<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1997
Registration No. 2-72658
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 29 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 30 [X]
(Check appropriate box or boxes.)
ALEX. BROWN CASH RESERVE FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
P.O. Box 17250, Baltimore, Maryland 21203
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (410) 727-1700
-------------
Richard T. Hale
Alex. Brown & Sons Incorporated
One South Street, Baltimore, Maryland 21202
-------------------------------------------
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
- -------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on August 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a) of rule 485
- --------------------------------------------------------------------------------
*Registrant continues its prior election under Rule 24f-2 to maintain an
indefinite registration of shares and accordingly filed its Rule 24f-2 notice
for the fiscal year ended March 31, 1997 on May 15, 1997.
- --------------------------------------------------------------------------------
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
July 29, 1997
CROSS REFERENCE SHEET
(The Cross Reference Sheet relating to
Alex. Brown Cash Reserve Fund, Inc. - Flag Investors Cash
Reserve Prime Shares immediately precedes the Prospectus for Flag
Investors Cash Reserve Prime Shares.
The Cross Reference Sheet relating to
Alex. Brown Cash Reserve Fund, Inc. -
Institutional Shares immediately precedes the Prospectus
for Alex. Brown Cash Reserve Fund, Inc. - Institutional Shares.
The Cross Reference Sheet relating to the
Alex. Brown Cash Reserve Fund, Inc. - Quality Cash Reserve Prime
Shares immediately precedes the Prospectus
for the Quality Cash Reserve Prime Shares.)
<TABLE>
<CAPTION>
Items Required by Form N-1A
Registration
Part A Information Required in a Prospectus Statement Heading
- ------ ------------------------------------ -----------------
<S> <C> <C>
1. Cover Page.......................................... Cover Page
2. Synopsis............................................ Table of Fees and Expenses
3. Condensed Financial Information..................... Financial Highlights; Current Yield
4. General Description of Registrant................... Investment Program; Investment
Restrictions; General Information
5. Management of the Fund ............................. Management of the Fund;
Investment Advisor; Sub-Advisor;
Distributor; Custodian, Transfer
Agent and Accounting Services
6. Capital Stock and Other Securities.................. Cover Page; Dividend and Taxes;
General Information
7. Purchase of Securities Being Offered................ How to Invest In the Fund; Distributor
8. Redemption or Repurchase............................ How to Redeem Shares
9. Pending Legal Proceedings........................... *
Information Required in a Statement
Part B of Additional Information (1)
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of Contents
12. General Information and History..................... Introduction; General Information
about the Fund
</TABLE>
- -------------
(1) The Statement of Additional Information relates to all classes of Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13. Investment Objectives and Policies.................. The Fund and Its Shares;
Investment Program and
Restrictions
14. Management of the Fund.............................. Directors and Officers
15. Control Persons and Principal Holders
of Securities.................................... Principal Holders of Securities
16. Investment Advisory and Other Services.............. The Investment Advisor; The Sub-
Advisor; Distributor; Expenses;
Transfer Agent, Custodian and
Accounting Services; Sub-
Accounting; Semi-Annual Reports
17. Brokerage Allocation................................ Portfolio Transactions
18. Capital Stock and Other Securities.................. General Information About the Fund
- The Fund and Its Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................. Share Purchases and Redemptions
20. Tax Status.......................................... Dividends and Taxes
21. Underwriters........................................ *
22. Calculation of Performance Data..................... Current Yield
23. Financial Statements................................ Financial Statements
Part C Other Information
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
- -------------
* Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Prospectus dated August 1, 1997
Alex. Brown Cash Reserve Fund, Inc.
(the "Fund")
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"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
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
and provided shareholders of each Series of the Fund approve new investment
advisory agreements and, in the case of the Tax-Free Series of the Fund, a new
sub-advisory agreement at a meeting to be held on August 14, 1997, the Fund's
current investment advisor and sub-advisor will continue to provide investment
advisory services to the Fund. The new investment advisory and sub-advisory
agreements (including fees) are substantially the same as the Fund's current
advisory and sub-advisory agreements. Affiliates of Alex. Brown also will
continue to provide services to Fund shareholders who are Alex. Brown customers.
However, as a result of the Merger, individuals affiliated with Alex. Brown will
not be able to hold positions as certain executive officers of the Fund and at
least 75% of the members of the Board of Directors must not be interested
persons of the investment advisor or Bankers Trust. In addition, the Fund will
be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will 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
BULK RATE
U.S. POSTAGE
PAID
Baltimore, MD.
Permit No. 8614
ALEX. BROWN
CASH RESERVE
FUND, INC.
Prime Series
Treasury Series
Tax-Free Series
Prospectus
&Application
August 1, 1997
[GRAPHIC OMITTED]
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
P. O. Box 17250
Baltimore, Maryland 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed for individuals, businesses, institutions and fiduciaries which
seek as high a level of current income (tax-exempt current income in the case
of the Tax-Free Series) as is consistent with preservation of capital and
liquidity.
The Fund offers three Series of Shares:
o Prime Series
o Treasury Series
o Tax-Free Series
This Prospectus relates to the Alex. Brown Cash Reserve Shares of each of the
above Series.
Other principal features of the Fund are:
o Fund shares are sold without purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or cash;
and
o Wire transfers, free check redemptions and other convenient cash management
services are available.
For current yield information and for purchase and redemption information, call
your Alex. Brown & Sons Incorporated investment representative or (410)
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, 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. Investment Program 6
4. How to Invest in the Fund 9
5. How to Redeem Shares 11
6. Dividends and Taxes 13
7. Management of the Fund 14
8. Current Yield 16
9. General Information 16
Application A-1
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.
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. Prospectus Dated: August 1, 1997
<PAGE>
1 Table of Fees and
Expenses
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses that an investor in each Series of
the Fund may bear directly and indirectly. A person who purchases shares of the
Fund through a financial institution may be charged separate fees by the
financial institution. Actual expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
---------- ---------- ---------
<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
Annual Fund Operating Expenses As a % of Average Daily Net Assets
- --------------------------------------------------------------------- -----------------------------------
Management Fees (See "Management of the Fund -- Investment Advisor
and Sub-Advisor") ............................................. .27% .25% .28%
12b-1 Fees (See "Management of the Fund -- Distributor") ......... .25% .25% .25%
Other Expenses ................................................... .11% .11% .09%
----- ----- -----
Total Fund Operating Expenses .................................... .63% .61% .62%
===== ===== =====
</TABLE>
Example
Assuming a hypothetical investment of $1,000, a 5% annual return and redemption
at the end of each time period, an investor in each Series would have paid
transaction and operating expenses at the end of each year as follows:
Prime Treasury Tax-Free
Series Series Series
-------- ---------- ---------
1 year ......... $ 6 $ 6 $ 6
3 years ...... $20 $20 $20
5 years ...... $35 $34 $35
10 years ...... $79 $76 $77
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 financial highlights included in these tables are a part of the Fund's
financial statements for the Prime Series, the Treasury Series and the Tax-
Free Series for the indicated fiscal periods that have been audited by the
Fund's independent accountants. The financial statements and financial
highlights for the fiscal year ended March 31, 1997 and the report of the
Fund's independent accountants thereon are included in the Statement of
Additional Information, which can be obtained at no charge by calling the Fund
at (800) 553-8080.
Prime Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------------------------------------------
1997(1) 1996(1) 1995(1) 1994(1)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at beginning of
period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- -------------- -------------- --------------
Income from Investment
Operations:
Net investment income ......... 0.0478 0.0524 0.0442 0.0262
Less Distributions:
Dividends from net
investment income ............ (0.0478) (0.0524) (0.0442) (0.0262)
-------------- -------------- -------------- --------------
Net asset value at end of
period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
Total Return:
Based on net asset value per
share ........................ 4.88 % 5.36 % 4.51 % 2.65 %
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.63 % 0.60 % 0.61 % 0.62 %
Net investment income ......... 4.78 % 5.21 % 4.46 % 2.62 %
Supplemental Data:
Net assets at end of period ... $2,552,053,912 $2,392,658,047 $1,479,806,435 $1,368,451,627
Number of shares outstanding
at end of period ............... 2,552,045,195 2,392,661,216 1,479,804,186 1,368,449,549
<CAPTION>
For the
Eleven
Months
Ended
March 31,
1993(1) 1992(1) 1991(1) 1990 1989(2)
---------------- ---------------- ---------------- ---------------- ------------------
<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 ......... 0.0295 0.0485 0.0734 0.0846 0.0712
Less Distributions:
Dividends from net
investment income ............ (0.0295) (0.0485) (0.0734) (0.0846) (0.0712)
-------------- -------------- -------------- -------------- --------------
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 ........................ 2.99 % 4.96 % 7.59 % 8.80 % 8.01 %(3)
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.63 % 0.61 % 0.59 % 0.52 % 0.54 %(3)
Net investment income ......... 2.95 % 4.84 % 7.31 % 8.42 % 7.81 %(3)
Supplemental Data:
Net assets at end of period ... $1,481,103,834 $1,512,362,510 $1,295,888,161 $1,312,276,151 $1,084,793,157
Number of shares outstanding
at end of period ............... 1,481,101,756 1,512,360,432 1,295,888,161 1,312,272,415 1,084,789,421
<CAPTION>
For the
Year Ended
April 30,
-------------
1988
-------------
<S> <C>
Per Share Operating
Performance:
Net asset value at beginning of
period ........................ $ 1.00
------------
Income from Investment
Operations:
Net investment income ......... 0.0647
Less Distributions:
Dividends from net
investment income ............ (0.0647)
------------
Net asset value at end of
period ........................ $ 1.00
============
Total Return:
Based on net asset value per
share ........................ 6.67 %
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.52 %
Net investment income ......... 6.46 %
Supplemental Data:
Net assets at end of period ... $874,051,953
Number of shares outstanding
at end of period ............... 874,047,336
</TABLE>
- --------
1 Financial information for fiscal years ended March 31, 1997, 1996, 1995,
1994, 1993, 1992 and 1991, respectively, is given for the Alex. Brown Cash
Reserve Shares class of the Prime Series.
2 The Fund's fiscal year-end was changed to March 31.
3 Annualized.
3
<PAGE>
Financial Highlights (continued)
Treasury Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------------------------------------------
1997(1) 1996(1) 1995(1) 1994(1)
-------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Income from Investment
Operations:
Net investment income ...... 0.0453 0.0494 0.0411 0.0255
Less Distributions:
Dividends from net
investment income ......... (0.0453) (0.0494) (0.0411) (0.0255)
------------ ------------ ------------ ------------
Net asset value at end of
period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============
Total Return:
Based on net asset value
per share .................. 4.63 % 5.05 % 4.19 % 2.58 %
Ratios to Average Daily
Net Assets:
Expenses .................. 0.61 % 0.58 % 0.55 %(4) 0.54 %(4)
Net investment income ...... 4.54 % 4.94 % 4.09 %(5) 2.55 %(5)
Supplemental Data:
Net assets at end of period $678,444,803 $666,814,158 $512,167,212 $581,724,214
Number of shares
outstanding at end of
period ..................... 678,391,386 666,762,028 512,162,864 581,723,448
<CAPTION>
For the
Eleven
Months
Ended
March 31,
1993(1) 1992(1) 1991(1) 1990 1989(2)
------------------ -------------- -------------- -------------- ------------------
<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 ...... 0.0285 0.0477 0.0698 0.0829 0.0696
Less Distributions:
Dividends from net
investment income ......... (0.0285) (0.0477) (0.0698) (0.0829) (0.0696)
------------ ------------ ------------ ------------ ------------
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 .................. 2.89 % 4.88 % 7.21 % 8.61 % 7.82 %(3)
Ratios to Average Daily
Net Assets:
Expenses .................. 0.55 %(4) 0.55 % 0.56 % 0.41 % 0.44 %(3)
Net investment income ...... 2.87 %(5) 4.76 % 6.82 % 8.25 % 7.50 %(3)
Supplemental Data:
Net assets at end of period $618,175,839 $725,010,207 $716,551,599 $272,467,125 $235,086,589
Number of shares
outstanding at end of
period ..................... 618,152,465 725,010,207 716,551,599 272,509,276 235,197,074
<CAPTION>
For the
Year Ended
April 30,
1988
-------------
<S> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ...... $ 1.00
------------
Income from Investment
Operations:
Net investment income ...... 0.0617
Less Distributions:
Dividends from net
investment income ......... (0.0617)
------------
Net asset value at end of
period ..................... $ 1.00
============
Total Return:
Based on net asset value
per share .................. 6.35 %
Ratios to Average Daily
Net Assets:
Expenses .................. 0.45 %
Net investment income ...... 6.17 %
Supplemental Data:
Net assets at end of period $280,628,025
Number of shares
outstanding at end of
period ..................... 280,519,083
</TABLE>
- --------
1 Financial information for fiscal years ended March 31, 1997, 1996, 1995,
1994, 1993, 1992 and 1991, respectively, is given for the Alex. Brown Cash
Reserve Shares class of the Treasury Series.
2 The Fund's fiscal year-end was changed to March 31.
3 Annualized.
4 Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.56% for the fiscal years ended March 31, 1995, 1994 and 1993,
respectively.
5 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.
4
<PAGE>
Financial Highlights (concluded)
Tax-Free Series
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -------------
Income from Investment
Operations:
Net investment income . 0.0286 0.0318 0.0271 0.0184 0.0213 0.0353
Less Distributions:
Dividends from net
investment income ...... (0.0286) (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 $ 1.00
=========== =========== =========== =========== =========== =============
Total Return:
Based on net asset value
per share ............... 2.90 % 3.23 % 2.75 % 1.86 % 2.15 % 3.59 %
Ratios to Average Daily
Net Assets:
Expenses .................. 0.62 % 0.60 % 0.57 % 0.58 % 0.60 % 0.56 %3
Net investment income . 2.86 % 3.16 % 2.74 % 1.84 % 2.13 % 3.49 %4
Supplemental Data:
Net assets at end of
period .................. $647,212,025 $571,507,000 $475,384,229 $378,859,232 $315,661,447 $304,987,823
Number of shares
outstanding at end
of period ............... 647,283,274 571,593,265 475,474,913 378,939,262 315,700,742 305,008,959
<CAPTION>
For the Period
Dec. 17, 19901
through
March 31, 1991
---------------
<S> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ...... $ 1.00
--------------
Income from Investment
Operations:
Net investment income . 0.0124
Less Distributions:
Dividends from net
investment income ...... (0.0124)
--------------
Net asset value at end of
period .................. $ 1.00
==============
Total Return:
Based on net asset value
per share ............... 4.35 %2
Ratios to Average Daily
Net Assets:
Expenses .................. 0.53 %2
Net investment income . 4.25 %2
Supplemental Data:
Net assets at end of
period .................. $256,895,180
Number of shares
outstanding at end
of period ............... 256,895,680
</TABLE>
- --------
1 Date operations commenced.
2 Annualized.
3 Ratio of expenses to average daily net assets prior to partial fee waivers
was .57% for the year ended March 31, 1992.
4 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>
3 Investment Program
Investment Objectives
The investment objective of each Series of the Fund is to seek as high a level
of current income as is consistent with preservation of capital and liquidity.
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
Series is fully invested while satisfying its liquidity requirements.
-- Prime Series
In addition to the U.S. Treasury obligations described above and repurchase
agreements collateralized by U.S. Treasury securities, the Prime Series may
invest in obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government. Some of these obligations
are backed by the full faith and credit of the U.S. Government (e.g., the
Government National Mortgage Association), others are supported by the issuing
agency's right to borrow from the U.S. Treasury (e.g., securities of Federal
Home Loan Banks) and still others are backed only by the credit of the
instrumentality (e.g., the Federal National Mortgage Association).
The Prime Series may also invest in a broad range of commercial and bank
obligations that the investment advisor, under guidelines established by the
Board of Directors, believes present minimal credit risk and that satisfy the
criteria for such obligations described below:
The Prime Series may invest in instruments consisting of commercial paper and
variable amount master demand notes. Eligible commercial paper is limited to
short-term, unsecured promissory notes issued by corporations that (i) are
rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1+ or A-1 by
Standard and 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.
6
<PAGE>
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 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, as amended); (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 Tax-Free Series may purchase unrated securities if they are
determined by the investment advisor, under guidelines established by the Board
of Directors, to be of comparable value to those obligations rated in the
categories described above.
The Tax-Free Series may hold cash reserves pending investment of such reserves
in municipal securities.
It is a fundamental policy of the Tax-Free Series to have its assets invested
so that at least 80% of the Series' income will be exempt from federal income
taxes, and it is the Tax-Free Series' present intention (but it is not a
fundamental policy) to invest its assets so that 100% of its annual interest
income will be tax-exempt. From time to time, on a temporary basis or for
defensive purposes, however, the Fund may invest 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.
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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").
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 minimal credit risk. Default by,
or bankruptcy proceedings with respect to the seller may, however, expose the
Series to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations.
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, which 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 as follows:
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(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) securities, the interest on which is paid
from revenues of projects with similar characteristics; or (iii) industrial
development bonds the obligors of which are in the same industry.
(6) The Tax-Free Series will be invested so that at least 80% of the Series'
income will be exempt from federal income taxes.
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.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
4 How to Invest in the Fund
General Information on Purchases
Shares of any Series may be purchased from Alex. Brown & Sons Incorporated
("Alex. Brown") or through securities dealers that have entered into dealer
agreements with Alex. Brown ("Participating Dealers") or through institutions
that maintain accounts with the Fund on behalf of their customers. The terms and
conditions under which purchases will be effected may be subject to terms and
conditions set forth in agreements
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between the investor and Alex. Brown, a Participating Dealer or other
institution through which investments are made.
The minimum initial investment in any Series of the Fund is $1,500. Subsequent
investments in the same Series must be at least $100. Orders for the purchase
of Fund shares are accepted only on a "business day of the Fund," which means
any day on which PNC Bank, National Association ("PNC"), the Fund's custodian,
and the New York Stock Exchange are open for business. It is expected that
during the next twelve months, PNC and/or the New York Stock Exchange will be
closed on Saturdays and Sundays and on New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
An order to purchase Fund shares is effective only when Alex. Brown
receives an order in proper form and federal funds are available to the Fund
for investment. The Fund reserves the right to reject any order for the
purchase of Fund shares. Fund shares are purchased at the net asset value next
determined after acceptance of the order.
The net asset value of all shares of the Treasury Series and the Tax-Free
Series is determined daily as of 11:00 a.m. (Eastern Time) and the net asset
value of all shares of the Prime Series is determined daily as of 12:00 noon
(Eastern Time) on each business day of the Fund. Because the Fund uses the
amortized cost method of valuing the portfolio securities of each Series and
rounds the per share net asset value of shares of each Series, it is
anticipated that the net asset value of each Series will remain constant at
$1.00 per share, but there can be no assurance that this objective can be met.
Share purchases for the Treasury Series and Tax-Free Series effected before
11:00 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 these times begin to earn dividends on the
following day. Payments transmitted by check are normally converted into
federal funds within two business days and are accepted subject to collection
at full face amount. If purchases of shares are made by check, redemption of
those shares may be restricted. (See "How to Redeem Shares.")
Purchases through Alex. Brown
Shares of any Series of the Fund may be purchased with funds on account with
Alex. Brown. Any investor who does not already maintain an Alex. Brown account
may open one by calling an Alex. Brown investment representative or by
completing the application included with this prospectus and mailing it,
together with the initial purchase amount, to the address indicated.
Investments in any Series of the Fund may be made by any one of the following
convenient methods.
1. By telephone -- Investors may call their Alex. Brown investment
representative and request that available cash balances in their Alex. Brown
account be invested in one or more Series of the Fund.
2. By mail -- Investors may mail checks for purchases of shares of any Series
of the Fund to their Alex. Brown investment representative or deliver checks
directly to their local Alex. Brown office. Alternatively, investors may mail
checks to Alex. Brown through the use of convenient share purchase order
tickets and pre-addressed envelopes. A supply of order tickets and envelopes
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may be obtained through any Alex. Brown investment representative or by calling
(800) 553-8080.
3. By wire -- Shares of any Series may be purchased by wiring funds to an
Alex. Brown account. Investors should call an Alex. Brown investment
representative or (410) 727-1700 for instructions.
4. Through an automatic investment and redemption program -- Alex. Brown has
established a special procedure whereby proceeds from sales of securities will
be combined with other available credit balances in an Alex. Brown customer's
account (the "account") on settlement date and invested in shares of the Series
of the Fund selected by the customer. In addition, all credit balances in an
account at the end of each day are invested on the next business day of the
Fund so long as the resulting Fund balance is $100 or more. Additionally, Fund
shares will be redeemed automatically to pay for securities purchases in the
account. Such redemption will be made on the settlement date of the securities
purchase.
The initial purchase requirement of $1,500 does not apply to those shareholders
who elect to take part in the Automatic Investment and Redemption Program.
Purchases through Dealers and Institutions
Special procedures are established for expediting transactions on behalf of
securities dealers and institutional accounts. The Fund and Alex. Brown have
arranged for PNC to offer sub-accounting services to Fund shareholders and
maintain information with respect to underlying share owners. Bank trust
departments, investment counselors, brokers, and others desiring sub-accounting
services can make the necessary arrangements through the Fund or Alex. Brown.
Check redemption services cannot be made available, however, for shares held in
sub-accounts.
5 How to Redeem Shares
In addition to participation in the automatic purchase and redemption program
described above, shareholders may redeem all or part of their shares of any
Series on any business day of the Fund by transmitting a redemption order to
Alex. Brown by any of three convenient methods outlined below. A redemption
request is effected at the net asset value next determined after tender of
shares for redemption. Redemption orders 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 receipt of the order. If the shares to be
redeemed were purchased by check, the Fund reserves the right not to honor the
redemption request until the check has cleared, and redemption of such shares
by wire or by check redemption will be restricted for a period of fifteen
calendar days unless the proceeds of redemption are used to purchase other
securities through Alex. Brown. The right to redeem shares may be affected
by the terms and conditions of the shareholder's account agreement with Alex.
Brown, a Participating Dealer or other institution.
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Redemption by Check
Shareholders who complete the necessary forms may establish special check
redemption privileges that entitle them to write checks drawn on the Fund that
will clear through the Fund's account with PNC, in any amount not less than
$500. The payee of the check may cash or deposit it in the same way as an
ordinary bank check. Shareholders are entitled to dividends on the shares
redeemed until the check has been presented to PNC for payment. If the amount
of the check exceeds the value of the Fund shares of all Series in the account,
the check will be returned to the payee marked "nonsufficient funds." Checks
written in amounts less than $500 may also be returned. The Fund in its
discretion will honor such checks but will charge the account a servicing fee
of $15. Cancelled checks will not be returned to the shareholder, but the
amounts will be reflected on the shareholder's monthly Alex. Brown statement of
account. Since the total amount of shares in an account may vary, shareholders
should not attempt to redeem their entire account by check.
The Fund reserves the right to terminate or alter check redemption privileges
at any time, to impose a service charge, or to charge for checks. The Fund also
may charge a shareholder's account for returned checks and for effecting stop
orders.
If a shareholder of more than one Series presents a check redemption request,
the Fund will automatically redeem shares of such Series in the following order
until the full amount of the check redemption has been satisfied: Tax-Free
Series, Prime Series and Treasury Series.
If a shareholder desires check redemption privileges, the necessary forms may
be obtained through Alex. Brown.
Redemption by Wire
A shareholder who wishes to redeem $10,000 or more and who has previously
completed the necessary authorizations, may request that payment be made by
wire transfer of federal funds. In such case, once the redemption is effected,
payment will be made in federal funds wired to the shareholder's bank on the
same day. Alex. Brown will subtract from the redemption proceeds the cost
of effecting the wire transfer.
Redemption by Mail
A shareholder may redeem Fund shares in any amount by mailing a redemption
request to Alex. Brown at P.O. Box 17250, Baltimore, Maryland 21203.
Payment for shares redeemed by mail will be made by check and will ordinarily
be mailed within seven days after receipt by Alex. Brown of a written
redemption request in good order. The request must include the following:
(a) a letter of instruction specifying the Alex. Brown account number and the
Series (Prime, Treasury or Tax-Free) and the number of shares or dollar amount
to be redeemed (or that all shares of a Series credited to an Alex. Brown
account be redeemed), signed by all owners of the shares in the exact names in
which their Alex. Brown account is maintained;
(b) a guarantee of the signature of each registered owner by a member of the
Federal Deposit Insurance Corporation, a trust company, broker, dealer, credit
union (if authorized under state law), a securities exchange or association,
clearing agency or savings association; and
(c) any additional documents required by the Fund or transfer agent for
redemption by corporations, partnerships, trusts or fiduciaries.
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Additional Information on Redemption
Dividends payable up to the date of redemption on redeemed shares will be paid
on the next dividend payment date. If all of the shares of a Series of the Fund
in an Alex. Brown account have been redeemed on the dividend payment date, the
dividend will be credited in cash to the shareholder's account at Alex. Brown.
The Board of Directors may authorize redemption of all shares in an account of
any Series that has been reduced by the shareholder to less than $500, if the
Board of Directors determines that it is necessary to reduce disproportionately
burdensome expenses of servicing small accounts or is otherwise in the best
interest of the Fund. At least 60 days' prior notice will be given to allow a
shareholder to make an additional minimum investment set by the Board of
Directors to avoid redemption.
6 Dividends and Taxes
Dividends
All of the net income earned on each Series is normally declared as dividends
daily to the respective shareholders of record of each Series. Dividends on
each Series are normally payable on the first day that a share purchase order
is effective but not on the date that a redemption order is effective.
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 summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion herein is not intended as a substitute for
careful tax planning. Accordingly, 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.
Each Series of the Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As long as a Series qualifies for this
tax treatment, it will not be required to pay federal income taxes on amounts
distributed to shareholders; but shareholders, unless otherwise exempt, will pay
taxes on taxable amounts so distributed.
The Tax-Free Series intends to qualify to pay "exempt-interest dividends" to
its shareholders, by satisfying certain Code requirements described in the
Statement of Additional Information. So long as these and certain other
requirements are met, dividends of the Tax-Free Series derived from net
tax-exempt interest income will be exempt-interest dividends that are excluded
from the gross income of such Series' shareholders for federal income tax
purposes. Exempt-interest dividends may, however, have collateral federal
income tax consequences, including alternative minimum tax consequences. (See
the Statement of Additional Information.)
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<PAGE>
Current federal tax law limits the types and volume of securities 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 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.
7 Management of the Fund
Board of Directors
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including
the Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. A majority of the Board of Directors of the Fund
have no affiliation with Alex. Brown, the Fund's advisor or the Fund's
sub-advisor.
Investment Advisor
Investment Company Capital Corp. ("ICC"), 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 duties and has delegated certain of such duties for the Tax-Free
Series to the Fund's sub-advisor
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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 May 31, 1997, had net assets of approximately $5.5 billion.
As compensation for providing investment advisory services to the Fund for the
fiscal year ended March 31, 1997, ICC received a 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 time, 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
PNC Institutional Management Corporation ("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 43
investment portfolios with total assets of approximately $37.2 billion as of May
31, 1997.
As compensation for its services as sub-advisor to the Tax-Free Series for the
fiscal year ended March 31, 1997, 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 (see "Investment
Advisor"), PIMC has agreed to waive a portion of its fee in the same proportion
and for the same time periods as ICC's waiver.
In the fiscal year ended March 31, 1997, the expenses borne by each Series of
the Fund, including the fees to ICC, amounted to .63% of the Prime Series'
average daily net assets, .61% of the Treasury Series' average daily net assets
and .62% of the Tax-Free Series' average daily net assets.
Distributor
Alex. Brown serves as the exclusive distributor for shares of the Fund's three
Series. Alex. Brown is 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. As
compensation for its services for the fiscal year ended March 31, 1997, Alex.
Brown received a fee from the Fund that represented .25% of the Fund's average
daily net assets.
Alex. Brown may make payments to shareholder servicing agents, including
securities dealers, banks and other financial institutions, that
15
<PAGE>
provide shareholder services. Such financial institutions may impose separate
fees in connection with these services and investors should review this
Prospectus in conjunction with any such institution's fee schedule. In
addition, financial institutions may be required to register as dealers
pursuant to state securities laws.
Alex. Brown may use a portion of the fee it receives from the Fund to
compensate its investment representatives for opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries
from Fund shareholders concerning the status of their accounts and operations
of the Fund, and communicating with the Fund and its transfer agent on behalf
of the Fund's shareholders. Additionally, Alex. Brown bears all expenses
associated with advertisements, promotional materials, sales literature and
printing and mailing prospectuses to other than Fund shareholders.
8 Current Yield
From time to time the Fund advertises the "yield" and "effective yield" of a
particular Series or class. Both figures are based on historical earnings and
are not intended to indicate future performance. The "yield" of a Series or
class refers to the income generated by an investment in that Series or class
over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized," that is, the amount of income generated by
the investment during that week is assumed to be generated each week of a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly, but when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The "effective yield" will
be slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The Tax-Free Series may also advertise a
taxable-equivalent yield or effective yield, which are calculated by applying a
stated income tax rate to the Series' tax-exempt income for the same periods
and annualized as described above.
The yield for any Series or class of the Fund can be obtained by calling an
Alex. Brown investment representative or (410) 895-5995.
9 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 8 billion shares of common stock, with a par value
of $.001 per Share. Shares of the Fund are divided into three series, each with
a par value of $.001 - the Prime Series, the Treasury Series and the Tax-Free
Series. Each of the Series currently offers one or more classes, which classes
differ from each other principally in distribution fees, in some instances
shareholder servicing fees, and the method of distribution, 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
16
<PAGE>
relates only to such Series. In the event of dissolution or liquidation,
holders of shares of each Series will receive pro rata, subject to the rights
of creditors, (a) the proceeds of the sale of the assets held in the respective
Series less (b) the liabilities of the Fund attributable to the respective
Series or allocated among all Series based on the respective liquidation value
of each Series.
There 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, 1997, ICC received from the Fund a fee equal to
.01% of the Prime Series' average daily net assets and .02% of the Treasury
Series' average daily net assets. PNC acts as custodian for the Fund's portfolio
securities and cash. PFPC Inc., an affiliate of PNC, 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 an Alex.
Brown investment representative or (800) 553-8080.
17
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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 INCORPORATED PNC BANK
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
<PAGE>
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
18
(C) BY ALEX. BROWN & SONS INCORPORATED
<PAGE>
Alex. Brown Cash Reserve Fund, Inc.
Application Form
- ------------------------------------------------------------
TO OPEN A NEW ACCOUNT EXISTING ALEX. BROWN ACCOUNTS
1.) Complete application below in full. 1.) My account number
is -----------
2.) Check enclosed for $------------------ 2.) Name(s) -----------------
3. (a). $-------- to be invested in Prime 3.) Check enclosed for
Series. $------------
(b). $-------- to be invested in 4. (a). $----- to be
Treasury Series. invested in Prime Series.
(c). $-------- to be invested in (b). $----- to be
Tax-FreeSeries. invested in Treasury Series.
(c). $----- to be invested in
Tax-Free Series.
All checks should be made payable to Alex. Brown & Sons Incorporated and
mailed to:
Alex. Brown Cash Reserve Fund, Inc.
P.O. Box 17250
Baltimore, Maryland 21203
PLEASE NOTE: The minimum initial investment in each Series is $1,500.
Subsequent investments in each Series must be $100 or more.
---------------------------------------------------------
1. ACCOUNT REGISTRATION -- Please Print
-------------------------------------- ----------------
Name Social Security
or Tax ID No.**
--------------------------------------
Joint Owner's Name (if applicable)*
---------------------------------------------------------
Street Address
-------------- --------- --------- ---------- ----------
City State Zip Code Home Phone Office Phone
* In the case of joint ownership, joint tenancy with right of survivorship
will be presumed unless otherwise indicated.
** Enter "Applied" if number has been applied for and not received.
---------------------------------------------------------
2. DIVIDEND INSTRUCTIONS
| | Place an "X" in this box if you want your dividends paid to you in cash.
Otherwise, they will be reinvested in additional shares of the Fund.
---------------------------------------------------------
3. CHECK REDEMPTION PRIVILEGE (Optional)
| | Place an "X" in this box if you want information regarding the Check
Redemption Privilege.
---------------------------------------------------------
A-1
(Please cut along dotted line)
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
July 29, 1997
CROSS REFERENCE SHEET RELATING TO
FLAG INVESTORS CASH RESERVE PRIME SHARES
(The Cross Reference Sheet relating to the
Alex. Brown Cash Reserve Fund, Inc. immediately precedes
the Prospectus for Alex. Brown Cash Reserve Fund, Inc.
The Cross Reference Sheet relating to the
Alex. Brown Cash Reserve Fund, Inc. -
Institutional Shares immediately precedes the Prospectus
for Alex. Brown Cash Reserve Fund, Inc. - Institutional Shares.
The Cross Reference Sheet relating to the
Alex. Brown Cash Reserve Fund, Inc. - Quality Cash Reserve Prime
Shares immediately precedes the Prospectus
for the Quality Cash Reserve Prime Shares.)
<TABLE>
<CAPTION>
Items Required by Form N-1A
- ---------------------------
Registration
Part A Information Required in a Prospectus Statement Heading
- ------ ------------------------------------ -----------------
<S> <C> <C>
1. Cover Page.......................................... Cover Page
2. Synopsis............................................ Fund Expenses
3. Condensed Financial Information..................... Financial Highlights; Current Yield
4. General Description of Registrant................... Investment Program; Investment
Restrictions; General Information
5. Management of the Fund ............................. Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent and
Accounting Services
6. Capital Stock and Other Securities.................. Cover Page; Dividend and Taxes;
General Information
7. Purchase of Securities Being Offered................ How to Invest In the Fund; Distributor
8. Redemption or Repurchase............................ How to Redeem Shares
9. Pending Legal Proceedings........................... *
Information Required in a Statement
Part B of Additional Information (1)
- ------ -----------------------------
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of Contents
12. General Information and History..................... Introduction; General Information
about the Fund
</TABLE>
- -------------
(1) The Statement of Additional Information relates to all classes of Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13. Investment Objectives and Policies.................. The Fund and Its Shares;
Investment Program and
Restrictions
14. Management of the Fund.............................. Directors and Officers
15. Control Persons and Principal Holders
of Securities.................................... Principal Holders of Securities
16. Investment Advisory and Other Services.............. The Investment Advisor; Distributor;
Expenses; Transfer Agent,
Custodian and Accounting Services;
Sub-Accounting; Semi-Annual
Reports
17. Brokerage Allocation................................ Portfolio Transactions
18. Capital Stock and Other Securities.................. General Information About the Fund
- The Fund and Its Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................. Share Purchases and Redemptions
20. Tax Status.......................................... Dividends and Taxes
21. Underwriters........................................ *
22. Calculation of Performance Data..................... Current Yield
23. Financial Statements................................ Financial Statements
Part C Other Information
- ------ -----------------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
- -------------
* Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Flag Investors Cash Reserve Prime Shares Prospectus
dated August 1, 1997
Alex. Brown Cash Reserve Fund, Inc.
(the "Fund")
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"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
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
and provided shareholders of the Fund's Prime Series approve a new investment
advisory agreement at a meeting to be held on August 14, 1997, the Prime Series'
current investment advisor will continue to provide investment advisory services
to the Prime Series. The new investment advisory agreement (including fees) is
substantially the same as the Prime Series' current advisory agreement.
Affiliates of Alex. Brown also will continue to provide services to Fund
shareholders who are Alex. Brown customers. However, as a result of the Merger,
individuals affiliated with Alex. Brown will not be able to hold positions as
certain executive officers of the Fund and at least 75% of the members of the
Board of Directors must not be interested persons of the investment advisor or
Bankers Trust. In addition, the Fund will be required to engage an independent
distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
FLAG INVESTORS
CASH RESERVE PRIME SHARES
(Class A and Class B Shares)
Prospectus & Application -- August 1, 1997
- -----------------------------------------------------------------
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed to seek as high a level of current income as is consistent with
preservation of capital and liquidity.
This Prospectus relates to the Flag Investors Cash Reserve Prime Shares--Class
A and Class B (the "Flag Investors Shares") of the Prime Series of the Fund.
Flag Investors Shares are available through Alex. Brown & Sons Incorporated
("Alex. Brown") as well as Participating Dealers and Shareholder Servicing
Agents. However, Flag Investors Class B Shares are available only through the
exchange of Class B shares of other funds in the Flag Investors family of
funds. (See "How to Invest in the Fund.")
The Fund's Statement of Additional Information and separate prospectuses
concerning the other Series and classes of shares of the Fund may be obtained
without charge from Alex. Brown, P.O. Box 515, Baltimore, Maryland 21203 or any
securities dealer that has entered into a dealer agreement with Alex. Brown
with respect to such other Series or classes.
This Prospectus sets forth basic information that investors should know about
the Flag Investors Shares prior to investing and should be read and retained
for future reference. A Statement of Additional Information dated August 1,
1997 has been filed with the Securities and Exchange Commission (the "SEC") and
is hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 553-8080.
For current yield information and for purchase and redemption information, call
your investment representative or (800) 767-FLAG.
TABLE OF CONTENTS
Fund Expenses .................. 1
Financial Highlights ............ 2
Investment Program ............ 5
Investment Restrictions ......... 6
How to Invest in the Fund ...... 6
How to Redeem Shares ............ 9
Telephone Transactions ......... 9
Dividends and Taxes ............ 10
Management of the Fund ......... 11
Investment Advisor ............ 11
Distributor ..................... 11
Custodian, Transfer Agent and
Accounting Services ......... 12
Current Yield .................. 12
General Information ............ 12
Application ..................... A-1
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.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PRIME SERIES WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- -----------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Flag Flag
Investors Investors
Class A Class B
Shares Shares
----------- ---------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases ................................. None* None
Maximum Sales Charge Imposed on Reinvested Dividends ........................ None None
Maximum Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) .................................... None* 4.00%**
Annual Fund Operating Expense (as a percentage of average daily net assets):
Management Fees ............................................................ .27% .27%
12b-1 Fees .................................................................. .25% .75%
Other Expenses (including a .25% shareholder servicing fee for Flag Investors
Class B Shares) ............................................................ .11% .36%***
----- --------
Total Operating Expenses ................................................... .63% 1.38%
===== ========
</TABLE>
- ---------------
* Flag Investors Class A Shares are not subject to a sales charge; however,
shareholders of other Flag Investors funds who exchange their Class A
shares of such funds for Flag Investors Class A Shares will retain
liability for any contingent deferred sales charge due on such shares upon
redemption. (See "How to Invest in the Fund -- Purchases by Exchange.")
** A declining contingent deferred sales charge will be imposed on redemptions
of Flag Investors Class B Shares made within six years of purchase. Flag
Investors Class B Shares will automatically convert to Flag Investors Class
A Shares six years after purchase. (See "How to Invest in the Fund -- Flag
Investors Class B Shares.")
*** A portion of the shareholder servicing fee is allocated to member firms of
the National Association of Securities Dealers, Inc. and qualified banks
for services provided and expenses incurred in maintaining shareholder
accounts, responding to shareholder inquiries and providing information on
their investments.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
-------- --------- --------- ---------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
Flag Investors Class A Shares ........................... $ 6 $20 $35 $ 79
Flag Investors Class B Shares ........................... $54 $74 $96 $126*
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on the same invest-
ment, assuming no redemption:
Flag Investors Class B Shares ........................ $14 $44 $76 $126*
</TABLE>
- -----------
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class B
expenses and four years of Class A expenses.
The Expenses and Example shown in the table above should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in Flag Investors Shares may bear directly or
indirectly. A person who purchases Flag Investors Shares through a financial
institution may be charged separate fees by the financial institution. (For
more complete descriptions of the various costs and expenses, see "How to
Invest in the Fund--Offering Price," "Investment Advisor and Sub-Advisor" and
"Distributor.")
Actual expenses may be greater or less than those shown. Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders of the Fund may
pay more than the equivalent of the maximum front-end sales charges permitted
by the Conduct Rules of the National Association of Securities Dealers, Inc.
1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table are a part of the Fund's
financial statements for the Prime Series for the indicated fiscal periods that
have been audited by the Fund's independent accountants. The financial
statements and financial highlights for the fiscal year ended March 31, 1997
and the report of the Fund's independent accountants thereon are included in
the Statement of Additional Information, which can be obtained at no charge by
calling the Fund at (800) 767-FLAG.
Prime Series (including Flag Investors Class A Shares(1))
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------------------------------------------
1997(1) 1996(1) 1995(1) 1994(1)
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------- -------------- -------------- --------------
Income from Investment Operations:
Net investment income ............... 0.0478 0.0524 0.0442 0.0262
Less Distributions:
Dividends from net investment income (0.0478) (0.0524) (0.0442) (0.0262)
--------------- -------------- -------------- --------------
Net asset value at end of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============== ============== ============== ==============
Total Return(3)
Based on net asset value per share ... 4.88 % 5.36 % 4.51 % 2.65 %
Ratios to Average Daily Net Assets:
Expenses .............................. 0.63 % 0.60 % 0.61 % 0.62 %
Net investment income .................. 4.78 % 5.25 % 4.26 % 2.62 %
Supplemental Data:
Net assets at end of period ............ $2,552,053,912(5) $2,392,658,047 $1,479,806,435 $1,368,451,627
Number of shares outstanding at end of
period .............................. 2,552,045,195 2,392,661,216 1,479,804,186 1,368,449,549
</TABLE>
- --------------------------------------------------------------------------------
1 Per share information and ratios of the Flag Investors Class A Shares are
identical to the Prime Shares since January 5, 1989 (the date Flag Investors
Class A Shares commenced operations).
2 The Fund's fiscal year-end was changed to March 31.
3 Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
4 Annualized.
5 Net assets consist of: Prime Shares -- $2,545,532,365 and Flag Investors
Class A Shares -- $6,521,574.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS(continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Eleven
Months
Ended For the
For the Year Ended March 31, March 31, Year Ended April 30,
- ---------------------------------------------------------------------- ---------------- --------------------
1993(1) 1992(1) 1991(1) 1990(1) 1989(1,2) 1988
- ---------------- ---------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------- -------------- -------------- -------------- ---------------- ------------
0.0295 0.0485 0.0734 0.0846 0.0712 0.0647
(0.0295) (0.0485) (0.0734) (0.0846) (0.0712) (0.0647)
- -------------- -------------- -------------- -------------- ---------------- ------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ============== ================ ============
2.99 % 4.96 % 7.59 % 8.80 % 8.01 %(4) 6.67 %
0.63 % 0.61 % 0.59 % 0.52 % 0.54 %(4) 0.52 %
2.95 % 4.84 % 7.31 % 8.42 % 7.81 %(4) 6.46 %
$1,481,103,834 $1,512,362,510 $1,295,888,161 $1,312,276,151 $1,084,793,157 $874,051,953
1,481,101,756 1,512,360,432 1,295,888,161 1,312,272,415 1,084,789,421 874,047,336
</TABLE>
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS(concluded)
- --------------------------------------------------------------------------------
Prime Series (Flag Investors Class B Shares)
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the April 3, 1995(1)
Year Ended through
March 31, 1997 March 31, 1996
---------------- ---------------
<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 .............................. 0.0414 0.0361
Less Distributions:
Dividends from net investment income ............... (0.0414) (0.0361)
-------- -----------
Net asset value at end of period .................. $ 1.00 $ 1.00
======== ===========
Total Return:
Based on net asset value per share .................. 4.22 % 3.69 %(2)
Ratios to Average Daily Net Assets:
Expenses .......................................... 1.38 % 1.38 %(2)
Net investment income .............................. 4.14 % 4.30 %(2)
Supplemental Data:
Net assets at end of period ........................ $227,098 $ 10,200
Number of shares outstanding at end of period ...... 227,098 10,200
</TABLE>
- -----------
1 Commencement of operations.
2 Annualized.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
The Fund is a money market fund which seeks as high a level of current
income as is consistent with preservation of capital and liquidity. This
Prospectus relates exclusively to the Flag Investors Class A and Class B
Shares, which are two of the five classes of shares currently offered by the
Prime Series.
Investment Objective
The investment objective of the Prime Series is to seek as high a level
of current income as is consistent with preservation of capital and liquidity.
The Prime Series endeavors to achieve its objective by investing in a
diversified portfolio of high quality money market instruments with maturities
of one year or less from the date of purchase.
Portfolio Investments
The Prime Series seeks to achieve its objective by investing in domestic
money market instruments that satisfy strict credit quality standards and that
mature within one year or less from the date of purchase. The Prime Series may
invest in U.S. Treasury obligations, obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government and a broad range of bank
and commercial obligations that the investment advisor, under guidelines
established by the Board of Directors, believes present minimal credit risk and
that satisfy the criteria for such obligations discussed below:
U.S. Treasury Obligations consisting of marketable securities and
instruments issued by the United States Treasury, including bills, notes, bonds
and other obligations.
Obligations of U.S. Government Agencies consisting of obligations issued
or guaranteed as to principal and interest by agencies or instrumentalities of
the U.S. Government. Some of these obligations are backed by the full faith and
credit of the U.S. Government (e.g., the Government National Mortgage
Association), others are supported by the issuing agency's right to borrow from
the U.S. Treasury (e.g., securities of Federal Home Loan Banks) and still
others are backed only by the credit of the instrumentality (e.g., the Federal
National Mortgage Association).
Bank Instruments consisting mainly of certificates of deposit and
bankers' acceptances that (a) are issued by U.S. banks that satisfy applicable
quality standards; or (b) are fully insured as to principal and interest by the
Federal Deposit Insurance Corporation.
Commercial Instruments consisting of commercial paper and variable amount
master demand notes. Eligible commercial paper is limited to short-term
unsecured promissory notes issued by corporations 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 enter into the following arrangements:
Repurchase Agreements under which the purchaser (for example, the Prime
Series) acquires ownership of an obligation and the seller agrees, at the time
of the sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, repurchase agreements entered into by the Prime
Series will not have a stated maturity in excess of seven days from the date of
purchase. Default by, or bankruptcy proceedings with respect to the seller may,
however, expose the Series to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
<PAGE>
When-Issued Securities involving commitments by the Prime Series to
purchase portfolio securities on a "when-issued" basis. When-issued securities
are securities purchased for delivery beyond the normal settlement date at a
stated price and yield. The Prime Series will generally not pay for such
securities or start earning interest on them until they are received. When-
issued commitments will not be used for speculative purposes and will be
entered into only with the intention of actually acquiring the securities.
Reverse Repurchase Agreements involving the sale of money market
instruments held by the Prime
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Series, with an agreement to repurchase the instrument at an agreed upon price
and date. The Prime Series will employ reverse repurchase agreements only when
necessary to meet unanticipated net redemptions so as to avoid liquidating
other money market instruments during unfavorable market conditions. The Prime
Series will utilize reverse repurchase agreements when the interest income to
be earned from portfolio investments 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, which it is obligated to repurchase.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Prime Series' investment program is subject to a number of investment
restrictions that reflect self-
imposed standards as well as federal regulatory limitations. The Prime Series
will not:
(1) purchase securities of any one issuer (other than obligations of the U.S.
Government, its agencies or instrumentalities), if immediately after such
purchase more than 5% of the value of the Prime Series' assets would be
invested in such issuer;
(2) purchase any commercial paper or variable rate demand notes that would
cause more than 25% of the value of the Prime Series' total assets at the
time of such purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry;
(3) borrow money or issue senior securities, except that the Prime Series may
(a) borrow money from banks for temporary purposes in amounts up to 10% of
the value of the Prime Series' total assets at the time of borrowing,
provided that any such borrowings will be repaid prior to the purchase of
additional portfolio securities by the Prime Series, (b) enter into
reverse repurchase agreements in accordance with its investment program,
and (c) enter into commitments to purchase securities in accordance with
the Prime Series' investment program, which commitments may be considered
the issuance of senior securities; or
(4) lend money or securities except to the extent that the Prime Series'
investments may be considered loans.
The Prime Series' investment objective as described under "Investment
Objective" and the foregoing restrictions are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the
outstanding shares of the Prime Series.
The Prime Series is subject to further investment restrictions that are
set forth in the Statement of Additional Information.
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
General Information on Purchases
Flag Investors Class A Shares may be purchased from the Fund's
distributor (the "Distributor"), through any securities dealer that has entered
into a dealer agreement with the Distributor ("Participating Dealers") or
through any financial institution that has entered into a Shareholder Servicing
Agreement with the Fund ("Shareholder Servicing Agents"). Flag Investors Class
A Shares may also be purchased by completing the Application Form attached to
this Prospectus and returning it, together with payment of the purchase price,
to the address shown on the Application Form. In addition, Flag Investors Class
A Shares may be purchased through the exchange of Class A Shares of other funds
in the Flag Investors family of funds (see "Purchases by Exchange" below).
Flag Investors Class B Shares may be purchased only through the exchange
of Class B shares of other funds in the Flag Investors family of funds (see
"Purchases by Exchange" below). Exchanges may be effected through the
Distributor or any Participating Dealer or Shareholder Servicing Agent.
<PAGE>
Purchase orders for Flag Investors Shares will be executed at a per share
price equal to the net asset value next determined after receipt of a completed
purchase order for such shares (the "Offering Price").
The minimum initial investment in Flag Investors Class A Shares is
$2,000, except that the minimum initial investment for shareholders of any
other Flag Investors fund or class is $500 and the minimum initial investment
for participants in the Flag Investors Class A Shares' Automatic Investing Plan
is $250. The minimum initial investment in Flag Investors Class B Shares, which
are available only through exchange, is $500. Each subsequent investment must
be at least $100 per class, except that the minimum subsequent
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
investment under the Flag Investors Class A Shares' Automatic Investing Plan is
$250 for quarterly investments and $100 for monthly investments. (See
"Purchases Through Automatic Investing Plan" below.) There is no minimum
investment requirement for qualified retirement plans (i.e., 401(k) plans or
pension and profit sharing plans). IRA accounts are, however, subject to the
$2,000 minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts. Orders for purchases of Flag Investors
Shares are accepted on any day on which PNC Bank, National Association ("PNC"),
the Fund's custodian, and the New York Stock Exchange are open for business (a
"Business Day"). It is expected that during the next twelve months, PNC and/or
the New York Stock Exchange will be closed on Saturdays and Sundays and on New
Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day.
An order to purchase Flag Investors Shares is effective only when the
Distributor, a Participating Dealer or a Shareholder Servicing Agent receives
an order in proper form and federal funds are available to the Fund for
investment. The Fund reserves the right to reject any order for purchase of
Flag Investors Shares. Flag Investors Shares are purchased or exchanged at the
net asset value next determined after acceptance of the order.
The net asset value of Flag Investors Shares is determined daily as of
12:00 noon (Eastern Time) on each Business Day. Because the Prime Series uses
the amortized cost method of valuing its portfolio securities and rounds the
per share net asset value of shares, it is anticipated that the net asset value
of Flag Investors Shares will remain constant at $1.00 per share, but there can
be no assurance that this objective can be met. Share purchases effected before
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. Payments transmitted by check are normally
converted into federal funds within two Business Days and are accepted subject
to collection at full face amount. If purchases of Flag Investors Shares are
made by check, redemption of those shares may be restricted. (See "How to
Redeem Shares.")
Offering Price
Flag Investors Shares may be purchased or exchanged through the
Distributor, Participating Dealers or Shareholder Servicing Agents at net asset
value. Flag Investors Class B Shares are subject to a contingent deferred sales
charge described below.
Flag Investors Class B Shares
A contingent deferred sales charge will be imposed on certain Flag
Investors Class B Shares redeemed within six years of the initial purchase of
the original Class B shares tendered for exchange (the "Initial Purchase"). The
charge is assessed on an amount equal to the lesser of the then-current market
value of the Flag Investors Class B Shares redeemed or the total cost of such
shares. Accordingly, even if the market value increases, the contingent
deferred sales charge will not be applied to dollar amounts representing
appreciation or reinvestment of dividends or capital gains distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first of
any Flag Investors Class B Shares in the shareholder's account that represent
reinvested dividends and distributions and second of Flag Investors Class B
Shares held the longest during the six year period. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the Initial Purchase until the redemption of
the Flag Investors Class B Shares (the "holding period"). For purposes of
determining this holding period, all payments during a month are aggregated and
deemed to have been made on the first day of the month. The following table
sets forth the rates of the contingent deferred sales charge.
<PAGE>
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar
Payment was Made amount subject to charge)
- --------------------- ---------------------------------
First 4.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Thereafter None*
* As described more fully below, Flag Investors Class B Shares automatically
convert to Flag Investors Class A Shares six years after the beginning of
the calendar month in which the purchase order is accepted.
There are other classes of Alex. Brown Cash Reserve Fund, Inc. that may
be purchased and redeemed without the payment of any sales charge.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Flag Investors Class B Shares (i)
following the death or initial determination of disability (as defined in the
Internal Revenue Code of 1986, as amended) of a shareholder; or (ii) to the
extent that the redemption represents a minimum required distribution from an
individual retirement account or other
7
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<PAGE>
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retirement plan to a shareholder who has attained the age of 70 1/2. The waiver
with respect to (i) above is only applicable in cases where the shareholder
account is registered (a) in the name of an individual person, (b) as a joint
tenancy with rights of survivorship, (c) as community property or (d) in the
name of a minor child under the Uniform Gifts or Uniform Transfers to Minors
Act. A shareholder, or his or her representative, must notify the Fund's
transfer agent (the "Transfer Agent") prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver. For
information on the imposition and waiver of the contingent deferred sales
charge, contact the Transfer Agent at (800) 553-8080.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the Initial Purchase is accepted, Flag Investors
Class B Shares will automatically convert to Flag Investors Class A Shares and
will no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. The
conversion is not a taxable event to the shareholder.
For purposes of conversion to Flag Investors Class A Shares, shares
received as dividends and other distributions paid on Flag Investors Class B
Shares in the shareholder's account will be considered to be held in a separate
sub-account. Each time any Flag Investors Class B Shares in the shareholder's
account (other than those in the sub-account) convert to Flag Investors Class A
Shares, an equal pro rata portion of the Flag Investors Class B Shares in the
sub-account will also convert to Flag Investors Class A Shares.
Systematic Purchase Plan
The Fund has established a Systematic Purchase Plan pursuant to which
shareholders may elect to have a predetermined amount of their Flag Investors
Class A Shares redeemed, on a regular basis (for example, monthly), and the
proceeds of such redemption used to purchase (at net asset value plus any
applicable front-
end sales charge) shares of any other fund or funds in the Flag Investors
family of mutual funds selected in advance by the shareholder. Shareholders may
establish a Systematic Purchase Plan at any time by completing a Systematic
Purchase Plan Participation and Authorization Form and delivering or mailing
the completed form to the Distributor, a Participating Dealer or a Shareholder
Servicing Agent. For more information and to obtain a form, shareholders should
contact the Distributor, a Participating Dealer or a Shareholder Servicing
Agent.
Purchases by Exchange
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Flag Investors Shares of the same
class. When a shareholder acquires Flag Investors Shares through an exchange
from shares of another fund in the Flag Investors family of funds, the Fund
will combine the period for which the original shares were held prior to the
exchange with the holding period of the shares acquired in the exchange for
purposes of determining what, if any, contingent deferred sales charge is
applicable upon redemption of the acquired shares.
Flag Investors Class A Shares may be exchanged for Class A shares of
other Flag Investors funds upon payment of the applicable sales charges. An
investor who has paid a sales charge on Class A shares may thereafter exchange
those Class A shares for Class A shares of other Flag Investors funds with i) a
higher sales charge, upon payment of an incremental sales charge or ii) an
equal or lower sales charge, at net asset value (i.e., without a sales charge).
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day, provided
that the exchange request is received prior to 12:00 noon (Eastern Time).
Exchange requests received after 12:00 noon (Eastern Time) will be effected on
the next Business Day.
The exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below.)
Investors should receive and read the applicable prospectus prior to
tendering shares for exchange. The Fund may modify or terminate this offer of
exchange at any time on 60 days' prior written notice to shareholders.
Purchases Through Automatic Investing Plan
Shareholders may purchase Flag Investors Class A Shares regularly by
means of an Automatic Investing Plan with a pre-authorized check drawn on their
checking accounts. Under this plan, the shareholder may
8
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<PAGE>
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elect to have a specified amount invested monthly or quarterly in Flag
Investors Class A Shares. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the preauthorized
check. This amount will be invested in Flag Investors Class A Shares at net
asset value. Participation in the Automatic Investing Plan may be discontinued
either by the Fund or the shareholder upon 30 days' prior written notice to the
other party. A shareholder who wishes to enroll in the Automatic Investing Plan
or who wishes to obtain additional purchase information may do so by completing
the appropriate section of the Application Form attached to this Prospectus.
Purchases Through Dividend Reinvestment
Dividends are declared daily and reinvested monthly in the form of
additional full and fractional Flag Investors Shares of the same class at net
asset value, unless a shareholder has elected on his account application to
have dividends paid in cash.
Alternatively, shareholders may have their distributions invested in
shares of other funds in the Flag Investors family of funds. Shareholders who
are interested in this option should call (800) 553-8080 for additional
information.
Reinvestments of distributions will be effected without a sales charge.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their Flag Investors Shares on any
Business Day by transmitting a redemption order through the Distributor, a
Participating Dealer, a Shareholder Servicing Agent or by regular or express
mail to the Transfer Agent. Shareholders may also redeem Flag Investors Shares
by telephone (in amounts up to $50,000). (See "Telephone Transactions" below.)
Redemption orders received after 12:00 noon (Eastern Time) will be effected the
following Business Day at the net asset value per share (reduced by any
applicable contingent deferred sales charge) next determined after receipt of
the order. If the shares to be redeemed were purchased by check, the Fund
reserves the right not to honor the redemption request until the check has
cleared, and redemption of such shares by wire, by check redemption or by
telephone will be restricted for a period of fifteen calendar days unless the
proceeds of redemption are used to purchase other securities through the
Distributor. Exchange privileges terminate upon redemption of shares.
Payment for redeemed shares will be made by check and will ordinarily be
mailed within seven days after receipt by the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or the Transfer Agent of a duly
authorized telephone redemption request or of a redemption request fully
completed and, as applicable, accompanied by the documents described below:
(a) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount of Flag Investors Class A or Class B Shares to be redeemed, signed
by all owners of the shares in the exact names in which their account is
maintained;
(b) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance
Corporation, a trust company, broker, dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency or savings association; and
(c) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption on redeemed shares will be
paid on the next dividend payable date. If all Flag Investors Shares in an
account have been redeemed on the dividend payable date, the dividend will be
remitted in cash to the shareholder.
The Board of Directors may authorize redemption of all Flag Investors
Shares in an account that has been reduced by the shareholder to less than
$500, if the Board of Directors determines that it is necessary to reduce
disproportionately burdensome expenses of servicing small accounts or is
otherwise in the best interest of the Fund. At least 60 days' prior notice will
be given to allow a shareholder to make an additional minimum investment set by
the Board of Directors to avoid redemption.
<PAGE>
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Flag Investors Shares of either class in
amounts up to $50,000, by notifying the Transfer Agent by telephone at (800)
553-8080 on any Business Day between the hours of 8:30 a.m. and 5:30 p.m.
(Eastern Time) or by regular or express mail to its address listed on the
inside back cover of this prospectus. Telephone trans-
9
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<PAGE>
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action privileges are automatic. However, shareholders may specifically request
that no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 12:00 noon (Eastern Time) is
effective that day. Telephone orders placed after 12:00 noon (Eastern Time)
will be effected on the following Business Day at the net asset value (less any
applicable contingent deferred sales charge on redemptions) next determined
after receipt of the order.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide
additional telecopied instructions of such transaction requests. If these
procedures are followed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be genuine.
During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by regular or express mail. (See "How to Invest in the
Fund -- Purchases by Exchange" and "How to Redeem Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends
All of the net income earned on the Flag Investors Shares is normally
declared as dividends daily to the respective shareholders of record of such
shares. Dividends on Flag Investors Shares are normally payable on the first
day that a purchase or exchange order is effective but not on the date that a
redemption order is effective.
Taxes
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt is made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion herein is not intended as a substitute for
careful tax planning. Accordingly, shareholders are advised to consult with
their own tax advisors concerning the application of state, local or other
taxes to investments in the Prime Series, which may differ from the federal
income tax consequences described above. Additional information concerning
taxes is set forth in the Statement of Additional Information.
The Prime Series has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. As
long as the Prime Series qualifies for this tax treatment, it will not be
required to pay federal income taxes on amounts distributed to shareholders;
but shareholders, unless otherwise exempt, will pay taxes on the amounts so
distributed.
Distributions of net investment company taxable income (generally, net
investment income plus short-term capital gains, if any) are taxed to
shareholders as ordinary income. Although the Prime Series does not expect to
realize any long-term capital gains, any distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses) will
be taxable to shareholders as long-term capital gains, regardless of the length
of time a shareholder has held Flag Investors Shares. Distributions from the
Fund will not be eligible for the dividends received deduction otherwise
available for corporate shareholders.
Ordinarily, shareholders will include all dividends declared by a 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 the Prime Series on December 31 of the year in which the dividends were
declared.
<PAGE>
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 Flag Investors Shares is a taxable
event for the shareholder.
10
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<PAGE>
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including
the Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent. A majority of the Board of Directors of the Fund
have no affiliation with the Distributor or the Fund's advisor.
The Fund's Directors and officers are as follows:
Charles W. Cole, Jr. Chairman
Richard T. Hale President and Director
James J. Cunnane Director
- - John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Rebecca W. Rimel Director
Truman T. Semans Director
Carl W. Vogt Director
Edward J. Veilleux Executive Vice President
Paul D. Corbin Vice President
M. Elliott Randolph, Jr. Vice President
Monica M. Hausner Vice President
Scott J. Liotta Vice President and Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), an indirect
subsidiary of Alex. Brown Incorporated (described below), was organized in 1987
and acts as investment advisor to the Prime Series. ICC supervises and manages
the Prime Series' operations and generally provides management and
administrative services for the Prime Series. In addition, ICC is responsible
for managing the Prime Series' investments. ICC is also investment advisor to,
and the Distributor acts as distributor for, several funds in the Flag
Investors family of funds which, as of May 31, 1997, had net assets of
approximately $5.5 billion.
ICC may, from time to time, voluntarily waive a portion of its advisory
fee with respect to the Prime Series to preserve or enhance the performance of
the Series. As compensation for providing investment advisory services to the
Prime Series for the fiscal year ended March 31, 1997, ICC received a fee equal
to .27% of the Prime Series' average daily net assets.
In the fiscal year ended March 31, 1997, the expenses borne by the Prime
Series, including the fees to ICC, amounted to .63% of the Prime Series'
average daily net assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Prime Series. (See "Custodian, Transfer
Agent and Accounting Services.")
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown or (the "Distributor") serves as the exclusive distributor for
the Flag Investors Shares. Alex. Brown is 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.
Pursuant to Distribution Agreements and Plans of Distribution in effect
for the Flag Investors Class A and Class B Shares, the Fund pays the
Distributor an annual distribution fee, paid monthly, equal to .25% of the Flag
Investors Class A Shares' average daily net assets and .75% of the Flag
Investors Class B Shares' average daily net assets. The Distributor may use a
portion of this fee to compensate its investment representatives for opening
shareholder accounts, processing investor purchases, exchanges and redemption
orders, responding to inquiries from Fund shareholders concerning the status of
their accounts and operations of the Fund, and communicating with the Fund and
the Transfer Agent on behalf of the Fund's shareholders. The Distributor may
also retain Shareholder
11
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<PAGE>
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Servicing Agents, including securities dealers, banks and other financial
institutions, to provide services to shareholders. The Distributor bears all
expenses associated with advertisements, promotional materials, sales
literature and printing and mailing prospectuses to prospective shareholders.
The Distributor may retain, as profit, any amount of the distribution fee that
is not so expended. As compensation for distributing the Flag Investors Class A
Shares for the fiscal year ended March 31, 1997, Alex. Brown received a fee
equal to .25% and .75%, respectively, of the Flag Investors Class A and Class B
Shares' average daily net assets.
Flag Investors Class B Shares are also subject to a shareholder servicing
fee at an annual rate of .25% of the average daily net assets of the Flag
Investors Class B Shares. This fee is used to compensate the Distributor,
Participating Dealers and Shareholder Servicing Agents for services provided
and expenses incurred in maintaining shareholder accounts, responding to
shareholder inquiries and providing information on their investments. As
compensation for providing shareholder servicing for the Flag Investors Class B
Shares for the fiscal year ended March 31, 1997, Alex. Brown received a
shareholder servicing fee equal to .25% of the Flag Investors Class B Shares'
average daily net assets.
Financial institutions that act as Shareholder Servicing Agents may
impose separate fees in connection with these services, and investors should
review this Prospectus in conjunction with any such institution's fee schedule.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Prime Series. As
compensation for providing accounting services to the Prime Series for the
fiscal year ended March 31, 1997, ICC received a fee equal to .01% of the Prime
Series' average daily net assets. PNC acts as custodian for the Fund's
portfolio securities and cash. (See the Statement of Additional Information.)
CURRENT YIELD
- --------------------------------------------------------------------------------
From time to time the Fund advertises the "yield" and "effective yield"
of a particular Series or class. Both figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of a Series or
class refers to the income generated by an investment in that Series or class
over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized," that is, the income earned in the period is
assumed to be earned every seven days over a 52-week period and is stated as a
percentage of the investment. The "effective yield" is calculated similarly but
when annualized, the income earned by the investment is assumed to be
reinvested in Flag Investors Class A or Class B Shares and thus compounded in
the course of a 52-week period. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.
Yields may vary between classes as a result of differences in expenses. The
yields for Flag Investors Class A or Class B Shares can be obtained by calling
the Fund at (410) 895-5995.
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 8 billion shares of common stock, with a par
value of $.001 per share. Shares of the Fund are divided into three series,
each with a par value of $.001 -- the Prime Series, the Treasury Series and the
Tax-Free Series. Each of the Series currently offers one or more classes, which
classes differ from each other principally in distribution fees, in some
instances shareholder servicing fees, and the method of distribution, which
may affect performance. For information regarding the other classes, please
call 1-800-553-8080. 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. In the event of
dissolution or liquidation, holders of each Series will
12
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<PAGE>
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receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of the assets held in the respective Series, less (b) the liabilities of
the Fund attributable to the respective Series or allocated among all Series
based on the respective liquidation value of each Series.
There are no preemptive or conversion rights applicable to any of the
Fund's shares. The Fund's shares, when issued, will be fully paid and non-
assessable. The Board of Directors may create additional series or classes of
Fund shares without shareholder approval.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders may remove
directors from office by votes cast at a meeting of shareholders or by written
consent. A meeting of shareholders may be called at the request of the holders
of 10% or more of the Fund's outstanding shares.
Reports
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants, Coopers & Lybrand
L.L.P.
Shareholder Inquiries
Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, the Distributor, or any Participating Dealer
or Shareholder Servicing Agent.
13
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<PAGE>
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FLAG INVESTORS CASH RESERVE PRIME SHARES
(Class A and Class B Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Fund Counsel
ALEX. BROWN & SONS INCORPORATED MORGAN, LEWIS & BOCKIUS LLP
One South Street 2000 One Logan Square
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-767-FLAG
Custodian Independent Accountants
PNC BANK, NATIONAL ASSOCIATION COOPERS & LYBRAND L.L.P.
Airport Business Park 2400 Eleven Penn Center
200 Stevens Drive Philadelphia, Pennsylvania 19103
Lester, Pennsylvania 19113
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
14
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<PAGE>
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FLAG INVESTORS CASH RESERVE PRIME CLASS A SHARES
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors Cash Reserve Prime For assistance in
completing this Application please call:
1-800-553-8080, Monday-Friday, 8:30
a.m. to 5:30 p.m. (Eastern Time).
Class A Shares" and mail with this Application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds: To open an IRA account
P.O. Box 419663 please call 1-800-767-3524 for an IRA
Kansas City, MO 64141-6663 information kit.
Attn: Flag Investors Cash Reserve Prime Class A Shares
I wish to purchase Flag Investors Cash Reserve Prime Class A Shares in the
amount of $___________ .
The minimum initial purchase is $2,000, except that the minimum initial
purchase for shareholders of any other Flag Investors Fund or class is $500 and
the minimum initial purchase for participants in the Flag Investors Cash
Reserve Prime Class A Shares' Automatic Investing Plan is $250. Each subsequent
purchase requires a $100 minimum, except that the minimum subsequent purchase
under the Flag Investors Cash Reserve Prime Class A Shares' Automatic Investing
Plan is $250 for quarterly purchases and $100 for monthly purchases. The Fund
reserves the right not to accept checks for more than $50,000 that are not
certified or bank checks.
Your Account Registration (Please Print)
Existing Account No., if any: ___________________
Individual or Joint Tenant
- -------------------------------------------------------------------------------
First Name Initial Last Name
- -------------------------------------------------------------------------------
Social Security Number
- -------------------------------------------------------------------------------
Joint Tenant Initial Last Name
<PAGE>
Corporations, Trusts, Partnerships, etc.
- -------------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- -------------------------------------------------------------------------------
Tax ID Number Date of Trust
- -------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -------------------------------------------------------------------------------
For the Benefit of
Gifts to Minors
- -------------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -------------------------------------------------------------------------------
Minor's Name (only one)
<PAGE>
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Social Security Number of Minor
under the ----------- Uniform Gifts to Minors Act
State of Residence
Mailing Address
- -------------------------------------------------------------------------------
Street
- -------------------------------------------------------------------------------
City State Zip
- -------------------------------
Daytime Phone
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Flag Investors Class A Shares at
no sales charge.
Income Dividends Capital Gains
/ / Reinvested in additional shares / / Reinvested in additional
shares
/ / Paid in Cash / / Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
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<PAGE>
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Automatic Investing Plan (Optional)
| | I authorize you as Agent for the Automatic Investing Plan to automatically
invest $--------- in Flag Investors Class A Shares for me, on a monthly or
quarterly basis, on or about the 20th of each month or if quarterly, the 20th
of January, April, July and October, and to draw a bank draft in payment of the
investment against my checking account. (Bank drafts may be drawn on commercial
banks only.)
Please attach a voided check.
Minimum Initial Investment: $250
Subsequent Investment (check one): | | Monthly ($100 minimum) | | Quarterly
($250 minimum)
- -------------------------------------------------------------------------------
Bank Name
- -------------------------------------------------------------------------------
Depositor's Signature Date
- -----------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
- -------------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
<PAGE>
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below.
No, I/We do not want: / / Telephone redemption privileges
/ / Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: --------------------- Bank Account
No.: ----------------------
Address: --------------------- Bank Account
Name: ----------------------
<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
/ / U.S. Citizen/Taxpayer:
/ / I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
/ / If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a
penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080).
/ / Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:-------------------------
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- ------------------ ----------------------------------------- -----------
Signature Date Signature (if joint acct., both must sign) Date
- -----------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ---------------------------- Dealer Code: -------------------
Dealer's Address: ---------------------------- Branch Code:
- -------------------
----------------------------
Representative: ---------------------------- Rep. No.: -------------------
A-2
- --------------------------------------------------------------------------------
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
July 29, 1997
CROSS REFERENCE SHEET RELATING TO THE INSTITUTIONAL SHARES
(The Cross Reference Sheet relating to Alex. Brown
Cash Reserve Fund, Inc. immediately precedes the Prospectus
for Alex. Brown Cash Reserve Fund, Inc.
The Cross Reference Sheet relating to Alex.
Brown Cash Reserve Fund, Inc. - Flag Investors
Cash Reserve Prime Shares immediately precedes
the Prospectus for Alex. Brown Cash Reserve Fund, Inc. -
Flag Investors Cash Reserve Prime Shares
The Cross Reference Sheet relating to the
Alex. Brown Cash Reserve Fund, Inc. - Quality Cash Reserve Prime
Shares immediately precedes the Prospectus
for the Quality Cash Reserve Prime Shares.)
<TABLE>
<CAPTION>
Items Required by Form N-1A
- ---------------------------
<S> <C> <C>
Registration
Part A Information Required in a Prospectus Statement Heading
- ------ ------------------------------------ -----------------
1. Cover Page.......................................... Cover Page
2. Synopsis............................................ Table of Fees and Expenses
3. Condensed Financial Information..................... Financial Highlights; Current Yield
4. General Description of Registrant................... Investment Program; Investment
Restrictions; General Information
5. Management of the Fund ............................. Management of the Fund;
Investment Advisor and Sub-Advisor;
Distributor; Custodian, Transfer
Agent and Accounting Services
Cover Page; Dividend and Taxes;
6. Capital Stock and Other Securities.................. General Information
7. Purchase of Securities Being Offered................ How to Invest In the Fund; Distributor
8. Redemption or Repurchase............................ How to Redeem Shares
9. Pending Legal Proceedings........................... *
Information Required in a Statement
Part B of Additional Information (1)
- ------ -----------------------------
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of Contents
12. General Information and History..................... Introduction; General Information
about the Fund
</TABLE>
- -------------
(1) The Statement of Additional Information relates to all classes of Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13. Investment Objectives and Policies.................. The Fund and Its Shares;
Investment Program and
Restrictions
14. Management of the Fund.............................. Directors and Officers
15. Control Persons and Principal Holders
of Securities.................................... Principal Holders of Securities
16. Investment Advisory and Other Services.............. The Investment Advisor and Sub-
Advisor; Distributor; Expenses;
Transfer Agent, Custodian and
Accounting Services; Sub-
Accounting; Semi-Annual Reports
17. Brokerage Allocation................................ Portfolio Transactions
18. Capital Stock and Other Securities.................. General Information About the Fund
- The Fund and Its Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................. Share Purchases and Redemptions
20. Tax Status.......................................... Dividends and Taxes
21. Underwriters........................................ *
22. Calculation of Performance Data..................... Current Yield
23. Financial Statements................................ Financial Statements
Part C Other Information
- ------ -----------------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
- -------------
* Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Alex. Brown Cash Reserve Institutional Shares Prospectus
dated August 1, 1997
Alex. Brown Cash Reserve Fund, Inc.
(the "Fund")
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"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
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
and provided shareholders of each Series of the Fund approve new investment
advisory agreements and, in the case of the Tax-Free Series of the Fund, a new
sub-advisory agreement at a meeting to be held on August 14, 1997, the Fund's
current investment advisor and sub-advisor will continue to provide investment
advisory services to the Fund. The new investment advisory and sub-advisory
agreements (including fees) are substantially the same as the Fund's current
advisory and sub-advisory agreements. Affiliates of Alex. Brown also will
continue to provide services to Fund shareholders who are Alex. Brown customers.
However, as a result of the Merger, individuals affiliated with Alex. Brown will
not be able to hold positions as certain executive officers of the Fund and at
least 75% of the members of the Board of Directors must not be interested
persons of the investment advisor or Bankers Trust. In addition, the Fund will
be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will 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
BULK RATE
U.S. POSTAGE
PAID
Baltimore, MD
Permit No. 8614
ALEX. BROWN
CASH RESERVE
FUND, INC.
INSTITUTIONAL
SHARES
Prime Series
Treasury Series
Tax-Free Series
Prospectus
August 1, 1997
[GRAPHIC OMITTED]
<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 are:
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, 1997, has been
filed with the Securities and Exchange Commission and is hereby incorported 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 12
8. Management of the Fund 13
9. Current Yield 14
10. General Information 15
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.
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.
Prospectus Dated: August 1, 1997
<PAGE>
1 Table of Fees and Expenses
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses that an investor in Institutional
Shares of the Prime, 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 based on
the Fund's expenses for the fiscal year ended March 31, 1997. The Expenses and
Example for the Institutional Shares of the Tax-Free Series ("Tax-Free
Institutional Shares"), which have been in operation only since June 2, 1997,
are based on the expenses for the Alex. Brown Cash Reserve Shares of the
Tax-Free Series, 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
Shareholder Transaction Expenses Shares Shares Shares
- ----------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
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 .......................................... .11% .11% .09%
---- ---- ----
Total Fund Operating Expenses ........................... .38% .36% .37%
==== ==== ====
</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:
Prime Treasury Tax-Free
Institutional Institutional Institutional
Shares Shares Shares
--------------- --------------- --------------
1 year ......... $ 4 $ 4 $ 4
3 years ...... $12 $12 $12
5 years ...... $21 $20 --
10 years ...... $48 $46 --
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 commenced operations of the
Tax-Free Institutional Shares on June 2, 1997. 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 have
been audited by the Fund's independent accountants. The financial statements
and financial highlights for the fiscal year ended March 31, 1997 and the
report of the Fund's independent accountants thereon are included in the
Statement of Additional Information, which can be obtained at no charge by
calling the Fund at (800) 553-8080.
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Prime Institutional Shares
-----------------------------------------------------------------------------------------
For the Year Ended March 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ----------- ----------- ----------- ----------- -----------
Income from Investment
Operations:
Net investment income ............ 0.0503 0.0548 0.0472 0.0294 0.0327 0.0515
Less Distributions:
Dividends from net investment
income ........................ (0.0503) (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 $ 1.00
============ =========== =========== =========== =========== ===========
Total Return:
Based on net asset value per
share ........................... 5.15 % 5.62 % 4.82 % 2.98 % 3.32 % 5.27 %
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.38 % 0.35 % 0.36 % 0.30 % 0.31 % 0.32 %
Net investment income ............ 5.04 % 5.32 % 4.57 % 2.94 % 3.24 % 5.34 %
Supplemental Data:
Net assets at end of period ...... $117,812,047 $53,699,315 $11,904,716 $23,437,449 $28,884,078 $21,867,108
Number of shares outstanding at
end of period .................. 117,811,768 53,699,535 11,904,663 23,437,512 28,884,132 21,867,108
<CAPTION>
For the Period
June 4, 1990(1)
through
March 31,
1991
---------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ........................... $ 1.00
--------------
Income from Investment
Operations:
Net investment income ............ 0.0617
Less Distributions:
Dividends from net investment
income ........................ (0.0617)
--------------
Net asset value at end of period $ 1.00
==============
Total Return:
Based on net asset value per
share ........................... 7.70 %(2)
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.35 %(2)
Net investment income ............ 7.53 %(2)
Supplemental Data:
Net assets at end of period ...... $117,633,558
Number of shares outstanding at
end of period .................. 117,633,558
</TABLE>
1 The Prime Institutional Shares commenced operations on June 4, 1990.
2 Annualized.
3
<PAGE>
Financial Highlights (continued)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Treasury Institutional Shares
----------------------------------------------------------------------------------------
For the Year Ended March 31,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Perfor-
mance:
Net asset value at beginning of
period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ------------- ------------- ------------- -----------
Income from Investment
Operations:
Net investment income ............ 0.0481 0.0523 0.0438 0.0282 0.0314 0.0504
Less Distributions:
Dividends from net investment
income ........................ (0.0481) (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 $ 1.00
=========== =========== ============= ============= ============= ===========
Total Return:
Based on net asset value per
share ........................... 4.92 % 5.36 % 4.47 % 2.86 % 3.19 % 5.17 %
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.36 % 0.33 % 0.30 %(3) 0.27 %(3) 0.26 %(3) 0.27 %
Net investment income ............ 4.81 % 5.12 % 4.15 %(4) 2.82 %(4) 3.16 %(4) 4.90 %
Supplemental Data:
Net assets at end of period ...... $61,208,770 $51,822,757 $14,051,995 $39,692,848 $60,146,987 $63,834,323
Number of shares outstanding
at end of period ............... 61,199,345 51,813,226 14,046,467 39,688,259 60,140,874 63,834,323
<CAPTION>
For the Period
June 4, 1990(1)
through
March 31,
1991
---------------
<S> <C>
Per Share Operating Perfor-
mance:
Net asset value at beginning of
period ........................ $ 1.00
-------------
Income from Investment
Operations:
Net investment income ............ 0.0590
Less Distributions:
Dividends from net investment
income ........................ (0.0590)
-------------
Net asset value at end of period $ 1.00
=============
Total Return:
Based on net asset value per
share ........................... 7.36 %(2)
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.29 %(2)
Net investment income ............ 7.02 %(2)
Supplemental Data:
Net assets at end of period ...... $58,017,844
Number of shares outstanding
at end of period ............... 58,017,844
</TABLE>
- ------------
1 The Treasury Institutional Shares commenced operations on June 4, 1990.
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.
4
<PAGE>
Financial Highlights (concluded)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Alex. Brown Cash Reserve Tax-Free Shares
----------------------------------------------
For the Year Ended March 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ........................... $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------
Income from Investment
Operations:
Net investment income ............ 0.0286 0.0318 0.0271
Less Distributions:
Dividends from net investment
income ........................ (0.0286) (0.0318) (0.0271)
------------ ------------ ------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00
============ ============ ============
Total Return:
Based on net asset value per
share ........................... 2.90 % 3.23 % 2.75 %
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.62 % 0.60 % 0.57 %
Net investment income ............ 2.86 % 3.16 % 2.74 %
Supplemental Data:
Net assets at end of period ...... $647,212,025 $571,507,000 $475,384,229
Number of shares outstanding at
end of period .................. 647,283,274 571,593,265 475,474,913
<CAPTION>
For the Period
Dec. 17, 1990(1)
through
March 31,
1994 1993 1992 1991
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ --------------
Income from Investment
Operations:
Net investment income ............ 0.0184 0.0213 0.0353 0.0124
Less Distributions:
Dividends from net investment
income ........................ (0.0184) (0.0213) (0.0353) (0.0124)
------------ ------------ ------------ --------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ==============
Total Return:
Based on net asset value per
share ........................... 1.86 % 2.15 % 3.59 % 4.35 %(2)
Ratios to Average Daily Net
Assets:
Expenses ........................ 0.58 % 0.60 % 0.56 %(3) 0.53 %(2)
Net investment income ............ 1.84 % 2.13 % 3.49 %(4) 4.25 %(2)
Supplemental Data:
Net assets at end of period ...... $378,859,232 $315,661,447 $304,987,823 $256,895,180
Number of shares outstanding at
end of period .................. 378,939,262 315,700,742 305,008,959 256,895,680
</TABLE>
- ------------
1 The Alex. Brown Cash Reserve Tax-Free Shares commenced operations on December
17, 1990.
2 Annualized.
3 Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.57% for the year ended March 31, 1992.
4 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>
3 The Fund and
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 Tax-
Free Series seeks income exempt from federal income taxes. 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, as amended); (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
Tax-Free 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").
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
8
<PAGE>
into repurchase agreements with institutions that the Fund's Board of Directors
believes present minimal credit risk. Default by, or bankruptcy proceedings
with respect to the seller may, however, expose the series to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations.
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 as follows:
(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) securities, the interest on which is paid
from revenues
9
<PAGE>
of projects with similar characteristics; or (iii) industrial development bonds
the obligors of which are in the same industry.
(6) The Tax-Free Series will be invested so that at least 80% of the Series'
income will be exempt from federal income taxes.
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.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
5 How to Invest in Institutional Shares of the Fund
General Information on Purchases
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment 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 (a "Business Day"). It is expected that
during the next twelve months, PNC and/or the New York Stock Exchange will be
closed on Saturdays and Sundays and on New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
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 the Treasury Series and the Tax-Free
Series is determined daily as of 11:00 a.m. (Eastern Time) and the net asset
value of all shares of the Prime 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 11:00
10
<PAGE>
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 these times begin to earn dividends on the
following day.
Institutions may place orders to purchase Institutional Shares either by
calling Alex. Brown at (410) 727-1700 and then wiring federal funds, or by
wiring federal funds with the necessary instructions as described below. A
shareholder who places an order by telephone will be asked to furnish:
--The shareholder's Fund account number
--The amount to be invested
--The Series selected for investment (Prime Series, 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 summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion herein is not intended as a substitute for
careful tax planning. Accordingly, 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
11
<PAGE>
consequences described above. Additional information concerning taxes is set
forth in the Statement of Additional Information.
Each Series of the Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As long as a Series qualifies for this
tax treatment, it will not be required to pay federal income taxes on amounts
distributed to shareholders; but shareholders, unless otherwise exempt, will pay
taxes on taxable amounts so distributed.
The Tax-Free Series intends to qualify to pay "exempt-interest dividends" to
its shareholders, by satisfying certain Code requirements described in the
Statement of Additional Information. So long as these and certain other
requirements are met, dividends of the Tax-Free Series derived from net
tax-exempt interest income will be exempt-interest dividends that are excluded
from the gross income of such Series' shareholders for federal income tax
purposes. Exempt-interest dividends may, however, have collateral federal
income tax consequences, 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
12
<PAGE>
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.
7 How to Redeem 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.
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. A majority of the Board of Directors of the Fund
have no affiliation with Alex. Brown, the Fund's advisor or the Fund's
sub-advisor.
Investment Advisor
Investment Company Capital Corp. ("ICC"), 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 the
Fund's sub-advisor 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 May 31, 1997, had net assets of approximately $5.5
billion.
As compensation for providing investment advisory services to the Fund for the
fiscal year ended March 31, 1997, ICC received a 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 time, 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
PNC Institutional Management Corporation ("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 43
investment portfolios with total assets of approximately $5.5 billion as of May
31, 1997. As compensation for its services as sub-advisor to the Tax-Free Series
for the fiscal year ended March 31, 1997, 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.
Distributor
Alex. Brown & Sons Incorporated serves as the exclusive distributor for shares
of the Fund's three Series. Alex. Brown is 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.
14
<PAGE>
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 $8 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. In the event of dissolution or liquidation, holders of
each Series will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of the assets held in the respective Series less (b) the
liabilities of the Fund attributable to the respective Series or allocated
among all Series based on the respective liquidation value of each Series.
There 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
15
<PAGE>
the Treasury Series for the fiscal year ended March 31, 1997, 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 acts as
custodian for the Fund's portfolio securities and cash. PFPC Inc., an affiliate
of PNC, 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>
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
Tax-Free Series Independent Accountants
PNC INSTITUTIONAL MANAGEMENT CORP. COOPERS & LYBRAND L.L.P.
400 Bellevue Parkway 2400 Eleven Penn Center
Wilmington, Delaware 19809 Philadelphia, Pennsylvania 19103
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
(800) 553-8080
17
(C) BY ALEX. BROWN & SONS INCORPORATED
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
July 29, 1997
CROSS REFERENCE SHEET RELATING TO QUALITY CASH RESERVE PRIME SHARES
(The Cross Reference Sheet relating to
Alex. Brown Cash Reserve Fund, Inc. immediately
precedes the Prospectus for Alex. Brown Cash Reserve Fund, Inc.
The Cross Reference Sheet relating to
Alex. Brown Cash Reserve Fund, Inc. - Flag Investors Cash
Reserve Prime Shares immediately precedes the Prospectus for Flag
Investors Cash Reserve Prime Shares.
The Cross Reference Sheet relating to
Alex. Brown Cash Reserve Fund, Inc. -
Institutional Shares immediately precedes the Prospectus
for Alex. Brown Cash Reserve Fund, Inc. - Institutional Shares.
<TABLE>
<CAPTION>
Items Required by Form N-1A
- ---------------------------
Registration
Part A Information Required in a Prospectus Statement Heading
- ------ ------------------------------------ -----------------
<S> <C> <C>
1. Cover Page.......................................... Cover Page
2. Synopsis............................................ Table of Fees and Expenses
3. Condensed Financial Information..................... Financial Highlights; Current Yield
4. General Description of Registrant................... Investment Program; Investment
Restrictions; General Information
5. Management of the Fund ............................. Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent and
Accounting Services
6. Capital Stock and Other Securities.................. Cover Page; Dividend and Taxes;
General Information
7. Purchase of Securities Being Offered................ How to Invest In the Fund; Distributor
8. Redemption or Repurchase............................ How to Redeem Shares
9. Pending Legal Proceedings........................... *
Information Required in a Statement
Part B of Additional Information (1)
- ------ -----------------------------
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of Contents
12. General Information and History..................... Introduction; General Information
about the Fund
</TABLE>
- -------------
(1) The Statement of Additional Information relates to all classes of Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13. Investment Objectives and Policies.................. The Fund and Its Shares;
Investment Program and
Restrictions
14. Management of the Fund.............................. Directors and Officers
15. Control Persons and Principal Holders
of Securities.................................... Principal Holders of Securities
16. Investment Advisory and Other Services.............. The Investment Advisor; Distributor;
Expenses; Transfer Agent,
Custodian and Accounting Services;
Sub-Accounting; Semi-Annual
Reports
17. Brokerage Allocation................................ Portfolio Transactions
18. Capital Stock and Other Securities.................. General Information About the Fund
- The Fund and Its Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................. Share Purchases and Redemptions
20. Tax Status.......................................... Dividends and Taxes
21. Underwriters........................................ *
22. Calculation of Performance Data..................... Current Yield
23. Financial Statements................................ Financial Statements
Part C Other Information
- ------ -----------------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
- -------------
* Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Quality Cash Reserve Prime Shares Prospectus
dated August 1, 1997
Alex. Brown Cash Reserve Fund, Inc.
(the "Fund")
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"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
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
and provided shareholders of the Fund's Prime Series approve a new investment
advisory agreement at a meeting to be held on August 14, 1997, the Prime Series'
current investment advisor will continue to provide investment advisory services
to the Prime Series. The new investment advisory agreement (including fees) is
substantially the same as the Prime Series' current advisory agreement.
Affiliates of Alex. Brown also will continue to provide services to Fund
shareholders who are Alex. Brown customers. However, as a result of the Merger,
individuals affiliated with Alex. Brown will not be able to hold positions as
certain executive officers of the Fund and at least 75% of the members of the
Board of Directors must not be interested persons of the investment advisor or
Bankers Trust. In addition, the Fund will be required to engage an independent
distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
Quality Cash Reserve Prime Shares
P.O. Box 17250
Baltimore, Maryland 21203
Bulk Rate
U.S. POSTAGE
PAID
Baltimore, MD
Permit No. 8614
QUALITY
CASH RESERVE
PRIME SHARES
Prospectus
August 1, 1997
<PAGE>
QUALITY CASH RESERVE PRIME SHARES
(A Class of Alex. Brown Cash Reserve Fund, Inc.)
P.O. Box 17250
Baltimore, Maryland 21203
Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is a money market fund
designed to seek as high a level of current income as is consistent with
preservation of capital and liquidity. This Prospectus relates to the Quality
Cash Reserve Prime Shares (the "Shares"). Shares are available exclusively
through broker-dealers that provide certain shareholder services
("Participating Dealers"). These include broker-dealers that have correspondent
relationships with Alex. Brown & Sons Incorporated ("Alex. Brown"), the Fund's
distributor (the "Distributor").
Other principal features of the Shares are:
o Shares are sold without purchase or redemption charges;
o Dividends are declared daily and paid monthly in additional shares or cash;
and
o Wire and telephone transfers, free check redemptions and other convenient
cash management services are available.
For current yield information and for purchase and redemption information, call
any Participating Dealer.
The Fund's Statement of Additional Information and separate prospectuses for
the other Series and classes of the Fund may be obtained without charge from
Alex. Brown or any securities dealer that has entered into a dealer agreement
with Alex. Brown with respect to such other Series or classes.
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be read and retained for future
reference. A Statement of Additional Information dated August 1, 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 Quality
Cash Reserve Prime Shares 4
4. Investment Program 4
5. How to Invest in the Quality
Cash Reserve Prime Shares 6
6. How to Redeem Shares 7
7. Dividends and Taxes 9
8. Management of the Fund 10
9. Current Yield 11
10. General Information 12
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PRIME SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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 RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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.
Prospectus Dated: August 1, 1997
1
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1 Table of Fees and Expenses
The following table of fees and expenses is provided to assist investors in
understanding the various costs and expenses that an investor in the Quality
Cash Reserve Prime Shares may bear directly or indirectly. Actual expenses may
be greater or less than those shown. Due to the continuous nature of Rule 12b-1
fees, long-term shareholders of the Fund may pay more than the equivalent of
the maximum front-end sales charges otherwise permitted by the Conduct Rules of
the National Association of Securities Dealers, Inc.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
- ----------------------------------------------------------------------------- -------
Maximum Sales Charge Imposed on Purchases ................................. None
Maximum Sales Charge Imposed on Reinvested Dividends ..................... None
Maximum Deferred Sales Charge .......................................... None
Redemption Fees ......................................................... None
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------
Management Fees ......................................................... .27%
12b-1 Fees (after fee waivers) .......................................... .53%*
Other Expenses ......................................................... .11%
-------
Total Fund Operating Expenses (after fee waivers) ........................ .91%*
=======
</TABLE>
- ------------
* The Distributor currently reduces its annual 12b-1 Fees, on a voluntary
basis, to .53% of the Quality Cash Reserve Prime Shares' average daily net
assets. Absent fee waivers, 12b-1 Fees would be .60% and Total Fund
Operating Expenses would be .98% of the Quality Cash Reserve Prime Shares'
average daily net assets.
Example of Quality Cash Reserve Prime Shares Expenses
The following is an illustration of the total transaction and operating
expenses that an investor in Quality Cash Reserve Prime Shares would bear over
different periods of time, assuming a hypothetical investment of $1,000, a 5%
annual return on the investment, and redemption at the end of the period:*
1 year ...... $ 9
3 years ...... $ 29
5 years ...... $ 50
10 years ...... $112
- ------------
* The example is based on Total Fund Operating Expenses after fee waivers.
Absent fee waivers, expenses would be higher.
The Expenses and Example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
2
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2 Financial Highlights
The Fund has offered the Quality Cash Reserve Prime Shares since May 6, 1991.
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated that have been audited by the
Fund's independent accountants. The financial statements
and financial highlights for the fiscal year ended March 31, 1997 and the
report of the Fund's independent accountants thereon are included in the
Statement of Additional Information, which can be obtained at no charge by
calling the Fund at (800) 553-8080.
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Quality Cash Reserve Prime Shares
----------------------------------------------------------------------------
For the Year Ended March 31,
----------------------------------------------------------------------------
1997 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 ..................... 0.0449 0.0493 0.0402 0.0218 0.0253
Less Distributions:
Dividends from net investment income . (0.0449) (0.0493) (0.0402) (0.0218) (0.0253)
-------------- -------------- ----------- ----------- ------------
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 ...... 4.59 5.04 % 4.09 % 2.20 % 2.53 %
Ratios to Average Daily Net Assets:
Expenses ................................. 0.91 %2 0.90 %2 0.96 % 1.06 % 1.04 %
Net investment income ..................... 4.50 %3 4.91 %3 4.04 % 2.18 % 2.53 %
Supplemental Data:
Net assets at end of period ............... $197,370,530 $156,412,213 $94,592,158 $92,678,440 $101,321,868
Number of shares outstanding at end of
period ................................. 197,369,848 156,412,393 94,591,979 92,678,268 101,321,668
<CAPTION>
For the Period
May 6, 19911
through
March 31, 1992
----------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ... $ 1.00
-------------
Income from Investment Operations:
Net investment income ..................... 0.0399
Less Distributions:
Dividends from net investment income . (0.0399)
-------------
Net asset value at end of period ......... $ 1.00
=============
Total Return:
Based on net asset value per share ...... 4.30 %4
Ratios to Average Daily Net Assets:
Expenses ................................. 0.96 %4
Net investment income ..................... 4.30 %4
Supplemental Data:
Net assets at end of period ............... $94,887,669
Number of shares outstanding at end of
period ................................. 94,887,669
</TABLE>
- --------
1 The Quality Cash Reserve Prime Shares commenced operations on May 6, 1991.
2 Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.98% and 0.95% for the years ended March 31, 1997 and March 31,
1996, respectively.
3 Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.43% and 4.86% for the years ended March 31, 1997 and
March 31, 1996, respectively.
4 Annualized.
3
<PAGE>
3 The Fund and the Quality
Cash Reserve Prime 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 consists of
three separate portfolios: the Prime Series, the Treasury Series and the
Tax-Free Series. This Prospectus relates exclusively to one of five classes of
shares currently offered by the Prime Series. The class of shares of the Prime
Series offered pursuant to this Prospectus has been designated as the Quality
Cash Reserve Prime Shares. All classes of the Prime Series share a common
investment objective, portfolio and advisory fee, but each class has different
expenses, shareholder qualifications and methods of distribution. Expenses of
the Fund 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.
Quality Cash Reserve Prime Shares are offered primarily to customers of
Participating Dealers that have correspondent relationships with Alex. Brown as
a convenient means of investing cash in their brokerage accounts. Quality Cash
Reserve Prime Shares are also offered through other Participating Dealers that
agree to provide certain shareholder services. (See "How to Invest in the
Quality Cash Reserve Prime Shares.")
4 Investment Program
Investment Objective
The investment objective of the Prime Series is to seek as high a level of
current income as is consistent with preservation of capital and liquidity. The
Prime Series endeavors to achieve this objective by investing in a diversified
portfolio of domestic money market instruments that satisfy strict credit
quality standards and that mature within one year or less from the date of
purchase.
Portfolio Investments
The Prime Series may invest in U.S. Treasury obligations consisting of
marketable securities and instruments issued by the U.S. Treasury, including
bills, notes, bonds and other obligations. In addition to U.S. Treasury
obligations and repurchase agreements collateralized by U.S. Treasury
securities, the Prime Series may invest in obligations issued or guaranteed as
to principal and interest by agencies or instrumentalities of the U.S.
Government. Some of these obligations are backed by the full faith and credit
of the U.S. Government (e.g., the Government National Mortgage Association),
others are supported by the issuing agency's right to borrow from the U.S.
Treasury (e.g., securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (e.g., the Federal National
Mortgage Association).
The Prime Series may also invest in a broad range of commercial and bank
obligations that the investment advisor, under guidelines established by the
Board of Directors, believes present minimal credit risk and that satisfy the
criteria for such obligations described below:
The Prime Series may invest in instruments consisting of commercial paper and
variable amount
4
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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 Investor Services, Inc. ("Moody's") or A-1+ or A-1 by Standard and
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.
Other Investment Practices
The Prime Series may enter into the following arrangements:
Repurchase Agreements under which the purchaser (for example, the Prime Series)
acquires ownership of an obligation and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. Although
the underlying collateral for repurchase agreements may have maturities
exceeding one year, repurchase agreements entered into by the Prime Series will
not have a stated maturity in excess of seven days from the date of purchase.
Default by, or bankruptcy proceedings with respect to the seller may, however,
expose the Series to possible loss because of the adverse market action or
delay in connection with the disposition of the underlying obligations.
When-Issued Securities involving commitments by the Prime Series to purchase
portfolio securities on a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. The Prime Series will generally not pay for such securities or
start earning interest on them until they are received. When-issued commitments
will not be used for speculative purposes and will be entered into only with
the intention of actually acquiring the securities.
Reverse Repurchase Agreements involving the sale of money market instruments
held by the Prime Series, with an agreement to repurchase the instruments at an
agreed upon price and date. The Prime Series will employ reverse repurchase
agreements only when necessary to meet unanticipated net redemptions so as to
avoid liquidating other money market instruments during unfavorable market
conditions. The Prime Series will utilize reverse repurchase agreements when
the interest income to be earned from portfolio investments, which would
otherwise have to be liquidated to meet redemptions, is greater than the
interest expense incurred as a result of the
5
<PAGE>
reverse repurchase transactions. Reverse repurchase agreements involve the risk
that the market value of securities retained by the Prime Series in lieu of
liquidation may decline below the repurchase price of the securities sold by
the Prime Series, which it is obligated to repurchase.
Investment Restrictions
The Prime Series investment program is subject to a number of investment
restrictions that reflect self-imposed standards as well as federal regulatory
limitations. The Prime Series will not:
(1) purchase securities of any issuer (other than obligations of the U.S.
Government, its agencies or instrumentalities), if immediately after such
purchase more than 5% of the value of the Prime Series' assets would be
invested in such issuer;
(2) borrow money or issue senior securities, except that the Prime Series may
(i) borrow money from banks for temporary purposes in amounts up to 10% of the
value of its total assets at the time of borrowing, provided that any such
borrowings will be repaid prior to the purchase of additional portfolio
securities, (ii) enter into reverse repurchase agreements in accordance with
its investment program and (iii) enter into commitments to purchase securities
in accordance with its investment program;
(3) lend money or securities except to the extent that the Prime Series'
investments may be considered loans; or
(4) purchase any commercial paper or variable rate demand notes that would
cause more than 25% of the value of the Prime Series' total assets at the time
of such purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry.
The investment objective of the Prime Series as described under "Investment
Objective" and the foregoing restrictions are matters of fundamental policy
except where noted and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Prime Series.
The Prime Series is subject to further investment restrictions that are set
forth in the Statement of Additional Information.
5 How to Invest in the Quality Cash Reserve Prime Shares
General Information on Purchases
Quality Cash Reserve Prime Shares are offered primarily to customers of
Participating Dealers that have correspondent relationships with Alex. Brown,
but Quality Cash Reserve Prime Shares are also offered through other
Participating Dealers that provide certain shareholder services. Purchases of
Quality Cash Reserve Prime Shares may be made only through Participating
Dealers. The terms and conditions under which purchases may be effected are
governed by the investor's agreement with the Participating Dealer.
The minimum initial investment is $1,500. Subsequent investments must be at
least $100. Orders for purchase of Quality Cash Reserve Prime Shares are
accepted only on a "business day of the Fund," which means any day on which PNC
Bank, National Association ("PNC"), the Fund's custodian, and the New York
Stock Exchange are open for business. It is expected that during the next
twelve months, PNC and/or the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day,
6
<PAGE>
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day.
An order to purchase Quality Cash Reserve Prime Shares is effective only when a
Participating Dealer receives it in proper form and the investor has an
available cash balance in his account for investment. The Fund reserves the
right to reject any order for purchase of Quality Cash Reserve Prime Shares.
Quality Cash Reserve Prime Shares are purchased at the net asset value next
determined after acceptance of the order.
The net asset value of the Prime Series is determined daily as of 12:00 noon
(Eastern Time) on each business day of the Fund. Because the Fund uses the
amortized cost method of valuing the portfolio securities of the Prime Series
and rounds the per share net asset value of shares of the Prime Series, it is
anticipated that the net asset value of the Prime Series will remain constant
at $1.00 per share, but there can be no assurance that this objective can be
met. Share purchases effected before 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. Payments
transmitted by check are normally converted into federal funds within two
business days and are accepted subject to collection at full face amount.
Purchases through an Account
Share purchases may be effected through an investor's account maintained with a
Participating Dealer, through procedures established in connection with the
requirements of the Fund and such Participating Dealer. A Participating Dealer
may impose minimum investor account requirements. Although Participating Dealers
do not impose sales charges for purchases of Quality Cash Reserve Prime Shares,
brokers may charge an investor's account fees for services provided to the
account. (See "Management of the Fund--Distributor.") Information concerning
account requirements, services and charges should be obtained from an investor's
broker. This Prospectus should be read in conjunction with any information
received from a Participating Dealer.
Automatic Investment and Redemption
Program
The Fund has established a special procedure whereby proceeds from sales of
securities will be combined with other available credit balances in a
Participating Dealer's customer's account (the "account") on the settlement
date and invested in Quality Cash Reserve Prime Shares. In addition, all credit
balances in an account at the end of each day are invested on the next business
day of the Fund so long as the resulting Fund balance is $100 or more.
Additionally, Fund shares will be redeemed automatically to pay for securities
purchases in the account. Such redemption will be made on the settlement date
of the securities purchase.
The initial purchase requirement of $1,500 does not apply to those shareholders
who elect to take part in the Automatic Investment and Redemption Program.
Investors should contact a Participating Dealer for more information.
6 How to Redeem Shares
Shareholders may redeem all or part of their Quality Cash Reserve Prime Shares
on any business day of the Fund by transmitting a redemption order to a
Participating Dealer. A redemption
7
<PAGE>
request is effected at the net asset value next determined after tender of
shares for redemption. Redemption orders received after 12:00 noon (Eastern
Time) will be executed the following business day at the net asset value of the
Prime Series to be redeemed next determined after receipt of the order. The
terms and conditions under which redemptions may be effected are governed by
the shareholder's agreement with the Participating Dealer.
Redemption by Check
Shareholders who complete the necessary forms may establish special check
redemption privileges that entitle them to write checks drawn on the Fund that
will clear through the Fund's account with PNC, in any amount not less than
$250. The payee of the check may cash or deposit it in the same way as an
ordinary bank check. Shareholders are entitled to dividends on the shares
redeemed until the check has been presented to PNC for payment. If the amount of
the check exceeds the value of the Quality Cash Reserve Prime Shares in the
account, the check will be returned to the payee marked "non-sufficient funds."
Checks written in amounts less than $250 may also be returned. The Fund in its
discretion will honor such checks but will charge the account a servicing fee of
$15. Cancelled checks will not be returned to the shareholder, but the amounts
will be reflected on the shareholder's monthly statement of account with his
Participating Dealer. Since the total amount of shares in an account may vary,
shareholders should not attempt to redeem their entire account by check.
The Fund reserves the right to terminate or alter check redemption privileges
at any time, to impose a service charge, or to charge for checks. The Fund also
may charge a shareholder's account for returned checks and for effecting stop
orders.
If a shareholder desires check redemption privileges, the necessary forms may
be obtained through a Participating Dealer.
Redemption by Wire
A shareholder who wishes to redeem $10,000 or more and who has previously
completed the necessary authorizations, may request that payment be made by
wire transfer of federal funds. In such case, once the redemption is effected,
payment will be made in federal funds wired to the shareholder's bank on the
same day. The Participating Dealer may subtract from the redemption proceeds
the cost of effecting the wire transfer.
Redemption by Mail
Shareholders may redeem Quality Cash Reserve Prime Shares in any amount by
mailing a redemption request to a Participating Dealer.
8
<PAGE>
Payment for shares redeemed by mail will be made by check and will ordinarily
be mailed within seven days after receipt by the Participating Dealer of a
written redemption request in good order. The request must include the
following:
(1) a letter of instruction specifying the Participating Dealer account number
and the number of Quality Cash Reserve Prime Shares or dollar amount to be
redeemed (or that all Quality Cash Reserve Prime Shares credited to a
Participating Dealer account be redeemed), signed by all owners of the Quality
Cash Reserve Prime Shares in the exact names in which their account is
maintained;
(2) a guarantee of the signature of each registered owner by a member of the
Federal Deposit Insurance Corporation, a trust company, broker, dealer, credit
union (if authorized under state law), a securities exchange or association,
clearing agency or savings association; and
(3) any additional documents required by the Fund or transfer agent for
redemption by corporations, partnerships, trusts or fiduciaries.
Additional Information on Redemption
Dividends payable up to the date of redemption on redeemed shares will be paid
on the next dividend payment date. If all of the shareholder's shares have been
redeemed on the dividend payment date, the dividend will be credited in cash to
the shareholder's account.
The Board of Directors may authorize redemption of all shares in an account
that has been reduced by the shareholder to less than $500, if the Board of
Directors determines that it is necessary to reduce disproportionately
burdensome expenses of servicing small accounts or is otherwise in the best
interest of the Fund. At least 60 days' prior notice will be given to allow a
shareholder to make an additional minimum investment set by the Board of
Directors to avoid redemption.
7 Dividends and Taxes
Dividends
All of the net income earned on the Prime Series is normally declared as
dividends daily to the respective shareholders of record of the Prime Series.
Dividends on the Prime Series are normally payable on the first day that a
share purchase order is effective but not on the date that a redemption order
is effective. Dividends are declared daily and reinvested monthly in the form
of additional full and fractional shares of the Prime Series at net asset
value, unless the shareholder has elected to have dividends paid in cash.
Taxes
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislation, judicial
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion herein is not intended as a substitute for
careful tax planning. Accordingly, shareholders are advised to consult with
their own tax advisors concerning the application of state and local taxes to
investments in the Prime Series, which may differ from the federal income
9
<PAGE>
tax consequences described above. Additional information concerning taxes is
set forth in the Statement of Additional Information.
The Prime Series has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As long as
the Prime Series qualifies for this tax treatment, it will not be required to
pay federal income taxes on amounts distributed to shareholders; but
shareholders, unless otherwise exempt, will pay taxes on amounts so
distributed.
Distributions of net investment company taxable income (generally, net
investment income plus net short-term capital gains, if any) are taxed to
shareholders as ordinary income. Distributions will not be eligible for the
dividends received deduction otherwise available to corporate shareholders.
Although the Prime Series does not expect to realize any long-term capital
gains, any distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) will be taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held the shares.
Ordinarily, shareholders will include in their taxable income all dividends
declared by a 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 the Prime 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 shares is a taxable event for 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. A majority of the Board of Directors of the Fund
have no affiliation with the Distributor or the Fund's advisor.
Investment Advisor
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Alex. Brown
Incorporated (described below), was organized in 1987 and acts as the investment
advisor to the Prime Series. ICC supervises and manages the Prime Series'
operations and generally provides management and administrative services for the
Prime Series. ICC is also investment advisor to, and the Distributor acts as
distributor for, several funds in the Flag Investors family of funds which, as
of May 31, 1997, had net assets of approximately 5.5 billion.
As compensation for providing investment advisory services to the Prime Series
for the fiscal year ended March 31, 1997, ICC received a fee equal to .27% of
the Prime Series' average daily
10
<PAGE>
net assets. ICC may, from time to time, voluntarily waive a portion of its
advisory fee with respect to the Prime Series to preserve or enhance the
performance of such Series.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Prime Series. (See "Custodian, Transfer
Agent and Accounting Services.")
In the fiscal year ended March 31, 1997, the expenses borne by the Quality Cash
Reserve Prime Shares class of the Prime Series, including the fees to ICC,
amounted to .91% (net of fee waivers) of such class' average daily net assets.
Distributor
Alex. Brown serves as the exclusive distributor for the Quality Cash Reserve
Prime Shares. Alex. Brown is an investment banking firm that offers a broad
range of investment services to individual, institutional, corporate and
municipal clients. Alex. Brown is a wholly-owned subsidiary of Alex. Brown
Incorporated, which has engaged directly and through subsidiaries in the
investment business since 1800. Alex. Brown is a member of the New York Stock
Exchange and other leading securities exchanges. Headquartered in Baltimore,
Maryland, Alex. Brown has offices throughout the United States and, through
subsidiaries, maintains offices in London, England, Geneva, Switzerland and
Tokyo, Japan.
As compensation for its services, the Distributor is entitled to receive an
annual fee from the Fund, equal to .60% of the average daily net assets invested
in Quality Cash Reserve Prime Shares. The Distributor currently reduces its
distribution fee, on a voluntary basis, to .53% of the Quality Cash Reserve
Prime Shares' average daily net assets. (See "Table of Fees and Expenses.") The
Distributor expects to allocate on a proportional basis up to all of its annual
fee received from the Fund to Participating Dealers as compensation for opening
shareholder accounts, processing investor purchase and redemption orders,
responding to inquiries from Fund shareholders concerning the status of their
accounts and operations of the Fund, and communicating with the Fund and its
transfer agent on behalf of the Fund's shareholders. Additionally, the
Distributor bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other than
Fund shareholders. The Distributor will from time to time and from its own
resources pay or allow additional discounts or promotional incentives in the
form of cash or other compensation (including merchandise or travel) to
Participating Dealers.
9 Current Yield
From time to time the Fund advertises the "yield" and "effective yield" of a
particular Series or class. Both figures are based on historical earnings and
are not intended to indicate future performance. The "yield" of a Series or
class refers to the income generated by an investment in that Series or class
over a seven-day period (which period will be stated in the advertisement.)
This income is then "annualized," that is, the amount of income generated by
the investment during that week is assumed to be generated each week of a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly, but when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The "effective yield" will
be
11
<PAGE>
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The yield for the Quality Cash Reserve Prime Shares may
be obtained by calling any Participating Dealer.
10 General Information
Description of Shares
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 8 billion shares of common stock with a par value
of $.001 per share. Shares of the Fund are divided into three series, each with
a par value of $.001 - the Prime Series, the Treasury Series and the Tax-Free
Series. Each of the Series currently offers one or more classes of shares,
which classes differ from each other principally in the allocation of certain
expenses and the method of distribution, which may affect performance. For
information regarding the other classes of shares, please call (800) 553-8080
or a Participating Dealer. Shares of the Fund have equal rights with respect to
voting, except that the holders of shares of a particular Series or class will
have the exclusive right to vote on matters affecting only the rights of the
holders of such Series or class. For example, holders of a particular Series
will have the exclusive right to vote on any investment advisory agreement or
investment restriction that relates only to such Series. In the event of
dissolution or liquidation, holders of shares of each Series will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of the
assets held in the respective Series less (b) the liabilities of the Fund
attributable to the respective Series or allocated among all Series based on
the respective liquidation value of each Series.
There 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. is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Prime Series. As compensation for
providing accounting services to the Prime Series for the fiscal year ended
March 31, 1997, ICC received a fee equal to .01% of the Prime Series' average
daily net assets. (See the Statement of Additional Information.) PNC acts as
custodian for the Fund's portfolio securities and cash.
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
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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 any
Participating Dealer.
13
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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
M. ELLIOTT RANDOLPH, JR. JOSEPH A. FINELLI
Vice President RICHARD T. HALE Treasurer
President
PAUL D. CORBIN LAURIE D. COLLIDGE
Vice President EDWARD J. VEILLEUX Assistant Secretary
Executive Vice President
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
Independent Accountants Transfer Agent
COOPERS & LYBRAND L.L.P. INVESTMENT COMPANY CAPITAL CORP.
2400 Eleven Penn Center One South Street
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
(800) 553-8080
14
(C) BY ALEX. BROWN & SONS INCORPORATED
<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, 1997
Relating to Prospectuses dated August 1, 1997 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)
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....................................................... 9
Distributor............................................................10
Expenses...............................................................13
Transfer Agent, Custodian and Accounting Services......................14
Sub-Accounting.........................................................15
Principal Holders of Securities........................................15
Semi-Annual Reports....................................................15
Independent Accountants................................................15
Share Purchases and Redemptions..............................................16
Purchases and Redemptions..............................................16
Net Asset Value Determination..........................................16
Dividends and Taxes..........................................................17
Dividends..............................................................17
Taxes..................................................................18
Current Yield................................................................21
Investment Program and Restrictions..........................................22
Investment Restrictions................................................24
Portfolio Transactions.......................................................25
Financial Statements.........................................................27
<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 are four separate Prospectuses for the Fund's shares dated
August 1, 1997: one for the Alex. Brown Cash Reserve Classes of each Series, one
for the Institutional Classes of each Series, one for the Flag Investors Cash
Reserve Prime Class A and B Shares of the Prime Series and one for the Quality
Cash Reserve Prime Shares Class of the Prime Series. These prospectuses 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
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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 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 have been offered since June 2, 1997.
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
8 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
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of the duties involved in the conduct of his office. The Fund's Charter also
authorizes the purchase of liability insurance on behalf of the directors and
officers.
As described in the Prospectus, the Fund will not normally
hold annual shareholders' meetings. Directors may be removed from office by a
vote of the holders of two-thirds of the outstanding shares at a meeting duly
called for that purpose, which meeting shall be held upon written request of the
holders of not less than 10% of the outstanding shares of the Fund. Upon written
request by ten or more shareholders, who have been such for at least six months
and who hold shares constituting 1% of the outstanding shares, stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
director, the Fund has undertaken to provide a list of shareholders or to
disseminate appropriate materials.
Except as otherwise disclosed in the Prospectus and in this
Statement of Additional Information, the directors shall continue to hold office
and may appoint their successors.
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; formerly Vice Chairman, Alex.
Brown & Sons Incorporated).
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).
- --------
* Messrs. Cole, Hale and Semans are "interested persons," as defined in the
1940 Act.
3
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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) and 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.
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), AMBAC Treasurers Trust (registered investment company)
and DP Mann Holdings (insurance).
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.
- --------
+ Mr. Liotta is Mr. Cole's son-in-law.
4
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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.
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 serves 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, 1997
Non-Interested Directors' fees attributable to the assets of the Fund totalled
$241,532.
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, 1997.
5
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation from Pension or Retirement Total Compensation from the
Position the Fund Payable to Directors Benefits Accrued as Part of Fund and the Fund Complex
for the Fiscal Year Ended Fund Expenses Payable to Directors for the
March 31, 1997 Fiscal Year Ended
March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
W. James Price (1),(2) $0 $0 $0
Chairman
Richard T. Hale (1) $0 $0 $0
Vice Chairman
Truman T. Semans (1) $0 $0 $0
Director
Charles W. Cole (1),(3) $0 (4) $0
Director
James J. Cunnane $27,801 (5) (4) $39,000 for service
Director on 12 Boards
John F. Kroeger $34,930 (5) (4) $49,000 for service
Director on 12 Boards
Louis E. Levy $27,801 (5) (4) $39,000 for service
Director on 12 Boards
Eugene J. McDonald $27,801 (5) (4) $39,000 for service
Director on 12 Boards
Rebecca W. Rimel $31,763 (5) (4) $39,000 for service
Director on 10 Boards (6)
Carl W. Vogt (3) $32,232 (5) (4) $39,000 for service
Director on 9 Boards (6)
Harry Woolf (2) $20,880 (5) (4) $29,250 for service
Director on 12 Boards
</TABLE>
(1) A director who is, or may be, an "interested person" as defined in the 1940
Act.
(2) Retired effective December 31, 1996.
(3) Appointed to the Board on December 18, 1996.
(4) 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, 1997 was approximately $47,681.
(5) Of amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald, Vogt, Woolf
and Ms. Rimel, $27,801, $0, $19,500, $27,801, $32,232, $20,880 and $31,763
was deferred pursuant to a Deferred Compensation Plan.
(6) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve as a Director.
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 fee of $4,875 by the Fund Complex for the rest of his life. Another
Participant who
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retired on January 31, 1996 and died on June 2, 1996 was paid fees of $8,090
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.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
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 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
7
<PAGE>
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, 1997, ICC served as the
Fund's investment advisor pursuant to three separate investment advisory
agreements, each dated August 22, 1995. For this fiscal year, the aggregate fee
paid by the Fund to ICC was $10,806,028. 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. 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 period. For this fiscal year, the aggregate fee
paid by the Fund to ICC was $7,291,008.
For the fiscal year ended March 31, 1995 the aggregate fees
paid by the Fund to ICC (net of voluntary fee waivers of $156,200 for the
Treasury Series was $4,941,395.
The Advisory Agreements continue in effect year to year 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. The Advisory Agreements were most recently approved by the
Board of Directors in the foregoing manner on March 26, 1997.
ICC advises other mutual funds which, as of May 31, 1997, had
net assets of approximately $5.5 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 years ended March 31, 1997 and
March 31, 1996, ICC paid PIMC fees of $800,837 and $742,568, respectively. As
compensation for providing sub-advisory services to the Prime Series and the
Tax-Free Series, respectively, for the fiscal year ended March 31, 1995 (with
respect to the Prime Series for the period from April 1, 1994 through October
30, 1994) ICC paid PIMC a fee of $1,377,476.
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, 1997, March 31, 1996, and March 31, 1995, Alex. Brown received from the Fund
aggregate fees of $7,970,174, $6,327,179, and $4,672,018, respectively. As
compensation for distribution services for the Tax-Free Series (except the
Institutional Shares) for the fiscal years ended March 31, 1997, March 31, 1996,
and March 31, 1995, Alex. Brown received from the Fund fees of $1,479,581,
$1,345,261, and $838,211, respectively. As compensation for distribution
services for the Quality Cash Reserve Prime Shares for the fiscal years ended
March 31, 1997, March 31, 1996, and March 31, 1995, Alex. Brown received from
the Fund fees of $986,821, $738,961, and $574,855, respectively. As compensation
for the Class B Shares, Alex. Brown received $307.
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, Alex.
Brown received commissions of $376 and $1,811, respectively from sales of such
Shares. Sales
10
<PAGE>
of the Flag Investors Cash Reserve Prime Class B Shares are subject to a
contingent deferred sales charge to be paid as a commission to the Distributor.
Pursuant to the Distribution Agreements, Alex. Brown may pay
certain promotional and advertising expenses and, except in the case of the
Institutional Shares, may compensate its investment representatives, certain
registered securities dealers and banks and other financial institutions for
services provided in connection with the processing of orders for purchase or
redemption of the Fund's shares and furnishing other shareholder services.
Payments by Alex. Brown to its investment representatives and to certain
registered securities dealers are paid by Alex. Brown out of fees received by
Alex. Brown from the Fund. Specifically, Alex. Brown may compensate its
investment representatives and certain registered securities dealers for opening
accounts, processing investor purchase and redemption orders, responding to
inquiries from Fund shareholders concerning the status of their accounts and the
operations of the Fund, and communicating with the Fund and its transfer agent
on behalf of Fund shareholders. Alex. Brown may also enter into shareholder
processing and servicing agreements ("Shareholder Servicing Agreements") with
any securities dealer who is registered under the Securities Exchange Act of
1934 and is a member in good standing of the National Association of Securities
Dealers, Inc. and (except for the Quality Cash Reserve Prime Shares) with banks
and other financial institutions who may wish to establish accounts or
sub-accounts on behalf of their customers (collectively, such securities
dealers, banks and financial institutions are referred to as "Shareholder
Servicing Agents").
The Glass-Steagall Act and other applicable laws, among other
things, generally prohibit federally chartered or supervised banks from engaging
in the business of underwriting, selling or distributing securities.
Accordingly, Alex. Brown will engage banks as Shareholder Servicing Agents only
to perform administrative and shareholder servicing functions. Management of the
Fund believes that such laws should not preclude a bank from acting as a
Shareholder Servicing Agent. However, judicial or administrative decisions or
interpretations of such laws as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. If a bank were prohibited from so acting,
shareholder clients would be permitted to remain as Fund shareholders and
alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in the operation of the Fund might occur and
shareholders serviced by such bank might no longer be able to avail themselves
of any automatic investment or other services then being provided by such bank.
It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
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
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
11
<PAGE>
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, 1997, the Fund paid
$6,273,272, $1,681,441 and $1,479,581, 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 $986,821 to Alex. Brown,
pursuant to the 12b-1 plan of the Quality Cash Reserve Prime Shares, and $15,461
and $307 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
judgment that the agreements and Plans would benefit the Fund and its
shareholders.
12
<PAGE>
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
Short-Intermediate Income Fund, Inc. (formerly 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
engraving or printing certificates representing shares of the Fund; all costs
and expenses in connection with the registration and
13
<PAGE>
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, 1997, PNC received
custodian fees of $517,381 (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 $63,954, respectively.
As compensation for providing accounting services to the Prime
Series and the Treasury Series, ICC receives an annual fee, calculated daily and
paid monthly as shown below.
<TABLE>
<CAPTION>
Prime and Treasury Series
Average Net Assets Incremental Annual Accounting Fee Per Series
------------------ --------------------------------------------
<S> <C>
$ 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%
</TABLE>
14
<PAGE>
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 years ended March 31, 1997, March 31, 1996 and
for the period from November 10, 1995 through March 31, 1995, ICC received fees
of $157,854, $150,692 and $58,826, respectively, for providing accounting
services to the Prime Series. For the fiscal years ended March 31, 1997, March
31, 1996, and March 31, 1995, ICC received fees of $126,264, $122,841, and
$90,083 respectively, for providing accounting services to the Treasury Series.
As compensation for providing transfer agency services, the
Fund pays ICC up to $17.45 per account per year plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended March 31, 1997, such fees totalled $1,686,323 for Prime Series, $242,470
for Treasury Series and $163,383 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.
Principal Holders of Securities
To Fund management's knowledge, Alex. Brown Incorporated*, P.O.
Box 1346, Baltimore, Maryland, 21203, owned of record 7.95% of the
outstanding shares of the Tax-Free Series of the Fund, as of July 23, 1997.
As of July 23, 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.
- ----------
* To fund management's knowledge, Alex. Brown Incorporated beneficially owned
less than 1% of any Series of the Fund, as of July 23, 1997.
Semi-Annual 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.
Independent Accountants
The annual financial statements are audited by the Fund's
independent accountants. The Board of Directors has selected Coopers & Lybrand
L.L.P., 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, as the Fund's
independent accountants to audit the Fund's financial statements and review the
Fund's federal tax returns for the fiscal year ending March 31, 1998.
15
<PAGE>
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 all shares of the Treasury Series and
the Tax-Free Series is determined daily as of 11:00 a.m. (Eastern time) and the
net asset value of all shares of the Prime 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
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
16
<PAGE>
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 Prime Series, Treasury
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. Share purchases for the Treasury
Series and the Tax-Free Series effected before 11:00 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. 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
19
<PAGE>
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
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
20
<PAGE>
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, 1997. The Institutional Tax-Free
Shares were not offered in any period ended March 31, 1997.
<TABLE>
<CAPTION>
Series or class Current Yield Effective Yield Taxable-Equivalent Yield***
- --------------- ------------- --------------- ---------------------------
<S> <C> <C>
Prime Series* 4.82% 4.87% N/A
Institutional Prime Shares 5.07% 5.13% N/A
Quality Cash Reserve Prime Shares 4.53% 4.57% N/A
Flag Investors Cash Reserve Prime B Shares 4.07% 4.09% N/A
Treasury Series** 4.60% 4.66% N/A
Institutional Treasury Shares 4.85% 4.92% N/A
Tax-Free Series** 2.82% 2.87% 4.09%
Institutional Tax-Free Shares N/A N/A N/A
</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
21
<PAGE>
day of the period. To arrive at the quoted yield, the net change in the value of
that Single Share Account for the period (which would include dividends accrued
with respect to the share, and dividends declared on shares purchased with
dividends accrued and paid, if any, but would not include realized gains and
losses or unrealized appreciation or depreciation) will be multiplied by 365 and
then divided by the number of days in the period, with the resulting figure
carried to the nearest hundredth of one percent. The Fund may also furnish a
quotation of effective yield for each Series or class that assumes the
reinvestment of dividends for a 365 day year and a return for the entire year
equal to the average annualized yield for the period, which will be computed by
compounding the unannualized current yield for the period by adding 1 to the
unannualized current yield, raising the sum to a power equal to 365 divided by
the number of days in the period, and then subtracting 1 from the result. In
addition, the Fund may furnish a quotation of the Tax-Free Series'
taxable-equivalent yield, which will be computed by dividing the tax-exempt
portion of such Series' effective yield for a stated consecutive seven day
period by one minus the investor's income tax rate and adding the product to the
portion of the yield for the same consecutive seven day period that is not
tax-exempt. The resulting yield is what the investor would need to earn from a
taxable investment in order to realize an after-tax benefit equal to the
tax-free yield provided by the Tax-Free Series. Historical yields are not
necessarily indicative of future yields. Rates of return will vary as interest
rates and other conditions affecting money market instruments change. Yields
also depend on the quality, length of maturity and type of instruments in each
of the Fund's Series and each Series' or class' operating expenses. Quotations
of yields will be accompanied by information concerning the average weighted
maturity of the portfolio of a Series. Comparison of the quoted yields of
various investments is valid only if yields are calculated in the same manner
and for identical limited periods. When comparing the yield for either Series of
the Fund with yields quoted with respect to other investments, shareholders
should consider (a) possible differences in time periods, (b) the effect of the
methods used to calculate quoted yields, and (c) the quality and average-
weighted maturity of portfolio investments, expenses, convenience, liquidity and
other important factors.
INVESTMENT PROGRAM AND RESTRICTIONS
Information concerning the Fund's investment program is
discussed in the Fund's Prospectus.
Each Series may invest in instruments that have certain
minimum ratings of either Moody's Investor Services, Inc. ("Moody's") or
Standard and Poor's Corporation ("S&P") as permitted by the investment
objective, policies and restrictions of each such Series. See "Investment
Program" in the Prospectus. Investments of commercial paper may be precluded
unless a particular instrument is an "Eligible Security" as defined in Rule 2a-7
under the 1940 Act. Rule 2a-7 defines "Eligible Security" as follows:
(i) a security with a remaining maturity of 397 days or less
that is rated (or that has been issued by an issuer that is rated with
respect to a class of Short-term debt obligations, or any security
within that class, that is comparable in priority and security with the
security) by the
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<PAGE>
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
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.
- --------
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.
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.
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<PAGE>
Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P- 2 or P-3.
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Short Term Debt Ratings
Moody's - State and municipal notes, as well as other
short-term obligations, are assigned a Moody's Investment Grade (MIG) rating.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance in
evaluating bond risk may be less important over the short run.
MIG 1
Notes bearing this designation are of the best quality. Notes
are enjoying strong "protection" by established cash flows, superior
liquidity support or a demonstrated broad-based access to the market
for refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of
protection are ample although not as large as in the preceding group.
S&P - The note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in 3 years or less will receive a
note rating. Notes rated "SP-1" have a strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are assigned a plus (+) designation.
Tax-Exempt Demand Ratings
Moody's - Issues which have demand features (i.e., variable
rate demand obligations) are assigned a VMIG symbol. This symbol reflects such
characteristics as payment upon periodic demand rather than fixed maturity, and
payment relying on external liquidity. The VMIG rating is modified by the
numbers 1, 2 or 3. VMIG1 represents the best quality in the VMIG category, VMIG2
represents high quality, and VMIG3 represents favorable quality.
24
<PAGE>
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
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, 1997, March 31, 1996, and
March 31, 1995, 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
25
<PAGE>
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, 1997, March 31, 1996, and
March 31, 1995, 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, 1997, the
Fund held a 6.47% repurchase agreement issued by Goldman Sachs & Co. valued at
$109,100,000 and a 6.25% repurchase agreement issued by Morgan Stanley & Co.
valued at $150,000,000.
The Advisors and their affiliates manage several other
investment accounts, some of which may have objectives similar to that of the
Fund. It is possible that at times, identical securities will be acceptable for
one or more of such investment accounts. However, the position of each account
in the securities of the same issue may vary and the length of time that each
account may choose to hold its investment in the securities of the same issue
may likewise vary. The timing and amount of purchase by each account will also
be determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of the Fund and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated in good faith among the Fund and such accounts in a
manner deemed equitable by the Advisors. The Advisors may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. The allocation and
combination of simultaneous securities purchases on behalf of the Fund's three
series will be made in the same way that such purchases are allocated among or
combined with those of other such investment accounts. Simultaneous transactions
could adversely affect the ability of the Fund to obtain or dispose of the full
amount of a security which it seeks to purchase or sell.
Portfolio securities will not be purchased from or sold to or
through any "affiliated person" of the Advisors, as defined in the 1940 Act. In
making decisions with respect to purchase of portfolio securities for the Fund,
the Advisors will not take into consideration whether a dealer or other
financial institution has executed a Shareholder Servicing Agreement with Alex.
Brown.
Provisions of the 1940 Act and rules and regulations
thereunder have been construed to prohibit the Fund's purchasing securities or
instruments from or through, or selling securities or instruments to or through,
any holder of 5% or more of the voting securities of any investment company
managed or advised by the Advisors. The Fund has obtained an order of 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
26
<PAGE>
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 AR
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper - 81.6%(b)
Automobiles & Trucks - 0.9%
Toyota Motor Credit Corp.
5.23% 5/23/97 A-1+ P-1 $11,000 $ 10,916,901
5.40% 6/17/97 A-1+ P-1 14,000 13,838,300
---------------
24,755,201
---------------
Bank - 2.6%
Republic New York Corp.
5.27% 4/16/97 A-1+ P-1 20,000 19,956,083
5.30% 4/18/97 A-1+ P-1 30,000 29,924,917
5.34% 7/18/97 A-1+ P-1 25,000 24,599,500
---------------
74,480,500
---------------
Chemicals, General - 2.3%
E.I. duPont de Nemours and Company
5.28% 5/20/97 A-1+ P-1 25,000 24,820,333
5.26% 5/22/97 A-1+ P-1 25,000 24,813,708
5.24% 8/6/97 A-1+ P-1 18,710 18,364,136
---------------
67,998,177
---------------
Computer & Office Equipment - 4.2%
Pitney Bowes Credit Corp.
5.30% 4/14/97 A-1+ P-1 15,000 14,971,292
5.23% 4/23/97 A-1+ P-1 15,505 15,455,444
5.28% 5/12/97 A-1+ P-1 10,000 9,939,867
5.36% 7/1/97 A-1+ P-1 30,000 29,593,533
Xerox Corp.
5.28% 5/14/97 A-1 P-1 10,000 9,936,933
Xerox Credit Corp.
5.28% 4/7/97 A-1 P-1 10,000 9,991,200
5.31% 5/14/97 A-1 P-1 30,000 29,809,725
---------------
119,697,994
---------------
Credit Unions - 2.4%
Mid-States Corporate Federal Credit Union
5.36% 4/16/97 A-1+ P-1 12,900 12,871,190
U.S. Central Credit Union
5.30% 5/9/97 A-1+ P-1 40,000 39,775,958
5.31% 5/12/97 A-1+ P-1 15,000 14,909,288
---------------
67,556,436
---------------
</TABLE>
28
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper (continued)
Electrical & Electronics - 5.0%
Emerson Electric Co.
5.23% 4/9/97 A-1+ P-1 $30,000 $ 29,965,133
5.24% 4/16/97 A-1+ P-1 40,000 39,912,667
5.23% 4/18/97 A-1+ P-1 39,650 39,552,076
Motorola Inc.
5.23% 4/16/97 A-1+ P-1 20,000 19,956,417
5.21% 5/14/97 A-1+ P-1 15,000 14,906,653
---------------
144,292,946
---------------
Electric Utility - 3.5%
Duke Power Co.
5.27% 4/11/97 A-1+ P-1 45,000 44,934,125
Northern States Power Co.
5.28% 4/2/97 A-1+ P-1 30,000 29,995,600
5.25% 5/23/97 A-1+ P-1 26,000 25,802,833
---------------
100,732,558
---------------
Entertainment - 1.2%
Walt Disney Co.
5.21% 11/19/97 A-1 P-1 20,000 19,328,489
5.20% 11/25/97 A-1 P-1 15,000 14,484,333
---------------
33,812,822
---------------
Finance, Commercial - 0.5%
CIT Group Holdings Inc.
5.23% 5/21/97 A-1 P-1 15,000 14,891,042
---------------
Finance, Consumer - 3.4%
USAA Capital Corp.
5.30% 4/4/97 A-1+ P-1 15,000 14,993,375
5.27% 4/16/97 A-1+ P-1 10,000 9,978,042
5.30% 4/17/97 A-1+ P-1 15,000 14,964,667
5.24% 5/2/97 A-1+ P-1 20,000 19,909,756
5.25% 5/15/97 A-1+ P-1 13,500 13,413,375
5.30% 5/23/97 A-1+ P-1 25,000 24,808,610
---------------
98,067,825
---------------
Finance, Diversified - 3.5%
General Electric Capital Corp.
5.62% 4/25/97 A-1+ P-1 10,100 10,062,159
5.33% 5/23/97 A-1+ P-1 15,000 14,884,083
5.35% 5/23/97 A-1+ P-1 25,665 25,466,975
5.35% 5/30/97 A-1+ P-1 15,000 14,868,479
5.34% 7/2/97 A-1+ P-1 10,000 9,863,533
</TABLE>
29
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper (continued)
Finance, Diversified (concluded)
General Electric Capital Corp. (concluded)
5.31% 7/28/97 A-1+ P-1 $15,000 $ 14,738,925
5.33% 7/31/97 A-1+ P-1 10,000 9,820,853
---------------
99,705,007
---------------
Food - 11.4%
Campbell Soup Co.
5.30% 4/7/97 A-1+ P-1 15,000 14,986,750
5.29% 4/9/97 A-1+ P-1 15,000 14,982,367
5.25% 4/10/97 A-1+ P-1 25,000 24,967,188
5.35% 6/25/97 A-1+ P-1 15,000 14,810,521
5.37% 7/9/97 A-1+ P-1 25,000 24,630,813
5.25% 8/22/97 A-1+ P-1 15,000 14,687,188
5.42% 10/8/97 A-1+ P-1 10,000 9,713,944
Cargill, Inc.
5.32% 4/7/97 A-1+ P-1 15,000 14,986,700
5.28% 4/8/97 A-1+ P-1 20,000 19,979,467
5.32% 4/18/97 A-1+ P-1 10,000 9,974,878
5.34% 5/16/97 A-1+ P-1 19,200 19,071,840
5.40% 10/7/97 A-1+ P-1 15,000 14,574,750
Heinz (H.J.) Company
5.27% 4/1/97 A-1 P-1 5,000 5,000,000
Hershey Foods
5.27% 4/8/97 A-1+ P-1 18,500 18,481,043
5.25% 4/11/97 A-1+ P-1 20,000 19,970,833
5.25% 4/25/97 A-1+ P-1 50,000 49,825,000
Kellogg Company
5.28% 4/2/97 A-1+ P-1 9,540 9,538,601
5.24% 4/11/97 A-1+ P-1 18,000 17,973,800
5.28% 4/18/97 A-1+ P-1 8,000 7,980,052
---------------
326,135,735
---------------
Household Products - 2.9%
Clorox Company
5.50% 4/4/97 A-1+ P-1 20,000 19,990,833
5.30% 4/16/97 A-1+ P-1 25,000 24,944,792
5.57% 4/29/97 A-1+ P-1 20,000 19,913,356
Procter & Gamble Co.
5.45% 4/11/97 A-1 P-1 18,000 17,972,750
---------------
82,821,731
---------------
</TABLE>
30
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper (continued)
Insurance, Property & Casualty - 5.8%
A.I. Credit Corporation
5.28% 6/10/97 A-1+ P-1 $15,000 $ 14,846,000
5.23% 6/20/97 A-1+ P-1 20,000 19,767,556
AIG Funding Inc.
5.27% 4/7/97 A-1+ P-1 23,165 23,144,653
Chubb Capital Corp.
5.24% 4/7/97 A-1+ P-1 30,000 29,973,700
Marsh & McClennan Companies Inc.
5.35% 5/6/97 A-1+ P-1 15,000 14,921,979
5.26% 6/3/97 A-1+ P-1 20,000 19,815,900
5.35% 7/3/97 A-1+ P-1 15,000 14,792,688
5.37% 10/3/97 A-1+ P-1 30,000 29,171,352
---------------
166,433,828
---------------
Integrated Oil - 1.6%
Amoco Co.
5.20% 4/10/97 A-1+ P-1 20,000 19,974,000
5.32% 6/5/97 A-1+ P-1 25,000 24,759,861
---------------
44,733,861
---------------
Machinery & Tools - 2.9%
Dover Corporation
5.30% 4/4/97 A-1+ -- 18,500 18,491,829
5.25% 4/7/97 A-1+ -- 28,000 27,975,325
Illinois Tool Works
5.36% 4/29/97 A-1+ P-1 13,000 12,945,804
Snap-On Incorporated
5.55% 5/5/97 A-1+ P-1 25,000 24,868,959
---------------
84,281,917
---------------
Oil Transportation - 1.9%
Colonial Pipeline
5.25% 5/19/97 A-1+ P-1 12,100 12,015,300
5.35% 6/17/97 A-1+ P-1 7,200 7,117,610
5.32% 8/6/97 A-1+ P-1 17,300 16,975,317
5.32% 8/14/97 A-1+ P-1 10,000 9,800,500
5.28% 8/18/97 A-1+ P-1 10,000 9,796,134
---------------
55,704,861
---------------
</TABLE>
31
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper (continued)
Paper - 1.2%
Minnesota Mining & Manufacturing Co.
5.26% 4/7/97 A-1+ P-1 $15,000 $ 14,986,850
5.27% 5/7/97 A-1+ P-1 9,000 8,952,570
Weyerhaeuser Co.
5.29% 5/7/97 A-1 P-1 10,000 9,947,101
---------------
33,886,521
---------------
Pharmaceuticals - 9.1%
Eli Lilly & Co.
5.28% 7/14/97 A-1+ P-1 15,000 14,771,200
5.33% 7/15/97 A-1+ P-1 10,000 9,844,542
Pfizer Inc.
5.27% 4/4/97 A-1+ P-1 37,400 37,383,575
Schering-Plough Corp.
5.26% 4/22/97 A-1+ P-1 7,850 7,825,914
5.27% 4/29/97 A-1+ P-1 26,100 25,992,831
5.27% 5/13/97 A-1+ P-1 26,050 25,889,719
5.22% 5/20/97 A-1+ P-1 15,000 14,893,425
5.30% 6/24/97 A-1+ P-1 14,950 14,765,118
5.31% 7/22/97 A-1+ P-1 15,000 14,752,200
Warner-Lambert Co.
5.31% 4/15/97 A-1+ P-1 13,500 13,472,123
5.30% 4/30/97 A-1+ P-1 16,100 16,031,262
5.34% 5/20/97 A-1+ P-1 20,000 19,854,633
5.29% 5/29/97 A-1+ P-1 15,000 14,872,158
5.20% 6/20/97 A-1+ P-1 15,000 14,826,667
5.22% 8/14/97 A-1+ P-1 15,400 15,098,544
---------------
260,273,911
---------------
Publishing - 1.2%
Dow Jones & Co., Inc.
5.30% 4/22/97 A-1+ P-1 8,300 8,274,339
Gannett Co., Inc.
5.28% 4/24/97 A-1 P-1 27,000 26,908,920
---------------
35,183,259
---------------
Structured Finance - 6.8% CIESCO, L.P.
5.28% 4/11/97 A-1+ P-1 15,000 14,978,000
5.30% 4/21/97 A-1+ P-1 10,000 9,970,556
5.32% 4/22/97 A-1+ P-1 19,850 19,788,399
5.33% 4/25/97 A-1+ P-1 25,000 24,911,167
5.26% 5/8/97 A-1+ P-1 15,000 14,918,908
5.27% 5/14/97 A-1+ P-1 20,000 19,874,106
</TABLE>
32
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
Commercial Paper (concluded)
<S> <C> <C> <C> <C>
Structured Finance (concluded)
Corporate Asset Funding Company, Inc.
5.32% 4/10/97 A-1+ P-1 $15,000 $ 14,980,050
5.25% 4/16/97 A-1+ P-1 30,000 29,934,375
5.30% 4/22/97 A-1+ P-1 30,000 29,907,250
5.55% 5/13/97 A-1+ P-1 15,000 14,902,874
---------------
194,165,685
---------------
Telephone - 7.3%
Ameritech Capital Funding Corp.
5.33% 4/7/97 A-1+ P-1 15,000 14,986,675
5.28% 4/14/97 A-1+ P-1 25,000 24,952,333
5.31% 4/28/97 A-1+ P-1 15,000 14,940,263
5.30% 5/13/97 A-1+ P-1 20,000 19,876,333
5.54% 6/27/97 A-1+ P-1 20,000 19,732,233
AT&T Corp.
5.37% 8/14/97 A-1+ P-1 20,000 19,597,250
Bell Atlantic Network Funding Corp.
5.65% 4/22/97 A-1+ P-1 9,000 8,970,338
BellSouth Capital Funding Corp.
5.28% 5/6/97 A-1+ P-1 15,000 14,923,000
5.27% 5/12/97 A-1+ P-1 25,000 24,849,951
Southwestern Bell Telephone Co.
5.28% 4/7/97 A-1+ P-1 12,000 11,989,440
5.27% 4/10/97 A-1+ P-1 20,900 20,872,464
5.25% 5/29/97 A-1+ P-1 15,000 14,873,127
---------------
210,563,407
---------------
Total Commercial Paper 2,340,175,224
---------------
Medium-Term Note - 0.7%
E.I. duPont de Nemours and Company
5.59% 10/8/97 A-1+ P-1 9,500 9,497,964
Eli Lilly & Co.
6.20% 11/6/97 A-1+ P-1 10,000 10,023,322
---------------
Total Medium-Term Note 19,521,286
---------------
Variable Rate Note - 4.4%
Associates Corporation Master Note
5.23%(c) 6/1/97 A-1+ P-1 75,000 75,000,000
Coca-Cola Company Master Note
5.25%(c) 6/26/97 A-1+ P-1 50,000 50,000,000
---------------
Total Variable Rate Note 125,000,000
---------------
</TABLE>
33
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a) Par
PRIME SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank - 1.7%
FHLB
5.23% 7/7/97 AAA -- $ 9,500 $ 9,366,127
5.10% 8/13/97 AAA -- 15,000 14,715,250
5.46% 12/12/97 AAA -- 15,000 14,995,972
5.81% 1/23/98 AAA -- 10,000 10,000,000
---------------
Total Federal Home Loan Bank 49,077,349
---------------
Federal National Mortgage Association - 2.7%
FNMA
Discount Note
5.28% 4/8/97 -- P-1 15,000 14,984,600
5.33% 9/5/97 -- P-1 11,710 11,437,804
Note
5.43% 6/19/97 -- P-1 20,000 20,000,000
5.39% 7/17/97 -- P-1 15,000 15,000,000
5.50% 9/11/97 -- P-1 15,000 15,000,000
---------------
Total Federal National Mortgage Association 76,422,404
---------------
Repurchase Agreements - 9.0%(d)
Goldman Sachs
6.47%(e) 4/1/97 -- -- 109,100 109,100,000
Morgan Stanley & Co.
6.25%(f) 4/1/97 -- -- 150,000 150,000,000
---------------
Total Repurchase Agreements 259,100,000
---------------
TOTAL INVESTMENTS - 100.1% 2,869,296,263(g)
LIABILITIES IN EXCESS OF OTHER ASSETS, NET - (0.1%) (1,832,649)
---------------
NET ASSETS - 100.0% $2,867,463,614
===============
</TABLE>
34
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Prime Series (concluded) Value
- --------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per:
Prime Share
($2,545,532,365 / 2,545,523,885 shares outstanding) $1.00
=====
Flag Investors Class A Share
($6,521,574 / 6,521,538 shares outstanding) $1.00
=====
Flag Investors Class B Share
($227,098 / 227,098 shares outstanding) $1.00
=====
Prime Institutional Share
($117,812,047 / 117,811,768 shares outstanding) $1.00
=====
Quality Cash Reserve Prime Share
($197,370,530 / 197,369,848 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 upon no more than five days'
notice. Interest rates on master notes are redetermined weekly. Rates shown
are the rates in effect on March 31, 1997.
(d) Collateral on repurchase agreements is taken into possession by the broker's
custodial bank upon entering into the repurchase agreement. The collateral
is marked to market daily to insure market value as being as least 102
percent of the resale price of the repurchase agreement.
(e) Dated 3/31/97, to be repurchased on 4/1/97, collateralized by U.S. Treasury
Notes with a market value of $111,282,862.
(f) Dated 3/31/97, to be repurchased on 4/1/97, collateralized by U.S. Treasury
Notes with a market value of $153,006,303.
(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 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
35
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Maturity Par
TREASURY SERIES Date (000) Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities - 99.5%
U.S. Treasury Bills(a) - 77.7%
5.010% 4/3/97 $ 14,600 $ 14,595,936
5.030% 4/3/97 9,300 9,297,401
5.060% 4/3/97 6,100 6,098,283
5.010% 4/10/97 16,000 15,979,960
5.000% 4/17/97 22,300 22,250,395
5.110% 4/17/97 35,000 34,920,511
5.140% 4/17/97 25,000 24,942,889
5.140% 4/17/97 2,000 1,995,431
5.180% 4/17/97 2,700 2,693,784
5.280% 4/17/97 4,600 4,589,205
4.990% 4/24/97 3,400 3,389,161
5.010% 4/24/97 27,400 27,312,297
5.140% 4/24/97 1,500 1,495,074
5.000% 5/1/97 37,300 37,144,428
5.030% 5/1/97 9,800 9,758,881
4.940% 5/15/97 40,000 39,758,489
5.010% 5/15/97 9,500 9,441,828
5.030% 5/15/97 7,200 7,155,692
4.940% 5/22/97 22,500 22,342,538
5.015% 5/22/97 7,000 6,950,268
5.020% 5/22/97 23,500 23,332,876
4.940% 5/29/97 18,400 18,253,408
5.040% 5/29/97 21,000 20,829,480
5.050% 5/29/97 18,000 17,853,550
5.200% 5/29/97 50,000 49,581,111
5.040% 6/5/97 2,800 2,774,495
5.050% 6/5/97 54,500 54,002,574
4.930% 6/12/97 15,000 14,852,100
5.030% 6/12/97 3,700 3,662,778
5.090% 6/12/97 23,000 22,765,860
5.150% 6/26/97 25,000 24,692,431
5.170% 6/26/97 14,100 13,925,857
5.200% 6/26/97 2,200 2,172,671
5.110% 7/24/97 3,000 2,951,455
5.160% 7/24/97 1,200 1,180,392
------------
Total U.S. Treasury Bills 574,943,489
------------
</TABLE>
36
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity Par
TREASURY SERIES (concluded) Date (000) Value
- -----------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Securities (concluded)
<S> <C> <C> <C> <C>
U.S. Treasury Notes - 21.8%
8.500% 4/15/97 $ 35,000 $ 35,042,568
6.500% 4/30/97 25,000 25,020,768
6.875% 4/30/97 20,000 20,025,202
6.500% 5/15/97 20,000 20,025,208
6.500% 5/15/97 15,000 15,023,683
5.625% 6/30/97 21,400 21,414,159
5.500% 7/31/97 9,700 9,700,000
5.750% 9/30/97 15,000 15,016,966
------------
Total U.S. Treasury Notes 161,268,554
------------
TOTAL INVESTMENTS IN U.S. TREASURY SECURITIES - 99.5% 736,212,043(b)
OTHER ASSETS LESS LIABILITIES, NET - 0.5% 3,441,530
------------
NET ASSETS - 100.0% $739,653,573
============
Net Asset Value, Offering and Redemption Price Per:
Treasury Share
($678,444,803 / 678,391,386 shares outstanding) $1.00
=====
Treasury Institutional Share
($61,208,770 / 61,199,346 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.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama -- 0.8%
The Port City Medical Clinic Board of
Mobile (Mobile Infirmary Association)
(Rabo Bank Nederland LOC)
3.55% 5/12/97(b) A-1+ VMIG-1 $ 5,100 $ 5,100,000
------------
Arkansas -- 1.3%
Arkansas State Development Authority
Health Care Facility (Sisters of Mercy)
(ABN-Amro Bank N.V. LOC)
3.45% 4/7/97(c) A-1+ VMIG-1 8,100 8,100,000
------------
Colorado -- 3.0%
Colorado Health Facilities Authority RB
(Sisters of Charity Health Care System)
(Toronto Dominion LOC)
3.45% 4/7/97(c) A-1+ VMIG-1 4,300 4,300,000
Colorado State General Fund TAN
4.50% 6/27/97(b) SP-1+ MIG-1 15,000 15,023,285
------------
19,323,285
------------
Georgia -- 11.2%
Burke County PCR (Oglethorpe Power
Company) (AMBAC Insurance)
3.60% 12/1/97(b) -- -- 6,000 6,000,000
Clayton County Housing Authority,
Multi-Family Housing Refunding RB
(Chateau Forest Apartments Project)
(FGIC Insurance)
3.40% 4/7/97(c) A-1+ VMIG-1 10,300 10,300,000
Cobb County Housing Authority,
Multi-Family Housing RB
(Mill Bridge Project) (FNMA LOC)
3.45% 4/7/97(c) A-1+ -- 12,450 12,450,000
Cobb County Housing Authority RB
(Post Bridge Project), Series 1995
(FNMA LOC)
3.45% 4/7/97(c) A-1+ -- 12,380 12,380,000
Dekalb County Housing Authority,
Multi-Family Housing (Post Ashford
Project) (FNMA LOC)
3.45% 4/7/97(c) A-1+ -- 7,895 7,895,000
Georgia Municipal Association Pooled
Bonds (MBIA Insurance)
3.40% 4/7/97(c) A-1+ VMIG-1 5,600 5,600,000
</TABLE>
38
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia (continued)
Roswell Housing Authority, Multi-Family
Housing RB (Post Canyon Project)
(FNMA LOC)
3.45% 4/7/97(c) A-1+ -- $ 5,500 $ 5,500,000
Smyrna Housing Authority RB
(Post Valley Project), Series 1995
(FNMA LOC)
3.45% 4/7/97(c) A-1+ -- 12,600 12,600,000
------------
72,725,000
------------
Idaho -- 2.6%
Idaho State TAN
4.50% 6/30/97(b) SP-1+ MIG-1 17,000 17,024,193
------------
Illinois -- 13.2%
Illinois Development Finance Authority
PCR (Commonwealth Edison Co.
Project), Series 94C (ABN-Amro Bank
N.V. LOC)
3.45% 4/7/97(c) A-1+ P-1 7,700 7,700,000
Illinois Development Finance Authority
RB (Chicago Symphony Orchestra
Project) (Northern Trust LOC)
3.50% 4/7/97(c) A-1 VMIG-1 11,300 11,300,000
Illinois Education Facilities Authority
Adjustable Demand RB (John F.
Kennedy Health Care Foundation)
(Harris Trust & Savings Bank LOC)
3.50% 5/14/97(b) A-1+ -- 12,800 12,800,000
Illinois Education Facilities Authority,
Commercial Paper Notes Pooled
Finance (Northern Trust LOC)
3.55% 8/14/97(b) A-1+ VMIG-1 7,000 7,000,000
Illinois Health Facilities Authority
(Evanston Hospital Corp.),
Series 1996
3.95% 8/15/97(b) A-1+ VMIG-1 5,000 5,000,000
Illinois Health Facilities Authority
(Gottlieb Health Resource, Inc.)
(Harris Trust & Savings Bank LOC)
3.50% 4/7/97(c) -- VMIG-1 10,600 10,600,000
</TABLE>
39
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
Illinois Health Facilities Authority,
Variable Rate Adjustable Demand RB
(Evanston Hospital Corp.)
3.85% 10/15/97(b) A-1+ VMIG-1 $10,000 $10,000,000
Illinois Health Facilities Authority,
Variable Rate Adjustable Demand RB
(Evanston Hospital Corp.)
3.85% 10/15/97(b) A-1+ VMIG-1 3,000 3,000,000
Illinois Health Facilities Authority,
Variable Rate Demand RB, Revolving
Fund Pooled Financing Program
(The University of Chicago Project)
3.55% 7/2/97(b) A-1+ VMIG-1 16,400 16,400,000
Illinois State Toll Highway Authority,
Toll Highway Priority, Series B
(Societe Generale LOC)
3.35% 4/7/97(c) A-1+ VMIG-1 1,400 1,400,000
------------
85,200,000
------------
Indiana -- 3.6%
Evansville Hospital Authority, Hospital
Revenue (Daughters of Charity,
St. Mary's Medical Center)
3.45% 4/7/97(c) A-1+ VMIG-1 7,800 7,800,000
Petersburg PCR (Indianapolis Power &
Light Co.) (AMBAC Insurance)
3.45% 4/7/97(c) -- VMIG-1 4,100 4,100,000
Petersburg PCR Refunding RB
(Indianapolis Power & Light Co.)
3.50% 5/8/97(b) A-1+ VMIG-1 7,500 7,500,000
Purdue University, Trustees of
Student Fee Bonds
3.45% 4/7/97(c) A-1+ VMIG-1 3,600 3,600,000
------------
23,000,000
------------
</TABLE>
40
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Iowa -- 1.0%
Iowa Finance Authority Health Care
Facility RB (Catholic Health Corp.-A)
(Toronto Dominion LOC)
3.35% 4/7/97(c) A-1+ -- $ 4,100 $ 4,100,000
Iowa Finance Authority Small Business
Development RB, Multi-Family
Housing Associates (Rabo Bank
Nederland LOC)
3.15% 4/7/97(c) -- VMIG-1 2,300 2,300,000
------------
6,400,000
------------
Louisiana -- 5.0%
East Baton Rouge Parish (Georgia-Pacific
Corp.) PCR (Toronto Dominion LOC)
3.45% 4/7/97(c) P-1 -- 2,700 2,700,000
Louisiana Public Facilities Authority
College and Equipment, Series A
(Societe Generale LOC)
3.40% 4/7/97(c) A-1+ VMIG-1 10,400 10,400,000
Plaquemines Port, Harbor and Terminal
District, Marine Terminal Facilities
Refunding RB (Junior) (Electro-Coal
Transfer Corporation Project)
3.45% 6/18/97(b) P-1 -- 7,000 7,000,000
Plaquemines Port, Harbor and Terminal
District, Marine Terminal Facilities
Refunding RB (Electro-Coal Transfer
Corporation Project)
3.45% 6/18/97(b) P-1 -- 6,325 6,325,000
St. Charles Parish PCR (Shell Oil
Company Project)
3.35% 4/7/97(c) A-1+ P-1 6,050 6,050,000
------------
32,475,000
------------
Maryland -- 7.5%
Howard County Consolidated
Public Improvement TECP BAN
3.40% 4/24/97(b) A-1+ P-1 28,200 28,200,000
Maryland Health & Higher Education
Facility Authority (Daughters of
Charity, National Health System)
3.45% 4/7/97(c) A-1+ VMIG-1 5,200 5,200,000
</TABLE>
41
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland (continued)
Maryland Health & Higher Education
Facility Authority (Daughters of
Charity, National Health System)
3.45% 4/7/97(c) -- VMIG-1 $10,800 $10,800,000
Washington Suburban Sanitary District,
Montgomery, Prince George's
Counties GO BAN
3.40% 4/7/97(c) A-1+ VMIG-1 4,300 4,300,000
------------
48,500,000
------------
Michigan -- 1.7%
Grand Rapids Water Supply
(Societe Generale LOC)
3.30% 4/7/97(c) -- VMIG-1 3,000 3,000,000
Michigan State Job Development
Authority Revenue (Gordon Food
Service Project) (Rabo Bank
Nederland LOC)
3.40% 4/7/97(c) -- VMIG-1 7,790 7,790,000
------------
10,790,000
------------
Minnesota -- 2.4%
Becker PCR RB (Junior) (Northern
States Power-Sherbourne Generating
Station Unit 3 Project)
3.55% 5/1/97(b) A-1+ P-1 3,000 3,000,000
Duluth Tax Increment RB
(Lake Superior Paper Industries
Project) (National Australia LOC)
3.45% 4/7/97(c) A-1+ VMIG-1 8,700 8,700,000
Minnesota State RAN
(AMBAC Insurance)
5.00% 6/30/97(b) AAA Aaa 4,000 4,014,245
------------
15,714,245
------------
Missouri -- 5.3%
Missouri Health and Educational Facilities
Authority, Christian Health Services,
Series A (Morgan Guaranty LOC)
3.30% 4/7/97(c) A-1+ -- 4,000 4,000,000
Missouri Health and Educational Facilities
Authority, Health Facility RB
(Sisters of Mercy)
3.45% 4/7/97(c) A-1+ VMIG-1 8,000 8,000,000
</TABLE>
42
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Missouri (continued)
Missouri Health and Educational Facilities
Authority RB (SSM Health Care
Obligated Group) (Morgan
Guaranty LOC)
3.55% 5/1/97(b) -- VMIG-1 $ 1,700 $ 1,700,000
Missouri Health and Educational Facilities
Authority (Sisters of Mercy)
3.45% 4/7/97(c) A-1+ VMIG-1 7,000 7,000,000
Missouri Health and Educational Facilities
Authority (Washington University),
Series 1984
3.45% 4/7/97(c) A-1+ VMIG-1 13,300 13,300,000
------------
34,000,000
------------
New Jersey -- 1.9%
Economic Development Authority
PCR Refunding RB (Public
Service Electric & Gas Co. Project)
(Swiss Bank LOC)
3.10% 4/7/97(c) A-1+ VMIG-1 3,300 3,300,000
Gloucester County PCR Refunding RB
(Mobil Oil Refining Corporation
Project)
3.10% 4/7/97(c) A-1+ VMIG-1 600 600,000
Mercer County Improvement Pooled
Government Loan Program (Credit
Suisse LOC)
3.15% 4/7/97(c) A-1+ VMIG-1 1,600 1,600,000
Salem County Industrial PCR Floating
Rate Bond (E.I. duPont de Nemours
and Company Project)
3.55% 4/7/97(c) A-1+ VMIG-1 6,500 6,500,000
------------
12,000,000
------------
New York -- 2.4%
New York Local Government Assistance
Variable Rate Bonds (Toronto
Dominion LOC)
3.35% 4/7/97(c) A-1+ VMIG-1 15,100 15,100,000
Triborough Bridge and Tunnel Authority
(FGIC Insurance)
3.45% 4/7/97(c) A-1+ VMIG-1 600 600,000
------------
15,700,000
------------
</TABLE>
43
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Carolina -- 0.5%
North Carolina Education Facility
Agency (Duke University)
3.35% 4/7/97(c) A-1+ VMIG-1 $ 3,200 $ 3,200,000
------------
Ohio -- 0.3%
Clermont County Health Facilities
Authority RB (Mercy Health System
Project) (Credit Suisse LOC)
3.45% 4/7/97(c) -- VMIG-1 2,000 2,000,000
------------
Oklahoma -- 2.0%
Oklahoma Industries Authority Hospital
RB (St. Anthony Parking Garage B)
(Morgan Guaranty LOC)
3.60% 6/2/97(b) -- VMIG-1 2,365 2,365,000
Oklahoma Industries Authority Medical
Practice Facility RB (SSM Health Care
Obligated Group) (St. Anthony
Physicians Building Project)
(Morgan Guaranty LOC)
3.60% 6/2/97(b) -- VMIG-1 5,560 5,560,000
Oklahoma Water Resources Board State
Loan Program RB (Swiss Bank LOC)
3.50% 9/2/97(b) A-1+ -- 5,000 5,000,000
------------
12,925,000
------------
Pennsylvania -- 3.7%
Beaver County IDA PCR Refunding RB
(Atlantic Richfield Company Project)
3.45% 4/7/97(c) A-1 P-1 12,000 12,000,000
Delaware County IDA Variable Rate
Demand Solid Waste Revenue
(Scott Paper Company)
3.45% 4/7/97(c) A-1+ P-1 7,000 7,000,000
Pennsylvania State TAN
4.50% 6/30/97(b) SP-1+ MIG-1 5,000 5,008,965
------------
24,008,965
------------
Puerto Rico -- 0.2%
Puerto Rico Government Development
Bank Adjustable Refunding Bonds
(Credit Suisse LOC)
3.10% 4/7/97(c) A-1+ VMIG-1 1,600 1,600,000
------------
</TABLE>
44
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tennessee -- 2.6%
Metropolitan Nashville Airport Authority,
Airport Improvement Refunding RB
(Societe Generale LOC)
3.45% 4/7/97(c) A-1+ VMIG-1 $11,900 $11,900,000
Tennessee GO BAN
3.45% 4/7/97(c) A-1+ P-1 5,000 5,000,000
------------
16,900,000
------------
Texas -- 17.8%
Austin Combined Utility Systems TECP
(Morgan Guaranty LOC)
3.55% 8/14/97(b) A-1+ P-1 8,551 8,551,000
Board of Regents, Texas A & M
University System
3.50% 5/1/97(b) A-1+ P-1 7,000 7,000,000
Dallas Area Rapid Transit Sales Tax
Revenue, Commercial Paper Notes
(Swiss Bank LOC)
3.55% 5/12/97(b) A-1+ P-1 10,000 10,000,000
Dallas Area Rapid Transit Sales Tax
RB (Credit Suisse LOC)
3.50% 5/9/97(b) A-1+ P-1 12,500 12,500,000
Gulf Coast Waste Disposal Authority
PCR (Exxon)
3.80% 4/1/97(c) A-1+ VMIG-1 200 200,000
Harris County Health Facilities
Development Hospital RB (San Jacinto
Methodist Hospital Project) (Morgan
Guaranty LOC)
3.55% 6/2/97(b) -- VMIG-1 10,750 10,750,000
Harris County Toll Road Unlimited Tax
and Subordinate Lien Revenue,
Adjustable Fixed-Rate Bonds, Series B
3.30% 4/7/97(c) A-1+ VMIG-1 12,000 12,000,000
Harris County Toll Road Unlimited Tax
and Subordinate Lien Revenue,
Adjustable Fixed-Rate Bonds, Series F
3.30% 4/7/97(c) A-1+ VMIG-1 4,400 4,400,000
Harris County Toll Road Unlimited Tax
and Subordinate Lien Revenue,
Adjustable Fixed-Rate Bonds, Series G
3.40% 4/7/97(c) A-1+ VMIG-1 900 900,000
</TABLE>
45
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (continued)
Harris County Toll Road Unlimited Tax
and Subordinate Lien Revenue,
Adjustable Fixed-Rate Bonds, Series H
3.40% 4/7/97(c) A-1+ VMIG-1 $ 3,800 $ 3,800,000
Hockley County Industrial Development
Corp. (Amoco Company Project)
3.60% 5/1/97(b) A-1+ P-1 8,000 8,000,000
Houston GO, Series B TECP
3.45% 6/17/97(b) A-1+ P-1 5,000 5,000,000
Lower Colorado River Authority TECP
3.25% 4/8/97(b) A-1+ P-1 13,400 13,400,000
Lower Neches Valley Authority
(Chevron Inc.)
3.50% 8/15/97(b) A-1+ -- 4,500 4,500,000
State of Texas TRAN
4.75% 8/29/97(b) SP-1+ MIG-1 5,000 5,015,490
Texas Higher Education Authority
Facilities Revenue, Series 85B
(FGIC Insurance)
3.40% 4/7/97(c) A-1+ VMIG-1 4,100 4,100,000
Yoakum County Industrial Development
Adjustable Rate PCR RB (Amoco
Company Project)
3.60% 5/1/97(b) A-1+ VMIG-1 5,265 5,265,000
------------
115,381,490
------------
Utah -- 4.4%
Intermountain Power Agency, Power
Supply RB (Morgan Guaranty LOC)
3.93% 6/16/97(b) -- -- 7,500 7,500,000
Intermountain Power Agency Variable
Rate, Power Supply Refunding RB
(Swiss Bank LOC)
3.50% 5/1/97(b) A-1+ VMIG-1 13,000 13,000,000
Salt Lake City Flexible Rate RB (Pooled
Hospital Financing Program)
3.45% 4/7/97(c) A-1+ VMIG-1 8,000 8,000,000
------------
28,500,000
------------
</TABLE>
46
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating(a)
--------------- Par
TAX-FREE SERIES (continued) S&P Moody's (000) Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Washington -- 3.6%
Chelan County Public Utility, District
No.1 (Chelan Hydro Consolidated
System) Series 1995A DN (Credit
Suisse LOC)
3.30% 4/7/97(c) A-1+ VMIG-1 $ 3,475 $ 3,475,000
King County Sewer Revenue Notes,
Series A
3.50% 8/20/97(b) A-1 P-1 10,000 10,000,000
King County Sewer Revenue Notes,
Series A
3.25% 4/29/97(b) A-1 P-1 10,000 10,000,000
------------
23,475,000
------------
Wisconsin -- 1.5%
Pleasant Prairie Village PCR Refunding
RB (Wisconsin Electric Power
Company Project)
3.50% 4/7/97(c) A-1+ P-1 10,000 10,000,000
------------
TOTAL INVESTMENTS - 99.5% $644,042,178(d)
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 0.5% 3,169,847
------------
NET ASSETS - 100.0% $647,212,025
============
Net Asset Value, Offering and
Redemption Price Per Share
($647,212,025/647,283,274 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) Security has an outstanding call, mandatory put or optional put by the
issuer. Par value and maturity date reflect such call or put.
(c) Demand security; payable upon demand by the Fund with usually no more than
seven (7) calendar days' notice. Interest rates are redetermined
periodically. Rates shown are those in effect on March 31, 1997.
(d) Aggregate cost for financial reporting and federal tax purposes.
See Notes to Financial Statements.
47
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
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.
FGIC Financial Guaranty Insurance Corporation
MBIA Municipal Bond Investors Assurance
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.
48
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended March 31, 1997
<TABLE>
<CAPTION>
Prime Treasury Tax-Free
Series Series Series
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income: (Note 1)
Interest income $150,388,078 $37,344,014 $20,589,946
------------ ----------- -----------
Expenses:
Distribution fee (Note 2) 7,395,916 1,681,441 1,479,581
Investment advisory fee (Note 2) 7,394,936 1,780,708 1,630,384
Transfer agent fee 1,686,323 242,470 163,383
Custodian fee 301,072 144,081 72,228
Accounting fee (Note 2) 157,854 126,264 63,954
Directors' fees 166,782 26,750 48,000
Registration fees 312,763 52,125 85,000
Legal fees 48,809 23,887 20,000
Audit fee 34,485 11,251 13,415
Printing & postage fees 214,446 134,757 78,250
Other expenses 115,181 50,494 29,744
------------ ----------- -----------
Total expenses 17,828,567 4,274,228 3,683,939
Less: Fees waived (Note 2) (120,055) -- --
------------ ----------- -----------
Net expenses 17,708,512 4,274,228 3,683,939
------------ ----------- -----------
Net investment income 132,679,566 33,069,786 16,906,007
------------ ----------- -----------
Net realized gain from security
transactions 13,047 1,180 15,016
------------ ----------- -----------
Net increase in net assets resulting
from operations $132,692,613 $33,070,966 $16,921,023
============ =========== ===========
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets March 31, 1997
<TABLE>
<CAPTION>
PRIME SERIES
- -----------------------------------------------------------------------------------
Year Ended Year Ended
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Increase/(Decrease) in Net Assets
Operations:
Net investment income $ 132,679,566 $ 107,454,378
Net realized gain/(loss) on sales of
investments 13,047 (6,050)
-------------- --------------
Net increase in net assets resulting
from operations 132,692,613 107,448,328
Distributions to Shareholders From:
Net investment income:
Alex. Brown Cash Reserve Prime, Treasury
and Tax-Free Shares, respectively (119,826,842) (99,181,255)
Alex. Brown Cash Reserve
Institutional Shares (4,256,297) (1,334,079)
Flag Investors Class A Shares (295,562) (402,702)
Flag Investors Class B Shares (1,260) (300)
Quality Cash Reserve Prime Shares (8,299,605) (6,536,042)
-------------- --------------
Total distributions (132,679,566) (107,454,378)
Capital Share Transactions, net - (Note 3) 264,670,792 1,016,482,516
-------------- --------------
Total increase in net assets 264,683,839 1,016,476,466
Net Assets:
Beginning of year 2,602,779,775 1,586,303,309
-------------- --------------
End of year $2,867,463,614 $2,602,779,775
============== ==============
</TABLE>
50
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
TREASURY SERIES TAX-FREE SERIES
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Increase/(Decrease) in Net Assets
Operations:
Net investment income $ 33,069,786 $ 32,463,791 $ 16,906,007 $ 17,012,671
Net realized gain/(loss) on sales of
investments 1,180 51,785 15,016 4,419
------------ ------------ ------------ ------------
Net increase in net assets resulting 33,070,966 32,515,576 16,921,023 17,017,090
from operations
Distributions to Shareholders From:
Net investment income:
Alex. Brown Cash Reserve Prime, Treasury (30,533,284) (30,565,630) (16,906,007) (17,012,671)
and Tax-Free Shares, respectively
Alex. Brown Cash Reserve (2,536,502) (1,898,161) -- --
Institutional Shares -- -- -- --
Flag Investors Class A Shares -- -- -- --
Flag Investors Class B Shares -- -- -- --
Quality Cash Reserve Prime Shares ------------ ------------ ------------ ------------
(33,069,786) (32,463,791) (16,906,007) (17,012,671)
Total distributions
21,015,478 192,365,923 75,690,009 96,118,352
Capital Share Transactions, net - (Note 3) ------------ ------------ ------------ ------------
21,016,658 192,417,708 75,705,025 96,122,771
Total increase in net assets
Net Assets: 718,636,915 526,219,207 571,507,000 475,384,229
Beginning of year ------------ ------------ ------------ ------------
$739,653,573 $718,636,915 $647,212,025 $571,507,000
End of year ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
ALEX. BROWN CASH RESERVE PRIME SHARES
- --------------------------------------------------------------------------------
Year ended
March 31,
----------
1997
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00
--------------
Income from Investment Operations:
Net investment income 0.0478
Less Distributions:
Dividends from net investment income (0.0478)
--------------
Net asset value at end of year $ 1.00
==============
Total Return:
Based on net asset value per share 4.88%
Ratios to Average Daily Net Assets:
Expenses 0.63%
Net investment income 4.78%
Supplemental Data:
Net assets at end of year $2,545,532,365
Number of shares outstanding at end of year 2,545,523,885
52
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
ALEX. BROWN CASH RESERVE PRIME SHARES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- -------------- -------------- --------------
Income from Investment Operations: 0.0524 0.0442 0.0262 0.0295
Net investment income
Less Distributions: (0.0524) (0.0442) (0.0262) (0.0295)
Dividends from net investment income -------------- -------------- -------------- --------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net asset value at end of year ============== ============== ============== ==============
Total Return:
Based on net asset value per share 5.36% 4.51% 2.65% 2.99%
Ratios to Average Daily Net Assets:
Expenses 0.60% 0.61% 0.62% 0.63%
Net investment income 5.21% 4.46% 2.62% 2.95%
Supplemental Data:
Net assets at end of year $2,386,681,216 $1,472,079,739 $1,350,334,979 $1,470,711,552
Number of shares outstanding at end of year 2,386,684,392 1,472,077,488 1,350,332,916 1,470,709,489
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS A
- --------------------------------------------------------------------------------
Year ended
March 31,
----------
1997
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00
----------
Income from Investment Operations:
Net investment income 0.0478
Less Distributions:
Dividends from net investment income (0.0478)
----------
Net asset value at end of year $ 1.00
==========
Total Return:
Based on net asset value per share 4.88%
Ratios to Average Daily Net Assets:
Expenses 0.63%
Net investment income 4.78%
Supplemental Data:
Net assets at end of year $6,521,574
Number of shares outstanding at end of year 6,521,310
54
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS A (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------- -----------
Income from Investment Operations: 0.0524 0.0442 0.0262 0.0295
Net investment income
Less Distributions: (0.0524) (0.0442) (0.0262) (0.0295)
Dividends from net investment income ---------- ---------- ----------- -----------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net asset value at end of year ========== ========== =========== ===========
Total Return: 5.36% 4.51% 2.65% 2.99%
Based on net asset value per share
Ratios to Average Daily Net Assets: 0.60% 0.61% 0.62% 0.63%
Expenses 5.25% 4.26% 2.62% 2.95%
Net investment income
Supplemental Data: $5,976,831 $7,726,696 $18,116,648 $10,392,282
Net assets at end of year 5,976,824 7,726,698 18,116,633 10,392,267
Number of shares outstanding at end of year
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS B
- --------------------------------------------------------------------------------
Year ended
March 31,
----------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
--------
Income from Investment Operations:
Net investment income 0.0414
Less Distributions:
Dividends from net investment income (0.0414)
--------
Net asset value at end of period $ 1.00
========
Total Return:
Based on net asset value per share 4.22%
Ratios to Average Daily Net Assets:
Expenses 1.38%
Net investment income 4.14%
Supplemental Data:
Net assets at end of period $227,098
Number of shares outstanding at end of period 227,098
- ---------
(1) Commencement of operations.
(2) Annualized.
56
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
FLAG INVESTORS CASH RESERVE PRIME SHARES--CLASS B (continued)
- --------------------------------------------------------------------------------
April 3, 1995(1)
through
March 31,
----------------
1996
Per Share Operating Performance:
Net asset value at beginning of period $ 1.00
-------
Income from Investment Operations: 0.0361
Net investment income
Less Distributions: (0.0361)
Dividends from net investment income -------
$ 1.00
Net asset value at end of period =======
3.69%(2)
Total Return:
Based on net asset value per share 1.38%(2)
Ratios to Average Daily Net Assets: 4.30%(2)
Expenses
Net investment income $10,200
Supplemental Data: 10,200
Net assets at end of period
Number of shares outstanding at end of period
See Notes to Financial Statements.
57
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
ALEX. BROWN CASH RESERVE PRIME INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended
March 31,
----------
1997
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00
--------
Income from Investment Operations:
Net investment income 0.0503
Less Distributions:
Dividends from net investment income (0.0503)
--------
Net asset value at end of year $ 1.00
========
Total Return:
Based on net asset value per share 5.15%
Ratios to Average Daily Net Assets:
Expenses 0.38%
Net investment income 5.04%
Supplemental Data:
Net assets at end of year $117,812,047
Number of shares outstanding at end of year 117,811,768
58
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
ALEX. BROWN CASH RESERVE PRIME INSTITUTIONAL SHARES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations: ----------- ----------- ----------- -----------
Net investment income 0.0548 0.0472 0.0294 0.0327
Less Distributions:
Dividends from net investment income (0.0548) (0.0472) (0.0294) (0.0327)
Net asset value at end of year ----------- ----------- ----------- -----------
$ 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%
Ratios to Average Daily Net Assets:
Expenses 0.35% 0.36% 0.30% 0.31%
Net investment income 5.32% 4.57% 2.94% 3.24%
Supplemental Data:
Net assets at end of year $53,699,315 $11,904,716 $23,437,449 $28,884,078
Number of shares outstanding at end of year 53,699,535 11,904,663 23,437,512 28,884,132
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
QUALITY CASH RESERVE PRIME SHARES
- --------------------------------------------------------------------------------
Year ended
March 31,
---------
1997
Per Share Operating Performance:
Net asset value at beginning of year .............. $ 1.00
------------
Income from Investment Operations:
Net investment income ............................. 0.0449
Less Distributions:
Dividends from net investment income .............. (0.0449)
------------
Net asset value at end of year .................... $ 1.00
============
Total Return:
Based on net asset value per share ................ 4.59%
Ratios to Average Daily Net Assets:
Expenses .......................................... 0.91%(1)
Net investment income ............................. 4.50%(2)
Supplemental Data:
Net assets at end of year ......................... $197,370,530
Number of shares outstanding at end of year ....... 197,369,848
- ------------
(1) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.98% and 0.95% for the years ended March 31, 1997 and 1996,
respectively.
(2) Ratio of net investment income to average daily net assets prior to partial
fee waivers was 4.43% and 4.86% for the years ended March 31, 1997 and
1996, respectively.
60
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
QUALITY CASH RESERVE PRIME SHARES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ----------- ----------- ------------
Income from Investment Operations:
Net investment income ........................ 0.0493 0.0402 0.0218 0.0253
Less Distributions:
Dividends from net investment income ......... (0.0493) (0.0402) (0.0218) (0.0253)
------------ ----------- ----------- ------------
Net asset value at end of year ............... $ 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%
Ratios to Average Daily Net Assets:
Expenses ..................................... 0.90%(1) 0.96% 1.06% 1.04%
Net investment income ........................ 4.91%(2) 4.04% 2.18% 2.53%
Supplemental Data:
Net assets at end of year .................... $156,412,213 $94,592,158 $92,678,440 $101,321,868
Number of shares outstanding at end of year... $156,412,393 $94,591,979 $92,678,268 $101,321,668
</TABLE>
See Notes to Financial Statements
61
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
ALEX. BROWN CASH RESERVE TREASURY SHARES
- --------------------------------------------------------------------------------
Year ended
March 31,
------------
1997
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 1.00
------------
Income from Investment Operations:
Net investment income ........................ 0.0453
Less Distributions:
Dividends from net investment income ......... (0.0453)
------------
Net asset value at end of year ............... $ 1.00
============
Total Return:
Based on net asset value per share ........... 4.63%
Ratios to Average Daily Net Assets:
Expenses ..................................... 0.61%
Net investment income ........................ 4.54%
Supplemental Data:
Net assets at end of year .................... $678,444,803
Number of shares outstanding at end of year... 678,391,386
- ------------
(1) Ratio of expenses to average daily net assets prior to partial fee waivers
was 0.56% for each of 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 4.08%, 2.53% and 2.86% for the years ended March 31, 1995,
1994 and 1993, respectively.
62
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
ALEX. BROWN CASH RESERVE TREASURY SHARES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Income from Investment Operations:
Net investment income ...................... 0.0494 0.0411 0.0255 0.0285
Less Distributions:
Dividends from net investment income ...... (0.0494) (0.0411) (0.0255) (0.0285)
------------ ------------ ------------ ------------
Net asset value at end of year ............ $ 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%
Ratios to Average Daily Net Assets:
Expenses .................................. 0.58% 0.55%(1) 0.54%(1) 0.55%(1)
Net investment income ..................... 4.94% 4.09%(2) 2.55%(2) 2.87%(2)
Supplemental Data:
Net assets at end of year ................. $666,814,158 $512,167,212 $581,724,214 $618,175,839
Number of shares outstanding at end of year 666,762,028 512,162,864 581,723,448 618,152,465
</TABLE>
See Notes to Financial Statements.
63
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
ALEX. BROWN CASH RESERVE TREASURY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended
March 31,
------------
1997
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 1.00
-----------
Income from Investment Operations:
Net investment income ..................... 0.0481
Less Distributions:
Dividends from net investment income ...... (0.0481)
-----------
Net asset value at end of year ............ $ 1.00
===========
Total Return:
Based on net asset value per share ........ 4.92%
Ratios to Average Daily Net Assets:
Expenses .................................. 0.36%
Net investment income ..................... 4.81%
Supplemental Data:
Net assets at end of year ................. $61,208,770
Number of shares outstanding at end of year 61,199,345
- ------------
(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.
64
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
ALEX. BROWN CASH RESERVE TREASURY INSTITUTIONAL SHARES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- -----------
Income from Investment Operations:
Net investment income ..................... 0.0523 0.0438 0.0282 0.0314
Less Distributions:
Dividends from net investment income ...... (0.0523) (0.0438) (0.0282) (0.0314)
----------- ----------- ----------- -----------
Net asset value at end of year ............ $ 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%
Ratios to Average Daily Net Assets:
Expenses .................................. 0.33% 0.30%(1) 0.27%(1) 0.26%(1)
Net investment income ..................... 5.12% 4.15%(2) 2.82%(2) 3.16%(2)
Supplemental Data:
Net assets at end of year ................. $51,822,757 $14,051,995 $39,692,848 $60,146,987
Number of shares outstanding at end of year 51,813,226 14,046,467 39,688,259 60,140,874
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
ALEX. BROWN CASH RESERVE TAX-FREE SERIES
- --------------------------------------------------------------------------------
Year ended
March 31,
-------------
1997
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 1.00
------------
Income from Investment Operations:
Net investment income ..................... 0.0286
Less Distributions:
Dividends from net investment income ...... (0.0286)
------------
Net asset value at end of year ............ $ 1.00
============
Total Return:
Based on net asset value per share ........ 2.90%
Ratios to Average Daily Net Assets:
Expenses .................................. 0.62%
Net investment income ..................... 2.86%
Supplemental Data:
Net assets at end of year ................. $647,212,025
Number of shares outstanding at end of year 647,283,274
66
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
ALEX. BROWN CASH RESERVE TAX-FREE SERIES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Income from Investment Operations:
Net investment income ..................... 0.0318 0.0271 0.0184 0.0213
Less Distributions:
Dividends from net investment income ...... (0.0318) (0.0271) (0.0184) (0.0213)
------------ ------------ ------------ ------------
Net asset value at end of year ............ $ 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%
Ratios to Average Daily Net Assets:
Expenses .................................. 0.60% 0.57% 0.58% 0.60%
Net investment income ..................... 3.16% 2.74% 1.84% 2.13%
Supplemental Data:
Net assets at end of year ................. $571,507,000 $475,384,229 $378,859,232 $315,661,447
Number of shares outstanding at end of year 571,593,265 475,474,913 378,939,262 315,700,742
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Alex. Brown Cash Reserve Fund, Inc. ("the Fund") commenced operations
August 11, 1981. The Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end Investment Management Company. Its
objective is to seek as high a level of current income as is consistent with
preservation of capital and liquidity.
The Fund consists of three portfolios: the Prime Series, the Treasury
Series and the Tax-Free Series. The Prime Series consists of five classes: 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
consists of two classes: Alex. Brown Cash Reserve Treasury Shares ("Treasury
Shares") and Alex. Brown Cash Reserve Treasury Institutional Shares ("Treasury
Institutional Shares"). The Tax-Free Series consists of one class: Alex. Brown
Cash Reserve Tax-Free Series ("Tax-Free Series"). Shareholders can vote only on
issues that affect the share classes they own.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--Each portfolio has a weighted average maturity of
90 days or less. The Fund values portfolio securities on the basis of
amortized cost, which approximates market value. Using this method,
the Fund values a security at its cost when it is purchased. The Fund
then assumes a constant amortization to maturity of any discount or
premium.
B. Repurchase Agreements--The Prime Series may enter into tri-party
repurchase agreements with broker-dealers and domestic banks. A
repurchase agreement is a short-term investment in which the Fund buys
a debt security that the broker agrees to repurchase at a set time and
price. The third party, which is the broker's custodial bank, holds
the collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
68
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes. Each portfolio is treated as a
separate entity for federal income tax purposes.
The Tax-Free Series and Prime Series each have a capital loss
carryforward of $72,632 and $1,520, respectively, that may be carried
forward to offset any capital gains if necessary. These capital loss
carryforwards begin to expire in the years 2000 and 2005,
respectively, if not used.
D. Security Transactions, Investment Income and Distributions--The Fund
uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata amortization of premiums and accretion of discounts when
appropriate. Dividends to shareholders are declared daily. Dividend
distributions or reinvestments are made monthly.
E. Expenses--Operating expenses for each share class are charged to that
class' operations. If a Fund expense cannot be directly attributed to
a share class, the expense is prorated among the classes that the
expense affects and is based on the classes' relative net assets.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the investment advisor for all series. Under the terms of
the investment advisory agreement, the Fund pays ICC a fee. This fee is
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 the amount over $3.5 billion.
The Prime Series pays an additional fee that is calculated daily and paid
monthly at the annual rate of .02% of its average daily net assets. The Tax-Free
Series also pays an additional fee that is calculated daily and paid monthly at
the annual rate of .03% of its average daily net assets. Prior to August 23,
1995, the Fund paid ICC a different fee. This fee was 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 the amount over $1.5 billion.
69
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--continued
PNC Institutional Management Corporation ("PIMC") is the sub-advisor for
the Tax-Free Series. As compensation for its subadvisory services, ICC pays PIMC
a fee. This fee is 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
the amount over $4 billion. For the year ended March 31, 1997, ICC paid PIMC
$665,664 for sub-advisory services for the Tax-Free Series.
As compensation for its accounting services, the Prime Series and Treasury
Series pay ICC an annual fee that is calculated daily and paid monthly from the
two series' average daily net assets. The Prime Series paid $157,854 and the
Treasury Series paid $126,264 to ICC for accounting services for the year ended
March 31, 1997.
As compensation for its accounting services, the Tax-Free Series pays PFPC
Inc. ("PFPC"), an affiliate of PIMC, an annual fee that is calculated daily and
paid monthly from its average daily net assets. The Tax-Free Series paid $63,954
to PFPC for accounting services for the year ended March 31, 1997.
As compensation for its transfer agent services, the three series pay ICC a
per account fee that is calculated and paid monthly. The Prime Series paid
$1,686,323, the Treasury Series paid $242,470 and the Tax-Free Series paid
$163,383 to ICC for transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Prime Shares, Flag
Investors Class A Shares, Treasury Shares and the Tax-Free Series pay Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee equal to 0.25% of these
classes' average daily net assets. Alex. Brown was paid $6,275,671, $15,461,
$1,681,411 and $1,479,581 for distribution services for the Prime Shares, Flag
Investors Class AShares, Treasury Shares and Tax-Free Series, respectively. The
Quality Cash Shares and Flag Investors Class B Shares also pay Alex. Brown an
annual fee for distribution services. This fee is equal to .60% of the Quality
Cash Shares' aggregate average daily net assets or $1,106,876 and 1.00% of the
Flag Investors Class B Shares' aggregate average daily net assets or $307.
ICC and Alex. Brown may voluntarily waive or reimburse a portion of their
advisory or distribution fees for the Prime, Treasury and Tax-Free Series to
preserve or enhance each series' performance. If ICC decides to waive part of
its fee, PIMC will waive the same proportion of its fee for the same time
periods. These voluntary waivers and reimbursements are not contractual and
could change. Any reimbursements by ICC, Alex. Brown or PIMC are limited to the
fees they actually received for the fiscal year. ICC and PIMC did not waive any
advisory fees for the year ended March 31, 1997. Alex. Brown voluntarily waived
distribution fees of $120,055 for the Quality Cash Shares for the year ended
March 31, 1997.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
March 31,
70
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
1997 was $21,193 for the Prime Series, $5,903 for the Treasury Series and
$20,585 for the Tax-Free Series. The accrued liability at March 31, 1997 was
$178,614 for the Prime Series, $67,119 for the Treasury Series and $68,031 for
the Tax-Free Series.
NOTE 3--Capital Stock and Share Information
The Fund is authorized to issue up to 6.4 billion shares of $.001 par value
capital stock (3.55 billion Prime Series, 1.5 billion Treasury Series, 1 billion
Tax-Free Series and 350 million undesignated). Transactions in shares of the
Fund were as follows:
March 31, 1997 March 31, 1996
-------------- --------------
Prime Series:
Sold:
Prime Shares ..................... 22,263,288,298 19,439,463,533
Flag Investors Class A Shares .... 9,331,912 12,118,053
Flag Investors Class B Shares .... 328,144 24,535
Prime Institutional Shares ....... 912,825,877 213,159,539
Quality Cash Shares .............. 1,001,597,821 1,285,040,597
Issued as reinvestment of dividends:
Prime Shares ..................... 113,931,978 93,103,137
Flag Investors Class A Shares .... 281,420 374,561
Flag Investors Class B Shares .... 1,264 --
Prime Institutional Shares ....... 3,084,567 753,855
Quality Cash Shares .............. 8,045,624 6,300,386
Redeemed:
Prime Shares ..................... (22,218,380,783) (18,617,959,766)
Flag Investors Class A Shares .... (9,068,618) (14,242,488)
Flag Investors Class B Shares .... (112,510) (14,335)
Prime Institutional Shares ....... (851,798,212) (172,118,522)
Quality Cash Shares .............. (968,685,990) (1,229,520,569)
--------------- ---------------
Net increase ................... 264,670,792 1,016,482,516
=============== ===============
Treasury Series:
Sold:
Treasury Shares .................. 4,075,840,415 4,043,423,430
Treasury Institutional Shares .... 458,391,680 396,793,576
Issued as reinvestment of dividends:
Treasury Shares .................. 29,377,891 28,890,267
Treasury Institutional Shares .... 1,597,049 417,316
Redeemed:
Treasury Shares .................. (4,093,588,948) (3,917,714,533)
Treasury Institutional Shares .... (450,602,609) (359,444,133)
-------------- --------------
Net increase ................... 21,015,478 192,365,923
============== ==============
Tax-Free Series:
Sold ............................... 5,222,168,283 4,817,984,787
Issued as reinvestment of dividends 16,162,636 16,116,851
Redeemed ........................... (5,162,640,910) (4,737,983,286)
-------------- --------------
Net increase ................... 75,690,009 96,118,352
============== ==============
71
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Net Assets
On March 31, 1997, net assets consisted of:
Prime Treasury Tax-Free
Series Series Series
-------------- ------------ ------------
Paid-in capital $2,867,456,646 $739,586,543 $647,284,657
Undistributed net realized
gain/(loss) on sales of
investments 6,968 67,030 (72,632)
-------------- ------------ ------------
$2,867,463,614 $739,653,573 $647,212,025
============== ============ ============
NOTE 5--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
- --------------------------------------------------------------------------------
IMPORTANT INCOME TAX INFORMATION
Tax-Free Series
---------------
One hundred percent of the dividends paid by the Tax-Free Series of Alex. Brown
Cash Reserve Fund, Inc. for the fiscal year ended March 31, 1997 qualified as
exempt-interest dividends for federal income tax purposes.
Treasury Series
---------------
One hundred percent of the dividends paid by the Treasury Series of Alex. Brown
Cash Reserve Fund, Inc. for the fiscal year ended March 31, 1997 were derived
from interest on investments in direct obligations of the U.S. Treasury.
Currently, most states allow the percentage of dividend income attributable to
federal obligations to be exempt from state income tax. We recommend that you
consult your tax advisor to determine if any portion of the dividends you
received are exempt from state income tax.
- --------------------------------------------------------------------------------
72
<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, 1997, and the related statement of operations for the year then
ended, 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 four 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 the year 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, 1997 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, 1997, and the results of their operations for the year then
ended, 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 four years in the
period then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 2, 1997
73
<PAGE>
PART C
OTHER INFORMATION
Item 24
(a) Financial Statements
In Part A:
Financial Highlights
In Part B:
(1) Statement of Net Assets as of March 31, 1997
(2) Statement of Operations for the year ended March 31, 1997
(3) Statements of Changes in Net Assets for the years ended
March 31, 1997 and March 31, 1996
(4) Notes to Financial Statements
(5) Report of Independent Accountants
In Part C:
None
(b) Exhibits
Exhibit
Number Description
- ------ -----------
(1) Charter
(a) Articles of Incorporation.(3)
(b) Articles Supplementary to Articles of Incorporation dated June 28,
1990.(3)
(c) Articles Supplementary to Articles of Incorporation dated July 31,
1990.(3)
(d) Articles Supplementary to Articles of Incorporation dated May 6,
1992.(3)
(e) Articles Supplementary to Articles of Incorporation, dated December
31, 1994.(3)
(f) Articles Supplementary to Articles of Incorporation dated December
29, 1995.(4)
(g) Articles Supplementary to Articles of Incorporation dated October
8, 1996.(4)
(h) Articles Supplementary to Articles of Incorporation dated March 28,
1997.(1)
(I) Articles Supplementary to Articles of Incorporation dated June 17,
1997.(1)
(2) By-Laws.(3)
(3) Certain Voting Trust Agreements - None.
(4) Specimen Security
(a) Form of Specimen Certificate with respect to Prime Series
Shares and Treasury Shares is incorporated herein by
reference to Exhibit (1)(a) Articles of Incorporation and
Exhibit (2) By-Laws.
C-1
<PAGE>
(b) Form of Specimen Certificate with respect to Alex. Brown Cash
Reserve Tax-Free Shares is herein incorporated by reference to
Exhibit (1)(a) Articles of Incorporation and Exhibit (2)
By-Laws.
(5) Advisory Agreement
(a) Amended Investment Advisory Agreement between Registrant and
Investment Company Capital Corp. with respect to the Prime
Series.(3)
(b) Amended Investment Advisory Agreement between Registrant and
Investment Company Capital Corp. with respect to the Treasury
Series.(3)
(c) Amended Investment Advisory Agreement between Registrant and
Investment Company Capital Corp. with respect to the Tax-Free
Series.(3)
(d) Sub-Advisory Agreement among Registrant, Flag Investors
Management Corp. (now known as Investment Company Capital
Corp.) and Provident Institutional Management Corporation (now
known as PNC Institutional Management Corporation) with
respect to the Tax-Free Series, as in effect from June 1,
1991.(3)
(6) Underwriting or Distribution Agreement
(a) Distribution Agreement containing a Plan of Distribution under
Rule 12b-1 dated as of April 5, 1990 between Alex. Brown &
Sons Incorporated and Registrant.(3)
(b) Form of Shareholder Processing and Service Agreement (Dealer
Agreement) between Alex. Brown & Sons Incorporated and
Participating Broker-Dealers.(3)
(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents.(3)
(d) Distribution Agreement with respect to Institutional Shares
dated as of April 4, 1990 between Alex. Brown & Sons
Incorporated and Registrant.(3)
(e) Distribution Agreement containing a Plan of Distribution under
Rule 12b-1 dated as of October 5, 1990 between Alex. Brown &
Sons Incorporated and Registrant with respect to Tax-Free
Series.(3)
(f) Form of Shareholder Processing and Service Agreement (Dealer
Agreement) between Alex. Brown & Sons Incorporated and
Participating Broker-Dealers with respect to Registrant's Tax-
Free Series.(3)
(g) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents with respect to Registrant's
Tax-Free Series.(3)
(h) Distribution Agreement containing a Plan of Distribution under
Rule 12b-1 dated as of January 31, 1991 between Alex. Brown &
Sons Incorporated and Registrant with respect to Quality Cash
Reserve Prime Shares.(3)
(i) Form of Dealer Agreement between Alex. Brown & Sons
Incorporated and Participating Broker Dealers with respect to
Quality Cash Reserve Prime Shares.(3)
(j) Distribution Agreement between Alex. Brown & Sons Incorporated
and Alex. Brown with respect to Flag Investors Cash Reserve
Prime Shares-Class B.(3)
C-2
<PAGE>
(k) Form of Shareholder Servicing Agreement for Flag Investors
Shares.(3)
(l) Form of Sub-Distribution Agreement for Flag Investors
Shares.(4)
(7) Certain Bonus, Profit Sharing, Pension or Similar Contracts - None.
(8) (a) Custodian Agreement dated as of April 4, 1990 between
Registrant and Provident National Bank (now known as PNC
Bank).(3)
(b) Accounting Services Agreement dated as of June 1, 1991 between
Registrant and Provident Financial Processing Corporation (now
known as PFPC Inc.) with respect to the Tax-Free Series.(3)
(9) Master Services Agreement (for transfer agency services for the Fund
and accounting services for the Prime and Treasury Series) between
Registrant and Investment Company Capital Corp.(3)
(10) Opinion of Counsel.(3)
(11) Consent of Coopers & Lybrand L.L.P.(1)
(12) Other Financial Statements - None.
(13) Agreement Concerning Initial Capitalization - None.
(14) Retirement Plan Models.(2)
(15) (a) Rule 12b-1 Plan - See Exhibit 6 above.
(b) Plan of Distribution with respect to Flag Investors Cash
Reserve Prime Shares - Class B.(3)
(16) Schedule of Computation of Performance Data (unaudited).(3)
(18) (a) Registrant's 18f-3 Plan.(3)
(b) Registrant's 18f-3 Plan, as amended through March 26, 1997.(1)
(24) Powers of Attorney.(1)
(27) Financial Data Schedules.(1)
- -----------------------
(1) filed herewith.
(2) filed as an Exhibit to Post-Effective Amendment No. 7 on June 27, 1996, and
hereby incorporated by reference.
(3) filed as an Exhibit to Post-Effective Amendment No. 27 on July 29, 1996,
and hereby incorporated by reference.
(4) filed as an Exhibit to Post-Effective Amendment No. 28 on March 27, 1997,
and hereby incorporated by reference.
Item 25. Persons Controlled by or under Common Control With Registrant
C-3
<PAGE>
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
<TABLE>
<CAPTION>
Number of Record Holders
of Alex. Brown Cash Reserve
Title of Class Fund, Inc. As of July 23, 1997
- -------------- --------------------------------
<S> <C>
Prime Series:
1. Alex. Brown Cash Reserve Prime Shares 91,058
2. Flag Investors Cash Reserve Prime Shares-Class A 295
3. Flag Investors Cash Reserve Prime Shares-Class B 15
4. Institutional Prime Shares 203
5. Quality Cash Reserve Prime Shares 12,053
Treasury Series:
1. Alex. Brown Cash Reserve Treasury Shares 16,242
2. Institutional Treasury Shares 111
Tax-Free Series:
1. Alex. Brown Cash Reserve Tax-Free Shares 8,278
2. Institutional Tax-Free Shares 1
</TABLE>
Item 27. Indemnification
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections a, b, c and d of Article IX of Registrant's Articles of
Incorporation included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
C-4
<PAGE>
(a) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further
extent as is consistent with law. The Board of Directors may By-Law,
resolution or agreement make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent
permitted by the Maryland General Corporation Law.
(c) No provision of this Article shall be effective to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders 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.
(d) References to the Maryland General Corporation Law in this Article
are to the law as from time to time amended. No further amendment to
the Articles of Incorporation of the Corporation shall affect any right
of any person under this Article based on any event, omission or
proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Investment Company Act of 1940 and will be governed
by the final adjudication of such issue. Insurance coverage is provided under a
joint Mutual Fund & Investment Advisory Professional and Directors & Officers
Liability Policy, issued by Evanston Insurance Company, with a $5,000,000 limit
of liability.
Item 28. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investments advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.
Investment Company Capital Corp.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp. (formerly known as Flag Investors Management Corp.) the
Registrant's investment advisor, has engaged in any other business, profession,
vocation or employment of a substantial nature other than that of the business
of investment management and, through affiliates, investment banking.
C-5
<PAGE>
PNC INSTITUTIONAL MANAGEMENT CORPORATION
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Name Other Business Connections Type of Business
------------- ---- -------------------------- ----------------
PIMC
----
<S> <C> <C> <C>
Chairman and J. Richard Carnall Executive Vice President Banking
Director PNC Bank, National Association (1)
Director Banking
PNC National Bank (2)
Chairman and Director Financial-Related Services
PFPC Inc. (3)
Director Investment Advisory
PNC Asset Management Group, Inc.
Director Financial-Related Services
PFPC International Ltd.
Chairman Investment Advisory
International Dollar Reserve Fund, Ltd.
Director Banking
PNC Bank, DE
Director Financial-Related Services
Compass Capital Group, Inc.
Director Richard C. Caldwell Executive Vice President Banking
PNC Bank, National Association (1)
Director Banking
PNC National Bank (2)
Director Investment Advisory
Provident Capital Management Inc. (5)
Executive Vice President Bank Holding Company
PNC Bank Corp. (14)
Director Financial-Related Services
Compass Capital Group, Inc.
Director Financial-Related Services
PFPC Inc. (3)
Chairman, Director, CEO and President Financial-Related Services
PNC Asset Management Group, Inc.
Director Mutual Fund
Compass Capital Group, Inc.
Director Investment Advisory
BlackRock Financial Management, Inc.
Director Investment Advisory
PNC Equity Advisors Co.
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Position with Name Other Business Connections Type of Business
------------- ---- -------------------------- ----------------
PIMC
----
<S> <C> <C> <C>
Director Banking
PNC Bank, New England
Director Investment Holding
TLC, Inc. Company
Director Investment Holding
DR, Inc. Company
Director and Vice Chairman Investment Advisory
Provident Advisers, Inc.
Director and Vice Chairman Investment Advisory
BFM International, Inc.
Director Laurence D. Fink Chairman and Chief Executive Officer
BlackRock Financial Management, Inc.
Director and Vice President
PNC Asset Management Group, Inc.
Director Richard L. Smoot President, and Chief Executive Officer Banking
PNC Bank, National Association (Phila.) (1)
Chief Financial Nicholas M. Marsini, Director of Finance Finance
Officer Jr. PNC Bank Corp. (14)
President and Thomas H. Nevin Director Investment Firm
Chief Investment International Dollar Reserve Fund I, Ltd.
Officer
Vice President Michelle L. Petrilli Vice President, Chief Counsel and Secretary Banking
and Secretary PNC Bank, DE (20)
Senior Vice Vincent J. Ciavardini President and Director Financial-Related Services
President PFPC Inc. (3)
Director Financial-Related Services
PNC Asset Management Group, Inc.
Director & President Financial-Related Services
PFPC International Ltd.
Director Financial-Related Services
International Dollar Reserve Fund, Ltd.
Senior Vice John N. Parthemore Vice President Banking
President PNC Bank, National Association
Controller and Pauline M. Heintz Mutual Fund Group Financial Manager Financial-Related Services
Vice President PFPC Inc.(3)
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Position with Name Other Business Connections Type of Business
------------- ---- -------------------------- ----------------
PIMC
----
<S> <C> <C> <C>
Chairman and Ralph L. Schlosstein Managing Director Investment Management
CEO PNC Asset Management Group, Inc.
President and Director Investment Management
BlackRock Financial Management, Inc.
President and Director Investment Management
BFM International, Inc.
President and Director Advisory
BFM Advisory, Inc.
Director Financial-Related Services
Compass Capital Group, Inc.
Vice President Jeffrey W. Carson None
and Portfolio
Manager
Vice President Katherine A. Chuppe None
Vice President Mary J. Coldren None
Vice President Michele C. Dillon None
Vice President Patrick J. Ford None
Vice President Michael S. Hutchinson None
Vice President Michael J. Milligan None
Vice President G. Keith Robertshaw None
Vice President William F. Walsh None
Vice President Karen J. Walters None
</TABLE>
- --------------------
*Information regarding these corporations can be obtained from the office of the
Secretary.
(1) PNC Bank, National Association, 120 S. 17th Street, Philadelphia, PA 19103
1600 Market Street, Philadelphia, PA 19101 17th and Chestnut Streets,
Philadelphia, PA 19103
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(5) Provident Capital Management, Inc., 30 S. 17th Street, Suite 1500,
Philadelphia, PA 19103.
(6) PNC Investment Corp., Broad and Chestnut Street, Philadelphia, PA 19101.
C-8
<PAGE>
(7) Provident Realty Management, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(8) Provident Realty, Inc., Broad and Chestnut Streets, Philadelphia, PA 19101.
(9) PNC Bancorp, Inc., 222 Delaware Avenue, Wilmington, DE 19810
(10) PNC New Jersey Credit Corp, 1415 Route 70 East, Suite 604, Cherry Hill, NJ
08034.
(11) PNC Trust Company of New York, 40 Broad Street, New York, NY 10084.
(12) Provcor Properties, Inc., Broad and Chestnut Streets, Philadelphia, PA
19101.
(13) PNC Credit Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(14) PNC Bank Corp., 5th Avenue and Wood Streets, Pittsburgh, PA 15265.
(16) PNC Bank, New Jersey, National Association, Woodland Falls Corporate Park,
210 Lake Drive East, Cherry Hill, NJ 08002.
(17) PNC Capital Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(18) PNC Holding Corp, 222 Delaware Avenue, P.O. Box 791, Wilmington, DE 19899.
(19) PNC Venture Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(20) PNC Bank, Delaware, 300 Delaware Avenue, Wilmington, DE 19801.
(21) Bank of Delaware Corp., 300 Delaware Avenue, Wilmington, DE 19801.
(22) Del-Vest, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(23) Marand Corp., 222 Delaware Avenue, Wilmington, DE 19801.
(24) Millsboro Insurance Agency, 300 Delaware Avenue, Wilmington, DE 19801.
(25) Roney-Richards, Inc., 300 Delaware Avenue, Wilmington, DE 19801. In
addition, see the Statement of Additional Information, Part B under
headings "General Information about the Fund -The Investment Advisor, The
Sub-Advisor and Directors and Officers" for information concerning
Investment Company Capital Corp. and PNC Institutional Management
Corporation.
Item 29. Principal Underwriters
(a) Registrant
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 Short-Intermediate Income Fund, Inc. (formerly known
as Flag Investors Intermediate-Term Income Fund, Inc.)
Flag Investors Value Builder Fund, Inc.
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
C-9
<PAGE>
Flag Investors Real Estate Securities Fund, Inc.
Flag Investors Equity Partners Fund, Inc.
(b)
<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Principal Underwriter Position and Offices with
- --------------------------- ----------------------------------------------- -------------------------
Address Registrant
- ------- ----------
<S> <C> <C>
Mayo A. Shattuck III President and Director None
Alvin B. Krongard Chairman, Chief Executive Officer and Director None
Benjamin Howell Griswold, IV Director None
Beverly L. Wright Chief Financial Officer, Treasurer None
Robert F. Price Secretary None
</TABLE>
- ------------------
*One South Street, Baltimore, MD 21202
(c) Not Applicable.
Item 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.
PNC Institutional Management Corporation (formerly Provident
Institutional Management Corporation), and PFPC Inc. (formerly
Provident Financial Processing Corp.) each located at Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809,
will maintain physical possession of each such account, book or other
document of the Registrant at their respective principal executive
offices except for those maintained by the Registrant's Custodian, PNC
Bank, National Association (successor by merger to Provident National
Bank), Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania
19113; by Registrant's Distributor, Alex. Brown & Sons Incorporated,
One South Street, Baltimore, Maryland 21202; or by Registrant's
Investment Advisor and Transfer Agent, Investment Company Capital
Corp., One South Street, Baltimore, Maryland 21202.
Item 31. Management Services
Furnish a summary of the substantive provisions of any management
related service contract not discussed in Part I of this Form (because the
contract was not believed to be material to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.
None.
Item 32. Undertakings
None.
C-10
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 29 to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned thereto duly authorized in the City of
Baltimore, in the State of Maryland, on the 29th day of July, 1997.
ALEX. BROWN CASH
RESERVE FUND, INC.
By: /s/ Richard T. Hale,
------------------------
Richard T. Hale,
President and Director
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
July 29, 1997
/s/ Richard T. Hale President and --------------
- --------------------------- Director Date
Richard T. Hale
July 29, 1997
* Director --------------
- --------------------------- Date
Charles W. Cole, Jr.
July 29, 1997
* Director --------------
- --------------------------- Date
James J. Cunnane
July 29, 1997
* Director --------------
- --------------------------- Date
John F. Kroeger
July 29, 1997
* Director --------------
- --------------------------- Date
Louis E. Levy
July 29, 1997
* Director --------------
- --------------------------- Date
Eugene J. McDonald
July 29, 1997
* Director --------------
- --------------------------- Date
Rebecca W. Rimel
July 29, 1997
* Director --------------
- --------------------------- Date
Truman T. Semans
July 29, 1997
* Director --------------
- --------------------------- Date
Carl W. Vogt
July 29, 1997
/s/ Joseph A. Finelli Chief Financial --------------
- --------------------------- and Accounting Date
Joseph A. Finelli Officer
* By: /s/ Scott J. Liotta
-------------------------
Scott J. Liotta
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(1) (a) Articles of Incorporation.(3)
(1) (b) Articles Supplementary to its Articles of Incorporation, dated June 28, 1990.(3)
(1) (c) Articles Supplementary to its Articles of Incorporation, dated July 31, 1990.(3)
(1) (d) Articles Supplementary to its Articles of Incorporation, dated May 6, 1992.(3)
(1) (e) Articles Supplementary to Articles of Incorporation dated December 31, 1994.(3)
(1) (f) Articles Supplementary to Articles of Incorporation, dated December 29, 1995.(4)
(1) (g) Articles Supplementary to Articles of Incorporation, dated October 8, 1996.(4)
EX-99.B (1) (h) Articles Supplementary to Articles of Incorporation dated March 28, 1997.(1)
EX-99.B (1) (i) Articles Supplementary to Articles of Incorporation dated June 17, 1997.(1)
(2) By-Laws.(5)
(3) None.
(4) (a) Form of Specimen Certificate with respect to Prime Series Shares
and Treasury Series Shares is herein incorporated by reference to
Exhibit (1)(a) Articles of Incorporation and Exhibit (2)
By-Laws.
(4) (b) Form of Specimen Certificate with respect to Alex. Brown Cash Reserve Tax-Free
Shares is herein incorporated by reference to Exhibit (1)(a) Articles of
Incorporation and Exhibit (2) By-Laws.
(5) (a) Amended Investment Advisory Agreement between Registrant and Investment Company
Capital Corp. with respect to the Prime Series.(3)
(5) (b) Amended Investment Advisory Agreement between Registrant and Investment
Company Capital Corp. with respect to the Treasury Series.(3)
(5) (c) Amended Investment Advisory Agreement between Registrant and Investment
Company Capital Corp. with respect to the Tax-Free Series.(3)
(5) (d) Sub-Advisory Agreement between Flag Investors Management Corp. (now known
as Investment Company Capital Corp.) and Provident Institutional Management
Corporation (now known as PNC Institutional Management Corporation) with
respect to the Tax-Free Series as in effect from June 1, 1991.(3)
(6) (a) Distribution Agreement containing a Plan of Distribution under Rule 12b-1 dated as
of April 5, 1990 between Registrant and Alex. Brown & Sons Incorporated.(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(6) (b) Form of Shareholder Processing and Service Agreement (Dealer Agreement)
between Alex. Brown & Sons Incorporated and Participating Broker-Dealers.(3)
(6) (c) Form of Shareholder Servicing Agreement between Registrant and Shareholder
Servicing Agents.(3)
(6) (d) Distribution Agreement dated as of April 4, 1990 between Registrant and Alex.
Brown & Sons Incorporated with respect to Institutional Shares.(3)
(6) (e) Distribution Agreement dated as of October 5, 1990 containing a Plan of Distribution
under Rule 12b-1 between Registrant and Alex. Brown & Sons Incorporated with
respect to Tax-Free Series.(3)
(6) (f) Form of Shareholder Processing and Service Agreement (Dealer Agreement)
between Alex. Brown & Sons Incorporated and Participating Broker-Dealers with
respect to Tax-Free Series.(3)
(6) (g) Form of Shareholder Servicing Agreement between Registrant and Shareholder
Servicing Agents with respect to Registrant's Tax-Free Series.(3)
(6) (h) Distribution Agreement containing a Plan of Distribution under Rule 12b-1 dated as
of January 31, 1991 between Alex. Brown & Sons Incorporated and Registrant with
respect to Quality Cash Reserve Shares.(3)
(6) (i) Form of Dealer Agreement between Alex. Brown & Sons
Incorporated and Participating Broker Dealers with respect to Quality Cash Reserve
Shares.(3)
(6) (j) Distribution Agreement between Alex. Brown & Sons Incorporated and Alex Brown
with respect to Flag Investors Cash Reserve Prime Shares-Class B.(3)
(6) (k) Form of Shareholder Servicing Agreement for Flag Investors Shares.(3)
(6) (l) Form of Sub-Distribution Agreement for Flag Investors Shares.(4)
(7) None.
(8) (a) Custodian Agreement dated as of April 4, 1990 between Registrant and Provident
National Bank (now known as PNC Bank).(3)
(8) (b) Accounting Services Agreement dated as of June 1, 1991 between Registrant and
Provident Financial Processing Corporation (now known as PFPC Inc.) with respect
to the Tax-Free Series.(3)
(9) Master Services Agreement (for transfer agency services for the Fund and accounting
services for the Prime and Treasury Series) between Registrant and Investment Company
Capital Corp.(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(10) Opinion of Counsel.(3)
EX-99.B (11) (a) Consent of Coopers & Lybrand L.L.P.(1)
(12) None.
(13) None.
(14) Retirement Plan Models.(2)
(15) (a) See Exhibit 6 above.
(15) (b) Form of Plan of Distribution with respect to Flag Investors Cash Reserve Prime
Shares - Class B.(3)
(16) Schedule of Computation of Performance Quotations (unaudited).(3)
(18) (a) Registrant's 18f-3 Plan.(3)
EX-99.B (b) Registrant's Amended Rule 18f-3 Plan, as amended through March 26, 1997.(1)
EX-99.B (24) Powers of Attorney.(1)
EX-27 (27) Financial Data Schedules.(1)
</TABLE>
- -----------------------
(1) filed herewith.
(2) filed as an Exhibit to Post-Effective Amendment No. 7 on June 27, 1986, and
hereby incorporated by reference.
(3) filed as an Exhibit to Post-Effective Amendment No. 27 on July 29, 1996,
and hereby incorporated by reference.
(4) filed as an Exhibit to Post-Effective Amendment No. 28 on March 27, 1997,
and hereby incorporated by reference.
<PAGE>
Exhibit 99.B(1)(h)
ARTICLES SUPPLEMENTARY
ALEX. BROWN CASH RESERVE FUND, INC.
ALEX. BROWN CASH RESERVE FUND, INC. (the "Corporation") having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution designating a new Institutional class of the Tax-Free Series and
increasing the total number of shares of Common Stock the corporation is
authorized to issue to seven billion two hundred fifty million (7,250,000,000)
shares of Common Stock, par value $.001 per share, and of the aggregate par
value of seven million two hundred fifty thousand dollars ($7,250,000), as
follows: four billion one hundred fifty million (4,150,000,000) shares are
designated "Prime Series", one billion five hundred million (1,500,000,000)
shares are designated "Treasury Series", one billion two hundred fifty million
(1,250,000,000) shares are designated "Tax-Free Series", and the balance of
which are unclassified. Of the four billion one hundred fifty million
(4,150,000,000) shares designated for the Prime Series, three billion five
hundred million (3,500,000,000) shares are classified as Alex. Brown Cash
Reserve Fund Shares, two hundred million (200,000,000) shares are classified as
Institutional Shares, fifty million (50,000,000) shares are classified as Flag
Investors Cash Reserve Prime Shares Class A, fifty million (50,000,000) shares
are classified as Flag Investors Cash Reserve Prime Shares Class B and three
hundred fifty million (350,000,000) shares are classified as Quality Cash
Reserve Prime Shares. Of the one billion five hundred million (1,500,000,000)
shares designated for the Treasury Series, one billion three hundred million
(1,300,000,000) shares are classified as Alex. Brown Cash Reserve Fund Shares
and two hundred million (200,000,000) shares are classified as Institutional
Shares. Of the one billion two hundred fifty million (1,250,000,000) shares
designated for the Tax-Free Series, one billion (1,000,000,000) shares are
classified as Alex. Brown Cash Reserve Fund Shares and two hundred fifty million
(250,000,000) shares are classified as Institutional Shares.
SECOND: Immediately before the increase in authorized shares
pursuant to these Articles Supplementary, the Corporation was authorized to
issue seven billion (7,000,000,000) shares of Common Stock, par value $.001 per
share, and of the aggregate par value of seven million dollars ($7,000,000), as
follows: four billion one hundred fifty million (4,150,000,000) shares were
designated "Prime Series", one billion five hundred million (1,500,000,000)
shares were designated "Treasury Series", one billion (1,000,000,000) shares
were designated "Tax-Free Series", and the balance of which were unclassified.
Of the four billion one hundred fifty million (4,150,000,000) shares designated
for the Prime Series, three billion five hundred million (3,500,000,000) shares
were classified as Alex. Brown Cash Reserve Fund Shares, two hundred million
(200,000,000) shares were classified as Institutional Shares, fifty million
(50,000,000) shares were classified as Flag Investors Cash Reserve Prime Shares
Class A, fifty million (50,000,000) shares were classified as Flag Investors
Cash Reserve Prime Shares Class B and three hundred fifty million (350,000,000)
shares were classified as Quality Cash Reserve Prime
<PAGE>
Shares. Of the one billion five hundred million (1,500,000,000) shares
designated for the Treasury Series, one billion three hundred million
(1,300,000,000) shares were classified as Alex. Brown Cash Reserve Fund Shares
and two hundred million (200,000,000) shares were classified as Institutional
Shares. All of the one billion (1,000,000,000) shares designated for the
Tax-Free Series were classified as Alex. Brown Cash Reserve Fund Shares.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Alex. Brown Cash Reserve Fund, Inc. has caused these
Articles Supplementary to be executed by one of its Vice Presidents and its
corporate seal to be affixed and attested by its Secretary on this 28th day of
March, 1997.
[CORPORATE SEAL]
ALEX. BROWN CASH RESERVE FUND, INC.
BY: /s/ Edward J. Veilleux
-------------------------
Edward J. Veilleux
Executive Vice President
Attest: /s/ Scott J. Liotta
---------------------
Scott J. Liotta
Secretary
The undersigned, Executive Vice President of ALEX. BROWN CASH
RESERVE FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Executive Vice President
<PAGE>
Exhibit 99.B(1)(i)
ARTICLES SUPPLEMENTARY
ALEX. BROWN CASH RESERVE FUND, INC.
ALEX. BROWN CASH RESERVE FUND, INC. (the "Corporation") having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of Common Stock the corporation
is authorized to issue to eight billion (8,000,000,000) shares of Common Stock,
par value $.001 per share, and of the aggregate par value of eight million
dollars ($8,000,000), as follows: four billion nine hundred million
(4,900,000,000) shares are designated "Prime Series", one billion five hundred
million (1,500,000,000) shares are designated "Treasury Series", one billion two
hundred fifty million (1,250,000,000) shares are designated "Tax-Free Series",
and the balance of which are unclassified. Of the four billion nine hundred
million (4,900,000,000) shares designated for the Prime Series, three billion
five hundred million (3,500,000,000) shares are classified as Alex. Brown Cash
Reserve Fund Shares, nine hundred fifty million (950,000,000) shares are
classified as Institutional Shares, fifty million (50,000,000) shares are
classified as Flag Investors Cash Reserve Prime Shares Class A, fifty million
(50,000,000) shares are classified as Flag Investors Cash Reserve Prime Shares
Class B and three hundred fifty million (350,000,000) shares are classified as
Quality Cash Reserve Prime Shares. Of the one billion five hundred million
(1,500,000,000) shares designated for the Treasury Series, one billion three
hundred million (1,300,000,000) shares are classified as Alex. Brown Cash
Reserve Fund Shares and two hundred million (200,000,000) shares are classified
as Institutional Shares. Of the one billion two hundred fifty million
(1,250,000,000) shares designated for the Tax-Free Series, one billion
(1,000,000,000) shares are classified as Alex. Brown Cash Reserve Fund Shares
and two hundred fifty million (250,000,000) shares are classified as
Institutional Shares.
SECOND: Immediately before the increase in authorized shares
pursuant to these Articles Supplementary, the Corporation was authorized to
issue seven billion two hundred fifty million (7,250,000,000) shares of Common
Stock, par value $.001 per share, and of the aggregate par value of seven
million two hundred fifty thousand dollars ($7,250,000), as follows: four
billion one hundred fifty million (4,150,000,000) shares were designated "Prime
Series", one billion five hundred million (1,500,000,000) shares were designated
"Treasury Series", one billion two hundred fifty million (1,250,000,000) shares
were designated "Tax-Free Series", and the balance of which were unclassified.
Of the four billion one hundred fifty million (4,150,000,000) shares designated
for the Prime Series, three billion five hundred million (3,500,000,000) shares
were classified as Alex. Brown Cash Reserve Fund Shares, two hundred million
(200,000,000) shares were classified as Institutional Shares, fifty million
(50,000,000) shares were classified as Flag Investors Cash Reserve Prime Shares
Class A, fifty million (50,000,000) shares were
<PAGE>
classified as Flag Investors Cash Reserve Prime Shares Class B and three hundred
fifty million (350,000,000) shares were classified as Quality Cash Reserve Prime
Shares. Of the one billion five hundred million (1,500,000,000) shares
designated for the Treasury Series, one billion three hundred million
(1,300,000,000) shares were classified as Alex. Brown Cash Reserve Fund Shares
and two hundred million (200,000,000) shares were classified as Institutional
Shares. Of the one billion two hundred fifty million (1,250,000,000) shares
designated for the Tax-Free Series, one billion (1,000,000,000) shares were
classified as Alex. Brown Cash Reserve Fund Shares and two hundred fifty million
(250,000,000) shares were classified as Institutional Shares.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Alex. Brown Cash Reserve Fund, Inc. has caused these
Articles Supplementary to be executed by one of its Vice Presidents and its
corporate seal to be affixed and attested by its Secretary on this 17th day of
June, 1997.
[CORPORATE SEAL]
ALEX. BROWN CASH RESERVE FUND, INC.
BY: /s/ Edward J. Veilleux
-------------------------------
Edward J. Veilleux
Executive Vice President
Attest: /s/ Scott J. Liotta
----------------------
Scott J. Liotta
Secretary
The undersigned, Executive Vice President of ALEX. BROWN CASH
RESERVE FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Executive Vice President
<PAGE>
Exhibit 99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated May 2, 1997 on our audit
of the financial statements and financial highlights of Alex. Brown Cash Reserve
Fund, Inc. in the Statement of Additional Information with respect to
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A (No.
2-72658) under the Securities Act of 1933 of Alex. Brown Cash Reserve Fund, Inc.
We also consent to the references to our Firm under the headings "Financial
Highlights" and "General Information" in the Prospectus and "Independent
Accountants" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
July 28, 1997
<PAGE>
Exhibit 99.B(18)(b)
Alex. Brown Cash Reserve Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Alex. Brown Cash Reserve Prime Shares
Flag Investors Cash Reserve Prime Class A Shares
Flag Investors Cash Reserve Prime Class B Shares
Alex. Brown Cash Reserve Prime Institutional Shares
Quality Cash Reserve Prime Shares
Alex. Brown Cash Reserve Treasury Shares
Alex. Brown Cash Reserve Treasury Institutional Shares
Alex. Brown Cash Reserve Tax-Free Shares
Alex. Brown Cash Reserve Tax-Free Institutional Shares
Adopted December 13, 1995
Amended through March 26, 1997
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan")
has been adopted by the Board of Directors (the "Board") of Alex. Brown Cash
Reserve Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order
dated December 30, 1994, which amended and supplemented prior multi-class
exemptive orders dated August 27, 1985 and February 27, 1987, respectively,
(Inv. Co. Act Releases Nos. IC-20813, IC-14695 and IC-15592, respectively)
(collectively, the "Order"). On December 13, 1995, the Fund elected to rely on
Rule 18f-3 rather than the Order, as permitted by Rule 18f-3 subject to certain
conditions, and created a multiple class distribution arrangement for the
multiple classes of shares of common stock of the Fund's three existing series
(the "Series") and filed a post-effective amendment incorporating this
arrangement on July 29, 1996, which was effective on August 1, 1996. The
multiple class distribution arrangement will be effective on the date of
effectiveness of the post-effective amendment to the Fund's registration
statement that incorporates the arrangement. The multi-class distribution
arrangement will apply to all existing Alex. Brown Cash Reserve Prime Shares,
Flag Investors Cash Reserve Prime Class A Shares, Flag Investors Cash Reserve
Prime Class B Shares, Alex. Brown Cash Reserve Prime Institutional Shares,
Quality Cash Reserve Prime Shares, Alex. Brown Cash Reserve Treasury Shares,
Alex. Brown Cash Reserve Treasury Institutional Shares, Alex. Brown Cash Reserve
Tax-Free Shares and future classes of the Fund. The Alex. Brown Cash Reserve
Prime Shares, the Flag Investors Cash Reserve Prime Class A Shares and the Alex.
Brown Cash Reserve Treasury Shares have been offered since the Fund's inception
on November 8, 1980. The Institutional Shares of the Prime and the Treasury
Series have been offered since June 4, 1990. The Flag Investors Cash Reserve
Prime Class B Shares are available solely through exchange and have been
available since April 3, 1995. The Alex. Brown
<PAGE>
Cash Reserve Tax-Free Institutional Shares have been offered since June 2, 1997.
C. Adoption of Plan; Amendment of Plan; and Periodic Review.
Pursuant to Rule 18f-3, the Fund is required to create a written plan specifying
all of the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. For each additional class of shares approved by the Fund's
Board of Directors after the date hereof, the appropriate officers of the Fund
will attest the resolutions approving such class as an exhibit hereto. Before
any material amendment of the Plan, the Fund is required to obtain a finding by
a majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being
changed hereby, and the rights, obligations and features of each of the classes
of the Fund shall be as set forth in the Fund's Articles of Incorporation and
Bylaws, as each such document is amended or restated to date, the resolutions
that are adopted with respect to the classes of the Fund and that are adopted
pursuant to the Plan to date, and related materials of the Board, as set forth
in Exhibit A hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")*; and (v)
________________
* Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to
a class of shares, (vii) account expenses relating solely to a class of
shares, (viii) auditors' fees, litigation expenses, and legal fees and
expenses relating solely to a class of shares, and (ix) expenses incurred in
connection with shareholder meetings as a result of issues relating solely to
a class of shares.
<PAGE>
each class may have conversion features unique to such class, permitting
conversion of shares of such class to shares of another class, subject to the
requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a)to Post-Effective
Amendment No. 27 to Registrant's Registration Statement on Form N-1A
(Registration No. 2-72658), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 is herein
incorporated by reference.
2. Form of Articles Supplementary are filed as Exhibit (1)(h) to this
Registration Statement on Form N-1A (Registration No. 2-72658) and are herein
incorporated by reference.
3. By-Laws filed as Exhibit (2) to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (Registration No. 2-72658),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000690) on July 29, 1996 are herein incorporated by reference.
4. Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Institutional Shares filed as Exhibit (6)(d) to
Post-Effective Amendment No. 27 to Registrant's Registration Statement on Form
N-1A (Registration No. 2-72658), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 is herein
incorporated by reference.
5. Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to the Alex. Brown Cash Reserve Shares and the Flag
Investors Class A Shares of the Prime Series and the Alex. Brown Cash Reserve
Shares of the Treasury Series and containing a Plan of Distribution under Rule
12b-1 filed as Exhibit (6)(a) to Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A (Registration No. 2-72658), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000690) on
July 29, 1996 is herein incorporated by reference.
6. Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to the Alex. Brown Cash Reserve Shares of the Tax-Free
Series and containing a Plan of Distribution under Rule 12b-1, filed as Exhibit
(6)(e) to Post-Effective Amendment No. 27 to Registrant's Registration Statement
on Form N-1A (Registration No. 2-72658), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 is herein
incorporated by reference.
7. Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Quality Cash Reserve Prime Shares and containing a
Plan of Distribution under Rule 12b-1 filed as Exhibit (6)(i) to Post-Effective
Amendment No. 27 to Registrant's Registration Statement on Form N-1A
(Registration No. 2-72658), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 is herein
incorporated by reference.
<PAGE>
8. Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Flag Investors Cash Reserve Prime Shares- Class B,
filed as Exhibit (6)(j) to Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A (Registration No. 2-72658), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000690) on
July 29, 1996 is herein incorporated by reference.
9. Form of Distribution Plan with respect to Flag Investors Cash Reserve
Prime Shares-Class B, filed as Exhibit (15)(b) to Post-Effective Amendment No.
27 to Registrant's Registration Statement on Form N-1A (Registration No.
2-72658), filed with the Securities and Exchange Commission via EDGAR (Accession
No. 950116-96-000690) on July 29, 1996 is herein incorporated by reference.
10. Form of Sub-Distribution Agreement between Alex. Brown and
Participating Dealers is filed as Exhibit (6)(l) to this Registration Statement
on Form N-1A (Registration No. 2-72658) and is herein incorporated by reference.
11. Prospectus relating to the Alex. Brown Cash Reserve Shares was filed as
part of Post-Effective Amendment No. 27 to Registrant's Registration Statement
on Form N-1A (Registration No. 2-72658), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 and, as
amended from time to time, is herein incorporated by reference.
12. Prospectus relating to Flag Investors Cash Reserve Prime Shares was
filed as part of Post-Effective Amendment No. 27 to Registrant's Registration
Statement on Form N-1A (Registration No. 2-72658), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000690) on July 29, 1996
and, as amended from time to time, is herein incorporated by reference.
13. Prospectus relating to Quality Cash Reserve Prime Shares was filed as
part of Post-Effective Amendment No. 27 to Registrant's Registration Statement
on Form N-1A (Registration No. 2-72658), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000690) on July 29, 1996 and, as
amended from time to time, is herein incorporated by reference.
14. Prospectus relating to Institutional Shares is filed as part of this
Registration Statement on Form N-1A (Registration No. 2-72658) and, as amended
from time to time, is herein incorporated by reference.
<PAGE>
BOARD APPROVALS
Date Approved: July 1990
FURTHER RESOLVED, The total number of shares of capital stock
which the Corporation shall have the authority to issue is 4,000,000,000 shares
of common stock of the par value of $.001 each, of which 2,500,000,000 shares
are designated "Prime Series", 1,000,000,000 shares are designated "Treasury
Series", 400,000,000 shares are designated "Flag Investors Series" and the
balance of which are unclassified. Unissued shares of the capital stock may be
classified and reclassified by the Board of Directors. The aggregate par value
of capital stock of all classes is $4,000,000.
FURTHER RESOLVED, that the Articles Supplementary to the
Articles of Incorporation of the Fund be, and they are hereby approved and
adopted.
Date Approved: January 30, 1991
RESOLVED, that the Distribution Agreement (containing a plan
of distribution under Rule 12b-1) for the Fund's Quality Cash Reserve Shares
adopted by the Board of Directors on December 7, 1990 be, and it hereby is,
approved and adopted as the Distribution Agreement for the Quality Cash Reserve
Shares of the Fund.
Date Approved: September 22-23, 1994
FURTHER RESOLVED, that the shares of common stock, par value
$.001 per share of Alex. Brown Cash Reserve Fund, Inc., previously designated as
the "Flag Investors Prime Shares" be, and they hereby are, further designated as
the "Flag Investors Prime Shares-Class A."
FURTHER RESOLVED, that an additional class of shares of each
of the Funds listed below be, and each of them hereby is, classified and
designated as the "Flag Investors Class B Shares" and that unissued shares of
common stock, par value $.001 per share of the Funds listed below be, and the
same hereby are, reclassified as follows:
Class of Shares # of Shares
- --------------- -----------
Prime Series 2,550,000,000 shares
Flag Investors Class A 50,000,000 shares
Flag Investors Class B 50,000,000 shares
Alex. Brown Cash Reserve Prime 2,000,000,000 shares
Quality Cash Reserve Prime 250,000,000 shares
Institutional Prime 200,000,000 shares
<PAGE>
Class of Shares # of Shares
- --------------- -----------
Treasury Series 1,500,000,000 shares
Alex. Brown Cash Reserve Treasury 1,300,000,000 shares
Institutional Treasury 200,000,000 shares
Tax-Free Series 600,000,000 shares
Unclassified 350,000,000 shares
Total Shares 5,000,000,000 shares
FURTHER RESOLVED, that the proper officers of each of the
foregoing Funds be, and each of them hereby is, authorized and directed to file
articles supplementary to the relevant Fund's Articles of Incorporation and to
take such other action as may be necessary to designate and reclassify shares in
the foregoing manner.
RESOLVED, that the Distribution Agreement between Alex. Brown
Cash Reserve Fund, Inc. And Alex. Brown & Sons Incorporated for the Flag
Investors Class B Shares (the "Class B Shares") of said Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that at such time as the Fund offers the
Class B Shares, the Plan of Distribution presented at this meeting shall govern
the payment of 12b-1 fees by that class;
FURTHER RESOLVED, that the Plan of Distribution for the Class
B Shares of said Fund is determined to be reasonably likely to benefit the Fund
and its shareholders;
<PAGE>
Date Approved: December 29, 1995
RESOLVED, that the total number of shares of Common Stock, par
value $.001 per share, which the Fund shall have the authority to issue be, and
hereby is, increased to six billion four hundred million (6,400,000,000) shares
having the aggregate par value of six million four hundred thousand dollars
($6,400,000), of which three billion five hundred fifty million (3,550,000,000)
shares are designated "Prime Series", one billion five hundred million
(1,500,000,000) shares are designated "Treasury Series", one billion
(1,000,000,000) shares are designated "Tax-Free Series" and the remainder are
unclassified. Of the three billion five hundred fifty million (3,550,000,000)
shares designated for the Prime Series, three billion (3,000,000,000) shares are
classified as Alex. Brown Cash Reserve Fund Shares, two hundred million
(200,000,000) shares are classified as Institutional Shares, fifty million
(50,000,000) shares are classified as Flag Investors Cash Reserve Prime Shares
Class A, fifty million (50,000,000) shares are classified as Flag Investors Cash
Reserve Prime Shares Class B, and two hundred fifty million (250,000,000) shares
are classified as Quality Cash Reserve Prime Shares. Of the one billion five
hundred million (1,500,000,000) shares designated for the Treasury Series, one
billion three hundred million (1,300,000,000) shares are classified as Alex.
Brown Cash Reserve Fund Shares and two hundred million (200,000,000) share are
classified as Institutional Shares. All of the one billion (1,000,000,000)
shares designated for the Tax-Free Series are classified as Alex. Brown Cash
Reserve Fund Series;
FURTHER RESOLVED, that the Articles Supplementary to the
Fund's Articles of Incorporation in the form attached hereto as Exhibit A be,
and hereby are, approved and adopted;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund
to take any other action that the officer so acting may deem necessary or
appropriate to effectuate the filing and recording of the Articles Supplementary
in the appropriate offices in the State of Maryland.
Date Approved: March 26, 1997
Approval of Increase in Authorized Shares and Designation
of New Class of Shares; Authorization to File Articles Supplementary
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Alex. Brown Cash Reserve Fund, Inc. (the "Fund") is
authorized to issue is hereby increased from seven billion (7,000,000,000) to
seven billion two hundred fifty million (7,250,000,000) and that from such
amount, two hundred fifty million (250,000,000) authorized and unissued shares
be, and hereby are, designated and classified as the "Alex. Brown Cash Reserve
Tax-Free Institutional Shares" in the manner set forth on Exhibit A attached
hereto;
<PAGE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file with the State of Maryland
Articles Supplementary to the Fund's Articles of Incorporation ("Articles
Supplementary") to effectuate the increase in authorized shares and to designate
and classify the new class;
FURTHER RESOLVED, that the Proposed Articles Supplementary, in
substantially the form presented to this meeting be, and hereby are approved;
Approval and Adoption of Distribution Agreement for Institutional Shares
RESOLVED, that the Distribution Agreement dated as of April 4, 1990,
between Alex. Brown Cash Reserve Fund, Inc. (the "Fund") and Alex. Brown & Sons
Incorporated for the Fund's Institutional Shares of the Prime and Treasury
Series be, and the same hereby is, approved and adopted as the Distribution
Agreement for the Institutional Shares of the Tax-Free Series.
<PAGE>
Date Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of Directors of
Flag Investors Value Builder Fund, Inc. (the "Fund"), that the Directors,
including a majority of the Directors who are not "interested persons" of the
Fund, have determined that the Fund's amended Rule 18f-3 Plan, including the
expense allocations described therein, is in the best interests of the fund and
each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 Plan for the Fund be, and
hereby is, approved, in substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to take any and all actions necessary or
appropriate to cause the amended Rule 18f-3 Plan to be filed with the Securities
and Exchange Commission.
<PAGE>
Exhibit 99.B(24)
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
----------------------------------
James J. Cunnane
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
----------------------------------
Joseph A. Finelli
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
----------------------------------
Richard T. Hale
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
----------------------------------
John F. Kroeger
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
----------------------------------
Louis E. Levy
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
----------------------------------
Eugene J. McDonald
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
----------------------------------
Truman T. Semans
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Scott
J. Liotta, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Alex. Brown Cash Reserve Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
----------------------------------
Carl W. Vogt
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles W. Cole, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles W. Cole, Jr.
----------------------------------
Charles W. Cole, Jr.
Date: June 17, 1997
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Alex. Brown Cash Reserve Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
----------------------------------
Rebecca W. Rimel
Date: June 17, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 021
<NAME> PRIME RETAIL SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 2,869,296,261
<INVESTMENTS-AT-VALUE> 2,869,296,261
<RECEIVABLES> 1,786,792
<ASSETS-OTHER> 969,418
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,872,052,471
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,588,859
<TOTAL-LIABILITIES> 4,588,859
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,545,526,292
<SHARES-COMMON-STOCK> 2,545,526,292
<SHARES-COMMON-PRIOR> 2,386,684,392
<ACCUMULATED-NII-CURRENT> (341)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,414
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,545,532,365
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 135,494,205
<OTHER-INCOME> 0
<EXPENSES-NET> 15,667,362
<NET-INVESTMENT-INCOME> 119,826,843
<REALIZED-GAINS-CURRENT> 11,655
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<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 022
<NAME> PRIME FLAG A
<S> <C>
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<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 023
<NAME> PRIME FLAG B
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 024
<NAME> PRIME QUALITY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 2,651,823,036
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</TABLE>
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<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 025
<NAME> PRIME INSTITUTIONAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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</TABLE>
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<ARTICLE> 6
<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 011
<NAME> TREASURY RETAIL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> MAR-31-1997
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</TABLE>
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<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 012
<NAME> TREASURY INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000353447
<NAME> ALEX. BROWN CASH RESERVE
<SERIES>
<NUMBER> 031
<NAME> TAX FREE SERIES
<S> <C>
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