESERVE TAX-FREE SHARES
- --------------------------------------------------------------------------------
Six months ended
September 30, 1996(1)
- --------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
Income from Investment Operations:
Net investment income 0.0241
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0241)
Net asset value at end of period $ 1.00
Total Return:
Based on net asset value per share 2.87%(2)
Ratios to Average Daily Net Assets:
Expenses 0.63%(2)
Net investment income 2.85%(2)
Supplemental Data:
Net assets at end of period $557,523,848
Number of shares outstanding at end of period 557,597,126
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Annualized.
(3) Ratio of expenses to average daily net assets prior to partial fees was
0.57% for the year ended March 31, 1992.
(4) Ratio of net investment income to average daily net assets prior to partial
fees was 3.48% for the year ended March 31, 1992.
100
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALEX. BROWN CASH RESERVE TAX-FREE SHARES (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<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 0.0318 0.0271 0.0184 0.0213 0.0353
Less Distributions:
Dividends from net investment income
and/or short-term gains (0.0318) (0.0271) (0.0184) (0.0213) (0.0353)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return:
Based on net asset value per share 3.23% 2.75% 1.86% 2.15% 3.59%
Ratios to Average Daily Net Assets:
Expenses 0.60% 0.57% 0.58% 0.60% 0.56%(3)
Net investment income 3.16% 2.74% 1.84% 2.13% 3.49%(4)
Supplemental Data:
Net assets at end of period $571,507,000 $475,384,229 $378,859,232 $315,661,447 $304,987,823
Number of shares outstanding at end of period 571,593,265 475,474,913 378,939,262 315,700,742 305,008,959
</TABLE>
See Notes to Financial Statements.
101
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
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 five different classes of
shares: Alex. Brown Cash Reserve Prime Shares ("Prime Shares"), Flag Investors
Cash Reserve Prime Shares Class A ("Flag Investors Class A Shares"), Flag
Investors Cash Reserve Prime Shares Class B ("Flag Investors Class B Shares"),
Quality Cash Reserve Prime Shares ("Quality Cash Shares") and Alex. Brown Cash
Reserve Prime Institutional Shares ("Prime Institutional Shares"). The Treasury
Series offers two classes of shares: Alex. Brown Cash Reserve Treasury Shares
("Treasury Shares") and Alex. Brown Cash Reserve Treasury Institutional Shares
("Treasury Institutional Shares"). The Alex. Brown Cash Reserve Tax-Free Series
("Tax-Free Series") offers only one class of shares. Matters affecting each
class are voted on exclusively by the shareholders of that class.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. 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
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, 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 comply with the requirements
of the Internal Revenue Code necessary to continue to qualify as a
regulated invest-
102
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
ment company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) that 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 $87,648 (which may be carried forward to offset future
taxable capital gains, if any), which begins to expire, if not previously
utilized, in the year 2000.
E. Expenses--Operating expenses directly attributable to a class of shares
are charged to that class' operations. Expenses of the Fund that
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
NOTE 2--Advisory Fees and Transactions with Other Affiliates
The Fund has entered into an investment advisory agreement with Investment
Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown Financial Corp., with
respect to all Series, and a sub-advisory agreement with PNC Institutional
Management Corporation ("PIMC") with respect to the 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: .30% of the first $500 million, .26%
of the next $500 million, .25% of the next $500 million, .24% of the next $1
billion, .23% of the next $1 billion and .22% of that portion in excess of $3.5
billion. In addition, the Advisor is entitled to receive an additional fee with
respect to the Prime Series, calculated daily and paid monthly, at the annual
rate of .02% of the Prime Series' average daily net assets as well as an
additional fee with respect to the Tax-Free Series, calculated daily and paid
monthly, at the annual rate of .03% of the Tax-Free Series' average daily net
assets. Prior to August 23, 1995, ICC received 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
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. For the six months ended September 30, 1996, the Fund paid
PIMC$399,190 for sub-advisory services for the Tax-Free Series.
The Fund has agreed to reimburse PFPC Inc., an affiliate of PIMC, for
certain costs incurred in providing accounting services to the Tax-Free Series.
For the six months ended September 30, 1996, the Fund paid PFPC $31,922 for
accounting services for the Tax-Free Series.
103
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
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 each 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 any ICC waiver. No advisory fees were waived for the six months ended
September 30, 1996.
Under the terms of these agreements, ICC and the Fund's distributor 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 each 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, ICC receives from the Prime
and Treasury Series an annual fee, calculated daily and paid monthly, based on
the two Series' average daily net assets. lCC received $78,911 and $62,795 for
accounting services for the six months ended September 30, 1996 for the Prime
and Treasury Series, respectively.
As compensation for its transfer agent services, ICC receives from the
Fund's three Series a per account fee, calculated and paid monthly. ICC received
$540,474, $120,000 and $78,087 for transfer agent services for the six months
ended September 30, 1996 for the Prime, Treasury and Tax-Free Series,
respectively.
The Fund has entered into a distribution agreement with Alex. Brown & Sons
Incorporated ("Alex. Brown"). Under the terms of the distribution agreement,
Alex. Brown receives a fee from the Prime Shares, Flag Investors Class A 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 and Flag Investors Class B Shares at
the annual rate of .60% and 1.00%, respectively, of the aggregate average daily
net assets of each class. Alex. Brown voluntarily waived distribution fees in
the amount of $57,988 for the Quality Cash Shares for the six months ended
September 30, 1996.
The Fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated to
the Fund for the period January 1, 1996 through September 30, 1996 was
approximately $40,500, $14,500 and $10,000 for the Prime, Treasury and Tax-Free
Series, respectively, and the accrued liability was approximately $211,000,
$75,000 and $52,000 for the Prime, Treasury and Tax-Free Series, respectively.
NOTE 3--Capital Stock and Share Information
The Fund is authorized to issue up to 6,400,000,000 shares of $.001 par
value capital stock (3,550,000,000 Prime Series, 1,500,000,000 Treasury Series,
1,000,000,000 Tax-Free Series and 350,000,000 not classified). Changes in shares
outstanding during the periods ended September 30, 1996 and March 31, 1996 are
listed on the following page.
104
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--concluded September 30, 1996
(Unaudited) March 31, 1996
Prime Series:
Sold:
Prime Shares 10,938,844,772 19,439,463,533
Flag Investors Class A Shares 3,613,116 12,118,053
Flag Investors Class B Shares 4,670 24,535
Prime Institutional Shares 203,535,745 213,159,539
Quality Cash Shares 503,778,591 1,285,040,597
Issued as reinvestment of dividends:
Prime Shares 56,307,220 93,103,137
Flag Investors Class A Shares 133,453 374,561
Flag Investors Class B Shares 399 --
Prime Institutional Shares 1,211,277 753,855
Quality Cash Shares 3,842,527 6,300,386
Redeemed:
Prime Shares (10,985,648,278) (18,617,959,766)
Flag Investors Class A Shares (3,652,327) (14,242,488)
Flag Investors Class B Shares (14,671) (14,335)
Prime Institutional Shares (203,034,496) (172,118,522)
Quality Cash Shares (470,186,399) (1,229,520,569)
--------------- ---------------
Net increase 48,735,599 1,016,482,516
=============== ===============
Treasury Series:
Sold:
Treasury Shares 2,164,014,641 4,043,423,430
Treasury Institutional Shares 211,355,409 396,793,576
Issued as reinvestment of dividends:
Treasury Shares 14,255,334 28,890,267
Treasury Institutional Shares 782,613 417,316
Redeemed:
Treasury Shares (2,206,921,661) (3,917,714,533)
Treasury Institutional Shares (217,426,675) (359,444,133)
-------------- --------------
Net increase/(decrease) (33,940,339) 192,365,923
============== ==============
Tax-Free Series:
Sold 2,518,447,605 4,817,984,787
Issued as reinvestment of dividends 7,795,188 16,116,851
Redeemed (2,540,238,932) (4,737,983,286)
-------------- --------------
Net increase/(decrease) (13,996,139) 96,118,352
============== ==============
NOTE 4--Net Assets
At September 30, 1996, net assets consisted of:
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
------ -------- --------
<S> <C> <C> <C>
Paid-in capital $2,651,518,882 $684,634,915 $557,597,126
Undistributed net investment income 2,187 427 --
Undistributed net realized gain/(loss) on
sales of investments (5,695) 69,801 (73,278)
-------------- ------------ ------------
$2,651,515,374 $684,705,143 $557,523,848
============== ============ ============
</TABLE>
105
