<PAGE>
As Filed With the Securities and Exchange Commission on April 26, 1996
Registration No. 33-34275
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 7 [ X ]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 9 [ X ]
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, MD 21202
---------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
135 East Baltimore Street
Baltimore, MD 21202
---------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that the filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 1, 1996 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
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<CAPTION>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of 2,358,254 $10.38 $100(1)
Common Stock shares
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Registrant has calculated the maximum aggregate offering price
pursuant to Rule 24e-2 under the Investment Company Act of 1940
(the "1940 Act") for its fiscal year ended December 31, 1995.
Registrant had actual aggregate redemptions of 2,330,316 shares
for its fiscal year ended December 31, 1995. Because of credits
for registrations of prior net redemptions, Registrant has used no
available redemptions for reductions pursuant to Rule 24f-2(c)
under the 1940 Act and has previously used no available
redemptions for reductions pursuant to Rule 24e-2(a) of the 1940
Act during the current year. Registrant elects to use redemptions
in the aggregate amount of 2,330,316 shares for reductions in its
current amendment.
Registrant has elected to maintain an indefinite number of shares of Common
Stock pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for its fiscal year ended December 31, 1995 was
filed with the Commission on February 23, 1996.
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
(Class A Shares)
Cross Reference Sheet
April 26, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- --------------------------- ------------
Part A - Information Required in a Prospectus
<S> <C> <C>
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Fund Expenses
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ Investment Program; General
Information
Item 5. Management of the Fund........................... Management of the Fund; Investment
Advisor; Distributor; Custodian, Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund Performance...... *
Item 6. Capital Stock and Other Securities............... Cover Page; Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered............. How to Invest in the Fund; Distributor
Item 8. Redemption or Repurchase......................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................ **
Part B - Information Required in a
Statement of Additional
Information
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. General Information and History
Item 13. Investment Objectives and Policies............... Investment Objectives and Policies
- ----------------
* Information required by Item 5A is contained in the 1995 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 14. Management of the Fund........................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities...................................... Control Persons and Principal Holders
of Securities
Item 16. Investment Advisory and Other Services........... Investment Advisory and Other
Services; Custodian, Transfer Agent,
Accounting Services; Independent
Accountants
Item 17. Brokerage Allocation............................. Brokerage
Item 18. Capital Stock and Other Securities............... Capital Stock; Reports
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered.............. Valuation of Shares and Redemption
Item 20. Tax Status....................................... Federal Tax Treatment of Dividends and
Distributions
Item 21. Underwriters..................................... Distribution of Fund Shares
Item 22. Calculation of Performance Data.................. Performance Information
Item 23. Financial Statements............................. Financial Statements
Part C - Other Information
</TABLE>
Part C contains the information required by the items contained
therein under the items set forth in the form.
<PAGE>
LOGO
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND, INC.
(Class A Shares)
This mutual fund (the "Fund") is designed to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. The Fund will invest exclusively in high quality debt
securities, primarily U.S. Government securities (including agency
securities), corporate bonds, collateralized mortgage obligations and other
asset-backed securities. Under normal circumstances, the dollar weighted
expected average maturity of the portfolio will be approximately three to
five years and the maximum dollar weighted average duration will be four
years. (See "Investment Program.")
Class A Shares of the Fund ("Shares") are available through Alex. Brown &
Sons Incorporated ("Alex. Brown"), as well as through Participating Dealers
and Shareholder Servicing Agents. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated May 1, 1996 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) 767-FLAG.
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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
GOVERMENT 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996
PROSPECTUS
<PAGE>
FLAG LOGO
<PAGE>
FLAG INVESTORS
Intermediate-Term Income Fund, Inc.
(Class A Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fund Expenses .................................... 2
2. Financial Highlights ............................. 3
3. Investment Program ............................... 5
4. Investment Restrictions .......................... 10
5. How to Invest in the Fund ........................ 11
6. How to Redeem Shares ............................. 16
7. Telephone Transactions ........................... 17
8. Dividends and Taxes .............................. 18
9. Management of the Fund ........................... 20
10. Investment Advisor ............................... 21
11. Distributor ...................................... 21
12. Custodian, Transfer Agent, Accounting Services ... 23
13. Performance Information .......................... 23
14. General Information .............................. 24
Appendix ............................................. A-1
</TABLE>
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the Fund or
by its distributor in any jurisdiction in which such offering may not
lawfully be made. Shares may be offered only to residents of those states
in which such shares are eligible for purchase.
1
<PAGE>
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1. FUND EXPENSES
.............................................................................
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
- -----------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases .............. 1.50%*
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. 0.50%*
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ANNUAL FUND OPERATING EXPENSES (NET OF FEE
WAIVERS):
(as a percentage of average daily net assets)
- -----------------------------------------------------------------------------
Management Fees (net of fee waivers) ............. .12%**
12b-1 Fees ....................................... .25%
Other Expenses ................................... .33%
Total Fund Operating Expenses (net of fee waivers) .70%**
======
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* Purchases of $1 million or more by persons not otherwise eligible for
sales load waivers are not subject to an initial sales charge, however, a
contingent deferred sales charge of .50% may be imposed on such purchases.
(See "How to Invest in the Fund -- Offering Price.")
** The Fund's investment advisor currently intends to waive its fee or to
reimburse the Fund on a voluntary basis to the extent required so that
Total Fund Operating Expenses do not exceed .70% of the Fund's average
daily net assets. Absent fee waivers, Management Fees would be .35% and
Total Fund Operating Expenses would be .93% of the Fund's average daily net
assets.
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:*
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
$22 $37 $54 $104
- --------------------------------------------------------------------------------------------------------
</TABLE>
* The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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 the Fund will bear directly and indirectly. A
person who purchases 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 "Distributor.") The Expenses and Example
appearing in the table above are based on the Fund's expenses for the fiscal
year ended December 31, 1995 which, net of fee waivers, were .70% of its
average daily net assets.
2
<PAGE>
The rules of the SEC require that the maximum sales charge (in the Fund's
case, 1.50% of the offering price) be reflected in the above table. However,
certain investors may qualify for reduced sales charges or no sales charge at
all. (See "How to Invest in the Fund -- Offering Price.") Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders of the Fund may
pay more than the equivalent of the maximum front-end sales charges permitted
by the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. The foregoing table has not been audited by Deloitte & Touche
LLP, the Fund's independent auditors.
- -----------------------------------------------------------------------------
2. Financial Highlights
The Fund was organized as a corporation under the laws of the State of
Maryland on April 16, 1990 and commenced operations on May 13, 1991. The
financial highlights included in this table have been derived from the Fund's
financial statements for the periods indicated and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended December 31, 1995 and the independent
auditors' report thereon of Deloitte & Touche LLP are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended December 31,
1995 which can be obtained at no charge by calling the Fund at
(800) 767-FLAG.
3
<PAGE>
(For a Share outstanding throughout each period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Year Ended December 31, May 13, 1991*
----------------------------------------------- through
1995 1994 1993 1992 December 31, 1991
--------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at beginning
of period $9.62 $10.57 $10.37 $10.54 $10.00
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income 0.62 0.57 0.57 0.63 0.32
Net realized and unrealized
gain/(loss) on investments 0.84 (0.92) 0.34 (0.05) 0.64
------- ------- ------- ------- -------
Total from Investment
Operations 1.46 (0.35) 0.91 0.58 0.96
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income and short-term gains (0.60) (0.57) (0.69) (0.75) (0.42)
Return of capital -- (0.03) -- -- --
Distributions from net
realized long-term gains -- -- (0.02) -- --
------- ------- ------- ------- -------
Total distributions (0.60) (0.60) (0.71) (0.75) (0.42)
------- ------- ------- ------- -------
Net asset value at end of period $10.48 $9.62 $10.57 $10.37 $10.54
======= ======= ======= ======= =======
Total Return(1) 15.43% (3.32)% 8.98% 5.68% 9.79%
Ratio to Average Net Assets:
Expenses(2) 0.70% 0.70% 0.70% 0.70% 0.70%**
Net Investment Income(3) 6.00% 5.57% 5.43% 6.01% 5.97%**
Supplemental Data:
Net assets at end of period (000) $67,116 $78,789 $112,520 $78,706 $64,327
Portfolio turnover rate 46% 50% 86% 107% 46%
</TABLE>
- ------
* Commencement of operations.
** Annualized.
(1) Total return excludes the effect of sales loads.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 0.93%, 0.84%, 0.85%, 0.87% and 1.73% (annualized)
for the years ended December 31, 1995, 1994, 1993 and 1992 and for the
period ended December 31, 1991, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 5.77%, 5.43%, 5.28%, 5.83% and
4.94% (annualized) for the years ended December 31, 1995, 1994, 1993 and
1992 and for the period ended December 31, 1991, respectively.
4
<PAGE>
- ---------------------------------------------------------------------------
3. INVESTMENT PROGRAM
...........................................................................
INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS
The Fund's investment objective is to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. This investment objective is a fundamental policy and may
not be changed without the affirmative vote of the majority of the
outstanding shares of the Fund.
In seeking this objective the Fund will, under normal circumstances, invest
at least 65% of its total assets in (i) obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities (including
securities of the Government National Mortgage Association ("GNMA")), (ii)
collateralized mortgage obligations ("CMOs") which are collateralized by
mortgage-backed securities issued by GNMA, the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association ("FNMA")
and which are rated AAA by Standard & Poor's Ratings Group ("S&P") or Aaa by
Moody's Investors Service, Inc. ("Moody's") or are determined to be of
comparable quality by Investment Company Capital Corp., the Fund's investment
advisor ("ICC" or the "Advisor") and (iii) corporate bonds and debentures
that are rated A or better by S&P or Moody's or are determined to be of
comparable quality by the Advisor. The Fund may also invest up to 35% of its
assets in other asset-backed securities that are rated AAA by S&P or Aaa by
Moody's or are determined to be of comparable quality by the Advisor. In
addition, up to 20% of the Fund's assets may be invested in debt obligations
denominated in foreign or composite currencies (such as the European Currency
Unit) issued by (i) foreign national, provincial, state or municipal
governments or their political subdivisions, (ii) international organizations
designated or supported by governmental entities (e.g. the International Bank
for Reconstruction and Development (the World Bank) and the European Steel
and Coal Community), (iii) the U.S. Government (non-dollar securities only)
and (iv) foreign corporations, which obligations are rated AAA by S&P or Aaa
by Moody's or if unrated, are determined to be of comparable quality by the
Advisor. In the event any security owned by the Fund is downgraded, the
Advisor will review the situation and take appropriate action, but will not
be automatically required to sell any such security. For a discussion of the
above ratings see the "Appendix."
U.S. Government securities include obligations issued and backed by the
full faith and credit of the United States Treasury, as well as obligations
5
<PAGE>
issued by agencies or instrumentalities of the U.S. Government. These
obligations may or may not be backed by the full faith and credit of the U.S.
Government. Certain agencies or instrumentalities of the U.S. Government
(such as the United States Postal Service) have the right to borrow from the
United States Treasury to meet their obligations, but in other instances the
obligations of the issuing agency or instrumentality (such as the Federal
Farm Credit System and the Federal National Mortgage Association) are
supported only by the credit of the agency or instrumentality.
Under normal circumstances the Fund's portfolio will have a dollar
weighted expected average maturity of approximately three to five years and a
maximum dollar weighted average duration of four years. For purposes of
determining the dollar weighted expected average maturity of the Fund's
portfolio, the maturity of a mortgage-backed security will be deemed to be
equal to its assumed life, in recognition of the fact that such securities
are subject to prepayment.
To meet its short-term liquidity needs, the Fund may invest in repurchase
agreements with respect to U.S. Treasury securities, in variable amount
master demand notes and in commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or if not rated, determined to be of comparable quality by the
Advisor. For temporary, defensive purposes, the Fund may invest up to 100% of
its assets in such instruments. 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. All variable amount master demand notes
acquired by the Fund will be payable within a prescribed notice period not to
exceed seven days.
Mortgage-backed securities consist of mortgage loans made by lenders, such
as commercial banks and savings and loan institutions, assembled into pools
for sale to investors. The Fund may invest in pools that are issued and
guaranteed by an agency or instrumentality of the U.S. Government, although
not necessarily by the U.S. Government itself. One type of mortgage-backed
security in which the Fund may invest is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. The Fund may also invest in
FHLMC Participation Certificates and FNMA Certificates. Principal and
interest payments on FHLMC and FNMA Certificates are guaranteed only by FHLMC
and FNMA, respectively, and not by the full faith and credit of the U.S.
Government. For additional information about GNMA, FHLMC and FNMA, see the
Statement of Additional Information.
6
<PAGE>
Mortgage-backed securities provide monthly payments to the certificate
holders, consisting of both interest and principal payments, which in effect
"pass-through" the monthly interest and principal payments made on the
underlying mortgage loans. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. Because prepayment of the underlying mortgages may vary, it is
not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. Prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Changes in market yields will affect the value of securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(including mortgage-backed securities) because the price of fixed income
securities generally increases when interest rates decline and decreases when
interest rates rise. Prices of longer term securities generally increase or
decrease more sharply in response to interest rate changes than those of
shorter term securities. In addition, prepayments of principal on mortgage
pass-through securities may make it difficult to fix interest rates for a
specified period of time.
The Fund may invest in CMOs that meet both the following criteria: (i) are
collateralized by securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government (e.g., GNMA Certificates, FHLMC
Participation Certificates or FNMA Certificates) (collectively, "Mortgage
Assets") and (ii) are rated AAA by S&P or Aaa by Moody's or are determined to
be of comparable quality by the Advisor. No CMO is insured or guaranteed by
the agency or instrumentality of the U.S. Government which issues the
mortgage-backed securities that collateralize the CMO. Payment of principal
and interest on the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs. If there is a default in
the payment of principal and interest there can be no assurance that the
underlying collateral will be sufficient to effect full repayment. CMOs may
be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans. Because CMOs are
collateralized by mortgage-backed securities, they are subject to similar
risks and uncertainties associated with the prepayment of principal and the
ability to accurately predict yield described above with respect to
mortgage-backed securities.
The Fund may also invest in securities backed by assets other than
mortgages, including company receivables, truck and auto loans, leases, and
credit card receivables, which securities are rated AAA by S&P or Aaa by
Moody's, or if not rated, are determined by the Advisor to be of comparable
7
<PAGE>
quality. Through the use of trusts and special purpose corporations, these
types of assets are being securitized in pass-through structures similar to
the mortgage pass-through structure or in pay-through structures similar to
the CMO structure, both as described above. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. However,
asset-backed securities do not generally have the benefit of the same
security interest in the related collateral as either mortgage-backed
securities or CMOs, and may therefore present certain risks not associated
with such other securities.
A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Accordingly, the value of those assets
of the Fund, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange
control regulations. In addition, the Fund may incur costs in connection with
conversions between various currencies. In order to protect against
uncertainty in the level of future foreign exchange rates, the Fund is
authorized to use forward foreign currency exchange contracts. A forward
foreign currency exchange contract is an obligation to purchase or sell a
specific currency at a future date at a price set at the time the contract is
entered into. The Fund may use such forward contracts only under two
circumstances. First, if the Advisor believes the Fund should fix the U.S.
dollar price of the foreign security when the Fund enters into a contract for
the purchase or sale, at a future date, of a security denominated in a
foreign currency, the Fund may enter into forward contracts. Second, if the
Advisor believes the Fund should hedge against risk of loss in the value of
those portfolio securities denominated in foreign currencies, the Fund may
enter into a forward contract to sell or purchase an amount of the foreign
currency approximating the value of some or all of those securities.
The market value of the Fund's debt securities will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding debt securities generally rises. Conversely,
during periods of rising interest rates, the value of such securities
generally declines. An investment in Shares should be made with an
understanding of the risks which an investment in fixed-rate CMOs may entail,
including the risk that the value of the portfolio, hence the value of the
Shares, will decline with an increase in interest rates and that the life of
the CMOs in the portfolio depends on the actual prepayments received on the
underlying mortgage-backed securities, the timing of which cannot be
determined but which may be sooner or later than anticipated, especially if
interest rates decline.
8
<PAGE>
Subject to the Fund's overall investment limitations on investing in
illiquid securities and restricted securities, the Fund may purchase Rule
144A Securities. Rule 144A Securities are restricted securities in that they
have not been registered under the Securities Act of 1933, but they may be
traded between certain qualified institutional investors, including
investment companies. The presence or absence of a secondary market may
affect the value of the Rule 144A Securities. The Fund's Board of Directors
has established guidelines and procedures to be utilized to determine the
liquidity of such securities.
............................................................................
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. The
collateral for such repurchase agreements will be held by the Fund's
custodian or a duly appointed sub-custodian. The Fund will enter into
repurchase agreements only with banks and broker-dealers that have been
determined to be creditworthy by the Fund's Board of Directors under criteria
established with the assistance of the Advisor. The seller under a repurchase
agreement would be required to maintain the value of the securities subject
to the repurchase agreement at not less than the repurchase price. Default by
the seller would, however, expose the Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or
limited in its ability to sell the collateral.
.............................................................................
PURCHASE OF WHEN-ISSUED SECURITIES
From time to time, in the ordinary course of business, the Fund may purchase
securities, at the current market value of the securities, on a forward
commitment or "when issued" basis. When such transactions are negotiated, the
price is fixed at the time of the commitment, but delivery and payment will
take place after the date of the commitment. A segregated account of the
Fund, consisting of cash, cash equivalents or U.S. Government securities or
other high quality liquid debt securities equal at all times to the amount of
the when-issued commitments will be established and maintained by the Fund at
the Fund's custodian. Additional cash or liquid debt securities will be added
to the account when necessary. While the Fund will purchase securities on a
forward commitment or "when issued" basis only with the intention of
acquiring the securities, the Fund may sell the securities before the
9
<PAGE>
settlement date if it is deemed advisable. The securities so purchased or sold
are subject to market fluctuation and no interest accrues to the purchaser
during this period. At the time of delivery of the securities, their value may
be more or less than the purchase or sale price.
.............................................................................
ADDITIONAL RISK CONSIDERATIONS
Purchasing foreign securities may subject the Fund to additional risks
associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of
foreign assets, the possible establishment of exchange controls or the
adoption of other foreign government restrictions which might adversely
affect the payment of principal or interest on foreign securities held by the
Fund.
- -----------------------------------------------------------------------------
4. Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self imposed standards and federal and state regulatory
limitations. The investment restrictions numbered 1 through 3 below are
matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the outstanding Shares. Investment restriction number 4
may be changed by a vote of the majority of the Board of Directors. The Fund
will not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer);
2) Invest more than 5% of its total assets in the securities of any single
issuer or acquire more than 10% of the voting securities of any issuer
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer);
3) Borrow money except as a temporary measure to facilitate settlements and
for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at
the time of such borrowing, provided that, while borrowings by the Fund
equalling 5% or more of the Fund's total assets are outstanding, the Fund
will not purchase securities; and
4) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
10
<PAGE>
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
- -----------------------------------------------------------------------------
5. How to Invest in the Fund
Shares may be purchased from Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202 ("Alex. Brown"), through any
securities dealer which has entered into a dealer agreement with Alex. Brown
("Participating Dealers"), or through any financial institution which has
entered into a shareholder servicing agreement with the Fund ("Shareholder
Servicing Agents"). Shares may also be purchased by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price (including any applicable front-end sales
charge), to the address shown on the Application Form.
The minimum initial investment 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 Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100,
except that the minimum subsequent investment under the Fund's 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 Shares are accepted on any day on which the New
York Stock Exchange is open for business ("Business Day"). The Fund reserves
the right to suspend the sale of Shares at any time at the discretion of
Alex. Brown and ICC. Purchase orders for Shares will be executed at a per
Share purchase price equal to the net asset value next determined after
receipt of the purchase order plus any applicable front-end sales charge (the
"Offering Price") on the date such net asset value is determined (the
"Purchase Date"). Purchases made by mail must be accompanied by payment of
the Offering Price. Purchases made through Alex. Brown or a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such
entity's payment procedures. Alex. Brown may, in its sole discretion, refuse
to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
11
<PAGE>
each Business Day. Net asset value per share of a class is calculated by valuing
all assets held by the Fund, deducting all liabilities including liabilities
attributable to that specific class, and dividing the resulting amount by the
number of then outstanding shares of the class. For this purpose, portfolio
securities are given their market value where feasible. Portfolio securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith under procedures
established from time to time and monitored by the Fund's Board of Directors.
Such procedures may include the use of an independent pricing service which uses
prices based upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. Debt obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Fund's Board
of Directors.
.............................................................................
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which includes a sales
charge which is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
Sales Charge
as % of Dealer
------------------------------ Retention
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- --------------------------------------------------------------------------
Less than $100,000 ... 1.50% 1.52% 1.25%
$100,000 - $499,999 ... 1.25% 1.27% 1.00%
$500,000 - $999,999 ... 1.00% 1.01% .75%
$1,000,000 and over ... None* None* None*
- ------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Shares and purchases of
shares of other Flag Investors funds with a higher front-end sales charge and
12
<PAGE>
purchases of Class A shares of Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. The applicable sales charge will be determined based on the
total of (a) the shareholder's current purchase plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of all Flag
Investors shares described above and any Flag Investors Class D shares held
by the shareholder. To obtain the reduced sales charge through a right of
accumulation, the shareholder must provide Alex. Brown, either directly or
through a Participating Dealer or Shareholder Servicing Agent, as applicable,
with sufficient information to verify that the shareholder has such a right.
The Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $100,000 within a 13-month period in Shares. Each purchase of
Shares under a Letter of Intent will be made at the Offering Price applicable
at the time of such purchase to the full amount indicated in the Letter of
Intent. A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of the full amount. Shares purchased with the first 5%
of the full amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales charge applicable
to the Shares actually purchased if the full amount indicated is not
invested. Such escrowed Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. When the full amount indicated has
been purchased, the escrowed Shares will be released. An investor who wishes
to enter into a Letter of Intent in conjunction with an investment in Shares
may do so by completing the appropriate section of the Application Form
attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more. However, a contingent deferred sales charge may be
imposed on such investments in the event of a Share redemption within 24
months following the Share purchase, at the rate of .50% on the lesser of the
value of the Shares redeemed or the total cost of such Shares. No contingent
deferred sales charge will be imposed on purchases of $3 million or more of
Shares redeemed within 24 months of purchase if the Participating Dealer and
Alex. Brown have entered into an agreement under which the Participating
Dealer agrees to return any payments received on the sale of such Shares.
13
<PAGE>
In determining whether a contingent deferred sales charge is payable, and, if
so, the amount of the charge, it is assumed that Shares not subject to such
charge are the first redeemed followed by other Shares held for the longest
period of time.
The Fund may sell Shares at net asset value (without sales charge) to the
following: (i) banks, bank trust departments, registered investment advisory
companies, financial planners and broker-dealers purchasing Shares on behalf
of their fiduciary and advisory clients, provided such clients have paid an
account management fee for these services (investors may be charged a fee if
they effect transactions in Shares through a broker or agent); (ii) qualified
retirement plans; (iii) participants in a Flag Investors fund payroll savings
plan program; (iv) investors who have redeemed Shares, or shares of any other
mutual fund in the Flag Investors family of funds with a higher front-end
sales charge, or Class A shares of Flag Investors Maryland Intermediate Tax
Free Income Fund, Inc., in an amount that is not more than the total
redemption proceeds, provided that the purchase is within 90 days after the
redemption; and (v) current or retired Directors of the Fund, and directors
and employees (and their immediate families) of Alex. Brown and Participating
Dealers, and their respective affiliates.
Shares may also be purchased through a Systematic Purchase Plan. An
investor who wishes to take advantage of such a plan should contact Alex.
Brown, a Participating Dealer or Shareholder Servicing Agent.
................................................................................
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of Class A shares of Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. and shareholders of other mutual funds in the Flag
Investors family of funds with a higher front-end sales charge, may exchange
their shares of those funds for an equal dollar amount of Shares. Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge. Shareholders of Flag Investors Cash
Reserve Prime Class A Shares may exchange into Shares upon payment of the
difference in sales charges, as applicable.
When a shareholder acquires Shares through an exchange from 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 a
redemption of any such shares.
14
<PAGE>
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 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund who have paid
a sales charge may exchange shares of such fund for an equal dollar amount of
Shares by submitting to Alex. Brown or a Participating Dealer the proceeds of
the redemption of such shares, together with evidence of the payment of a
sales charge and the source of such proceeds. Shares issued pursuant to this
offer will not be subject to the sales charges described above or any other
charge.
In addition, shareholders may exchange their Shares for an equal dollar
amount of shares of any other mutual fund in the Flag Investors family of
funds with a higher front-end sales charge. In connection with such exchange,
shareholders will be required to pay the difference between the sales charge
paid on Shares and the sales charge applicable to the purchase of the shares
of such other fund, except that the exchange will be made at net asset value
(without payment of any sales charge) if the Shares have been held for more
than 24 months following the purchase date.
This exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below.) The
exchange privilege may be exercised only in those states where the shares of
such other fund may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate these offers of exchange at any time on 60 days' prior
written notice to shareholders and the exchange offers set forth herein are
expressly subject to modification or termination.
............................................................................
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Shares regularly by means of an Automatic Investing
Plan with a pre-authorized check drawn on their checking accounts. Under this
plan, the shareholder may elect to have a specified amount invested monthly
or quarterly in Shares. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the pre-authorized
check and will be invested in Shares at the applicable Offering Price
determined on the date the amount is available for investment. Participation
in the Automatic Investing Plan may be discontinued either by the Fund or the
15
<PAGE>
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 PLAN
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Shares. A
shareholder who wishes to enroll in the Dividend Reinvestment Plan should
check the appropriate box on the Application Form or call (800) 553-8080 for
additional information.
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.
- ----------------------------------------------------------------------------
6. How to Redeem Shares
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent"). Shareholders may also redeem
Shares by telephone (in amounts up to $50,000). (See "Telephone Transactions"
below.) A redemption order is effected at the net asset value per Share
(reduced by any applicable contingent deferred sales charge) next determined
after receipt of the order (or, if stock certificates have been issued for
the Shares to be redeemed, after the tender of the stock certificates for
redemption). Redemption orders received after 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, will be effected
at the net asset value next determined on the following Business Day. Payment
for redeemed Shares will be made by check and will be mailed within seven
days after receipt of a duly authorized telephone redemption request or of a
redemption order fully completed and, as applicable, accompanied by the
documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of Shares or dollar
amount to be redeemed, signed by all owners of the Shares in the exact
names in which their account is maintained;
16
<PAGE>
2) 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;
3) If Shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for Shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of the redemption of Shares will be paid
on the next dividend payable date. If all of the Shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
.............................................................................
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Shares having a value of $10,000 or more may arrange to
have a portion of their Shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Such payments are drawn from income dividends,
and, to the extent necessary, from Share redemptions (which would be a return
of principal and, if reflecting a gain, would be taxable). If redemptions
continue, a shareholder's account may eventually be exhausted. Because Share
purchases include a sales charge that will not be recovered at the time of
redemption, a shareholder should not have a withdrawal plan in effect at the
same time he is making recurring purchases of Shares. A shareholder who
wishes to enroll in the Systematic Withdrawal Plan may do so by completing
the appropriate section of the Application Form attached to this Prospectus.
- ----------------------------------------------------------------------------
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Shares in amounts up to $50,000, by notifying
the Transfer Agent by telephone at (800) 553-8080 on any Business Day
17
<PAGE>
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or
express mail at its address listed under "Custodian, Transfer Agent, Accounting
Services." Telephone transaction privileges are automatic. 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 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred
sales charge on redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, 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. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund--Purchases by Exchange" and "How
to Redeem Shares.")
- ----------------------------------------------------------------------------
8. DIVIDENDS AND TAXES
............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any
net capital gains (net long-term capital gains less net short-term capital
losses) on an annual basis, or alternatively, may elect to retain net capital
gains and pay tax thereon.
18
<PAGE>
Unless the shareholder elects otherwise, all income dividends (consisting
of dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Shares at the net
asset value per Share on the payment date. Shareholders may elect to
terminate automatic reinvestment by giving written notice to the Transfer
Agent (see "Custodian, Transfer Agent, Accounting Services"), either directly
or through their Participating Dealer or Shareholder Servicing Agent, at
least five days before the next date on which dividends or distributions will
be paid.
.............................................................................
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial, or administrative action. The Statement
of Additional Information sets forth further information regarding taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. Generally, as long as the Fund qualifies for this tax treatment,
it will be relieved of U.S. federal income tax on amounts distributed to
shareholders, but U.S. shareholders, unless otherwise exempt, will pay income
or capital gains tax on the amounts so distributed, regardless of whether
such distributions are paid in cash or reinvested in additional Shares.
Distributions from the Fund out of net capital gains (the excess of
long-term capital gains over short-term capital losses), if any, are treated
by shareholders as long-term capital gains regardless of the length of time
the shareholder has held the Shares. All other income distributions are taxed
to shareholders as ordinary income. Distributions from the Fund generally
will not qualify for the corporate dividends received deduction.
Ordinarily, shareholders will include all dividends declared by the Fund
in income in the year of payment. However, dividends declared payable to
19
<PAGE>
shareholders of record in December of one year but paid in January of the
following year, will be deemed to have been received by the shareholders and
paid by the Fund in the year in which the dividends were declared.
Investors should be careful to consider the tax implications of buying
Shares just prior to a distribution. The price of Shares purchased at that
time may reflect the amount of the forthcoming distribution. Those investors
purchasing just prior to a distribution will nevertheless be taxable on the
entire amount of the distribution received.
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.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year. Shareholders are urged to
consult their tax advisors concerning the application of the rules described
above to their particular circumstances and the application of U.S. federal,
state and local income taxes to an investment in the Fund.
The sale, exchange or redemption of Shares is a taxable event for the
shareholder.
- -----------------------------------------------------------------------------
9. Management of the Fund
The overall business affairs of the Fund are managed by its Board of
Directors. The Board 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, distributor, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
executive officers and to ICC. Two Directors and all of the officers of the
Fund are officers or employees of Alex. Brown or ICC. The other Directors of
the Fund have no affiliation with Alex. Brown or ICC.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Richard T. Hale Chairman M. Elliott Randolph, Jr. President
*W. James Price Director Paul D. Corbin Executive Vice President
James J. Cunnane Director Edward J. Veilleux Vice President
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Brian C. Nelson Vice President and Secretary
Eugene J. McDonald Director Monica M. Hausner Vice President
Harry Woolf Director Joseph A. Finelli Treasurer
Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
* Messrs. Hale and Price are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act of 1940, as
amended (the "1940 Act").
20
<PAGE>
- ----------------------------------------------------------------------------
10. INVESTMENT ADVISOR
Investment Company Capital Corp., a wholly-owned subsidiary of Alex.
Brown, is the Fund's investment advisor. ICC is also the investment advisor
to, and Alex. Brown acts as distributor for, other mutual funds in the Flag
Investors family of funds and Alex. Brown Cash Reserve Fund, Inc., which
funds had approximately $4.5 billion of net assets as of December 31, 1995.
The address of the Advisor is 135 East Baltimore Street, Baltimore, Maryland
21202.
ICC is responsible for the general management of the Fund, as well as for
decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates under standards
established and periodically reviewed by the Board of Directors.
As compensation for its services for the fiscal year ended December 31, 1995,
ICC received a fee (net of fee waivers) equal to .12% of the Fund's average
daily net assets. ICC currently intends to waive, on a voluntary basis, its
annual fee to the extent necessary so that the Fund's annual expenses do not
exceed .70% of the Shares' average daily net assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
............................................................................
PORTFOLIO MANAGERS
Messrs. M. Elliott Randolph, Jr., the Fund's President, and Paul D. Corbin,
the Fund's Executive Vice President, have shared primary responsibility for
managing the Fund's assets since inception.
M. Elliott Randolph has nearly 22 years of investment experience and has been
a portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has 18 years of investment experience and has been a portfolio
manager with the Advisor since 1991. From 1984-1991 he served as the Senior
Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
- -----------------------------------------------------------------------------
11. Distributor
Alex. Brown acts as distributor of each class of the Fund's shares. Alex.
Brown is an investment banking firm which offers a broad range of investment
services to individual, institutional, corporate and municipal clients.
21
<PAGE>
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 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.
The Fund has adopted a Distribution Agreement and related Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. As
compensation for providing distribution services for the Shares for the fiscal
year ended December 31, 1995, Alex. Brown received a fee from the Fund which
represented .25% of the Shares' average daily net assets. Alex. Brown expects to
allocate on a proportional basis most of its annual distribution fee to its
investment representatives or up to all of its fee to Participating Dealers as
compensation for their ongoing shareholder services, including processing
purchase and sale requests and responding to shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder Servicing
Agents, pursuant to which Alex. Brown will allocate a portion of its
distribution fee as compensation for such financial institutions' ongoing
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. Amounts allocated to Participating Dealers and Shareholder Servicing
Agents may not exceed amounts payable to Alex. Brown under the Plan with respect
to Shares held by or on behalf of customers of such entities.
Payments under the Plan are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution services
to the Fund in connection with the sale of the Shares is less than .25% of the
Shares' average daily net assets for any period, the unexpended portion of the
distribution fee may be retained by Alex. Brown. Alex. Brown will from time to
time and from its own resources pay or allow additional discounts or promotional
incentives in the form of cash or other compensation (including merchandise or
travel) to Participating Dealers.
22
<PAGE>
- ----------------------------------------------------------------------------
12. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking association,
with offices at Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania
19113, acts as custodian of the Fund's assets. Investment Company Capital Corp.,
135 East Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080)
is the Fund's transfer and dividend disbursing agent and provides accounting
services to the Fund. As compensation for providing accounting services to the
Fund for the fiscal year ended December 31, 1995, ICC received a fee equal to
.08% of the Fund's average daily net assets. (See the Statement of Additional
Information.) ICC also serves as the Fund's investment advisor.
- -----------------------------------------------------------------------------
13. Performance Information
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30 day period
by the maximum offering price per Share on the last day of the period and
annualizing the result on a semi-annual basis. All advertisements of
performance will show the average annual total return, net of the Fund's
maximum sales charge, over one, five and ten year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value, net of the
maximum sales charge and other fees according to the required standardized
calculation. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which
such comparative data and indices are stated, which is normally total return
rather than yield. For these purposes, the performance of the Fund, as well
as the performance of such investment companies or indices, may not reflect
sales charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and
23
<PAGE>
Morningstar Inc., independent services which monitor the performance of
mutual funds. The performance of the Fund may also be compared to the Lehman
Brothers Government Corporate Bond Index, Lehman Brothers Government
Corporate Intermediate-Term Bond Index and Salomon Brothers Broad Investment
Grade Index. The Fund may also use total return performance data as reported
in national financial and industry publications that monitor the performance
of mutual funds such as Money Magazine, Forbes, Business Week, Barron's,
Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which Shares may be purchased, although not included in
calculations of performance, will reduce performance results.
- -----------------------------------------------------------------------------
14. General Information
.............................................................................
DESCRIPTION OF SHARES
The Fund was incorporated under the laws of the State of Maryland on April
16, 1990 and is authorized to issue 55 million shares of capital stock, par
value of $.001 per share, all of which shares are designated common stock.
Each share has one vote and shall be entitled to dividends and distributions
when and if declared by the Fund. In the event of liquidation or dissolution
of the Fund, each share would be entitled to its pro rata portion of the
Fund's assets after all debts and expenses have been paid. The fiscal year
end of the Fund is December 31.
The Board of Directors may classify any authorized but unissued Shares
into classes and may establish certain distinctions between classes relating
to additional voting rights, payments of dividends, rights upon liquidation
or distribution of the assets of the Fund and any other restrictions
permitted by law and the Fund's charter.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio or securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors
Intermediate-Term Income Fund Class A Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have another class of shares in addition to the shares offered hereby:
24
<PAGE>
"Flag Investors Intermediate-Term Income Fund Institutional Shares." Shares of
that class, which are not subject to a sales charge or 12b-1 fee, are offered
only to eligible institutions and clients of investment advisory affiliates of
Alex. Brown. Additional information concerning the Fund's Institutional Shares
may be obtained by calling Alex. Brown at (800) 767-FLAG. Different classes of
the Fund may be offered to certain investors and holders of such shares may be
entitled to certain exchange privileges not offered to Shares. All classes of
the Fund share a common investment objective, portfolio of investments and
advisory fee, but the classes may have different sales load structures,
distribution fees or other expenses and, accordingly, the net asset value per
share of classes may differ at times.
.............................................................................
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
..............................................................................
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 auditors, Deloitte & Touche
LLP.
..............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
..............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800) 553-8080, Alex. Brown at (800) 767-FLAG, or any
Participating Dealer or Shareholder Servicing Agent, as appropriate.
25
<PAGE>
APPENDIX
Corporate Bond Rating Definitions
..............................................................................
STANDARD & POOR'S RATINGS GROUP
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
..............................................................................
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
A-1
<PAGE>
Commercial Paper Rating Definitions
.............................................................................
STANDARD & POOR'S RATINGS GROUP
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues
rated A-1+ are those with an "overwhelming degree" of credit protection.
Those rated A-1 reflect a "very strong" degree of safety regarding timely
payment.
..............................................................................
MOODY'S INVESTORS SERVICE, INC.
Commercial paper issuers rated Prime-1 by Moody's are judged by Moody's to be
of the highest quality on the basis of relative repayment capacity.
A-2
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Intermediate-Term
Income Fund, Inc." and mail with this application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Intermediate-Term Income Fund, Inc.
For assistance in completing this application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 for an IRA information
kit.
I enclose a check for $_______ payable to "Flag Investors Intermediate-Term
Income Fund, Inc." for the purchase of Class A Shares of the Fund. 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 Fund's Automatic Investing
Plan is $250. Each subsequent purchase requires a $100 minimum, except that
the minimum subsequent purchase under the Fund's 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
GIFTS TO MINORS
- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------------------------
Social Security Number of Minor
under the ____________________Uniform Gifts to Minors Act
State of Residence
<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
MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
=============================================================================
LETTER OF INTENT (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in shares of Flag Investors Intermediate-Term
Income Fund, Inc. in an aggregate amount at least equal to:
[ ] $100,000 [ ] $500,000 [ ] $1,000,000
==============================================================================
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the Flag Investors Fund(s) (except Class B
shares) set forth below to be applied for a reduced sales charge. List the
Account numbers of other Flag Investors Funds that you or your immediate
family (spouse and children under 21) already own that qualify for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
DISTRIBUTION OPTIONS
Please check the appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional 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.
==============================================================================
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $_______ for me, on a monthly or quarterly basis, on or
about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment
against my checking account. (Bank drafts may be drawn on commercial banks
only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
[ ] Monthly ($100 minimum) Please attach a voided check.
[ ] Quarterly ($250 minimum)
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
- -----------------------------------------------------------------------------
Depositor's Signature Date
- -----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
=============================================================================
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of _______ , 19___ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $_______,
from Class A Shares that I own, payable to the account registration address
as shown above. (Participation requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
- -------------------------------------------------------------------------------
<PAGE>
TELEPHONE TRANSACTIONS
You will automatically have telephone redemption privileges (for amounts up
to $50,000) and telephone exchange privileges (with respect to other Flag
Investors Funds) unless you mark one or both of the boxes below:
No, I/We do not want
[ ] Telephone exchange privileges
[ ] Telephone redemption 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:___________________
==============================================================================
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated May 1, 1996. Unless the
box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding. If a non-resident alien, please
indicate country of residence:_______________________________________________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
______________________________________________________________________________
Signature Date
______________________________________________________________________________
Signature (if joint acct., both must sign) Date
==============================================================================
For Dealer Use Only
Dealer's Name:________________________________ Dealer Code:__________________
Dealer's Address:_____________________________ Branch Code:__________________
_____________________________
Representative:_______________________________ Rep. No. __________________
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
(Institutional Shares)
Cross Reference Sheet
April 26, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- --------------------------- ------------
Part A - Information Required in a Prospectus
<S> <C> <C>
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Fund Expenses
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ Investment Program; General
Information
Item 5. Management of the Fund........................... Management of the Fund; Investment
Advisor; Distributor; Custodian, Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund Performance...... **
Item 6. Capital Stock and Other Securities............... Cover Page; Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered............. How to Invest in the Institutional Shares;
Distributor
Item 8. Redemption or Repurchase......................... How to Redeem Institutional Shares
Item 9. Pending Legal Proceedings........................ **
Part B - Information Required in a
Statement of Additional
Information
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. General Information and History
Item 13. Investment Objectives and Policies............... Investment Objectives and Policies
- ----------------
* Information required by Item 5A is contained in the 1995 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 14. Management of the Fund........................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities...................................... Control Persons and Principal Holders
of Securities
Item 16. Investment Advisory and Other Services........... Investment Advisory and Other
Services; Custodian, Transfer Agent,
Accounting Services; Independent
Accountants
Item 17. Brokerage Allocation............................. Brokerage
Item 18. Capital Stock and Other Securities............... Capital Stock; Reports
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................... Valuation of Shares and Redemption
Item 20. Tax Status....................................... Federal Tax Treatment of Dividends and
Distributions
Item 21. Underwriters..................................... Distribution of Fund Shares
Item 22. Calculation of Performance Data.................. Performance Information
Item 23. Financial Statements............................. Financial Statements
Part C - Other Information
</TABLE>
Part C contains the information required by the items contained
therein under the items set forth in the form.
<PAGE>
LOGO
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND, INC.
(Institutional Shares)
This mutual fund (the "Fund") is designed to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. The Fund will invest exclusively in high quality debt
securities, primarily U.S. Government securities (including agency
securities), corporate bonds, collateralized mortgage obligations and other
asset-backed securities. Under normal circumstances, the dollar weighted
expected average maturity of the portfolio will be approximately three to
five years and the maximum dollar weighted average duration will be four
years. (See "Investment Program.")
Institutional Shares of the Fund ("Institutional Shares") are available
through Alex. Brown & Sons Incorporated ("Alex. Brown") or Participating
Dealers and may be purchased only by eligible institutions or by clients of
investment advisory affiliates of Alex. Brown. (See "How to Invest in
Institutional Shares.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated May 1, 1996, 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) 767-FLAG.
- -------------------------------------------------------------------------------
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
GOVERMENT 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996
<PAGE>
Flag Investors
Intermediate-Term Income Fund, Inc.
(Institutional Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
Table of Contents
------
Page
1. Fund Expenses .................................... 2
2. Financial Highlights ............................. 3
3. Investment Program ............................... 5
4. Investment Restrictions .......................... 10
5. How to Invest in Institutional Shares ............ 11
6. How to Redeem Institutional Shares ............... 13
7. Telephone Transactions ........................... 13
8. Dividends and Taxes .............................. 14
9. Management of the Fund ........................... 16
10. Investment Advisor ............................... 16
11. Distributor ...................................... 17
12. Custodian, Transfer Agent, Accounting Services ... 18
13. Performance Information .......................... 18
14. General Information .............................. 19
Appendix ............................................. A-1
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or its distributor.
This Prospectus does not constitute an offering by the Fund or by its
distributor in any jurisdiction in which such offering may not lawfully be
made. Shares may be offered only to residents of those states in which such
shares are eligible for purchase.
1
<PAGE>
=============================================================================
1. Fund Expenses
.............................................................................
Shareholder Transaction Expenses:
(as a percentage of offering price)
- -----------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases .............. None
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
- -----------------------------------------------------------------------------
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average daily net assets)
- -----------------------------------------------------------------------------
Management Fees (net of fee waivers) ................ .12%*
12b-1 Fees .......................................... None
Other Expenses ...................................... .33%
------
Total Fund Operating Expenses (net of fee waivers) .. .45%*
======
- -----------------------------------------------------------------------------
*The Fund's investment advisor currently intends to waive its fee or
reimburse the Fund, on a voluntary basis, to the extent required so that
Total Fund Operating Expenses do not exceed .45% of the Institutional
Shares' average daily net assets. Absent fee waivers, Management Fees would
be .35% and Total Fund Operating Expenses would be .68% of the Institutional
Shares' average daily net assets.
Example:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
$5 $15 $25 $58
- ------------------------------------------------------------------------------------------------------
</TABLE>
*The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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 the Fund will bear directly and indirectly. A
person who purchases Institutional 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
Institutional Shares", "Investment Advisor" and "Distributor.") The
Institutional Shares have been offered only since November 2, 1995.
Accordingly, the Expenses and Example appearing in the table above are based
on the Fund's expenses (net of fee waivers) for the Class A Shares, another
class of shares offered by the Fund, for the fiscal year ended December 31,
1995, less 12b-1 fees of .25%.
2
<PAGE>
==============================================================================
2. Financial Highlights
The Fund has offered the Institutional Shares since November 2, 1995.
However, the Fund has offered another class of shares since 1991. Historical
financial information about the Fund is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares will incur. (See "Fund Expenses.")
Nevertheless, historical information about the Fund may be useful to
investors if they take into account the differences in expenses. Accordingly,
the financial highlights included in this table have been derived from the
Fund's financial statements for the periods indicated and have been audited
by Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended December 31, 1995 and the report
thereon of Deloitte & Touche LLP are included in the Statement of Additional
Information. Additional performance information is contained in the Fund's
Annual Report for the fiscal year ended December 31, 1995 which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(For a Share outstanding throughout each period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional
Shares Class A Shares
---------------- -------------------------------------------------------------------
For the Period
November 2, 1995* For the Period
through Year Ended December 31, May 13, 1991*
December 31, through
1995 1995 1994 1993 1992 December 31, 1991
---------------- --------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period $10.42 $9.62 $10.57 $10.37 $10.54 $10.00
------ ------- ------ ------ ------ ------
Income from Investment
Operations:
Net investment
income 0.09 0.62 0.57 0.57 0.63 0.32
Net realized and
unrealized gain/(loss)
on investments 0.12 0.84 (0.92) 0.34 (0.05) 0.64
------ ------- ------ ------ ------ ------
Total from Investment
Operations 0.21 1.46 (0.35) 0.91 0.58 0.96
------ ------- ------ ------ ------ ------
Less Distributions:
Dividends from net
investment income and
short-term
gains (0.05) (0.60) (0.57) (0.69) (0.75) (0.42)
Return of capital -- -- (0.03) -- -- --
Distributions from net
realized long-term gains -- -- -- (0.02) -- --
------ ------- ------ ------ ------ ------
Total distributions (0.05) (0.60) (0.60) (0.71) (0.75) (0.42)
------ ------- ------ ------ ------ ------
Net asset value at end
of period $10.58 $10.48 $9.62 $10.57 $10.37 $10.54
====== ====== ====== ====== ====== ======
Total Return((1)) 12.47%** 15.43% (3.32)% 8.98% 5.68% 9.79%**
Ratios to Average
Net Assets:
Expenses((2)) 0.45%** 0.70% 0.70% 0.70% 0.70% 0.70%**
Net investment
income((3)) 6.52%** 6.00% 5.57% 5.43% 6.01% 5.97%**
Supplemental Data:
Net assets at end of period
(000) $2,186 $67,116 $78,789 $112,520 $78,706 $64,327
Portfolio turnover rate 46% 46% 50% 86% 107% 46%
</TABLE>
- ------
* Commencement of operations.
** Annualized.
(1) Total return excludes the effect of sales loads.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 0.93%, 0.84%, 0.85%, 0.87% and 1.73% (annualized)
for the Class A Shares for the years ended December 31, 1995, 1994, 1993
and 1992, and for the period ended December 31, 1991, respectively and
0.72% (annualized) for the Institutional Shares for the period ended
December 31, 1995.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 5.77%, 5.43%, 5.28%, 5.83% and
4.94% (annualized) for the Class A Shares for the years ended December
31, 1995, 1994, 1993 and 1992 and for the period ended December 31, 1991,
respectively and 6.27% (annualized) for the Institutional Shares for the
period ended December 31, 1995.
4
<PAGE>
==============================================================================
3. Investment Program
- ------------------------------------------------------------------------------
Investment Objectives, Policies and Risk Considerations
The Fund's investment objective is to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. This investment objective is a fundamental policy and may
not be changed without the affirmative vote of the majority of the
outstanding shares of the Fund.
In seeking this objective the Fund will, under normal circumstances, invest
at least 65% of its total assets in (i) obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities (including securities of
the Government National Mortgage Association ("GNMA")), (ii) collateralized
mortgage obligations ("CMOs") which are collateralized by mortgage-backed
securities issued by GNMA, the Federal Home Loan Mortgage Corporation ("FHLMC")
or the Federal National Mortgage Association ("FNMA") and which are rated AAA by
Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service,
Inc. ("Moody's") or are determined to be of comparable quality by Investment
Company Capital Corp., the Fund's investment advisor ("ICC" or the "Advisor")
and (iii) corporate bonds and debentures that are rated A or better by S&P or
Moody's or are determined to be of comparable quality by the Advisor. The Fund
may also invest up to 35% of its assets in other asset-backed securities that
are rated AAA by S&P or Aaa by Moody's or are determined to be of comparable
quality by the Advisor. In addition, up to 20% of the Fund's assets may be
invested in debt obligations denominated in foreign or composite currencies
(such as the European Currency Unit) issued by (i) foreign national, provincial,
state or municipal governments or their political subdivisions, (ii)
international organizations designated or supported by governmental entities
(e.g. the International Bank for Reconstruction and Development (the World Bank)
and the European Steel and Coal Community), (iii) the U.S. Government
(non-dollar securities only) and (iv) foreign corporations, which obligations
are rated AAA by S&P or Aaa by Moody's or if unrated, are determined to be of
comparable quality by the Advisor. In the event any security owned by the Fund
is downgraded, the Advisor will review the situation and take appropriate
action, but will not be automatically required to sell any such security. For a
discussion of the above ratings see the "Appendix."
U.S. Government securities include obligations issued and backed by the
full faith and credit of the United States Treasury, as well as obligations
5
<PAGE>
issued by agencies or instrumentalities of the U.S. Government. These
obligations may or may not be backed by the full faith and credit of the U.S.
Government. Certain agencies or instrumentalities of the U.S. Government
(such as the United States Postal Service) have the right to borrow from the
United States Treasury to meet their obligations, but in other instances the
obligations of the issuing agency or instrumentality (such as the Federal
Farm Credit System and the Federal National Mortgage Association) are
supported only by the credit of the agency or instrumentality.
Under normal circumstances the Fund's portfolio will have a dollar
weighted expected average maturity of approximately three to five years and a
maximum dollar weighted average duration of four years. For purposes of
determining the dollar weighted expected average maturity of the Fund's
portfolio, the maturity of a mortgage-backed security will be deemed to be
equal to its assumed life, in recognition of the fact that such securities
are subject to prepayment.
To meet its short-term liquidity needs, the Fund may invest in repurchase
agreements with respect to U.S. Treasury securities, in variable amount
master demand notes and in commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or if not rated, determined to be of comparable quality by the
Advisor. For temporary, defensive purposes, the Fund may invest up to 100% of
its assets in such instruments. 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. All variable amount master demand notes
acquired by the Fund will be payable within a prescribed notice period not to
exceed seven days.
Mortgage-backed securities consist of mortgage loans made by lenders, such
as commercial banks and savings and loan institutions, assembled into pools
for sale to investors. The Fund may invest in pools that are issued and
guaranteed by an agency or instrumentality of the U.S. Government, although
not necessarily by the U.S. Government itself. One type of mortgage-backed
security in which the Fund may invest is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. The Fund may also invest in
FHLMC Participation Certificates and FNMA Certificates. Principal and
interest payments on FHLMC and FNMA Certificates are guaranteed only by FHLMC
and FNMA, respectively, and not by the full faith and credit of the U.S.
Government. For additional information about GNMA, FHLMC and FNMA, see the
Statement of Additional Information.
6
<PAGE>
Mortgage-backed securities provide monthly payments to the certificate
holders, consisting of both interest and principal payments, which in effect
"pass-through" the monthly interest and principal payments made on the
underlying mortgage loans. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. Because prepayment of the underlying mortgages may vary, it is
not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. Prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Changes in market yields will affect the value of securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(including mortgage-backed securities) because the price of fixed income
securities generally increases when interest rates decline and decreases when
interest rates rise. Prices of longer term securities generally increase or
decrease more sharply in response to interest rate changes than those of
shorter term securities. In addition, prepayments of principal on mortgage
pass-through securities may make it difficult to fix interest rates for a
specified period of time.
The Fund may invest in CMOs that meet both the following criteria: (i) are
collateralized by securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government (e.g., GNMA Certificates, FHLMC
Participation Certificates or FNMA Certificates) (collectively, "Mortgage
Assets") and (ii) are rated AAA by S&P or Aaa by Moody's or are determined to
be of comparable quality by the Advisor. No CMO is insured or guaranteed by
the agency or instrumentality of the U.S. Government which issues the
mortgage-backed securities that collateralize the CMO. Payment of principal
and interest on the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs. If there is a default in
the payment of principal and interest there can be no assurance that the
underlying collateral will be sufficient to effect full repayment. CMOs may
be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans. Because CMOs are
collateralized by mortgage-backed securities, they are subject to similar
risks and uncertainties associated with the prepayment of principal and the
ability to accurately predict yield described above with respect to
mortgage-backed securities.
The Fund may also invest in securities backed by assets other than
mortgages, including company receivables, truck and auto loans, leases, and
credit card receivables, which securities are rated AAA by S&P or Aaa by
Moody's, or if not rated, are determined by the Advisor to be of comparable
7
<PAGE>
quality. Through the use of trusts and special purpose corporations, these
types of assets are being securitized in pass-through structures similar to
the mortgage pass-through structure or in pay-through structures similar to
the CMO structure, both as described above. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. However,
asset-backed securities do not generally have the benefit of the same
security interest in the related collateral as either mortgage-backed
securities or CMOs, and may therefore present certain risks not associated
with such other securities.
A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Accordingly, the value of those assets
of the Fund, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange
control regulations. In addition, the Fund may incur costs in connection with
conversions between various currencies. In order to protect against
uncertainty in the level of future foreign exchange rates, the Fund is
authorized to use forward foreign currency exchange contracts. A forward
foreign currency exchange contract is an obligation to purchase or sell a
specific currency at a future date at a price set at the time the contract is
entered into. The Fund may use such forward contracts only under two
circumstances. First, if the Advisor believes the Fund should fix the U.S.
dollar price of the foreign security when the Fund enters into a contract for
the purchase or sale, at a future date, of a security denominated in a
foreign currency, the Fund may enter into forward contracts. Second, if the
Advisor believes the Fund should hedge against risk of loss in the value of
those portfolio securities denominated in foreign currencies, the Fund may
enter into a forward contract to sell or purchase an amount of the foreign
currency approximating the value of some or all of those securities.
The market value of the Fund's debt securities will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding debt securities generally rises. Conversely,
during periods of rising interest rates, the value of such securities
generally declines. An investment in Fund shares should be made with an
understanding of the risks which an investment in fixed-rate CMOs may entail,
including the risk that the value of the portfolio, hence the value of the
Fund's shares, will decline with an increase in interest rates and that the
life of the CMOs in the portfolio depends on the actual prepayments received
on the underlying mortgage-backed securities, the timing of which cannot be
determined but which may be sooner or later than anticipated, especially if
interest rates decline.
8
<PAGE>
Subject to the Fund's overall investment limitations on investing in
illiquid securities and restricted securities, the Fund may purchase Rule
144A Securities. Rule 144A Securities are restricted securities in that they
have not been registered under the Securities Act of 1933, but they may be
traded between certain qualified institutional investors, including
investment companies. The presence or absence of a secondary market may
affect the value of the Rule 144A Securities. The Fund's Board of Directors
has established guidelines and procedures to be utilized to determine the
liquidity of such securities.
.............................................................................
Repurchase Agreements
The Fund may agree to purchase U.S. Treasury securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. The
collateral for such repurchase agreements will be held by the Fund's custodian
or a duly appointed sub-custodian. The Fund will enter into repurchase
agreements only with banks and broker-dealers that have been determined to be
creditworthy by the Fund's Board of Directors under criteria established with
the assistance of the Advisor. The seller under a repurchase agreement would be
required to maintain the value of the securities subject to the repurchase
agreement at not less than the repurchase price. Default by the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the Fund may be delayed or limited in its ability to sell the
collateral.
..............................................................................
Purchase of When-Issued Securities
From time to time, in the ordinary course of business, the Fund may purchase
securities, at the current market value of the securities, on a forward
commitment or "when issued" basis. When such transactions are negotiated, the
price is fixed at the time of the commitment, but delivery and payment will take
place after the date of the commitment. A segregated account of the Fund,
consisting of cash, cash equivalents or U.S. Government securities or other high
quality liquid debt securities equal at all times to the amount of the
when-issued commitments will be established and maintained by the Fund at the
Fund's custodian. Additional cash or liquid debt securities will be added to the
account when necessary. While the Fund will purchase securities on a forward
commitment or "when issued" basis only with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date if
9
<PAGE>
it is deemed advisable. The securities so purchased or sold are subject to
market fluctuation and no interest accrues to the purchaser during this period.
At the time of delivery of the securities, their value may be more or less than
the purchase or sale price.
..............................................................................
Additional Risk Considerations
Purchasing foreign securities may subject the Fund to additional risks
associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of foreign
assets, the possible establishment of exchange controls or the adoption of other
foreign government restrictions which might adversely affect the payment of
principal or interest on foreign securities held by the Fund.
==============================================================================
4. Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self imposed standards and federal and state regulatory
limitations. The investment restrictions numbered 1 through 3 below are
matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the Fund's outstanding shares. Investment restriction
number 4 may be changed by a vote of the majority of the Board of Directors.
The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer);
2) Invest more than 5% of its total assets in the securities of any single
issuer or acquire more than 10% of the voting securities of any issuer
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer);
3) Borrow money except as a temporary measure to facilitate settlements and
for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at
the time of such borrowing, provided that, while borrowings by the Fund
equalling 5% or more of the Fund's total assets are outstanding, the Fund
will not purchase securities; and
4) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
10
<PAGE>
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
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds,
employee benefit plans, trusts, estates and educational, religious and chari-
table institutions) and clients of investment advisory affiliates of Alex.
Brown may purchase Institutional Shares through Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080),
through any securities dealer which has entered into a dealer agreement with
Alex. Brown ("Participating Dealers"), or by completing the Application Form
attached to this Prospectus and returning it, together with payment of the
purchase price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $1,000,000 for
qualified retirement plans and $500,000 for all other eligible investors,
except that there is no minimum investment requirement for clients of
investment advisory affiliates of Alex. Brown. There is no minimum for
subsequent investments. The Fund reserves the right to suspend the sale of
Institutional Shares at any time at the discretion of Alex. Brown and ICC.
Orders for purchases of Institutional Shares are accepted on any day on
which the New York Stock Exchange is open for business ("Business Day").
Purchase orders for Institutional Shares will be executed at the net asset
value per share next determined after receipt of the purchase order.
Purchases made through Alex. Brown or a Participating Dealer must be in
accordance with such entity's payment procedures. Alex. Brown may, in its
sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing all assets held by the Fund, deducting all liabilities, including
liabilities attributable to that specific class, and dividing the resulting
amount by the number of then outstanding shares of the class. For this
purpose, portfolio securities are given their market value where feasible.
Portfolio securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Advisor to be over-the-counter, are valued at the quoted bid prices provided
by principal market makers. If a portfolio security is traded primarily on a
national exchange on the valuation date, the last quoted sale price is gener-
11
<PAGE>
ally used. Securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established from time to time and monitored by the Fund's
Board of Directors. Such procedures may include the use of an independent
pricing service which uses prices based upon yields or prices of securities
of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. Debt obligations with maturities
of 60 days or less will be valued at amortized cost, which constitutes fair
value as determined by the Fund's Board of Directors.
.............................................................................
Purchases by Exchange
Shareholders of other Flag Investors funds that offer Institutional shares
may exchange their Institutional shares of those funds for an equal dollar
amount of Institutional Shares. 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 4:00 p.m.
(Eastern Time), or the close of the New York Stock Exchange, whichever is
earlier. Exchange requests received after 4:00 p.m. (Eastern Time) will be
effected on the next Business Day.
The exchange privilege may be exercised by notifying the Fund's transfer
agent (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) (see
"Telephone Transactions" below) or by regular or express mail at its address
listed under "Custodian, Transfer Agent, Accounting Services." The exchange
privilege may be exercised only in those states where the Institutional
shares of such other funds may legally be sold. Investors should receive and
read the applicable prospectus prior to tendering shares for exchange. The
Fund may modify or terminate this offer of exchange at any time on 60 days'
prior written notice to shareholders.
.............................................................................
Other Information
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such
shares will not be issued. All purchases of Institutional Shares are
confirmed and credited to the shareholder's account on the Fund's books
maintained by ICC or its agents. Shareholders will have the same rights and
ownership with respect to such shares as if certificates had been issued.
12
<PAGE>
==============================================================================
6. How to Redeem Institutional Shares
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through Alex. Brown or a
Participating Dealer, or by regular or express mail to the Transfer Agent at its
address listed under "Custodian, Transfer Agent, Accounting Services."
Shareholders may also redeem Institutional Shares by telephone (in amounts up to
$500,000). (See "Telephone Transactions" below.) A redemption request is
effected at the net asset value per share next determined after receipt of the
order in proper form. Redemption orders received after 4:00 p.m. (Eastern Time),
or the close of the New York Stock Exchange, whichever is earlier, will be
effected at the net asset value next determined on the following Business Day.
Payment for redeemed Institutional Shares will be made by wire transfer of funds
to the shareholder's bank, or to a Participating Dealer, as appropriate, upon
receipt of a duly authorized redemption request as promptly as feasible and,
under most circumstances within three Business Days.
Dividends payable up to the date of the redemption of Institutional Shares
will be paid on the next dividend payment date. If all of the Institutional
Shares in an account have been redeemed on the dividend payment date, the
dividend will be remitted by wire to the shareholder's bank or to a
Participating Dealer, as appropriate.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemption)
upon 60 days' written notice.
==============================================================================
7. Telephone Transactions
Shareholders may exercise the exchange privilege with respect to other Flag
Investors funds, or redeem Institutional Shares in amounts up to $500,000, 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 at its address listed under "Custodian, Transfer Agent, Accounting
Services." Telephone transaction privileges are automatic. 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 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
13
<PAGE>
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected at
the net asset value as next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, 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 express mail or
facsimile. (See "How to Invest in Institutional Shares -- Purchases by
Exchange" and "How to Redeem Institutional Shares.")
==============================================================================
8. Dividends and Taxes
..............................................................................
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any
net capital gains (net long-term capital gains less net short-term capital
losses) on an annual basis, or alternatively, may elect to retain net capital
gains and pay tax thereon.
Unless the shareholder elects otherwise, all income dividends (consisting of
dividend and interest income and the excess, if any, of net short-term capital
gains over net long-term capital losses) and net capital gains distributions, if
any, will be reinvested in additional Institutional Shares at the net asset
value per share on the payment date. Shareholders may elect to terminate
automatic reinvestment by giving written notice to the Transfer Agent (see
"Custodian, Transfer Agent, Accounting Services"), either directly or through
Alex. Brown or a Participating Dealer, at least five days before the next date
on which dividends or distributions will be paid.
14
<PAGE>
..............................................................................
Tax Treatment of Dividends and Distributions
The following is only a general summary of certain federal income tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information regarding
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. Generally, as long as the Fund qualifies for this tax treatment,
it will be relieved of U.S. federal income tax on amounts distributed to
shareholders, but U.S. shareholders, unless otherwise exempt, will pay income
or capital gains tax on the amounts so distributed, regardless of whether
such distributions are paid in cash or reinvested in additional Institutional
Shares.
Distributions from the Fund out of net capital gains (the excess of
long-term capital gains over short-term capital losses), if any, are treated
by shareholders as long-term capital gains regardless of the length of time
the shareholder has held the Institutional Shares. All other income
distributions are taxed to shareholders as ordinary income. Distributions
from the Fund generally will not qualify for the corporate dividends received
deduction.
Ordinarily, shareholders will include all dividends declared by the Fund
in income 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 to have been received by the shareholders and
paid by the Fund in the year in which the dividends were declared.
Investors should be careful to consider the tax implications of buying
Institutional Shares just prior to a distribution. The price of Institutional
Shares purchased at that time may reflect the amount of the forthcoming
distribution. Those investors purchasing just prior to a distribution will
nevertheless be taxable on the entire amount of the distribution received.
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.
15
<PAGE>
Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year. Shareholders are urged to
consult their tax advisors concerning the application of the rules described
above to their particular circumstances and the application of federal, state
and local taxes to investments in the Fund.
The sale, exchange or redemption of Institutional Shares is a taxable
event for the shareholder.
=============================================================================
9. Management of the Fund
The overall business affairs of the Fund are managed by its Board of
Directors. The Board 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, distributor, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
executive officers and to ICC. Two Directors and all of the officers of the
Fund are officers or employees of Alex. Brown or ICC. The other Directors of
the Fund have no affiliation with Alex. Brown or ICC.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Richard T. Hale Chairman Paul D. Corbin Executive Vice President
*W. James Price Director Edward J. Veilleux Vice President
James J. Cunnane Director Gary V. Fearnow Vice President
John F. Kroeger Director Brian C. Nelson Vice President and Secretary
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Joseph A. Finelli Treasurer
Harry Woolf Director Laurie D. DePrine Assistant Secretary
M. Elliott Randolph, Jr. President
</TABLE>
- ------
* Messrs. Hale and Price are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act of 1940, as
amended (the "1940 Act").
=============================================================================
10. Investment Advisor
Investment Company Capital Corp., a wholly-owned subsidiary of Alex.
Brown, is the Fund's investment advisor. ICC is also the investment advisor
to, and Alex. Brown acts as distributor for, other mutual funds in the Flag
Investors family of funds and Alex. Brown Cash Reserve Fund, Inc., which
funds had approximately $4.5 billion of net assets as of December 31, 1995.
The address of the Advisor is 135 East Baltimore Street, Baltimore, Maryland
21202.
ICC is responsible for the general management of the Fund, as well as for
decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates under standards
established and periodically reviewed by the Board of Directors.
16
<PAGE>
As compensation for its services for the fiscal year ended December 31,
1995, ICC received a fee (net of fee waivers) equal to .12% of the Fund's
average daily net assets. ICC currently intends to waive, on a voluntary
basis, its annual fee to the extent necessary so that the Fund's annual
expenses do not exceed .45% of the Institutional Shares' average daily net
assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
..............................................................................
Portfolio Managers
Messrs. M. Elliott Randolph, Jr., the Fund's President, and Paul D. Corbin,
the Fund's Executive Vice President, have shared primary responsibility for
managing the Fund's assets since inception.
M. Elliott Randolph has nearly 22 years of investment experience and has
been a portfolio manager with the Advisor since 1991. From 1988-1991 he was
a Principal with Monument Capital Management, Inc.
Paul D. Corbin has 18 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as
the Senior Vice President in charge of Fixed Income Portfolio Management at
First National Bank of Maryland.
==============================================================================
11. Distributor
Alex. Brown, 135 East Baltimore Street, Baltimore, Maryland 21202, acts as
distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm which offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New 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 distributing 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.
17
<PAGE>
==============================================================================
12. Custodian, Transfer Agent, Accounting Services
PNC Bank, National Association ("PNC Bank"), a national banking
association, with offices at Airport Business Park, 200 Stevens Drive,
Lester, Pennsylvania 19113, acts as custodian of the Fund's assets.
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore,
Maryland 21202 (telephone: (800) 553-8080) is the Fund's transfer and
dividend disbursing agent. ICC also provides accounting services to the Fund.
As compensation for providing accounting services to the Fund for the fiscal
year ended December 31, 1995, ICC received a fee equal to .08% of the Fund's
average daily net assets. (See the Statement of Additional Information.) ICC
also serves as the Fund's investment advisor.
=============================================================================
13. Performance Information
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30 day period
by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis. All advertisements of
performance will show the average annual total return over one, five and ten
year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding average annual compounded rates of return over such
periods that would equate an assumed initial investment of $1,000 to the
ending redeemable value according to the required standardized calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which
such comparative data and indices are stated, which is normally total return
rather than yield. For these purposes, the performance of the Fund, as well
as the performance of such investment companies or indices, may not reflect
sales charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers
Government Corporate Bond Index, Lehman Brothers Government Corporate
Intermediate-Term Bond Index and Salomon Brothers Broad Investment Grade
Index. The Fund may also use total return performance data as reported
18
<PAGE>
in national financial and industry publications that monitor the performance of
mutual funds such as Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which Institutional Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
==============================================================================
14. General Information
..............................................................................
Description of Shares
The Fund was incorporated under the laws of the State of Maryland on April
16, 1990 and is authorized to issue 55 million shares of capital stock, par
value of $.001 per share, all of which shares are designated common stock. Each
share has one vote and shall be entitled to dividends and distributions when and
if declared by the Fund. In the event of liquidation or dissolution of the Fund,
each share would be entitled to its pro rata portion of the Fund's assets after
all debts and expenses have been paid. The fiscal year end of the Fund is
December 31.
The Board of Directors is authorized to establish additional series of shares
of capital stock, each of which would evidence interests in a separate portfolio
of securities, and separate classes of each series of the Fund. The shares
offered by this Prospectus have been designated "Flag Investors
Intermediate-Term Income Fund Institutional Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have another class of shares in addition to the shares offered hereby: Flag
Investors Intermediate-Term Income Fund Class A Shares. Shares of that class are
subject to a maximum front-end sales charge of 1.5% and a .25% 12b-1 fee.
Additional information concerning the Fund's Class A Shares may be obtained by
calling Alex. Brown at (800) 767-FLAG. Different classes of the Fund may be
offered to certain investors and holders of such shares may be entitled to
certain exchange privileges not offered to Institutional Shares. All classes of
the Fund share a common investment objective, portfolio of investments and
advisory fee, but the classes may have different distribution fees or sales load
structures and the net asset value per share of the classes may differ at times.
19
<PAGE>
..............................................................................
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
..............................................................................
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 auditors, Deloitte
& Touche LLP.
..............................................................................
Fund Counsel
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
..............................................................................
Shareholder Inquiries
Shareholders with inquiries concerning their Institutional Shares should
contact Alex. Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080
or a Participating Dealer, as appropriate.
20
<PAGE>
APPENDIX
Corporate Bond Rating Definitions
..............................................................................
Standard & Poor's Ratings Group
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
..............................................................................
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
A-1
<PAGE>
Commercial Paper Rating Definitions
..............................................................................
Standard & Poor's Ratings Group
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues
rated A-1+ are those with an "overwhelming degree" of credit protection.
Those rated A-1 reflect a "very strong" degree of safety regarding timely
payment.
..............................................................................
Moody's Investors Service, Inc.
Commercial paper issuers rated Prime-1 by Moody's are judged by Moody's to be
of the highest quality on the basis of relative repayment capacity.
A-2
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FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Send completed Application by overnight carrier to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Intermediate-Term
Income Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
If you are paying by check, make check payable to "Flag Investors
Intermediate-Term Income Fund, Inc." and mail with this Application. If you
are paying by wire, see instructions below.
- -----------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Name on Account
- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- -----------------------------------------------------------------------------
Tax ID Number
[ ] Corporation [ ] Partnership [ ] Trust
[ ] Non-Profit or Charitable Organization [ ] Other
If a Trust, please provide the following:
- -----------------------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
Mailing Address
- -----------------------------------------------------------------------------
Name of Individual to Receive Correspondence
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
- -----------------------------------------------------------------------------
INITIAL INVESTMENT
The initial minimum purchase for the Institutional Shares of the Fund is
$1,000,000 for qualified retirement plans and $500,000 for all other eligible
investors, except that there is no minimum for clients of investment advisory
affiliates of Alex. Brown. There is no minimum for subsequent investments.
Indicate the amount to be invested and the method of payment:
A. By Mail: Enclosed is a check in the amount of $ payable to
- ----- ------
Flag Investors Intermediate-Term Income Fund, Inc.
B. By Wire: A bank wire in the amount of $ has been sent
- ----- -----
from
----------------------------------- --------------------------
Name of Bank Wire Control Number
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:
<PAGE>
o Send completed Application by overnight carrier to Alex. Brown & Sons
Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust Company
("IFTC"), as follows:
IFTC
a/c Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7528175
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Intermediate-Term Income Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to ."
-----------------------------------
(Investor's Fund Account Number)
- ------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- ------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want:
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank account
designated below.
- -----------------------------------------------------------------------------
BANK ACCOUNT DESIGNATION
(THIS SECTION MUST BE COMPLETED)
Please attach a blank, voided check to provide account and bank routing
information.
- -----------------------------------------------------------------------------
Name of Bank Branch
- -----------------------------------------------------------------------------
Bank Address City/State/Zip
- -----------------------------------------------------------------------------
Name(s) on Account
- -----------------------------------------------------------------------------
Account Number A.B.A. Number
<PAGE>
- -----------------------------------------------------------------------------
ACKNOWLEDGEMENT, CERTIFICATE AND SIGNATURE
I have received a copy of the Fund's prospectus dated May 1, 1996. Unless the
box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:
- -----------------------------------------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- ------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- ------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- ------------------------------------------------------------------------------
PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
- ------* of the Authorized Person(s) is, by lawful and appropriate action of
the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------------- ----------------------------------------
Name/Title Signature Date
- ------------------------------------- ----------------------------------------
Name/Title Signature Date
- ------------------------------------- ----------------------------------------
Name/Title Signature Date
- ------------------------------------- ----------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that
person's signature. Investment Company Capital Corp. ("ICC") may, without
inquiry, act upon the instructions (whether verbal, written, or provided by
wire, telecommunication, or any other process) of any person claiming to be
an Authorized Person. Neither ICC nor any entity on behalf of which ICC is
acting shall be liable for any claims or expenses (including legal fees) or
for any losses resulting from actions taken upon any instructions believed to
be genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended
Application. Provisions of this Application shall be equally Applicable to
any successor of ICC.
* If this space is left blank, any one Authorized Person is authorized to
give instructions and make inquiries. Verbal instructions will be accepted
from any one Authorized Person. Written instructions will require
signatures of the number of Authorized Persons indicated in this space.
- -------------------------------------------------------------------------------
CERTIFICATE OF AUTHORITY
Investors must complete one of the following two Certificates of Authority.
<PAGE>
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I ------, Secretary of the above-named investor, do hereby certify that at a
meeting on -------------, at which a quorum was present throughout, the Board of
Directors (Board of Trustees) of the investor duly adopted a resolution which
is in full force and effect and in accordance with the investor's charter and
by-laws, which resolution did the following: (1) empowered the
officers/trustees executing this Application (or amendment) to do so on
behalf of the investor; (2) empowered the above-named Authorized Person(s) to
effect securities transactions for the investor on the terms described above;
(3) authorized the Secretary to certify, from time to time, the names and
titles of the officers of the investor and to notify ICC when changes in
officers occur; and (4) authorized the Secretary to certify that such a
resolution has been duly adopted and will remain in full force and effect
until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this day of , 199 Secretary
------ ---------- ---- -----------------------------
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- -----------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf
of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If
there are not enough spaces here for all necessary signatures, complete a
separate certificate containing the language of this Certificate B and attach
it to the Application).
- -----------------------------------------------------------------------------
Signature and title Date
- ------------------------------------------------------------------------------
Signature and title Date
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
135 E. Baltimore Street
Baltimore, Maryland 21202
----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS, WHICH MAY BE OBTAINED FROM ANY
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING ALEX. BROWN & SONS INCORPORATED, 135
EAST BALTIMORE STREET, BALTIMORE, MARYLAND 21202, OR
BY CALLING (800) 767-FLAG.
Statement of Additional Information Dated: May 1, 1996
Relating to the Prospectuses Dated:
May 1, 1996 relating to the Class A Shares
and the Institutional Shares
<PAGE>
TABLE OF CONTENTS
Page
1. General Information and History............................... 1
2. Investment Objectives and Policies............................ 1
3. Valuation of Shares and Redemption............................ 6
4. Federal Tax Treatment of Dividends and Distributions.......... 7
5. Management of the Fund........................................ 9
6. Investment Advisory and Other Services........................ 13
7. Distribution of Fund Shares................................... 15
8. Brokerage..................................................... 18
9. Capital Stock................................................. 20
10. Reports....................................................... 20
11. Custodian, Transfer Agent, Accounting Services ............... 20
12. Independent Auditors ......................................... 21
13. Performance Information....................................... 21
14. Control Persons and Principal Holders of Securities........... 24
15. Financial Statements.......................................... 25
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Intermediate-Term Income Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. The Fund currently offers two
classes of shares: Flag Investors Intermediate-Term Income Fund Class A Shares
(the "Class A Shares") and Flag Investors Intermediate-Term Income Fund
Institutional Shares (the "Institutional Shares") (collectively, the "Shares").
The Class A Shares were formerly known as the Flag Investors Shares.
There are two separate prospectuses for the Fund's Shares: one for the
Class A Shares and one for the Institutional Shares. Each prospectus contains
important information concerning the class of Shares offered thereby and the
Fund and may be obtained without charge from Alex. Brown & Sons Incorporated
("Alex. Brown"), 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 767-FLAG) or, from Participating Dealers that offer Shares to
prospective investors. Prospectuses for the Class A Shares may also be obtained
from Shareholder Servicing Agents. As used herein, the term "Prospectus"
describes information common to the prospectuses of the two classes of the
Fund's shares, unless the term "Prospectus" is modified by the appropriate class
designation. As used herein, the "Fund" refers to Flag Investors
Intermediate-Term Income Fund, Inc. and specific references to either class of
the Fund's Shares will be made using the name of such class. Some of the
information required to be in this Statement of Additional Information is also
included in the Fund's current Prospectuses. To avoid unnecessary repetition,
references are made to related sections of the Prospectuses. In addition, the
Prospectuses and this Statement of Additional Information omit certain
information about the Fund and its business that is contained in the
Registration Statement respecting the Fund and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including such omitted items, may
be obtained from the SEC by paying the charges prescribed under its rules and
regulations.
The Fund was incorporated under the laws of the State of Maryland on
April 16, 1990. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
its Shares under the Securities Act of 1933, as amended, and commenced
operations on May 13, 1991. The Fund has offered the Institutional Shares since
November 2, 1995. Such shares are offered only to certain eligible institutions
and to clients of investment advisory affiliates of Alex. Brown.
Under a license agreement dated May 10, 1991 between the Fund and Alex.
Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the "Flag
Investors" name and logo but retains the rights to the name and logo, including
the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVES AND POLICIES
The Fund is designed to provide a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure. As described in the Prospectus, the Fund will attempt to achieve its
objective by investing in high quality debt obligations, primarily securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, corporate bonds, collateralized mortgage obligations and
other asset backed securities. There can be no assurance that the Fund's
investment objective will be achieved.
-1-
<PAGE>
Mortgage-Backed Securities
As indicated in the Prospectus, the Fund may invest in mortgage-backed
securities representing ownership interests in a pool of mortgage loans which
securities are issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
the Federal National Mortgage Association ("FNMA").
GNMA Certificates.
GNMA Certificates are mortgage-backed securities which evidence an
undivided ownership interest in a pool of mortgage loans. Principal and interest
is paid back monthly by the borrower over the term of the underlying loans. The
National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration or the Farmers' Home Administration or
guaranteed by the Veterans Administration. The GNMA guarantee is backed by the
full faith and credit of the U.S. Government. The GNMA is also empowered to
borrow without limitation from the U.S. Treasury if necessary to make any
payments required under its guarantees.
The average life of a GNMA Certificate is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment substantially
before maturity of the mortgages in the pool. Because prepayment rates of
individual mortgage pools vary, it is not possible to predict accurately the
average life of a particular issue of GNMA Certificates. However, statistics
published by the FHA indicate that the average life of single-family home
mortgage loans with 25 to 30 year maturities (the type of mortgage underlying
most GNMA Certificates) is approximately 12 years. It is customary, therefore,
to treat GNMA Certificates as 30-year mortgage-backed securities which prepay in
full in the twelfth year.
FHLMC and FNMA Certificates.
The FHLMC is a corporate instrumentality of the U.S. Government and was
created in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing through the development of a nationwide secondary
market in conventional residential mortgages. The FHLMC issues Participation
Certificates which represent a pro rata share of all interest and principal
payments made and owed on the underlying pool (which consists of mortgages from
FHLMC's national portfolio). The FHLMC guarantees the timely payment of interest
and ultimate collection of principal. FHLMC Participation Certificates are
assumed to be prepaid in full in the twelfth year.
The FNMA is a government-sponsored corporation owned by private
stockholders that was established in 1938 to create a secondary market in
mortgages issued by the FHA. FNMA Certificates resemble GNMA Certificates in
that each Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and full return of principal. FNMA Certificates
are assumed to be prepaid in full in the twelfth year.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA securities, FHLMC and FNMA securities
are not backed by the full faith and credit of the U.S. Government.
Interests in such mortgage-backed securities differ from other forms of
debt securities, which typically provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments to the certificate holders,
-2-
<PAGE>
consisting of both interest and principal payments, which in effect
"pass-through" the monthly interest and principal payments made on the
underlying mortgage loans. Although the underlying mortgage loans are for
specified periods of time (such as 20 or 30 years), borrowers can repay their
loans sooner and the certificate holders would receive any such prepayment of
principal in addition to the principal that is part of the monthly payment. A
borrower is more likely to prepay a mortgage which bears a relatively high rate
of interest. Accordingly, during periods of declining interest rates, prepayment
of mortgages underlying mortgage-backed securities can be expected to
accelerate. Because prepayment of the underlying mortgages may vary, it is not
possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. When the prepayments of principal
are included in the monthly payments to the Fund as a certificate holder, the
Fund reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Prepayments of mortgages which underlie
securities purchased at a premium could result in capital losses.
Changes in market yields will affect the value of securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(including mortgage-backed securities) because the price of fixed income
securities generally increases when interest rates decline and decreases when
interest rates rise. Prices of longer term securities generally increase or
decrease more sharply in response to interest rate changes than those of shorter
term securities. In addition, prepayments of principal on mortgage pass-through
securities may make it difficult to fix interest rates for a specified period of
time. To the extent that mortgage-backed securities are purchased at prices that
differ from par, such prepayments (which are received at par) may make up a
significant portion of the pass-through total return.
Collateralized Mortgage Obligations
As indicated in the Prospectus, the Fund may invest in collateralized
mortgage obligations ("CMOs") which are collateralized by mortgage-backed
securities issued by GNMA, FHLMC or FNMA (collectively, "Mortgage Assets") and
which are rated AAA by Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's
Investors Service, Inc. ("Moody's") or are determined to be of comparable
quality by the Fund's investment advisor.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. Payments of principal of and interest
on the Mortgage Assets are commonly applied to the classes of a series of the
CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of a CMO until
all other classes having an earlier stated maturity or final distribution date
have been paid in full. Because CMOs are collateralized by mortgage-backed
securities, they are subject to similar risks and uncertainties associated with
the prepayment of principal and the ability to accurately predict yield
described above with respect to mortgage-backed securities.
Asset Backed Securities
The Fund may also invest in securities backed by assets other than
mortgages, including company receivables, truck and auto loans, leases, and
credit card receivables, which securities are rated AAA by S&P or Aaa by
Moody's, or if not rated, are determined by the Advisor to be of comparable
quality. Through the use of trusts and special purpose corporations, these types
of assets are being securitized in pass-through structures similar to the
mortgage pass-through structure or in pay-through structures similar to the CMO
structure, both as described above. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
-3-
<PAGE>
likely to experience substantial prepayments. However, asset-backed securities
do not generally have the benefit of the same security interest in the related
collateral as either mortgage-backed securities or CMOs, and may therefore
present certain risks not associated with such other securities. If the
asset-backed security is issued in a pay-through structure similar to a CMO, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pay-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments,
and will depend on, among other things, the characteristics of the underlying
assets, the coupon rates on the securities, prevailing interest rates, the
amount of administrative expenses and the actual prepayment experience on the
underlying assets.
Other Investment Practices
In addition, the Fund may enter into repurchase agreements and make
purchases of when-issued securities as described below.
Repurchase Agreements.
The Fund may enter into repurchase agreements with financial
institutions, such as banks and broker-dealers, deemed to be creditworthy by the
Fund's Board of Directors under criteria established with the guidance of the
Fund's investment advisor, Investment Company Capital Corp. ("ICC" or the
"Advisor"). A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. The value of underlying securities will
be at least equal at all times to the total amount of the repurchase obligation,
including the interest factor. The Fund makes payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of a
custodian or bank acting as agent. The underlying securities, which in the case
of the Fund are securities of the U.S. Treasury only, may have maturity dates
exceeding one year. The Fund does not bear the risk of a decline in value of the
underlying securities unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including (a) possible decline in the value of
the underlying security while the Fund seeks to enforce its rights thereto, (b)
possible subnormal levels of income and lack of access to income during this
period and (c) expenses of enforcing its rights.
Foreign Currency Exchange Transactions.
The Fund may conduct its foreign currency exchange transactions through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date (which may be any fixed number of days from
the date the contract is entered into by the parties) at the price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
The Fund may use such forward contracts only under two circumstances:
first, if the Advisor believes that the Fund should fix the U.S. dollar price of
the foreign security when the Fund enters into a contract for the purchase or
sale, at a future date, of a security denominated in a foreign currency; and
second, if the Advisor believes that the Fund should hedge against risk of loss
in the value of its portfolio securities denominated in foreign currencies, the
Fund may enter into a forward contract to purchase or sell an amount of the
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency.
-4-
<PAGE>
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The investment restrictions recited below are in
addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. Accordingly, the Fund will not:
1. Invest in real estate or mortgages on real estate;
2. Purchase or sell commodities or commodities contracts or futures
contracts;
3. Act as an underwriter of securities within the meaning of the U.S.
federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
4. Issue senior securities;
5. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies;
6. Effect short sales of securities;
7. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
8. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs; or
9. 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.
The following are investment restrictions that may be changed by a vote
of the majority of the Board of Directors. The Fund will not:
1. Purchase any securities of unseasoned issuers which have been in
operation directly or through predecessors for less than three years;
2. Invest in shares of any other investment company registered under the
Investment Company Act, other than in connection with a merger, consolidation,
reorganization or acquisition of assets;
3. Purchase or retain the securities of any issuer if to the knowledge
of the Fund any officer or Director of the Fund or its investment advisor owns
beneficially more than .5% of the outstanding securities of such issuer and
together they own beneficially more than 5% of the securities of such issuer;
4. Invest in companies for the purpose of exercising management or
control;
-5-
<PAGE>
5. Purchase or sell puts or calls or any combination thereof;
6. Invest in real estate limited partnerships or oil, gas or mineral
leases; or
7. Purchase warrants.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined once daily as of 4:00 p.m.
(Eastern Time) each day on which the New York Stock Exchange is open for
business ("Business Day"). The New York Stock Exchange is open for business on
all weekdays except for the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value per Share of a class is calculated by valuing all assets
held by the Fund, deducting liabilities attributable to all Shares and any
liabilities attributable to the specific class, and dividing the resulting
amount by the number of then outstanding Shares of the class. For this purpose,
portfolio securities will be given their market value where feasible. Portfolio
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price will generally be
used. Securities or other assets for which market quotations are not readily
available are valued at their fair market value as determined in good faith
under procedures established from time to time and monitored by the Fund's Board
of Directors. Such procedures may include (i) the use of an independent pricing
service which uses prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type, (ii) indications as to values
from dealers, (iii) and general market conditions. Debt obligations with
maturities of 60 days or less will be valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of Directors.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted 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 exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Class A Shares by check
and Institutional Shares by wire transfer of funds, as described in the
Prospectus relating to each class of Shares. However, if the Board of Directors
determines that it would be in the best interests of the remaining shareholders
to make payment of the redemption price in whole or in part by a distribution in
kind of securities from the portfolio of the Fund in lieu of cash, in conformity
with applicable rules of the SEC, the Fund will make such distributions in kind.
If Shares are redeemed in kind, the redeeming shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "Valuation of Shares" and such valuation will be
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made as of the same time the redemption price is determined. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem Shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional 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
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 general discussion of certain 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
Prospectus. 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.
The Fund intends to continue to qualify as a regulated investment
company ("RIC") under Subchapter M of the Code. However, to qualify as a RIC for
any taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies
and other income (including, but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement") and (2) derive less
than 30% of its gross income (exclusive of certain gains from designated hedging
transactions that are offset by unrealized losses on offsetting positions) from
gains on the sale or other disposition of any of the following investments if
such investments are held for less than three months (the "Short-Short Gain
Test"): (a) stock or securities (as defined in Section 2(a)(36) of the
Investment Company Act); (b) options, futures or forward contracts (other than
options, futures, or forward contracts on foreign currencies), and (c) foreign
currencies (or options, futures, or forward contracts on foreign currencies) but
only if such currencies (or options, futures, or forward contracts on foreign
currencies) are not directly related to the regulated investment company's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities). The Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is
disregarded.
In addition, at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its assets must consist of cash and cash items, U.S.
government securities, securities of other RICs, and securities of other issuers
(as to which the Fund has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses (the "Asset Diversification Test"). Generally, the Fund will not lose
its status as a RIC if it fails to meet the Asset Diversification Test solely as
a result of a fluctuation in value of portfolio assets not attributable to a
purchase.
Under Subchapter M, the Fund is exempt from federal income tax on its
net investment income and net capital gains which it distributes to
shareholders, provided generally that it distributes at least 90% of its
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investment company taxable income (net investment income and the excess of net
short term capital gains over net long term capital loss) for the year (the
"Distribution Requirement") and complies with the other requirements of the Code
described above. The Distribution Requirement for any year may be waived if a
regulated investment company establishes to the satisfaction of the Internal
Revenue Service that it is unable to satisfy the Distribution Requirement by
reason of distributions previously made for the purpose of avoiding liability
for federal excise tax (discussed below). Distributions of investment company
taxable income will generally be taxable to shareholders as ordinary income,
regardless of whether such distributions are paid in cash or are reinvested in
Shares.
For purposes of the Distribution Requirement (as well as for other
purposes), the Fund will be required to treat as interest income any recognized
market discount on debt obligations which it holds. Generally, market discount
is the amount by which the stated redemption price of a bond exceeds the amount
paid by a purchaser of the bond (most common where the value of a bond decreases
after original issue as a result of a decline in the creditworthiness of the
issuer or an increase in prevailing interest rates). Generally, upon the
disposition of a bond bearing market discount or receipt of any principal
payment with respect to such a bond, market discount is recognized by treating a
portion of the proceeds as interest income. The application of these rules (and
the rules regarding original issue discount) to debt obligations held by the
Fund could affect (i) the amount and timing of distributions to shareholders and
(ii) the ability of the Fund to satisfy the Distribution Requirement.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gain"). If such gains are distributed as capital gains, they are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held the Shares. Conversely, if the Fund elects to retain its
net capital gains, it will be taxed thereon at the applicable corporate capital
gains tax rate. In this event, it is expected that the Fund also will elect to
have shareholders treated as having received a distribution of such gains, with
the result that they will be required to report such gains on their returns as
long-term capital gains, will receive a tax credit for their allocable share of
capital gains tax paid by the Fund on the gains, and will increase the tax basis
for their Shares by an amount equal to 65 percent of the deemed distribution.
Generally, gains or losses on the sale or exchange of a Share will be
capital gains or losses which will be long-term if the Share is held for more
than one year. However, if a shareholder realizes a loss on the sale, exchange
or redemption of a Share held for six months or less and has previously received
a capital gains distribution with respect to the Share (or any undistributed net
capital gains of the Fund with respect to such Share are included in determining
the shareholder's long-term capital gains), the shareholder must treat the loss
as a long-term capital loss to the extent of the amount of the prior capital
gains distribution (or any undistributed net capital gains of the Fund which
have been included in determining such investor's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). Investors should
particularly note that this loss disallowance rule will apply to Shares received
through the reinvestment of dividends during the 61-day period.
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase reflected the amount of such distribution.
If for any taxable year, the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
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deduction for distributions to shareholders, and such distributions will
generally be taxable as ordinary dividends to the extent of the Fund's current
and accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions will generally be eligible for the 70%
dividends received deduction for "qualifying dividends."
The Fund will be required in certain cases to withhold and remit tax to
the United States Treasury on distributions payable to any shareholder who (1)
has provided the Fund either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to properly report payments of interest or dividends, or (3) who has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year.
The Code imposes a nondeductible 4% federal excise tax on RICs that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gains 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. The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, an investment company is treated as having distributed
any amount on which it is subject to income tax for any taxable year ending in
such calendar year.
The Fund 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 excise tax. However, investors should note that the Fund may in
certain circumstances be required to liquidate portfolio investments in order to
make sufficient distributions to avoid excise tax liability, and, in addition,
that the liquidation of such investments in such circumstances may affect the
ability of the Fund to satisfy the Short-Short Gain Test.
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting an investment in the Fund and also as to the application of the
rules set forth above to a shareholder's particular circumstances.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective 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 135 East Baltimore Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst.
*W. JAMES PRICE, Director (10/6/24)
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida
33435-3342. Director, Boca Research, Inc. (computer peripherals);
Managing Director Emeritus, Alex. Brown & Sons Incorporated; Formerly,
Director, CSX Corporation (transportation) and PHH Corporation (business
services).
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<PAGE>
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present; Formerly, Senior
Vice President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993 and Director, The Arch Fund (registered investment
company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds; 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 (finance and banking); 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 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and healthcare).
HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and Family
Health International (non-profit research and education); Trustee, Reed
College (education); Director, Research America (non-profit medical
research); Formerly, Trustee, Rockefeller Foundation and Director,
Merrill Lynch Cluster C Funds (registered investment companies).
M. ELLIOTT RANDOLPH, President (1/10/42)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present; Principal,
Monument Capital Management, Inc., 1988-1991; Senior Vice President and
Chief Investment Officer, First National Bank of Maryland, 1976-1988.
PAUL D. CORBIN, Executive Vice President (7/24/52)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present; Senior Vice
President, First National Bank of Maryland, 1985-1991.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; President, Investment
Company Capital Corp., (registered investment advisor); Vice President,
Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
BRIAN C. NELSON, Vice President and Secretary (7/31/59)
Vice President, Alex. Brown & Sons Incorporated, Investment Company
Capital Corp. (registered investment advisor) and Armata Financial Corp.
(registered broker-dealer).
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<PAGE>
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.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company Inc., 1980-August 1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student 1989-1991.
- ----------
* Messrs. Hale and Price are Directors who are "interested persons", as defined
in the Investment Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other 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. Price serves as a Director of seven funds in
the Fund Complex. Mr. Hale serves as President and Director of one fund, and
Director of each of the other funds in the Fund Complex. Messrs. Cunnane,
Kroeger, Levy, McDonald and Woolf serve as Directors of each fund in the Fund
Complex. Mr. Veilleux serves as Executive Vice President of one fund and as Vice
President of each of the other funds in the Fund Complex. Mr. Nelson serves as
Vice President and Secretary, Mr. Finelli serves as Treasurer and Ms. DePrine
serves as Assistant Secretary, respectively, of each fund in the Fund Complex.
Mr. Randolph serves as President of two funds and Vice President of one fund in
the Fund Complex. Mr. Corbin serves as Vice President of three funds and Mr.
Fearnow serves as Vice President of 10 funds in the Fund Complex. Ms. Hausner
serves as Vice President of three funds in the Fund Complex.
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 were 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.
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 may be considered to have received remuneration indirectly. As
compensation for his services as Director, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested Director") receives an aggregate annual fee (plus reimbursement
for reasonable out-of-pocket expenses incurred in connection with his attendance
at Board and committee meetings) from all Flag Investors/ISI Funds and Alex.
Brown Cash Reserve Fund, Inc. for which he 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 direct proportion to their relative net assets. For the
fiscal year ended December 31, 1995, Non-Interested Directors' fees attributable
to the assets of the Fund totalled approximately $5,000. The following table
shows aggregate compensation paid to each of the Fund's Directors by the Fund
and the Fund Complex, respectively, in the fiscal year ended December 31, 1995.
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COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Total Compensation
From the Fund in the From the Fund
Fiscal Year Ended and Fund Complex
December 31, 1995 Paid to Directors
in the Fiscal Year
Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Richard T. Hale, Director $0 $0
*W. James Price, Chairman $0 $0
James J. Cunnane, Director $640.31(2) $39,000 for service on 13
Boards(1) in the Fund Complex
N. Bruce Hannay, Director** $640.31(2) $39,000 for service on 13
Boards(1) in the Fund Complex
John F. Kroeger, Director $725.91(2) $44,425 for service on 13
Boards(1) in the Fund Complex
Louis E. Levy, Director $640.31(2) $39,000 for service on 13
Boards(1) in the Fund Complex
Eugene J. McDonald, Director $640.31(2) $39,000 for service on 13
Boards(1) in the Fund Complex
Harry Woolf, Director $640.31(2) $39,000 for service on 13
Boards(1) in the Fund Complex
</TABLE>
- -----------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired, effective January 31, 1996.
1 One fund ceased operations on May 17, 1995.
2 Of the amounts paid to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald
and Woolf, $640.31, $454.73, $0, $0, $640.31 and $640.31, respectively,
was deferred pursuant to a deferred compensation plan.
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 in his last year of service.
Upon retirement, each Participant will receive annually 10% of such fee for each
year that he served after completion of the first five years, up to a maximum
annual benefit of 50% of the fee earned by him in his last year of service. The
fee will be paid quarterly, for life, by each Fund for which he serves. The
Retirement Plan is unfunded and unvested. Messrs. Kroeger and Woolf have
qualified but have not yet received benefits. The Fund has two Participants, a
Director who retired effective December 31, 1994, and a Director who retired
effective January 31, 1996, each of whom has qualified for the Retirement Plan
and will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of
his life. Such fee is allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from the
Fund is permitted to defer a minimum of 50%, or up to all, of his annual
compensation pursuant to a Deferred Compensation Plan. Messrs. Cunnane, Hannay,
Kroeger, Levy, McDonald and Woolf have each executed a Deferred Compensation
Agreement. Currently, the deferring Directors may select various Flag and Alex.
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Brown 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 five
years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the Investment Company Act. The Code of Ethics significantly
restricts the personal investing activities of all employees of ICC and the
directors and officers of Alex. Brown. As described below, the Code of Ethics
imposes additional, more onerous, restrictions on the Fund's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any director or
officer of Alex. Brown, and all Directors, preclear personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases which are part of an automatic dividend reinvestment plan). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and preclearance of the
acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On May 9, 1991, the sole shareholder of the Fund approved an Investment
Advisory Agreement between the Fund and ICC. ICC is a wholly-owned subsidiary of
Alex. Brown, the Fund's distributor. ICC is also the investment advisor to Flag
Investors Telephone Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
Flag Investors Equity Partners Fund, Inc., Alex. Brown Cash Reserve Fund, Inc.,
Flag Investors International Fund, Inc., Flag Investors Emerging Growth Fund,
Inc., Flag Investors Maryland Intermediate Tax Free Income Fund, Inc. and Flag
Investors Real Estate Securities Fund, Inc. which are also distributed by Alex.
Brown.
Under the Investment Advisory Agreement, ICC obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Fund. Any investment program undertaken by ICC will
at all times be subject to policies and control of the Fund's Board of
Directors. ICC will provide the Fund with office space for managing its affairs,
with the services of required executive personnel and with certain clerical and
bookkeeping services and facilities. These services are provided by ICC without
reimbursement by the Fund for any costs. ICC shall not be liable to the Fund or
its shareholders for any act or omission by ICC or any losses sustained by the
Fund or its shareholders, except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty. As compensation for its
services, ICC receives an annual fee from the Fund, payable monthly, at the
annual rate of .35% of the first $1 billion of the Fund's average daily net
assets, .30% of the Fund's average daily net assets in excess of $1 billion but
not exceeding $1.5 billion and .25% of the Fund's average daily net assets
exceeding $1.5 billion. ICC has voluntarily agreed to reduce its annual fee, if
necessary, or to make payments to the Fund to the extent required so that the
Fund's annual expenses do not exceed .70% of the Class A Shares' average daily
net assets and .45% of the Institutional Shares' average daily net assets. As
compensation for investment advisory services for the fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993, ICC received fees of
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<PAGE>
$252,372, $357,585 and $332,862 and from such amounts waived fees of $162,943,
$141,214 and $145,696, respectively. Absent such waivers for the fiscal years
ended December 31, 1995, December 31, 1994 and December 31, 1993, the Fund's
Total Operating Expenses would have been .93%, .84% and .85%, respectively, of
the Class A Shares' average daily net assets. The services of ICC to the Fund
are not exclusive and ICC is free to render similar services to others.
ICC has also agreed to reduce its aggregate fees on a monthly basis for
any fiscal year to the extent required so that the amount of the ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) paid or incurred by the Fund for such fiscal
year does not exceed the expense limitations applicable to the Fund imposed by
the securities laws or regulations of the states in which the Shares are
registered or qualified for sale, as such limitations may be raised or lowered
from time to time. Currently, the most restrictive of such expense limitations
requires the Advisor to reduce its fees to the extent required so that ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) do not exceed 2.5% of the first $30 million of
the Fund's average daily net assets, 2.0% of the next $70 million of the Fund's
average daily net assets and 1.5% of the Fund's average daily net assets in
excess of $100 million. In addition, if required to do so by any applicable
state securities laws or regulations, ICC will reimburse the Fund to the extent
required to prevent the expense limitations of any state law or regulation from
being exceeded. No such reimbursements were required in the fiscal year ended
December 31, 1995.
The Investment Advisory Agreement will continue in effect from year to
year thereafter if such continuance is specifically approved at least annually
by the Fund's Board of Directors, including a majority of the Non-Interested
Directors who have no direct or indirect financial interest in such agreement,
by votes cast in person at a meeting called for such purpose, or by a vote of a
majority of the outstanding Shares (as defined under "Capital Stock"). The
Investment Advisory Agreement was approved in the foregoing manner by the Fund's
Board of Directors most recently on September 25, 1995 and by a majority of the
outstanding Shares on July 31, 1992. The Fund or ICC may terminate the
Investment Advisory Agreement on sixty days' written notice without penalty. The
Investment Advisory Agreement will terminate automatically in the event of
assignment (as defined in the Investment Company Act).
In addition to its services as investment advisor, ICC also provides
accounting services to the Fund and serves as the Fund's transfer and dividend
disbursing agent. (See "Custodian, Transfer Agent, Accounting Services.")
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<PAGE>
7. DISTRIBUTION OF FUND SHARES
Alex. Brown serves as the distributor of the Fund's Shares pursuant to
two separate Distribution Agreements, one for the Class A Shares (the "Class A
Distribution Agreement") and one for the Institutional Shares (the
"Institutional Distribution Agreement") (collectively, the "Distribution
Agreements").
The Class A Shares
The Class A Distribution Agreement provides that Alex. Brown has the
exclusive right to distribute Class A Shares either directly or through other
broker-dealers. The Distribution Agreement further provides that Alex. Brown
will: (a) solicit and receive orders for the purchase of Class A Shares; (b)
accept or reject such orders on behalf of the Fund in accordance with the Fund's
currently effective Prospectus and transmit such orders as are accepted to the
Fund's transfer agent as promptly as possible; (c) receive requests for
redemptions and transmit such redemption requests to the Fund's transfer agent
as promptly as possible; and (d) respond to inquiries from shareholders
concerning the status of their accounts and the operations of the Fund. Alex.
Brown has not undertaken to sell any specific number of Class A Shares. The
Class A Shares Distribution Agreement further provides that, in connection with
the distribution of Shares, Alex. Brown will be responsible for all of the
promotional expenses. The services provided by Alex. Brown to the Fund are not
exclusive, and Alex. Brown is free to provide similar services to others. Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers") have
entered into Sub-Distribution Agreements under which such broker-dealers have
agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.
As compensation for providing distribution services for the Class A
Shares as described above, Alex. Brown receives an annual fee, paid monthly,
equal to .25% of the average daily net assets of the Class A Shares. Alex. Brown
expects to allocate most of its annual fee to its investment representatives and
up to all of its fee to Participating Dealers. For the fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993, Alex. Brown received
distribution fees of $179,666, $255,418 and $237,758, respectively, and paid
from such fees $170,797, $239,042 and $138,839, respectively, as compensation to
its investment representatives and $7,344, $4,457 and $2,596, respectively, as
compensation to Participating Dealers. No compensation was paid to financial
institutions in any fiscal period. In addition, in the fiscal year ended
December 31, 1995, Alex. Brown incurred expenses of $0 for advertising and
$17,107 for printing and mailing prospectuses to prospective investors in the
Fund's Shares.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted a Plan of Distribution
for the Fund's Class A Shares (the "Class A Plan"). Under the Class A Plan, the
Fund pays a fee to Alex. Brown for distribution and other shareholder servicing
assistance as set forth in the Class A Distribution Agreement, and Alex. Brown
is authorized to make payments out of its fee to its investment representatives
and to participating broker-dealers. The Class A Distribution Agreement,
including the Class A Plan and a form of Sub-Distribution Agreement, was
approved by the sole shareholder of the Fund on May 9, 1991, by a majority of
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<PAGE>
the outstanding Shares of the Fund on July 31, 1992, and most recently by the
Fund's Board of Directors, including a majority of the Non-Interested Directors,
on September 25, 1995. The Class A Distribution Agreement and the Class A Plan
encompassed therein will remain in effect from year to year thereafter, if
specifically approved at least annually by the Fund's Board of Directors and by
the affirmative vote of a majority of the Non-Interested Directors by votes cast
in person at a meeting called for such purpose.
In approving the Class A Plan, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Class A Plan would benefit the Fund and its shareholders. The Class A Plan will
be renewed only if the Directors make a similar determination in each subsequent
year. The Class A Plan may not be amended to increase materially the fee to be
paid pursuant to the Class A Distribution Agreement without the approval of the
shareholders of the Fund. The Class A Plan may be terminated at any time and the
Class A Distribution Agreement may be terminated at any time upon sixty days'
notice, in either case without penalty, by the vote of a majority of the Fund's
Non-Interested Directors or by a vote of a majority of the outstanding Shares
(as defined under "Capital Stock"). Any Sub-Distribution Agreement may be
terminated in the same manner at any time. The Class A Distribution Agreement
and any Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
During the continuance of the Class A Plan, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Class A Plan to Alex. Brown
pursuant to the Class A Distribution Agreement and to broker-dealers pursuant to
Sub-Distribution Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Class A Plan, the selection and nomination of the Fund's Non-Interested
Directors shall be committed to the discretion of the Non-Interested Directors
then in office.
In addition, with respect to the Class A Shares, the Fund may enter into
Shareholder Servicing Agreements with certain financial institutions, such as
banks, to act as Shareholder Servicing Agents, pursuant to which Alex. Brown
will allocate a portion of its distribution fee as compensation for such
financial institutions' ongoing shareholder services. Although banking laws and
regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations by various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the shareholder servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. Such financial institutions may impose
separate fees in connection with these services and investors should review the
Prospectus and this Statement of Additional Information in conjunction with any
such institution's fee schedule. In addition, state securities laws on this
issue may differ from the interpretations of federal law expressed herein, and
banks and financial institutions may be required to register as dealers pursuant
to state law.
Under the Class A Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Class A Plan. Payments under the Class A Plan are made as described above
regardless of Alex. Brown's actual cost of providing distribution services and
may be used to pay Alex. Brown's overhead expenses. If the cost of providing
distribution services to the Fund in connection with the sale of the Class A
Shares is less than .25% of the Fund's average daily net assets for any period,
the unexpended portion of the distribution fee may be retained by Alex. Brown.
The Class A Plan does not provide for any charges to the Fund for excess amounts
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<PAGE>
expended by Alex. Brown and, if the Class A Plan is terminated in accordance
with its terms, the obligation of the Fund to make payments to Alex. Brown
pursuant to the Class A Plan will cease and the Fund will not be required to
make any payments past the date the related Class A Distribution Agreement
terminates.
In the fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993, Alex. Brown received sales commissions on the Class A Shares
of $11,196, $134,543 and $281,443 and from such amounts retained $11,088,
$132,337 and $278,516 for each such year, respectively.
The Institutional Shares
The Institutional Distribution Agreement provides that Alex. Brown has
the exclusive right to distribute the Institutional Shares, either directly or
through Participating Dealers, and further provides that Alex. Brown will
solicit and receive orders for the purchase of Institutional Shares, accept or
reject such orders on behalf of the Fund in accordance with the Fund's currently
effective Prospectus for the Institutional Shares and transmit such orders as
are accepted to the Fund's transfer agent as promptly as possible, receive
requests for redemption and transmit such redemption requests to the Fund's
transfer agent as promptly as possible, respond to inquiries from the Fund's
shareholders concerning the status of their accounts with the Fund, maintain
such accounts, books and records as may be required by law or be deemed
appropriate by the Fund's Board of Directors, and take all actions deemed
necessary to carry into effect the distribution of the Institutional Shares.
Alex. Brown has not undertaken to sell any specific number of Institutional
Shares. The Institutional Distribution Agreement further provides that, in
connection with the distribution of Institutional Shares, Alex. Brown will be
responsible for all of the promotional expenses. The services provided by Alex.
Brown to the Fund are not exclusive, and Alex. Brown is free to provide similar
services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown or any losses sustained by
the Fund or its shareholders, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
Alex. Brown receives no compensation for distributing the Institutional
Shares.
Alex. Brown and Participating Dealers have entered into Sub-Distribution
Agreements under which such Participating Dealers have agreed to process
investor purchase and redemption orders and respond to inquiries from
shareholders concerning the status of their accounts and the operations of the
Fund.
The Institutional Distribution Agreement was approved by the Fund's
Board of Directors on September 25, 1995 and by the sole shareholder of the
class on October 31, 1995. It has an initial term of two years and will remain
in effect from year to year thereafter, if specifically approved at least
annually by the Fund's Board of Directors and by the affirmative vote of a
majority of the Non- Interested Directors by votes cast at a meeting called for
such purpose. It may be terminated at any time upon sixty days' written notice,
without penalty, by the vote of a majority of the Fund's Non-Interested
Directors or by a vote of a majority of the outstanding Institutional Shares (as
defined under Capital Stock). The Institutional Distribution Agreement and any
Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
General Information
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
-17-
<PAGE>
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and 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
Shares; fees and expenses of legal counsel, including counsel to the
Non-Interested Directors, and of independent auditors, in connection with any
matter relating to the Fund; a portion of 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 operation unless
otherwise explicitly assumed by Alex. Brown or ICC.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
8. BROKERAGE
ICC is responsible for decisions to buy and sell securities for the
Fund, for the broker-dealer selection and for negotiation of commission rates.
Purchases and sales of securities on a securities exchange are effected through
broker-dealers who charge a commission for their services. ICC may direct
purchase and sale orders to any broker-dealer, including, to the extent and in
the manner permitted by applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.
If Alex. Brown is participating in an underwriting or selling group, the
Fund may not buy portfolio securities from the group except in accordance with
rules of the SEC. The Fund believes that the limitation will not affect its
ability to carry out its present investment objective.
ICC's primary consideration in effecting securities transactions is to
obtain best price and execution of orders on an overall basis. As described
below, however, ICC may, in its discretion, effect brokerage transactions with
broker-dealers that furnish statistical, research or other information or
-18-
<PAGE>
services which are deemed by ICC to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ICC with clients other than the Fund. Similarly, any research services received
by ICC through placement of portfolio transactions of other clients may be of
value to ICC in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to ICC
by a broker-dealer. ICC is of the opinion that because the material must be
analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ICC's research and analysis.
Therefore, it may tend to benefit the Fund by improving ICC's investment advice.
ICC's policy is to pay a broker-dealer higher commissions for particular
transactions than might be charged if a different broker-dealer had been chosen
when, in ICC's opinion, this policy furthers the overall objective of obtaining
best price and execution. Subject to periodic review by the Fund's Board of
Directors, ICC is also authorized to pay broker-dealers other than Alex. Brown
higher commissions on brokerage transactions for the Fund in order to secure
research and investment services described above. The allocation of orders among
broker-dealers and the commission rates paid by the Fund will be reviewed
periodically by the Board of Directors. For the fiscal years ended December 31,
1995, December 31, 1994 and December 31, 1993, ICC directed no brokerage
transactions to broker-dealers and paid no related commissions because of
research services provided to the Fund.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization certain policies and
procedures incorporating the standards of Rule 17e-1 under the Investment
Company Act which requires that the commissions paid Alex. Brown must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires ICC to furnish reports and to maintain records
in connection with such reviews. The Distribution Agreements between Alex. Brown
and the Fund do not provide for any reduction in the distribution fee to be
received by Alex. Brown from the Fund as a result of profits resulting from
brokerage commissions on transactions of the Fund effected through Alex. Brown.
For the fiscal years ended December 31, 1995, December 31, 1994 and December 31,
1993, the Fund paid no brokerage commissions to Alex. Brown. The Fund is
required to identify any securities of its "regular brokers or dealers" (as such
term is defined in the Investment Company Act) which the Fund has acquired
during its most recent fiscal year. As of December 31, 1995, the Fund held a
5.70% repurchase agreement issued by Goldman Sachs & Co. valued at $1,806,000.
Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
ICC manages other investment accounts. It is possible that, at times,
identical securities will be acceptable for the Fund and one or more of such
other accounts; however, the position of each account in the securities of the
same issuer may vary and the length of time that each account may choose to hold
its investment in such securities 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 or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, 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.
-19-
<PAGE>
9. CAPITAL STOCK
The Fund is authorized to issue fifty-five million Shares of common
stock, par value $.001 per share. The Board of Directors may increase or
decrease the number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated three classes of shares: Flag Investors Intermediate-Term Income
Fund Class A Shares, Flag Investors Intermediate-Term Income Fund Class B
Shares, and Flag Investors Intermediate-Term Income Fund Institutional Shares.
The Institutional Shares are offered only to certain eligible institutions and
to clients of investment advisory affiliates of Alex. Brown. The Class B Shares
are not currently being offered. Shares of the Fund, regardless of series or
class would have equal rights with respect to voting, except that with respect
to any matter affecting the rights of the holders of a particular series or
class, the holders of each series or class would vote separately. In general,
each series would be managed separately and shareholders of each series would
have an undivided interest in the net assets of that series. For tax purposes,
the series would be treated as separate entities. Generally, each class of
Shares would be identical to every other class in a particular series and
expenses of the Fund (other than 12b-1 and any applicable service fees) would be
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all 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. There are no preemptive, conversion or exchange
rights applicable to any of the Shares. The issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of the
Fund, each Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. 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 auditors.
11. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), with offices at Airport
Business Park, 200 Stevens Drive, Lester, Pennsylvania, 19113, has been retained
to act as custodian of the Fund's investments. PNC Bank receives such
compensation from the Fund for its services as custodian as may be agreed to
from time to time by PNC Bank and the Fund. Investment Company Capital Corp.,
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<PAGE>
135 East Baltimore Street, Baltimore, Maryland 21202, serves as the Fund's
transfer and dividend disbursing agent and provides certain accounting services
to the Fund under a Master Services Agreement between the Fund and ICC. As
compensation for providing dividend and transfer agency services, the Fund pays
ICC up to $10.62 per account per year, plus reimbursement for out-of-pocket
expenses incurred in connection therewith. For the fiscal year ended December
31, 1995, such fees totalled $24,999.
As compensation for providing accounting services, ICC receives an
annual fee, calculated daily and paid monthly, as shown below.
Average Net Assets Incremental Fee
------------------ ---------------
$ 0 - $ 10,000,000 $15,000 (fixed fee)
$ 10,000,001 - $ 24,999,999 .080%
$ 25,000,000 - $ 50,000,000 .077%
$ 50,000,001 - $ 75,000,000 .050%
$ 75,000,001 - $ 99,999,999 .030%
$100,000,000 - $ 500,000,000 .020%
$500,000,001 - $1,000,000,000 .008%
over $1,000,000,000 .003%
In addition, the Fund will reimburse ICC for the following out-of-pocket
expenses incurred in connection with ICC's provision of accounting services
under the Master Services Agreement: express delivery service, independent
pricing and storage. For the fiscal year ended December 31, 1995, ICC received
accounting fees of $57,172.
ICC also serves as the Fund's investment advisor.
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP. Deloitte & Touche LLP has offices at 117 Campus Drive, Princeton,
New Jersey 08540.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will generally be stated both in terms of total return
and in terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
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n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover one,
five, and ten year periods or a shorter period dating from the effectiveness of
the Fund's registration statement (or the later commencement of operations of a
Series or class). During its first year of operations, the Fund may, in lieu of
annualizing its total return, use an aggregate total return calculated in the
same manner. In calculating the ending redeemable value, the maximum sales load
(1.50% for the Class A Shares) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Prospectuses on the reinvestment dates
during the period. "T" in the formula above is calculated by finding the average
annual compounded rate of return over the period that would equate an assumed
initial payment of $1,000 to the ending redeemable value. Any sales loads that
might in the future be made applicable at the time to reinvestments would be
included as would any recurring account charges that might be imposed by the
Fund. The Institutional Shares are sold without a sales load.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA/Weisenberger or Morningstar
Inc., or with the performance of Lehman Brothers Government Corporate Bond
Index, Lehman Brothers Government Intermediate-Term Bond Index or Salomon
Brothers Broad Investment Grade Index, the Fund calculates its aggregate and
average annual total return for the specified periods of time by assuming the
investment of $10,000 in Shares and assuming the reinvestment of each dividend
or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges (as distinguished from the
computation required by the SEC where the $1,000 payment is reduced by sales
charges before being invested in Shares). The Fund will, however, disclose the
maximum sales charges and will also disclose that the performance data do not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules, and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Calculated according to the SEC rules for the one-year period ended
December 31, 1995, the ending redeemable value of a hypothetical $1,000 payment
for Class A Shares was $1,138, resulting in a total return for such shares equal
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<PAGE>
to 13.77%. For the period from effectiveness of the Fund's registration
statement on May 13, 1991 to the end of the Fund's most recent fiscal year on
December 31, 1995, the ending redeemable value of a hypothetical $1,000 payment
for Class A Shares was $1,391 resulting in an average annual total return for
such shares equal to 7.38%.
Calculated according to the SEC rules for the period from November 2,
1995 (commencement of offering of the Institutional Shares) through December 31,
1995, the ending redeemable value of a hypothetical $1,000 payment for
Institutional Shares was $1,025, resulting in an aggregate total return for such
shares equal to 2.50%.
Calculated according to the alternative computation which assumes no
sales charges and reinvestment of all distributions, for the one-year period
ended December 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in Class A Shares was $11,543, resulting in a total return for such
shares equal to 15.43%. For the period from effectiveness of the Fund's
registration statement on May 13, 1991 to the end of the Fund's most recent
fiscal year on December 31, 1995, the ending redeemable value of a hypothetical
$10,000 investment in Class A Shares was $14,112, resulting in an average annual
total return for such shares equal to 7.21%.
Calculated according to the alternative computation for the period from
November 2, 1995 (commencement of offering of the Institutional Shares) through
December 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in Institutional Shares was $10,250, resulting in an aggregate total
return for such Shares equal to 2.50%.
Yield Calculations
The Fund's yield for the Class A Shares and the Institutional Shares for
the 30 day period ended December 31, 1995 was 6.27% and 6.30%, respectively, and
was computed in the manner discussed below. The yield of the Fund is calculated
by dividing the net investment income per Share earned by the Fund during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. The Fund's yield calculations
assume a maximum sales charge of 1.50% for the Class A Shares and no sales
charge for the Institutional Shares. The Fund's net investment income per Share
earned during the period is based on the average daily number of Shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.
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<PAGE>
Undeclared earned income will be subtracted from the net asset value per
share. Undeclared earned income is net investment income which, at the end of
the base period, has not been declared as a dividend, but is reasonably expected
to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. The Fund's portfolio
turnover rate for the fiscal years ended December 31, 1995 and December 31, 1994
was 46% and 50%. A high level of portfolio turnover may generate relatively high
transaction costs and may increase the amount of taxes payable by the Fund's
shareholders.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 2, 1996 to Fund management's knowledge, the following
persons owned of record or beneficially 5% or more of the Fund's outstanding
Shares.
Name and Address % Ownership
---------------- -----------
Class A Shares
--------------
OLICOM A/S 16.07%
ATTN: Jorgen Nielsen
Nybrovej 114
DK-2800
Lyngby, Denmark
Alex. Brown & Sons Incorporated 73.56%*
135 E. Baltimore Street
Baltimore, MD 21202
Institutional Shares
--------------------
Lauer & Co. Cust. 24.24%
BAT Customers
c/o Glenmede Income Collection Dept.
1650 Market St., Ste. 1200
Philadelphia, PA 19103-7301
Lauer & Co. FBO Alex. Brown Cap. 8.07%
Advisory & Tr. Irvin L. Small
#BS7116209 c/o Glenmede Trust Co.
Suite 1200
One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7391
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<PAGE>
Alex. Brown & Sons Incorporated 5.70%*
FBO 201-83722-15
P.O. Box 1346
Baltimore, MD 21203-1346
Alex. Brown & Sons Incorporated 6.10%*
FBO 201-86313-13
P.O. Box 1346
Baltimore, MD 21203-1346
Alex. Brown & Sons Incorporated 7.50%*
FBO 201-81960-10
P.O. Box 1346
Baltimore, MD 21203-1346
Alex. Brown & Sons Incorporated 8.44%*
FBO 201-86541-17
P.O. Box 1346
Baltimore, MD 21203-1346
Alex. Brown & Sons Incorporated 19.18%*
135 E. Baltimore Street
Baltimore, MD 21202
------------
* As of such date Alex. Brown owned beneficially less than
1% of all of such Shares.
As of April 2, 1996, Directors and officers as a group owned
less than 1% of the Fund's total outstanding Shares.
15. FINANCIAL STATEMENTS
(See next page.)
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<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
Statement of Net Assets December 31, 1995
<TABLE>
<CAPTION>
S&P Par Value
Security Rating(1) (000) (Note A)
<S> <C> <C> <C>
CORPORATE BONDS -- 26.1%
Banc One Columbus
7.375%, 12/1/02 AA- $1,000 $ 1,092,500
Banc One Credit Card Master Trust
6.30%, 10/15/02 AAA 3,000 3,067,500
Bear Stearns Co.
6.625%, 1/15/04 A 3,000 3,041,250
Countrywide Funding
8.25%, 7/15/02 A- 3,250 3,599,375
Fund America Enterprise
7.75%, 2/1/03 BBB+ 3,000 3,142,500
Pacific Gas & Electric
6.25%, 3/1/04 A 2,000 2,002,500
Societe Nationale Elf Aquitaine
7.75%, 5/1/99 AA- 2,000 2,125,000
----------
Total Corporate Bonds (Cost $17,483,844) 18,070,625
----------
U.S. GOVERNMENT AGENCY SECURITIES -- 20.1%
Federal Home Loan Banks Board -- 4.4%
7.151%, 9/13/05 (callable 9/13/97) AAA 3,000 3,086,310
Federal Home Loan Mortgage Corp. -- 2.1%
Pool #G10049, 8.00%, 10/1/07 AAA 1,393 1,444,393
Federal National Mortgage Assoc. -- 5.9%
Multi-Class Mortgage Certificates
Pool #326570, 7.00%, 2/1/08 AAA 3,997 4,074,315
Government National Mortgage Assoc. -- 6.0%
Multi-Class Mortgage Certificates
Pool #194615, 8.00%, Due 3/15/17 AAA 166 172,545
Pool #204405, 8.00%, Due 4/15/17 AAA 184 191,503
Pool #371200, 8.00%, Due 12/15/23 AAA 1,618 1,687,303
Pool #371206, 8.00%, Due 12/15/23 AAA 2,019 2,105,216
Guaranteed Export Trust -- 1.7%
8.187%, 12/15/04 AAA 1,060 1,148,055
----------
Total U.S. Government Agency Securities (Cost $13,700,276) 13,909,640
----------
U.S. TREASURY SECURITIES -- 16.6%
U.S. Treasury Notes
4.75%, 9/30/98 AAA 4,000 3,952,120
5.50%, 4/15/00 AAA 2,500 2,521,550
5.75%, 8/15/03 AAA 5,000 5,067,200
----------
Total U.S. Treasury Securities (Cost $11,205,039) 11,540,870
----------
</TABLE>
-26-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
Statement of Net Assets (concluded) December 31, 1995
<TABLE>
<CAPTION>
S&P Par Value
Security Rating(1) (000) (Note A)
<S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 11.3%
Premier Auto Trust, 94-1-A3, 4.75%, 2/2/00 AAA $ 944 $ 937,160
Discover Credit Card, 93-A-A, 6.25%, 8/16/00 AAA 3,000 3,052,620
Sears Credit Account Master Trust, II 95-2-A, 8.10%, 6/15/04 AAA 3,500 3,808,770
----------
Total Asset-Backed Securities (Cost $7,481,229) 7,798,550
COLLATERALIZED MORTGAGE OBLIGATIONS -- 22.8%
Federal Home Loan Mortgage Corp. -- 11.9%
Multi-Class Mortgage Certificates
Series 21-H, 5.85%, 1/25/19 AAA 4,000 3,941,361
Series 1163-I, 6.95%, 12/15/20 AAA 600 610,782
Series 106-F, 8.50%, 12/15/20 AAA 3,562 3,670,704
Federal National Mortgage Assoc. -- 10.8%
Multi-Class Mortgage Certificates
Series 1988-18-B, 9.40%, 7/25/03 AAA 237 248,636
Series 1992-149-D, 12.00%, 4/25/19 AAA 2,068 2,139,593
Series 1991-11-G, 7.00%, 11/25/19 AAA 3,052 3,069,546
Series 1995-W-1--A2, 8.20%, 4/25/25 AAA 2,000 2,058,200
Goldman Sachs Trust Series 3 -- 0.1%
Remic, Series 3 E-4, 8.00%, 5/27/15 AAA 66 67,321
----------
Total Collateralized Mortgage Obligations (Cost $15,609,443) 15,806,143
----------
REPURCHASE AGREEMENT -- 2.6%
Goldman Sachs & Co., 5.70%
Dated 12/29/95, to be repurchased on 1/2/96, collateralized
by U.S. Treasury Bonds with a market value of $1,834,529.
(Cost $1,806,000) NR* 1,806 1,806,000
---------
Total Investment in Securities -- 99.5%
(Cost $67,285,831)** 68,931,828
Other Assets in Excess of Liabilities, Net -- 0.5% 369,866
----------
Net Assets -- 100.0% $69,301,694
==========
Net Asset Value Per:
Class A Share ($67,115,974 / 6,406,450 shares outstanding) $10.48
=====
Institutional Share ($2,185,720 / 206,585 shares outstanding) $10.58
=====
Maximum Offering Price Per:
Class A Share ($10.48 / .985) $10.64
=====
Institutional Share $10.58
=====
</TABLE>
(1) The Standard & Poor's rating indicated is believed to be the most
recent rating available as of December 31, 1995.
* Not rated.
** Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
-27-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
Statement of Operations For the Year Ended December 31, 1995
INVESTMENT INCOME (NOTE A):
Interest $ 4,829,563
-----------
EXPENSES:
Investment advisory fee (Note B) 252,372
Distribution fee (Note B) 179,666
Accounting fee (Note B) 57,172
Printing and postage 32,168
Custodian fees 25,999
Transfer agent fees (Note B) 24,999
Legal 24,999
Audit 23,999
Registration fees 19,998
Organizational expense (Note A) 9,092
Miscellaneous 8,500
Directors' fees 5,000
Insurance 3,680
-----------
Total expenses 667,644
Less: Fees waived (Note B) (162,943)
-----------
Net expenses 504,701
-----------
Net investment income 4,324,862
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE A):
Net realized loss from securities transactions (1,018,416)
Change in unrealized appreciation of investments 7,179,328
Change in unrealized appreciation of assets and liabilities
denominated in foreign currency 1,216
-----------
Net gain on investments 6,162,128
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,486,990
===========
See accompanying Notes to Financial Statements.
-28-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 4,324,862 $ 5,692,067
Net loss from security transactions (1,018,416) (2,533,036)
Change in unrealized appreciation/(depreciation)
of investments 7,179,328 (6,950,668)
Change in unrealized appreciation/(depreciation) of assets
and liabilities denominated in foreign currency 1,216 --
---------- ------------
Net increase/(decrease) in net assets
resulting from operations 10,486,990 (3,791,637)
---------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Flag Investors Class A Shares (4,208,250) (5,690,349)
Flag Investors Institutional Shares (7,962) --
Return of capital:
Flag Investors Class A Shares -- (324,493)
Flag Investors Institutional Shares -- --
---------- ------------
Total distributions (4,216,212) (6,014,842)
---------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 4,986,795 18,470,875
Value of shares issued in reinvestment of dividends 2,635,861 4,067,306
Cost of shares repurchased (23,380,739) (46,462,862)
---------- ------------
Decrease in net assets derived from
capital share transactions (15,758,083) (23,924,681)
---------- ------------
Total decrease in net assets (9,487,305) (33,731,160)
NET ASSETS:
Beginning of year 78,788,999 112,520,159
---------- ------------
End of year $69,301,694 $ 78,788,999
========== ============
</TABLE>
See accompanying Notes to Financial Statements.
-29-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
FINANCIAL HIGHLIGHTS -- FLAG INVESTORS CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
May 13, 1991*
For the Year Ended December 31, through
1995 1994 1993 1992 Dec. 31, 1991
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 9.62 $ 10.57 $ 10.37 $ 10.54 $ 10.00
------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.62 0.57 0.57 0.63 0.32
Net realized and unrealized gain/(loss)
on investments 0.84 (0.92) 0.34 (0.05) 0.64
------- ------- -------- ------- -------
Total from Investment Operations 1.46 (0.35) 0.91 0.58 0.96
------- ------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income and short-term gains (0.60) (0.57) (0.69) (0.75) (0.42)
Return of capital -- (0.03) -- -- --
Distributions from net realized
long-term gains -- -- (0.02) -- --
------- ------- -------- ------- -------
Total distributions (0.60) (0.60) (0.71) (0.75) (0.42)
------- ------- -------- ------- -------
Net asset value at end of period $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54
======= ======= ======== ======= =======
TOTAL RETURN(1) 15.43% (3.32)% 8.98% 5.68% 9.79%
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.70% 0.70% 0.70% 0.70% 0.70%**
Net investment income(3) 6.00% 5.57% 5.43% 6.01% 5.97%**
SUPPLEMENTAL DATA:
Net assets at end of period (000) $67,116 $78,789 $112,520 $78,706 $64,327
Portfolio turnover rate 46% 50% 86% 107% 46%
</TABLE>
* Commencement of operations.
** Annualized.
(1) Total return excludes the effect of sales loads.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses
to average net assets would have been 0.93%, 0.84%, 0.85%, 0.87% and
1.73% (annualized) for the years ended December 31, 1995, 1994, 1993,
1992, and for the period ended December 31, 1991, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net
investment income to average net assets would have been 5.77%,
5.43%, 5.28%, 5.83% and 4.94% (annualized) for the years ended
December 31, 1995, 1994, 1993, 1992, and for the period ended
December 31, 1991, respectively.
See accompanying Notes to Financial Statements.
-30-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(For a share outstanding during the period)
For the Period
November 2, 1995*
through
December 31, 1995
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 10.42
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.09
Net realized and unrealized gain on investments 0.12
-------
Total from Investment Operations 0.21
-------
Less Distributions:
Dividends from net investment income and
short-term capital gains (0.05)
-------
Net asset value at end of period $ 10.58
=======
Total Return 12.47%**
Ratios to Average Net Assets:
Expenses(1) 0.47%**
Net investment income(2) 6.52%**
Supplemental Data:
Net assets at end of period (000) $ 2,186
Portfolio turnover rate 46%
* Commencement of operations.
** Annualized.
(1) Without the waiver of advisory fees (Note B), the ratio of expenses
to average net assets would have been 0.72% (annualized) for the
period ending December 31, 1995.
(2) Without the waiver of advisory fees (Note B), the ratio of net
investment income to average net assets would have been 6.27%
(annualized) for the period ending December 31, 1995.
See accompanying Notes to Financial Statements.
-31-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES - Flag Investors Intermediate-Term Income
Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940
as an open-end, diversified management investment company designed to provide a
high level of current income consistent with preservation of capital within an
intermediate-term maturity structure. The Fund commenced operations on May 13,
1991, consisting of Class A Shares, which are subject to a maximum front-end
sales charge of 1.50% and a 0.25% distribution fee. On November 2, 1995, the
Fund began offering Institutional Shares, which are not subject to a front-end
sales charge or a distribution fee. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
SECURITY VALUATION - Debt securities are valued on the basis of quotations
provided by a pricing service, which uses information with respect to
transactions on bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Portfolio securities that are listed on a national securities
exchange are valued on the basis of their last sale price or, in the absence of
recorded sales, at the average of readily available closing bid and asked
prices. Securities or other assets for which market quotations are not readily
available are valued at their fair value so determined in good faith by the
investment advisor under procedures established and monitored by the Board of
Directors. Short-term obligations with maturities of 60 days or less are valued
at amortized cost which approximates market.
FEDERAL INCOME TAX - No provision is made for federal income taxes as it is the
Fund's intention to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code and to make requisite distributions to
the shareholders that will be sufficient to relieve it from all or substantially
all federal income and excise taxes. The Fund's policy is to distribute to
shareholders substantially all of its taxable net investment income on a monthly
basis and net realized long-term capital gains annually, if any.
OTHER - Security transactions are accounted for on the trade date and the cost
of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes amortization of
premiums and accretion of discounts.
Costs incurred by the Fund in connection with its organization, registration and
the initial public offering of shares have been deferred and are being amortized
on the straight-line method over a five-year period beginning on the date on
which the Fund commenced its investment activities.
B. INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown & Sons
Incorporated ("Alex. Brown"), serves as the Fund's investment advisor. As
compensation for its advisory services, ICC receives from the Fund an annual
fee, calculated daily and paid monthly, at an annual rate of 0.35% of the first
$1 billion of the Fund's average daily net assets; 0.30% of the Fund's average
daily net assets in excess of $1 billion but not exceeding $1.5 bil-
-32-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
lion; and 0.25% of the Fund's average daily net assets in excess of $1.5
billion.
ICC has agreed to reduce its aggregate fees so that ordinary expenses of the
Fund for any fiscal year do not exceed 0.70% of the Fund's average daily net
assets. For the year ended December 31, 1995, ICC waived fees of $162,943.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated and paid monthly. ICC received $24,999 for transfer
agent services for the year ended December 31, 1995.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily net
assets. ICC received $57,172 for accounting services for the year ended December
31, 1995.
As compensation for providing distribution services, ICC receives from the Fund
an annual fee, calculated daily and paid monthly, at an annual rate equal to
0.25% of the Fund's average daily net assets of Class A Shares. For the year
ended December 31, 1995, distribution fees aggregated $179,666.
Flag Investors/ISI Fund complex has adopted a retirement plan for eligible
Directors. The pension expense as of the year ended December 31, 1995 was not
material.
C. CAPITAL SHARE TRANSACTIONS - The Fund is authorized to issue up to 55 million
shares of capital stock (45 million Class A, 5 million Institutional, 2 million
Class B and 3 million undesignated), par value $.001 per share, all of which are
designated as common stock. Transactions in shares of the Fund were as follows:
Flag Investors Class A Shares
-------------------------------
For the Year Ended December 31,
1995 1994
--------- ----------
Shares sold 267,783 1,793,782
Shares issued to
shareholders on
reinvestment of
dividends 261,580 404,005
Shares redeemed (2,317,104) (4,649,437)
---------- ----------
Net decrease in shares
outstanding (1,787,741) (2,451,650)
========== ==========
Proceeds from sale
of shares $ 2,690,780 $18,470,875
Value of reinvested
dividends 2,635,861 4,067,306
Cost of shares
redeemed (23,241,599) (46,462,862)
---------- ----------
Net decrease from
capital share
transactions $(17,914,958) $(23,924,681)
========== ==========
-33-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (concluded)
Institutional Shares
--------------------------------
For the Period November 2, 1995*
through December 31, 1995
--------------------------------
Shares sold 219,797
Shares issued to
shareholders on
reinvestment of
dividends --
Shares redeemed (13,212)
-----------
Net increase in shares
outstanding 206,585
===========
Proceeds from sale
of shares $2,296,015
Value of reinvested
dividends --
Cost of shares
redeemed (139,140)
----------
Net increase from
capital share
transactions $2,156,875
==========
* Commencement of operations.
D. INVESTMENT TRANSACTIONS - Purchases and sales of investment securities, other
than short-term obligations, aggregated $31,389,840 and $42,317,826,
respectively, for the year ended December 31, 1995.
At December 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $1,747,187,
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $101,190.
E. CAPITAL LOSS CARRYFORWARD - At December 31, 1995, there was a tax capital
loss carryforward of $3,494,748, of which $383,359 expires in 2002 and
$3,111,389 expires in 2003. This carryforward will be used to offset future net
capital gains, if any.
F. NET ASSETS - At December 31, 1995, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $69,160,420
Flag Investors Institutional Shares 2,156,875
Accumulated net realized loss from
security transactions (3,514,478)
Unrealized appreciation of
investments 1,645,997
Overdistribution of net investment
income (147,120)
-----------
$69,301,694
===========
-34-
<PAGE>
FLAG INVESTORS
INTERMEDIATE-TERM INCOME FUND
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Flag
Investors Intermediate-Term Income Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors
Intermediate-Term Income Fund, Inc. as of December 31, 1995, the related
statements of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the four-year period then ended and the
period May 13, 1991 (commencement of operations) to December 31, 1991. 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.
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 the 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 securities owned at December
31, 1995 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flag Investors
Intermediate-Term Income Fund, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
January 26, 1996
-35-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the years ended December 31,
1995, December 31, 1994, December 31, 1993 and
December 31, 1992 and for the period ended December
31, 1991
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of December 31, 1995.
- Statement of Operations for the year ended December
31, 1995.
- Statements of Changes in Net Assets for the years
ended December 31, 1995 and December 31, 1994.
- Financial Highlights for the years ended December 31,
1995, December 31, 1994, December 31, 1993 and
December 31, 1992 and for the period ended December
31, 1991.
- Notes to Financial Statements.
(3) All required financial statements are included in Part B of
the Registration Statement. All other financial statements
and schedules are inapplicable.
(b) Exhibits
(1) (a)3 Articles of Incorporation.
(b)1 Amended Articles of Incorporation.
(c)1 Amendment to Amended Articles of Incorporation.
(d)1 Articles Supplementary dated April 23, 1992.
(e)1 Articles Supplementary dated October 6, 1995.
(f)1 Articles Supplementary.
(2)3 By-Laws, as amended.
(3) Not Applicable.
(4)2 Specimen Security.
C-1
<PAGE>
(5)1 Investment Advisory Agreement between Registrant and Flag
Investors Management Corp. (now known as Investment
Company Capital Corp).
(6) (a)1 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to
Registrant's Class A Shares.
(b)3 Form of Sub-Distribution Agreement between Alex.
Brown & Sons Incorporated and Participating Dealers.
(c)3 Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents.
(d)1 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to
Registrant's Institutional Shares.
(7) Not Applicable.
(8) (a)1 Custodian Agreement between Registrant and Provident
National Bank (now known as PNC Bank).
(b)1 Master Services Agreement between Registrant and
Investment Company Capital Corp.
(9) Not Applicable.
(10)1 Opinion of Counsel.
(11) (a)1 Consent of Deloitte & Touche LLP.
(b)1 Consents to Serve as Directors.
(12) Not Applicable.
(13)3 Form of Subscription Agreement re: initial $100,000
capital.
(14) Not Applicable.
(15)1 Distribution Plan.
(16)3 Schedule of Computation of Performance Quotations
(unaudited).
(18)1 Rule 18f-3 Plan.
(24)1 Powers of Attorney.
(27)1 Financial Data Schedule.
- -----------------
1 Filed herewith.
C-2
<PAGE>
2 Incorporated by reference to Pre-Effective Amendment No. 1. to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on March 14,
1991.
3 Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on August
18, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
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.
The following information is given as of April 2, 1996:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Shares 1,203
Institutional Shares 46
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.
Section 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
C-3
<PAGE>
Section 1. 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.
Section 2. 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 of the
Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article VIII shall be effective to
protect or purport 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.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII 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
1940 Act and is, therefore, unenforceable. In the event of 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 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 1940 Act
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment 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.
During the last two fiscal years, no director or officer of Investment
Company Capital 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.
Item 29. Principal Underwriters.
C-4
<PAGE>
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., the Flag Investors Total Return U.S.
Treasury Fund Shares of Total Return U.S. Treasury Fund, Inc., the
Flag Investors Managed Municipal Fund Shares of Managed Municipal
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., all registered open-end management investment
companies.
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------ ------------- --------------
Alvin B. Krongard Chairman, Chief None
Executive
Officer,
Director
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial None
Officer and
Treasurer
Robert F. Price Secretary and None
General Counsel
- ------------
* 135 East Baltimore Street
Baltimore, Maryland 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 [15 U.S.C. 80a-30(a)] 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.
Investment Company Capital Corp., 135 E. Baltimore Street,
Baltimore, Maryland 21202, the Fund's investment advisor and transfer
and dividend disbursing agent, maintains physical possession of each
such account, book or other document of the Fund, except for those
accounts, books and documents pursuant to Rule 31a-1(b)(1) maintained
by the Registrant's custodian, PNC Bank, Airport Business Park, 200
Stevens Drive, Lester, Pennsylvania 19113.
C-5
<PAGE>
Item 31. Management Services.
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest 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.
See Exhibit 8.
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting the Registrant
at (800) 767-3524.
C-6
<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. 7 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 26th day of April, 1996.
FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
By: /s/ M. Elliott Randolph, Jr.
------------------------------
M. Elliott Randolph, Jr.,
President
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:
* Director April 26, 1996
- ---------------------------------- --------------
Richard T. Hale Date
* Director April 26, 1996
- ---------------------------------- --------------
W. James Price Date
* Director April 26, 1996
- ---------------------------------- --------------
James J. Cunnane Date
* Director April 26, 1996
- ---------------------------------- --------------
John F. Kroeger Date
* Director April 26, 1996
- ---------------------------------- --------------
Louis E. Levy Date
* Director April 26, 1996
- ---------------------------------- --------------
Eugene J. McDonald Date
* Director April 26, 1996
- ---------------------------------- --------------
Harry Woolf Date
/s/ M. Elliott Randolph, Jr. President April 26, 1996
- -------------------------------- --------------
M. Elliott Randolph, Jr. Date
/s/ Joseph A. Finelli Chief Financial April 26, 1996
- --------------------------------- and Accounting --------------
Joseph A. Finelli Officer Date
*By: /s/ Brian C. Nelson
--------------------
Brian C. Nelson
Attorney-In-Fact
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit Number Document
- -------------- --------
(1) (a) Registrant's Articles of Incorporation are
incorporated herein by reference to Post-Effective
Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange
Commission on August 18, 1995.
EX-99.B (1) (b) Registrant's Amended Articles of Incorporation,
filed herewith.
EX-99.B (1) (c) Amendment to Amended Articles of Incorporation,
filed herewith.
EX-99.B (1) (d) Articles Supplementary dated April 23, 1992, filed
herewith.
EX-99.B (1) (e) Articles Supplementary dated October 6, 1995,
filed herewith.
EX-99.B (1) (f) Articles Supplementary, filed herewith.
(2) Registrant's By-Laws, as amended, are incorporated
herein by reference to Post-Effective Amendment No. 6
to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275), filed with the Securities
and Exchange Commission on August 18, 1995.
(3) Not Applicable.
(4) Specimen Security is incorporated herein by reference
to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange
Commission on March 14, 1991.
EX-99.B (5) Investment Advisory Agreement between Registrant and
Flag Investors Management Corp. (now known as
Investment Company Capital Corp.), filed herewith.
EX-99.B (6) (a) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
Registrant's Class A Shares, filed herewith.
<PAGE>
EDGAR
Exhibit Number Document
- -------------- --------
(6) (b) Registrant's Form of Sub-Distribution Agreement
between Alex. Brown & Sons Incorporated and
Participating Broker-Dealers is incorporated
herein by reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-34275), filed with
the Securities and Exchange Commission on August
18, 1995.
(6) (c) Registrant's Form of Shareholder Servicing
Agreement is incorporated herein by reference to
Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275), filed with the Securities and
Exchange Commission on August 18, 1995.
EX-99.B (6) (d) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
Registrant's Institutional Shares, filed herewith.
(7) Not Applicable.
EX-99.B (8) (a) Custodian Agreement between Registrant and
Provident National Bank (now known as PNC Bank),
filed herewith.
EX-99.B (8) (b) Master Services Agreement between Registrant and
Investment Company Capital Corp., filed herewith.
(9) Not Applicable.
EX-99.B (10) Opinion of Counsel, filed herewith.
EX-99.B (11) (a) Consent of Deloitte & Touche LLP, filed herewith.
EX-99.B (11) (b) Consents of Directors to serve, filed herewith.
(12) Not Applicable.
(13) Form of Subscription Agreement re: initial
capitalization of the Funds is incorporated herein by
reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33- 34275), filed with the Securities
and Exchange Commission on August 18, 1995.
(14) Not Applicable.
EX-99.B (15) Registrant's Distribution Plan, filed herewith.
<PAGE>
EDGAR
Exhibit Number Document
- -------------- --------
(16) Schedule of Computation of Performance Quotations
(unaudited) is incorporated herein by reference to
Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange
Commission on August 18, 1995.
EX-99.B (18) Rule 18f-3 Plan, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
<PAGE>
EX-99.B(1)(b)
AMENDED
ARTICLES OF INCORPORATION
OF
FLAG INVESTORS HIGH YIELD OPPORTUNITIES FUND, INC.
ARTICLE I
THE UNDERSIGNED, Edward J. Veilleux, whose post office address
is 135 East Baltimore Street, Baltimore, Maryland 21202, being at least eighteen
years of age, does hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of corporations
and with the intention of forming a corporation.
ARTICLE II
The name of the Corporation is:
Flag Investors Intermediate-Term Bond Fund, Inc.
ARTICLE III
The purpose for which the Corporation is formed is to act as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and
other investments including assets in cash.
(2) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law.
<PAGE>
(3) To redeem, purchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or consent of the
shareholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the Charter of the
Corporation.
(4) To enter into a written contract or contracts with any
person or persons providing for a delegation of the management of all or part of
this Corporation's securities portfolio(s) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors of the Corporation. Any such contract or
contracts may be made with any person even though such person may be an officer,
other employee, director or shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer, other employee,
director or shareholder may be interested.
(5) To enter into a written contract or contracts appointing
one or more underwriters, distributors or agents for the sale of the shares of
the Corporation on such terms and conditions as the Board of Directors of the
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
shareholder may be interested.
(6) To enter into a written contract or contracts employing
such custodian or custodians for the safekeeping of the property of the
Corporation and of its shares, such dividend disbursing agent or agents, and
such transfer agent or agents and registrar or registrars for its shares, and
such agent or agents for accounting and other administrative services on such
terms and conditions as the Board of Directors of the Corporation may deem
reasonable and proper for the conduct of the affairs of the Corporation, and to
pay the fees and disbursements of such custodians, dividend disbursing agents,
transfer agents, registrars and accounting and administrative services agents
out of the income and/or any other property of the Corporation. Notwithstanding
any other provisions of the Charter or the By-Laws of the Corporation, the
Board of Directors of the Corporation may cause any or all of the property of
the Corporation to be transferred to, or to be acquired and held in the name of,
a custodian so appointed or any nominee or nominees of this Corporation or
nominee or nominees of such custodian satisfactory to the Board of Directors of
the Corporation.
-2-
<PAGE>
(7) To employ the same person, partnership (general or
limited), association, trust or corporation in any multiple capacity under
Sections (4), (5) and (6) of this Article, who may receive compensation from the
Corporation in as many capacities in which such person, partnership (general or
limited), association, trust or corporation shall serve the Corporation.
(8) To do any and all such further acts or things and to
exercise any and all such further powers or rights as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of the purposes stated in Article III
hereof.
The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the
Corporation in the State of Maryland is c/o Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in this State is Edward J. Veilleux, a citizen of this State,
who resides there, and the post office address of the resident agent is 135 East
Baltimore Street, Baltimore, Maryland 21202.
ARTICLE VI
Section 1. The total number of shares of capital stock which
the Corporation shall have the authority to issue is twenty million shares, of
the par value of 1 mil ($.001) per share and of the aggregate par value of
twenty thousand dollars ($20,000), all of which shares are designated Common
Stock. Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end investment company under the 1940 Act, the Board of
Directors of the Corporation shall have the power and authority, without the
approval of the holders of any outstanding shares, to increase or decrease the
number of shares of capital stock, or the number of shares of capital stock of
any class or series, that the Corporation has authority to issue.
Section 2. Any fractional share shall carry proportionately
all the rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the right
to vote and the right to receive dividends.
-3-
<PAGE>
Section 3. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the Charter and
the By-Laws of the Corporation. All shares issued pursuant to the Charter of the
Corporation for which the price or consideration fixed thereon shall have been
paid shall be deemed to be fully paid and nonassessable.
Section 4. The Board of Directors of the Corporation shall
have authority to classify and reclassify any authorized but unissued shares of
capital stock from time to time by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of the capital stock; provided that the Board of Directors of the
Corporation shall not classify or reclassify any of such shares into any class
or series of stock which is prior to any class or series of capital stock then
outstanding with respect to rights upon the liquidation, dissolution or winding
up of the affairs of, or upon any distribution of the general assets of, the
Corporation, except that there may be variations so fixed and determined among
different series and classes as to investment objectives, purchase price, right
of redemption, special rights as to dividends, and in liquidation, with respect
to assets belonging to a particular series or class, voting powers and
conversion rights. Subject to the provisions of Section 7 of this Article VI and
applicable law, the power of the Board of Directors of the Corporation to
classify or reclassify any of the shares of capital stock shall include, without
limitation, authority to classify or reclassify any such stock into a class or
classes of capital stock and to divide and classify shares of any class into one
or more series of such class, by determining, fixing or altering one or more of
the following:
(A) The distinctive designation of such class or
series and the number of shares to constitute such class or
series; provided that, unless otherwise prohibited by the
terms of such class or series, the number of shares of any
class or series may be decreased by the Board of Directors of
the Corporation in connection with any classification or
reclassification of unissued shares and the number of shares
of such class or series may be increased by the Board of
Directors of the Corporation in connection with any such
classification or reclassification, and any shares of any
class or series which have been redeemed, purchased or
otherwise acquired by the Corporation shall remain part of the
authorized capital stock and be subject to classification and
reclassification as provided herein.
-4-
<PAGE>
(B) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends
shall be payable on shares of such class or series.
(C) Whether or not shares of such class or series
shall have voting rights in addition to any general voting
rights provided by law and the Charter of the Corporation and,
if so, the terms of such additional voting rights.
(D) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of
the affairs, or upon any distribution of the assets, of the
Corporation.
(E) Any other rights, restrictions, including
restrictions on transferability, and qualifications of shares
of such class or series, not inconsistent with law and the
Charter of the Corporation.
Section 5. The Board of Directors of the Corporation shall
have authority to issue from time to time shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors of the
Corporation may deem advisable, subject to such limitations as may be set forth
in the Charter or the By-Laws of the Corporation or in the Maryland General
Corporation Law.
Section 6. No holder of stock of the Corporation shall, as
such holder, have any preemptive right to purchase or subscribe for any shares
of the capital stock of the Corporation or any other security of the Corporation
which it may issue or sell (whether out of the number of shares authorized by
the Charter of the Corporation, or out of any shares of the capital stock of the
Corporation acquired by it after the issue thereof, or otherwise) other than
such right, if any, as the Board of Directors of the Corporation, in its
discretion, may determine.
Section 7. Shares of Common Stock of the Corporation shall
have the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
(A) Assets Belonging to a Class. All consideration
received by the Corporation for the issue or sale of stock of
any class of Common Stock, together with all assets in which
such consideration is invested and reinvested, income,
earnings, profits and proceeds thereof, including any proceeds
-5-
<PAGE>
derived from the sale, exchange or liquidation thereof, and
any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the class of shares of Common Stock with respect to
which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of
creditors, and shall be so handled upon the books of account
of the Corporation. Such consideration, assets, income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in
whatever form, are herein referred to as "assets belonging to"
such class. Any assets, income, earnings, profits, and
proceeds thereof, funds or payments which are not readily
attributable to any particular class shall be allocable among
any one or more of the classes in such manner and on such
basis as the Board of Directors of the Corporation, in its
sole discretion, shall deem fair and equitable.
(B) Liabilities Belonging to a Class. The assets
belonging to any class of Common Stock shall be charged with
the liabilities in respect of such class, and shall also be
charged with such class's share of the general liabilities of
the Corporation determined as hereinafter provided. The
determination of the Board of Directors of the Corporation
shall be conclusive as to the amount of such liabilities,
including the amount of accrued expenses and reserves; as to
any allocation of the same to a given class; and as to whether
the same are allocable to one or more classes. The liabilities
so allocated to a class are herein referred to as "liabilities
belonging to" such class. Any liabilities which are not
readily attributable to any particular class shall be
allocable among any one or more of the classes in such manner
and on such basis as the Board of Directors of the
Corporation, in its sole discretion, shall deem fair and
equitable.
(C) Dividends and Distributions. Shares of each class
of Common Stock shall be entitled to such dividends and
distributions, in stock or in cash or both, as may be declared
from time to time by the Board of Directors of the
Corporation, acting in its sole discretion, with respect to
such class, provided, however, that dividends and
distributions on shares of a class of Common Stock shall be
paid only out of the lawfully available "assets belonging to
such class" as such phrase is defined in Section 7(A) of this
Article VI.
-6-
<PAGE>
(D) Liquidating Dividends and Distributions. In the
event of the liquidation or dissolution of the Corporation,
shareholders of each class of Common Stock shall be entitled
to receive, as a class, out of the assets of the Corporation
available for distribution to shareholders, but other than
general assets not belonging to any particular class of stock,
the assets belonging to such class; and the assets so
distributable to the shareholders of any class of Common Stock
shall be distributed among such shareholders in proportion to
the number of shares of such class held by them and recorded
on the books of the Corporation. In the event that there are
any general assets not belonging to any particular class of
stock and available for distribution, such distribution shall
be made to the holders of stock of all classes of Common Stock
in proportion to the asset value of the respective classes of
Common Stock determined as hereinafter provided.
(E) Voting. Each shareholder of each class of Common
Stock shall be entitled to one vote for each share of Common
Stock, irrespective of the class, then standing in his name on
the books of the Corporation, and on any matter submitted to a
vote of shareholders, all shares of Common Stock then issued
and outstanding and entitled to vote shall be voted in the
aggregate and not by class except that: (i) when expressly
required by law, shares of Common Stock shall be voted by
individual class and (ii) only shares of Common Stock of the
respective class or classes affected by a matter shall be
entitled to vote on such matter. At all meetings of the
shareholders, the holders of one-third of the shares of stock
of the Corporation entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by
statute or by the Charter of the Corporation. In the absence
of a quorum, no business may be transacted, except that the
holders of a majority of the shares of stock present in person
or by proxy and entitled to vote may adjourn the meeting from
time to time, without notice other than announcement at the
meeting, except as otherwise required by the By-Laws of the
Corporation, until the holders of the requisite amount of
shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or
by proxy, of holders of the number of shares of stock of the
Corporation in excess of a majority thereof which may
-7-
<PAGE>
be required by the laws of the State of Maryland, the 1940
Act, or any other applicable statute, the Charter or the
By-Laws of the Corporation, for action upon any given matter
shall not prevent action at such meeting upon any other matter
or matters which may properly come before the meeting, if
there shall be present at the meeting, in person or by proxy,
holders of the number of shares of stock of the Corporation
required for action in respect of such other matter or
matters.
(F) Redemption. To the extent the Corporation has
funds or other property legally available therefor, each
holder of shares of Common Stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part
of the shares of Common Stock of the Corporation standing in
the name of such holder on the books of the Corporation, and
all shares of Common Stock issued by the Corporation shall be
subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in
accordance with the provisions hereof, subject to the right of
the Board of Directors of the Corporation to suspend the right
of redemption of shares of Common Stock of the Corporation or
postpone the date of payment of such redemption price in
accordance with provisions of applicable law. Without limiting
the generality of the foregoing, the Corporation shall, to the
extent permitted by applicable law, have the right at any time
to redeem the shares owned by any holder of Common Stock of
the Corporation (i) if such redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order
to prevent the Corporation from being deemed a "personal
holding company" within the meaning of the Internal Revenue
Code, as now or hereafter in force, (ii) if the value of such
shares in the account maintained by the Corporation or its
transfer agent for any class of Common Stock is less than Five
Hundred Dollars ($500.00) provided, however, that each
shareholder shall be notified that the value of his account is
less than Five Hundred Dollars ($500.00) and allowed sixty
(60) days to make additional purchases of shares before such
redemption is processed by the Corporation or (iii) if the net
income with respect to any particular class of Common Stock
should be negative or it should otherwise be appropriate to
carry out the Corporation's responsibilities under the 1940
Act, in each case subject to such further terms and conditions
as the Board of Directors of the Corporation may from time to
time adopt. The redemption price of shares of Common Stock of
the Corporation shall, except as otherwise provided in this
-8-
<PAGE>
Section 7(F), be the net asset value thereof as determined by
the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by the
Corporation at such time and in such manner as may be
determined from time to time by the Board of Directors of the
Corporation unless, in the opinion of the Board of Directors
of the Corporation, which shall be conclusive, conditions
exist which make payment wholly in cash unwise or undesirable;
in such event the Corporation may make payment wholly or
partly by securities or other property included in the assets
belonging or allocable to the class of the shares redemption
of which is being sought, the value of which shall be
determined as provided herein.
(G) Conversion or Exchange. Each holder of any class
of Common Stock of the Corporation, who either surrenders his
share certificate in good delivery form to the Corporation or,
if the shares in question are not represented by certificates,
delivers to the Corporation a written request in good order
signed by the shareholder, shall, subject to such procedures
as may be established by the Board of Directors of the
Corporation, be entitled to convert or exchange the shares in
question on the basis hereinafter set forth, into shares of
stock of any other class of the Corporation. The Corporation
shall determine the net asset value, as provided herein, of
the shares to be converted and may deduct therefrom a
conversion or exchange cost, in an amount determined within
the discretion of the Board of Directors of the Corporation.
Within five (5) business days after such surrender and payment
of any conversion or exchange cost, the Corporation shall
issue to the shareholder such number of shares of stock of the
class desired as, taken at the net asset value thereof
determined as provided herein in the same manner and at the
same time as that of the shares surrendered, shall equal the
net asset value of the shares surrendered, less any conversion
or exchange cost as aforesaid. Any amount representing a
fraction of a share may be paid in cash at the option of the
Corporation. Any conversion or exchange cost may be paid
and/or assigned by the Corporation to the underwriter and/or
to any other entity, as it may elect.
-9-
<PAGE>
(H) Restrictions on Transferability. If, in the
opinion of the Board of Directors of the Corporation,
concentration in the ownership of shares of Common Stock might
cause the Corporation to be deemed a personal holding company
within the meaning of the Internal Revenue Code, as now or
hereafter in force, the Corporation may at any time and from
time to time refuse to give effect on the books of the
Corporation to any transfer or transfers of any share or
shares of Common Stock in an effort to prevent such personal
holding company status.
ARTICLE VII
The number of directors of the Corporation shall be seven (7),
which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than three (3) except for any period during
which shares of the Corporation are held by less than three shareholders. The
name of the director who shall act until the directors are elected by the
Corporation's shareholders or until his successor is duly elected and qualify
is:
Edward J. Veilleux
ARTICLE VIII
Section 1. 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 shareholders 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.
Section 2. 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 to its directors and to such further extent as is
consistent with law. The Board of Directors of the Corporation may make further
provision for indemnification of directors, officers, employees and agents in
the By-Laws of the Corporation or by resolution or agreement to the fullest
extent permitted by the Maryland General Corporation Law.
-10-
<PAGE>
Section 3. No provision of this Article VIII shall be
effective to protect or purport 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.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may expand, any
right of any person under this Article VIII based on any event, omission or
proceeding prior to such amendment.
ARTICLE IX
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practices by or
pursuant to the direction of the Board of Directors of the Corporation, as to
the amount of assets, obligations or liabilities of the Corporation, as to the
amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged or shall be then or thereafter required to be paid or
discharged), as to the value of any security owned by the Corporation or as to
any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board of
Directors of the Corporation as to whether any transaction constitutes a
purchase of securities on "margin", a sale of securities "short", or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of the Charter of the Corporation shall be effective (i)
to require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the 1940 Act, or of any valid rule, regulation or
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<PAGE>
order of the Securities and Exchange Commission thereunder or (ii) to protect or
purport 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.
ARTICLE X
The duration of this Corporation shall be perpetual.
ARTICLE XI
Section 1. The Corporation reserves the right from time to
time to make any amendments to its Charter which may now or hereafter be
authorized by law, including any amendments changing the terms or contract
rights, as expressly set forth in its Charter, of any of its outstanding stock
by classification, reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be cast thereon by a
vote at a meeting or by the unanimous written consent of the Directors of the
Corporation as provided in the Corporation's By-Laws.
Section 2. Notwithstanding any provision of the General Laws
of the State of Maryland requiring any action to be taken or authorized by the
affirmative vote of a greater proportion than the majority of the total number
of shares of any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding of that class of
stock entitled to vote thereon, except as otherwise provided in the Charter of
the Corporation.
Section 3. So long as permitted by Maryland law, the books of
the Corporation may be kept outside of the State of Maryland at such place or
places as may be designated from time to time by the Board of Directors of the
Corporation or in the By-Laws of the Corporation.
Section 4. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Maryland, the Board of Directors of
the Corporation is expressly authorized:
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<PAGE>
(A) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the
By-Laws of the Corporation to the shareholders, and except as
otherwise required by the 1940 Act.
(B) From time to time to determine whether and to
what extent and at what times and places and under what
conditions and regulations the books and accounts of the
Corporation, or any of them other than the stock ledger, shall
be open to the inspection of the shareholders, and no
shareholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by
law or authorized by resolution of the Board of Directors or
of the shareholders of the Corporation.
(C) Without the assent or vote of the shareholders,
to authorize the issuance from time to time of shares of the
stock of any class of the Corporation, whether now or
hereafter authorized, for such consideration as the Board of
Directors of the Corporation may deem advisable.
(D) Without the assent or vote of the shareholders,
to authorize and issue obligations of the Corporation, secured
and unsecured, as the Board of Directors may determine, and to
authorize and cause to be executed mortgages and liens upon
the property of the Corporation, real and personal.
(E) Notwithstanding anything in the Charter of the
Corporation to the contrary, to establish in its absolute
discretion the basis or method for determining the value of
the assets belonging to any class, and the net asset value of
each share of any class of the Corporation for purposes of
sales, redemptions, repurchases of shares or otherwise.
(F) To determine in accordance with generally
accepted accounting principles and practices what constitutes
net profits, earnings, surplus or net assets in excess of
capital, and to determine what accounting periods shall be
used by the Corporation for any purpose, whether annual or any
other period, including daily; (i) to set apart out of any
funds of the Corporation such reserves for such purposes as it
shall determine and to abolish the same; (ii) to declare and
pay any dividends and distributions in cash, securities or
other property from surplus or any funds legally available
therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis, as it shall determine;
(iii) to declare such dividends or distributions by means of a
formula or other method of determination, at meetings held
less frequently than the frequency of the effectiveness of
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<PAGE>
such declarations; (iv) to establish payment dates for
dividends or any other distributions on any basis, including
dates occurring less frequently than the effectiveness of
declarations thereof; and (v) to provide for the payment of
declared dividends on a date earlier or later than the
specified payment date in the case of shareholders of the
Corporation redeeming their entire ownership of shares of any
class of the Corporation.
(G) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board
of Directors of the Corporation is authorized to exercise all
such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless,
to the provisions of Maryland law, the Charter and the By-Laws
of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator of Flag
Investors High Yield Opportunities Fund, Inc. has signed these amended articles
of incorporation on this 21st day of March, 1991.
March, 1991.
/s/ Edward J. Veilleux
---------------------------
Edward J. Veilleux
Incorporator
WITNESS:
/s/ Sharon H. Marhaush
- ------------------------------
Name:
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<PAGE>
THE UNDERSIGNED incorporator of Flag Investors High Yield
Opportunities Fund, Inc. who executed the foregoing amended Articles of
Incorporation of which this Certificate is made a part, hereby acknowledges the
same to be his Act and further acknowledges that, to the best of his knowledge,
the matters and facts set forth therein are true in all material respects under
the penalties of perjury.
/s/ Edward J. Veilleux
------------------------
Edward J. Veilleux
Incorporator
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<PAGE>
EX-99.B(1)(c)
FLAG INVESTORS INTERMEDIATE-TERM BOND FUND, INC.
ARTICLES OF AMENDMENT
Flag Investors Intermediate-Term Bond Fund, Inc., a Maryland
corporation having its principal business office at 135 East Baltimore Street,
Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Corporation, by unanimous consent dated April
29, 1991, have authorized that the charter of the Corporation be, and hereby is,
amended as follows:
Article II of the Articles of Incorporation is amended and restated to
read in full as follows:
The name of the Corporation is:
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its Vice-President and attested by its
Secretary on April 29, 1991.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM
BOND FUND, INC.
Attest: /s/ Brian C. Nelson By: /s/ Edward J. Veilleux
------------------- ---------------------
Brian C. Nelson Edward J. Veilleux
Secretary Vice-President
The undersigned, Vice-President of Flag Investors Intermediate-Term
Bond Fund, Inc. who executed on behalf of said corporation the foregoing
Articles of Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles of Amendment 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 herein with respect to the approval thereof are true
in all material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
------------------------------
Edward J. Veilleux
<PAGE>
EX-99.B(1)(d)
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., having its
principal office in the City of Baltimore, certifies that:
FIRST: The total number of shares of capital stock which the
Corporation shall have the authority to issue is fifty (50) million
shares, of the par value of 1 mil ($.001) per share and of the
aggregate par value of fifty thousand dollars ($50,000), all of which
shares are designated Common Stock. Unless otherwise prohibited by law,
so long as the Corporation is registered as an open-end investment
company under the 1940 Act, the Board of Directors of the Corporation
shall have the power and authority, without the approval of the holders
of any outstanding shares, to increase or decrease the number of shares
of capital stock of any class or series that the Corporation has
authority to issue.
SECOND: Immediately before the increase the Corporation was
authorized to issue twenty (20) million shares, of the par value of 1
mil ($.001) per share and of the aggregate par value of twenty thousand
dollars ($20,000), all of which shares were designated Common Stock. As
increased, the Corporation is authorized to issue a total of fifty (50)
million shares of Common Stock, par value $.001, having an aggregate
par value of $50,000.
<PAGE>
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Flag Investors Intermediate-Term Income Fund, Inc.
has caused these Articles Supplementary to be executed by one of its
Vice-Presidents and its corporate seal to be affixed and attested by its
Secretary on this 23rd day of April, 1992. The Vice-President of the Corporation
who signed these Articles Supplementary acknowledges them to be the act of the
Corporation and states under the penalties for perjury that to the best of his
knowledge, information and belief the matters and facts relating to approval
hereof are true in all material respects.
[CORPORATE SEAL]
FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
By: /s/ Edward J. Veilleux
-----------------------
Vice-President
Attest: /s/ Brian C. Nelson
--------------------
Secretary
<PAGE>
EX-99.B(1)(e)
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC. (the "Corporation"),
having its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance
with Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to fifty-five million (55,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of
the aggregate par value of fifty-five thousand dollars ($55,000), all of
which shares are designated as follows: forty-five million (45,000,000)
shares are designated "Flag Investors Intermediate-Term Income Fund Shares,"
two million (2,000,000) shares are designated "Flag Investors Intermediate-
Term Income Fund Class B Shares," five million (5,000,000) shares are
designated "Flag Investors Intermediate-Term Income Fund Institutional
Shares" and three million (3,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue fifty million (50,000,000) shares of Common Stock, of the
par value of 1 mil ($.001) per share and of the aggregate par value of fifty
thousand dollars ($50,000), all of which shares were designated as follows:
forty-five million (45,000,000) shares were designated "Flag Investors
Intermediate-Term Income Fund Shares," two million (2,000,000) shares were
designated "Flag Investors Intermediate-Term Income Fund Class B Shares" and
three million (3,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Intermediate-Term Income 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 6th day of October, 1995.
[CORPORATE SEAL]
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
By: /s/ Edward J. Veilleux
----------------------
Vice President
Attest: /s/ Brian C. Nelson
-----------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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.
By: /s/ Edward J. Veilleux
----------------------------
Vice President
<PAGE>
FLAG INVESTORS INTERMEDIATE TERM-INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERMEDIATE TERM INCOME 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 redesignating and reclassifying the Corporation's forty-five million
(45,000,000) previously designated and classified "Flag Investors
Intermediate-Term Income Fund Shares" the "Flag Investors Intermediate-Term
Income Fund Class A Shares."
SECOND: Immediately before the redesignation and
reclassification of the Corporation's Flag Investors Intermediate-Term Income
Fund Shares, the Corporation was authorized to issue fifty-five million
(55,000,000) shares of Common Stock, of the par value of 1 mil ($.001) per share
and of the aggregate par value of fifty-five thousand dollars ($55,000)
classified and designated as follows: forty-five million (45,000,000) shares
were designated "Flag Investors Intermediate Term Income Fund Shares," two
million (2,000,000) shares were designated "Flag Investors Intermediate Term
Income Fund Class B Shares," five million (5,000,000) shares were designated
"Flag Investors Intermediate Term Income Fund Institutional Shares" and three
million (3,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Intermediate Term Income 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 24th day of April, 1996.
[CORPORATE SEAL]
FLAG INVESTORS INTERMEDIATE TERM
INCOME FUND, INC.
By: /s/ Brian C. Nelson
-----------------------------
Vice President
Attest: /s/ Laurie D. DePrine
----------------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS INTERMEDIATE TERM
INCOME 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.
By: /s/ Brian C. Nelson
------------------------------
Vice President
<PAGE>
EX-99.B(5)(a)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 10th day of May,
1991 by and between FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a
Maryland corporation (the "Fund") and FLAG INVESTORS MANAGEMENT CORP., a
Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter an agreement to
provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the
Advisor to act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations (except
as otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
a. The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on April 16, 1990 and all amendments thereto
(such Articles of Incorporation, as presently in effect and as they shall from
time to time be amended, are herein called the "Articles of Incorporation");
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<PAGE>
b. The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
c. Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
d. The Fund's Notification of Registration filed pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission (the "SEC") on April
17, 1990;
e. The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-34275) and
under the 1940 Act as filed with the SEC on April 17, 1990 relating to the
shares of the Fund, and all amendments thereto; and
f. The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
a. supervise and manage all aspects of the Fund's operations,
except for distribution services;
b. formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
c. provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors;
d. provide the Fund with, or obtain for it, adequate office
space and all necessary office equipment and services, including telephone
service, utilities, stationery, supplies and similar items for the Fund's
principal office;
e. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund's
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<PAGE>
portfolio or the activities in which they engage, or with respect to securities
which the Advisor considers desirable for inclusion in the Fund's portfolio;
f. determine which issuers and securities shall be represented
in the Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
g. take all actions necessary to carry into effect the Fund's
purchase and sale programs;
h. supervise the operations of the Fund's transfer and
dividend disbursing agent;
i. provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records, as are deemed
advisable by the Fund's Board of Directors; and
j. arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filing with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund, broker-dealer
selection, and negotiation of its brokerage commission rates, the Advisor's
primary consideration in effecting securities transactions will be to obtain the
best price and execution on an overall basis. In performing this function the
Advisor shall comply with applicable policies established by the Board of
Directors and shall provide the Board of Directors with such reports as the
Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. In certain instances the Advisor may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the Advisor will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Advisor an amount of commission for effecting a
-3-
<PAGE>
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers other than the distributor of the Fund's shares, Alex. Brown
& Sons Incorporated ("Alex. Brown"), who also provide research or statistical
material or other services to the Fund or the Advisor. Such allocation shall be
in such amounts and proportions as the Advisor shall determine and the Advisor
will report on said allocation regularly to the Board of Directors of the Fund,
indicating the broker-dealers to whom such allocations have been made and the
basis therefor.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other account of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Brown and the Advisor may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
-4-
<PAGE>
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as any
other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the Board
of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
a. all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;
b. the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
c. the provisions of the Articles of Incorporation;
d. the provisions of the By-Laws; and
e. any other applicable provisions of state and federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:
a. The Advisor shall furnish, at its expense and without cost
to the Fund, the services of and one or more officers of the Fund, to the extent
that such officers may be required by the Fund, for the proper conduct of its
affairs.
b. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Advisor and the Fund's distributor under the Fund's plan of distribution; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions, chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and the expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with registration and maintenance of registration of
the Fund and its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses or shareholders' and Directors' meetings
-5-
<PAGE>
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of Fund's shares;
charges and expenses of legal counsel, including counsel to the Directors of the
Fund who are not "interested persons" (as defined in the 1940 Act) of the Fund
and of independent accountants, in connection with any matter relating to the
Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. The Advisor may, but shall not be
under any duty to, perform services on behalf of the Fund which are not required
by this Agreement upon the request of the Fund's Board of Directors. Such
services will be performed on behalf of the Fund and the Advisor's charge in
rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by the
Advisor of any Fund expense that the Advisor is not required to pay or assume
under this Agreement shall not relieve the Advisor of any of its obligations to
the Fund nor obligate the Advisor to pay or assume any similar Fund expense on
any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor hereunder, the Fund shall pay to the Advisor a fee
calculated monthly and paid daily at an annual rate of .35% of the first $1
billion of the Fund's average daily net assets, .30% of the Fund's average daily
net assets in excess of $1 billion but not exceeding $1.5 billion and .25% of
the Fund's average daily net assets in excess of $1.5 billion.
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Subject to the provisions of Section 10 hereof, payment of the Advisor's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by Section 10 hereof.
-6-
<PAGE>
10. Expense Limitation. In the event the operating expenses of the
Fund, including all investment advisory and administrative fees, for any fiscal
year ending on a date on which this Agreement is in effect, exceed the expense
limitations applicable to the Fund imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale, as
such limitations may be raised or lowered from time to time, the Advisor shall
reduce its investment advisory fee to the extent of its share of such excess
expenses and, if required pursuant to any such laws or regulations, will
reimburse the Fund for its share of annual operating expenses in excess of any
expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amounts of any interest, taxes, brokerage
commissions and extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Fund. Such reduction, if any, shall be computed
and accrued daily, shall be settled on a monthly basis and shall be based upon
the expense limitation applicable to the Fund.
11. Non-Exclusivity. The services of the Advisor to the Fund are not to
be deemed to be exclusive, and the Advisor shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities, so long as its services under this Agreement are
not impaired thereby. It is understood and agreed that officers or directors of
the Advisor may serve as officers or Directors of the Fund, and that officers or
Directors of the Fund may serve as officers or directors of the Advisor to the
extent permitted by law; and that the officers and directors of the Advisor are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, trustees or
directors of any other firm, trust or corporation, including other investment
companies.
12. Term and Renewal. This Agreement shall become effective as of the
date hereof and shall continue in force and effect, subject to Section 13
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
a. (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act);
and
b. by the affirmative vote of a majority of the Directors who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
-7-
<PAGE>
13. Termination. This Agreement may be terminated without the payment
of any penalty, by the Fund upon vote of the Fund's Board of Directors or a vote
of a majority of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Advisor, upon sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
14. Liability of Advisor. In the performance of its duties hereunder,
the Advisor shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under this Agreement, but the Advisor shall
not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
of the Advisor for this purpose shall be 135 East Baltimore Street, Baltimore,
Maryland 21202.
16. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective offices as of the day and year first
above written.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
Attest: /s/ Sharon H. Marhaush By: /s/ Brian C. Nelson
----------------------- ---------------------------
[SEAL] FLAG INVESTORS MANAGEMENT CORP.
Attest: /s/ Sharon H. Marhaush By: /s/ Edward J. Veilleux
----------------------- ---------------------------
-9-
<PAGE>
EX-99.B.(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 10th day of May, 1991, by and
between FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland
corporation (the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland
corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the 1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the shares of Common Stock of the Fund (the "Shares")
and Alex. Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 5 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement. The
Fund may from time to time issue separate series or classes of its shares of
common stock, or classify and reclassify shares of such series as classes, and
the appointment effected hereby shall constitute appointment for the
distribution of such additional series and classes unless the parties shall
otherwise agree in writing. Alex. Brown accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated, of each of the following:
<PAGE>
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of Maryland on 1990 and all amendments thereto (the
"Articles-of Incorporation");
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on April 17, 1990;
(e) The Fund's Registration Statement on Form N- 1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No. 34275
and under the 1940 Act as filed with the SEC on April 17, 1990 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's
shareholders concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
-2-
<PAGE>
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and
any rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation
of the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and
Federal law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
-3-
<PAGE>
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
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 Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock 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 corporate fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel) except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or 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 Shares; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), 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 operation unless otherwise explicitly provided herein.
-4-
<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .25% of the average daily net assets of the Fund. Except
as hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of
Alex. Brown's compensation for the preceding month shall be made as promptly as
possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal 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 the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
-5-
<PAGE>
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
-6-
<PAGE>
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of
interpretation of.any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS HIGH YIELD
OPPORTUNITIES FUND, INC.
Attest: /s/ Sharon H. Marhaush By /s/ Edward J. Veilleux
------------------------- -----------------------
Vice President
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Nancy Palmer By /s/ Richard T. Hale
------------------------- -----------------------
-7-
<PAGE>
EX-99.B(6)(d)
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 31 day of October, 1995, by and between
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on April 16, 1990 (the
"Articles"), authorize the Board of Directors of the Fund to increase or
decrease the number of shares of capital stock of the Fund and the number of
shares of any class of capital stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of one class of shares of the Fund known as the Flag Investors
Intermediate-Term Income Fund Shares and the Flag Investors Intermediate-Term
Income Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized the
creation of an institutional class of shares of the Fund known as the Flag
Investors Intermediate-Term Income Fund Institutional Shares (the "Shares") ;
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the Shares and Alex. Brown wishes to become the distributor of
the Shares.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of other good and valuable consideration, the receipt whereof
is hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement.
Alex. Brown accepts such appointment and agrees to render the services set
forth herein.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such By-
Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on April 17, 1990;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-34275)
and under the 1940 Act as filed with the SEC on April 17, 1990 relating to
the Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its
services as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex.
Brown does not undertake to sell all or any specific portion of the Shares.
The Fund shall not sell any of the Shares except through Alex. Brown.
Notwithstanding the provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset value
to any shareholder of the Fund purchasing such Shares with dividends or other
cash distributions received from the Fund pursuant to an offer made to all
shareholders;
(b) Alex. Brown may enter into shareholder processing and
servicing agreements in accordance with Section 8 hereof;
(c) Alex. Brown may, and when requested by the Fund shall,
suspend its efforts to effectuate sales of the Shares at any time when in the
opinion of Alex. Brown or of the Fund no sales should be made because of
market or other economic considerations or abnormal circumstances of any
kind; and
(d) the Fund may withdraw the offering of the Shares (i) at
any time with the consent of Alex. Brown, or (ii) without such consent when
so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of
the Fund. The Board of Directors may agree, on behalf of the Fund, to
amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result
in a material increase in the amount expended by the Fund.
2
<PAGE>
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without
cost to the Fund, the services of personnel to the extent that such services
are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any 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 Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property, and any stock 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 corporate fees payable by the Fund to
Federal, State or other governmental agencies; all costs and expenses in
connection with maintenance of registration of the Fund and the Shares with
the SEC and various states and other jurisdictions (including filing fees and
legal fees and disbursements of counsel) except as provided in subparagraph
(a) above; the expenses of printing, including typesetting, and distributing
prospectuses of the Fund and supplements thereto to the Fund's shareholders;
all expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; fees
and travel expenses of Directors who are not "interested persons" of the Fund
(as defined in the 1940 Act) or 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 Shares; charges and expenses
of legal counsel, including counsel to the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act), 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 operation unless otherwise explicitly provided herein.
3
<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's
charge in rendering such services may be billed monthly to the Fund, subject
to examination by the Fund's independent accountants. Payment or assumption
by Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for
the services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters
of transmittals and applications and withdrawal 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 the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All Sub-
Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the
status of their accounts and the operations of the Fund and communicating
with the Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its
own resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment
companies) and to engage in other activities. It is understood and agreed
that Directors, officers or employees of Alex. Brown may serve as Directors
or officers of the Fund, and that Directors or officers of the Fund may serve
as Directors, officers and employees of Alex. Brown to the extent permitted
by law; and that Directors, officers and employees of Alex. Brown are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, Directors or
officers of any other firm or corporation, including other investment
companies.
13. Term and Approval. This Agreement shall become effective at
the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided
that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and
do not have a financial interest in the operation of this Agreement, by votes
cast in person at a meeting specifically called for such purpose.
4
<PAGE>
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of
any penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the
operation of this Agreement, (iii) by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act) or (iv) by Alex.
Brown. The notice provided for herein may be waived by each party. This
Agreement shall automatically terminate in the event of its assignment (as
the term is defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
all services provided for under this Agreement, but shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith
or gross negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such
notice. Until further notice to the other parties, it is agreed that the
address of both Alex. Brown and the Fund for this purpose shall be 135 East
Baltimore Street, Baltimore, Maryland 21202.
17. Questions of Interpretation.Any question of interpretation
of any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be resolved
by reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of
the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
Otherwise the provisions of this Agreement shall be interpreted in accordance
with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers as of the day and
year first above written.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
Attest: /s/ Alisa Stesch By /s/ Edward J. Veilleux
------------------- -------------------------
Title: Vice President
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Alisa Stesch By /s/ Richard T. Hale
------------------- -------------------------
Title: Managing Director
5
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which
<PAGE>
you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
<PAGE>
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
--------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(8)(a)
CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of May 10, 1991 by and between Flag Investors
Intermediate-Term Income Fund, Inc. (the "Fund"), a Maryland corporation, and
Provident National Bank ("Provident"), a national banking association.
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940 (the "1940" Act), as amended. The Fund wishes to
retain Provident to provide custodian services, and Provident wishes to furnish
custodian services, either directly or through an affiliate or affiliates, as
more fully described herein.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized Person" shall mean
any officer of the Fund and any other person, who is duly authorized by the
Fund's Governing Board, to give Oral and Written Instructions on behalf of the
Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix as such appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System." The term "Book-Entry System" means Federal
Reserve Treasury book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or nominees and any
<PAGE>
book-entry system maintained by an exchange registered with the SEC under the
1934 Act.
(c) "CFTC." The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(d) "Governing Board." The term "Governing Board" shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions." The term "Oral Instructions" shall mean
oral instructions received by Provident from an Authorized Person or from a
person reasonably believed by Provident to be an Authorized Person.
(f) "Provident." The term "Provident" shall mean Provident National
Bank or a subsidiary or affiliate of Provident National Bank.
(g) "SEC." The term "SEC" shall mean the Securities and Exchange
Commission.
(h) "Securities and Commodities Laws." The term shall mean the
"1933 Act", the Securities Act of 1933, as amended, the "1934 Act", the
Securities Exchange Act of 1934, as amended, the "1940 Act", and the "CEA", the
Commodities Exchange Act, as amended.
(i) "Shares." The term "Shares" shall mean the shares of stock of
any series or class of the Fund, or, where appropriate, units of beneficial
interest in a trust where the Fund is organized as a Trust.
- 2 -
<PAGE>
(j) "Property." The term "Property" shall mean:
(i) any and all securities and other investment items which
the Fund may from time to time deposit, or cause to be
deposited, with Provident or which Provident may from
time to time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by Provident from time to time,
from or on behalf of the Fund.
(k) "Written Instructions." The term "Written Instructions" shall
mean written instructions signed by two Authorized Persons and received by
Provident. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints Provident to provide
custodian services, and Provident accepts such appointment and agrees to furnish
such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide Provident with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of Provident or its affiliates
to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Fund's advisory agreement or agreements;
- 3 -
<PAGE>
(d) a copy of the Fund's distribution agreement or agreements;
(e) a copy of the Fund's administration agreements if Provident is
not providing the Fund with such services;
(f) copies of any shareholder servicing agreements made in respect
of the Fund; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations. Provident
undertakes to comply with all applicable requirements of the 1933 Act, the 1934
Act, the 1940 Act, and the CEA, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by Provident hereunder. Except as specifically set forth herein,
Provident assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement,
Provident shall act only upon Oral and Written Instructions. Provident shall be
entitled to rely upon any Oral and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by Provident to be an
Authorized Person) pursuant to this Agreement. Provident may assume that any
Oral or Written Instructions received hereunder are not in any way inconsistent
with the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
- 4 -
<PAGE>
The Fund agrees to forward to Provident Written Instructions
confirming Oral Instructions so that Provident receives the Written Instructions
by the close of business on the same day that such Oral Instructions are
received. The fact that such confirming Written Instructions are not received by
Provident shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that Provident shall incur no liability to
the Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If Provident is in doubt as to any action
it should or should not take, Provident may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If Provident shall be in doubt as to any
questions of law pertaining to any action it should or should not take,
Provident may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's advisor or Provident, at
the option of Provident).
- 5 -
<PAGE>
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions Provident receives from the
Fund, and the advice it receives from counsel, Provident shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of Provident. Provident shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral or
Written Instructions it receives from the Fund or from counsel and which
Provident believes, in good faith, to be consistent with those directions,
advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon Provident (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of Provident's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund, which are
in the possession of Provident, shall be the property of the Fund. Such books
and records shall be prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during Provident's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by
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<PAGE>
Provident to the Fund or to an authorized representative of the Fund, at the
Fund's expense.
8. Confidentiality. Provident agrees to keep confidential all
records of the Fund and information relative to the Fund and its Shareholders
(past, present and potential), unless the release of such records or information
is otherwise consented to, in writing, by the Fund. The Fund further agrees
that, should Provident be required to provide such information or records to
duly constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), Provident shall not be required to seek the
Fund's consent prior to disclosing such information; provided that Provident
gives the Fund prior written notice of the provision of such information and
records.
9. Cooperation with Accountants. Provident shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. Provident shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of equipment
failures, Provident shall, at no additional expense to the Fund, take
- 7 -
<PAGE>
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto.
11. Compensation. As compensation for custody services rendered by
Provident during the term of this Agreement, the Fund will pay to Provident a
fee or fees as may be agreed to in writing from time to time by the Fund and
Provident.
12. Indemnification. The Fund agrees to indemnify and hold harmless
Provident and its nominees from all taxes, charges, expenses, assessment, claims
and liabilities (including, without limitation, liabilities arising under the
1933 Act, the 1934 Act, the 1940 Act, the CEA, and any state and foreign
securities and blue sky laws, and amendments thereto, and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action which Provident takes or does not take (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither Provident, nor any of its nominees,
shall be indemnified against any liability to the Fund or to its shareholders
(or any expenses incident to such liability) arising out of Provident's or its
nominees' own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement or Provident's own
grossly negligent failure to perform its duties under this Agreement.
13. Responsibility of Provident. Provident shall be under no duty
to take any action on behalf of the Fund except as specifically set forth herein
or as may be specifically agreed to by Provident, in writing. Provident shall be
- 8 -
<PAGE>
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing Services provided for under this Agreement. Provident
shall be responsible for its own or its nominees' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement or Provident's own negligent failure to perform its duties
under this Agreement.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, Provident, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which Provident reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond Provident's control, including acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
Notwithstanding anything in this Agreement to the contrary, Provident
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
Provident's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by Provident.
- 9 -
<PAGE>
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to Provident, all the property it owns, including cash received as a
result of the distribution of its Shares, during the period that is set forth in
this Agreement. Provident will not be responsible for such property until actual
receipt.
(b) Receipt and Disbursement of Money. Provident, acting upon
Written Instructions, shall open and maintain separate account(s) in the Fund's
name using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, Provident shall
open separate custodial accounts for each separate series, portfolio or class of
the Fund and shall hold in such account(s) all cash received from or for the
accounts of the Fund specifically designated to each separate series, portfolio
or class.
Provident shall make cash payments from or for the account of the
Fund only for:
(i) purchases of securities in the name of the Fund or
Provident or Provident's nominee as provided in
sub-paragraph j and for which Provident has received a
copy of the broker's or dealer's confirmation or payee's
invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
Provident;
- 10 -
<PAGE>
(iii) payment of, subject to Written Instruc- tions, interest,
taxes, administration, accounting, distribution,
advisory, management fees or similar expenses which are
to be borne by the Fund;
(iv) payment to, subject to receipt of Written Instructions,
the Fund's transfer agent, as agent for the shareholders,
an amount equal to the amount of dividends and distribu-
tions stated in the Written Instructions to be
distributed in cash by the transfer agent to
shareholders, or, in lieu of paying the Fund's transfer
agent, Provident may arrange for the direct payment of
cash dividends and distributions to shareholders in
accordance with procedures mutually agreed upon from time
to time by and among the Fund, Provident and the Fund's
transfer agent.
(v) payments, upon receipt of Written Instruc- tions, in
connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by
or delivered to Provident;
(vi) payments of the amounts of dividends received with
respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions
in sub-paragraph c of this Paragraph 14; and
(viii) payments, upon Written Instructions made for other
proper Fund purposes.
Provident is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
account of the Fund.
(c) Receipt of Securities.
(i) Provident shall hold all securities received by it for
the account of the Fund in a separate account that
physically segregates such securities from those of any
other persons, firms or corporations.
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<PAGE>
All such securities shall be held or disposed of only
upon Written Instructions of the Fund pursuant to the
terms of this Agreement. Provident shall have no power or
authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution of
the Fund's Governing Board, authorizing the transaction.
In no case may any member of the Fund's Board of
Directors/Trustees, or any officer, employee or agent of
the Fund withdraw any securities.
At Provident's own expense and for its own convenience,
and subject to the approval of the Fund's Board of
Directors, but such approval may not be unreasonably
withheld, Provident may enter into sub-custodian
agreements with other United States banks or trust
companies to perform duties described in this
sub-paragraph c. Such bank or trust company shall have an
aggregate capital, surplus and undivided profits,
according to its last published report, of at least one
million dollars ($1,000,000), if it is a subsidiary or
affiliate of Provident, or at least twenty million
dollars ($20,000,000) if such bank or trust company is
not a subsidiary or affiliate of Provident. In addition,
such bank or trust company must agree to comply with the
relevant provisions of the 1940 Act and other applicable
rules and regulations.
Provident shall remain responsible for the performance
of all of its duties as described in this Agreement and
shall hold the Fund harmless from its own acts or
omissions, under the standards of care provided for
herein, or of any sub-custodian chosen by Provident under
the terms of this sub-paragraph c.
(d) Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, Provident, directly or through the use
of the Book-Entry System, shall:
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<PAGE>
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed, retired
or otherwise become payable; provided that, in any such
case, the cash or other consideration is to be delivered
to Provident;
(iv) deliver any securities held for the Fund against receipt
of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, tender
offer, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or other
person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold
under the terms of this Agreement such certificates of
deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such
delivery;
(vi) make such transfer or exchanges of the assets of the Fund
and take such other steps as shall be stated in said oral
or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization
of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released
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<PAGE>
only upon payment to Provident of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection
with such repurchase agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange securities owned by the
Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to Provident; and
(xi) release and deliver or exchange securities owned by the
Fund for other corporate purposes.
Provident must also receive a certified resolution describing
the nature of the corporate purpose and the name and address of the person(s) to
whom delivery shall be made when such action is pursuant to sub-paragraph d.(xi)
above.
(e) Use of Book-Entry System. The Fund shall deliver to Provident
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing Provident on a continuous and ongoing basis, to deposit in the
Book-Entry System all securities belonging to the Fund eligible for deposit
- 14 -
<PAGE>
therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Provident shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary actions(s).
To administer the Book-Entry System properly, the following
provisions shall apply:
(i) With respect to securities of the Fund which are
maintained in the Book-Entry system, established pursuant
to this sub- paragraph e hereof, the records of Provident
shall identify by Book-Entry or otherwise those
securities belonging to the Fund. Provident shall furnish
the Fund a detailed statement of the Property held for
the Fund under this Agreement at least monthly and from
time to time and upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from
any assets and cash controlled by Provident in other than
a fiduciary or custodian capacity but may be commingled
with other assets held in such capacities. Provident and
its sub-custodian, if any, will pay out money only upon
receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by Provident which
relate to the Fund's participation in the Book-Entry
System will at all times during Provident's regular
business hours be open to the inspection of the Fund's
duly authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require.
- 15 -
<PAGE>
(iv) Provident will provide the Fund with copies of any report
obtained by Provident on the system of internal
accounting control of the Book-Entry System promptly
after receipt of such a report by Provident.
Provident will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Fund
which are issued or issuable only in bearer form, except such securities held in
the Book-Entry System, shall be held by Provident in bearer form; all other
securities held for the Fund may be registered in the name of the Fund;
Provident; the Book-Entry System; a sub-custodian; or any duly appointed
nominee(s) of the Fund, Provident, Book-Entry system or sub-custodian. The Fund
reserves the right to instruct Provident as to the method of registration and
safekeeping of the securities of the Fund. The Fund agrees to furnish to
Provident appropriate instruments to enable Provident to hold or deliver in
proper form for transfer, or to register its registered nominee or in the name
of the Book-Entry System, any securities which it may hold for the account of
the Fund and which may from time to time be registered in the name of the Fund.
Provident shall hold all such securities which are not held in the Book-Entry
System in a separate account for the Fund in the name of the Fund physically
segregated at all times from those of any other person or persons.
- 16 -
<PAGE>
(g) Voting and Other Action. Neither Provident nor its nominee
shall vote any of the securities held pursuant to this Agreement by or for the
account of the Fund, except in accordance with Written Instructions. Provident,
directly or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notice, proxies, and proxy soliciting materials to the
registered holder of such securities. If the registered holder is not the Fund
then Written or Oral Instructions must designate the person(s) who owns such
securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, Provident is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included
or to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit
such income, as collected, to the Fund's custodian
account;
(B) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the
payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution
- 17 -
<PAGE>
of rights or similar securities issued with respect
to any portfolio securities belonging to the Fund
held by Provident hereunder;
(D) present for payment and collect the amount payable
upon all securities which may mature or be called,
redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) Provident is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for
the account of the Fund in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund or Provident or nominee of either, or for
exchange of securities for a different number
ofbonds, certificates, or other evidence,
representing the same aggregate face amount or
number of units bearing the same interest rate,
maturity date and call provisions, if any;
provided that, in any such case, the new
securities are to be delivered to Provident.
- 18 -
<PAGE>
(B) Unless and until Provident receives Oral or Written
Instructions to the contrary, Provident shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Fund;
(2) collect interest and cash dividends received,
with notice to the Fund, to the account of the
Fund;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities issued
with respect to any securities held by us; and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any State now or
hereafter in effect, inserting the Fund's name on
such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do
so.
(i) Segregated Accounts.
(i) Provident shall upon receipt of Written or Oral
Instructions establish and maintain a segregated
accounts(s) on its records for and on behalf of the Fund.
Such account(s) may be used to transfer cash and
securities, including securities in the Book-Entry
System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option
- 19 -
<PAGE>
exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(ii) Provident shall arrange for the establishment of IRA
custodian accounts for such shareholders holding shares
through IRA accounts, in accordance with the Prospectus,
the Internal Revenue Code (including regulations), and
with such other procedures as are mutually agreed upon
from time to time by and among the Fund, Provident and
the Fund's transfer agent.
(j) Purchases of Securities. Provident shall settle purchased
securities upon receipt of Oral or Written Instructions from the fund or its
investment advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through
whom the purchase was made. Provident shall upon receipt
of securities purchased by or for the Fund pay out of the
moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through
- 20 -
<PAGE>
whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such
Oral or Written Instructions.
(k) Sale of Securities. Provident shall sell securities upon
receipt of Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
Provident shall deliver the securities upon receipt of the total
amount payable to the Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, Provident may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) Reports.
(i) Provident shall furnish the Fund the following reports:
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<PAGE>
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the
portfolio securities belonging to the fund with the
adjusted average cost of each issue and the market
value at the end of such month, and stating the cash
account of the Fund including disbursement;
(C) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from
time to time between the Fund and Provident.
(ii) Provident shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion
or similar communication received by it as custodian of
the Property. Provident shall be under no other
obligation to inform the Fund as to such actions or
events.
(m) Collections. All collections of monies or other property, in
respect, or which are to become part of the Property (but not the safekeeping
thereof upon receipt by Provident) shall be at the sole risk of the Fund. If
payment is not received by Provident within a reasonable time after proper
demands have been made, Provident shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and to telephonic demands thereto, and await instructions from the
Fund. Provident shall not be obliged to take legal action for collection unless
and until reasonably indemnified to its satisfaction. Provident shall also
notify the Fund as soon as reasonably practicable whenever income due on
securities is not collected in due course.
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<PAGE>
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by Provident on sixty (60) days prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to Provident or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), Provident shall not deliver cash, securities or other property of the
Fund to the Fund. It may deliver them to a bank or trust company of Provident's,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000), as a
custodian for the Fund to be held under terms similar to those of this
Agreement. Provident shall not be required to make any such delivery or payment
until full payment shall have been made to Provident of all of its fees,
compensation, costs and expenses. Provident shall have a security interest in
and shall have a right of setoff against Property in the Fund's possession as
security for the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to Provident
at Provident's address, Airport Business Center, International Court 2,
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<PAGE>
200 Stevens Drive, Philadelphia, Pennsylvania 19113, marked for the attention of
the Custodian Services Department (or its successor); (b) if to the Fund, at the
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. Delegation. Provident may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of Provident
National Bank or PNC Financial Corp, provided that (i) Provident gives the Fund
thirty (30) days prior written notice; (ii) the delegate agrees with Provident
to comply with all relevant provisions of the 1940 Act; and (iii) Provident and
such delegate promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation,
including (without limitation) the capabilities of the delegate.
- 24 -
<PAGE>
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Pennsylvania
and governed by Pennsylvania law. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PROVIDENT NATIONAL BANK
By: /s/ A Plambeck
--------------------------
Dated: May 17, 1991
-----------------------
FLAG INVESTORS INTERMEDIATE-
TERM INCOME FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------
Dated: 6/22/91
----------------------
- 26 -
<PAGE>
EX-99.B(8)(b)
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1994, by
and between FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland
corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation ("ICC").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain ICC to provide certain
services on behalf of the Fund, as set forth in the Appendices to this
Agreement, and ICC is willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints ICC to perform such
services and to serve such functions on behalf of the Fund as set forth in the
Appendices to this Agreement, on the terms set forth in this Agreement and the
Appendices hereto. ICC accepts such appointment and agrees to furnish such
services and serve such functions. The Fund may have currently outstanding one
or more series or classes of its shares of common stock, par value $.001 per
share ("Shares") and may from time to time hereafter issue separate series or
classes of its Shares or classify and reclassify Shares of any series or class,
and the appointment effected hereby shall constitute appointment for the
provision of services with respect to all existing series and classes and any
additional series and classes unless the parties shall otherwise agree in
writing.
2. Delivery of Documents. The Fund has furnished ICC with
copies properly certified or authenticated of the following documents and will
furnish ICC from time to time with copies, properly certified or authenticated,
of all amendments of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of ICC to act in such capacities on behalf of the
Fund as set forth in the Appendices to this Agreement, and the entering into of
this Agreement by the Fund;
(b) The Fund's Articles of Incorporation and all
amendments thereto (the "Charter") and the Fund's By-Laws and all amendments
thereto (the "By-Laws");
(c) The Fund's most recent Registration Statement on
Form N-1A under the Securities Act of 1933, as amended (the "1933 Act") and
under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") relating to the Shares; and
(d) Copies of the Fund's most recent prospectus or
prospectuses, including amendments and supplements thereto (collectively, the
"Prospectus").
3. Services to be Provided; Fees. During the term of this
Agreement, ICC shall perform the services and act in such capacities on behalf
of the Fund as set forth herein and in the Appendices to this Agreement. For the
services performed by ICC for the Fund, the Fund will compensate ICC in such
amounts as may be agreed to from time to time by the parties in writing.
<PAGE>
4. Records. The books and records pertaining to the Fund which
are in the possession of ICC shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by ICC to the Fund
or the Fund's authorized representative at the Fund's expense.
5. Cooperation With Accountants. In addition to any
obligations set forth in an Appendix hereto, ICC shall cooperate with the Fund's
independent accountants and shall take all reasonable actions in the performance
of its obligations under this Agreement to ensure that the necessary information
is made available to such accountants for the expression of such accountants'
opinion of the Fund's financial statements or otherwise, as such may be required
by the Fund from time to time.
6. Compliance with Governmental Rules and Regulations. The
Fund assumes full responsibility for insuring that the Fund complies with all
applicable requirements of the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction. ICC undertakes to comply with all
applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act, the
Commodities Exchange Act (if applicable), and all laws, rules and regulations of
governmental authorities having jurisdiction with respect to the performance by
ICC of its duties under this Agreement, including the Appendices hereto.
7. Expenses.
(a) ICC shall bear all expenses of its employees and
overhead incurred in connection with its duties under this Agreement and shall
pay all salaries and fees of the Fund's directors and officers who are employees
of ICC.
(b) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor, administrator and distributor; the charges and
expenses of any registrar, any custodian or depositary appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
stock 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 corporate fees payable by the Fund
to federal, state or other governmental agencies; the cost and expense of
engraving or printing of stock certificates representing Shares; all costs and
expenses in connection with maintenance of registration of the Fund and its
Shares with the SEC and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of directors or members of any
advisory board or committee other than such directors or members who are
"interested persons" of the Fund (as defined in the 1940 Act); 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 Shares; charges and expenses of legal counsel, including
counsel to the directors of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in connection
with any matter relating to the Fund; a portion of 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 operation unless
otherwise explicitly provided herein.
-2-
<PAGE>
8. Liability; Indemnification. Neither ICC nor any of its
officers, directors or employees shall be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement, including the Appendices hereto, relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its or their part in
the performance of, or from reckless disregard by it or them of, its or their
obligations and duties under this Agreement. The Fund agrees to indemnify and
hold harmless ICC and its nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the 1933 Act, the 1934 Act, the 1940 Act, and any state and
foreign securities and blue sky laws, all as currently in existence or as
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which ICC takes or does or omits to take or do at the request or
on the direction of or in reliance on the advice of the Fund; provided, that
neither ICC nor any of its nominees shall be indemnified against any liability
to the Fund or to its shareholders (or any expenses incident to such liability)
arising out of ICC's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement.
Notwithstanding anything else in this Agreement or any Appendix hereto to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer as a
consequence of ICC's performance of the services provided in this Agreement or
any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by ICC in writing. In the performance of its
duties hereunder, ICC shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement, but ICC shall not be
liable for any act or omission which does not constitute willful misfeasance,
bad faith or gross negligence on the part of ICC or reckless disregard by ICC of
its duties under this Agreement. Notwithstanding anything in this Agreement to
the contrary, ICC shall have no liability to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not
to be deemed exclusive and ICC shall be free to render accounting or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that directors, officers or employees of
ICC may serve as directors or officers of the Fund, and that directors or
officers of the Fund may serve as directors, officers and employees of ICC to
the extent permitted by law; and that directors, officers and employees of I CC
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
11. Notice. Any notice or other communication required to be
given pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, to the Fund at 135 E. Baltimore
Street, Baltimore, MD 21207, Attention: Brian C. Nelson, or to ICC at 135 E.
Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Edward J. Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the
date first above written and shall remain in force until terminated. This
Agreement, or any Appendix hereto, may be terminated at any time without the
payment of any penalty, by either party hereto on sixty (60) days' written
notice to the other party.
(b) This Agreement shall be construed in accordance
with the laws of the State of Maryland.
-3-
<PAGE>
(c) If any provisions of this Agreement shall be held
or made invalid in whole or in part, the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in accordance with the intent
and purpose of this Agreement, be replaced by mutual consent of the parties with
such valid provisions which in their economic effect come as close as legally
possible to such invalid provisions.
(d) Except as otherwise specified in the Appendices
hereto, ICC shall be entitled to rely on any notice or communication believed by
it to be genuine and correct and to have been sent to it by or on behalf of the
Fund.
(e) ICC agrees on behalf of itself and its employees
to treat confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where ICC may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
(f) Any part of this Agreement or any Appendix
attached hereto may be changed or waived only by an instrument in writing signed
by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
FLAG INVESTORS INTERMEDIATE-TERM INCOME
FUND, INC.
By: /s/ Brian C. Nelson
-------------------------------
Title: Vice President & Secretary
INVESTMENT COMPANY CAPITAL CORP.
By: /s/ Edward J. Veilleux
-------------------------------
Title: President
-4-
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
Flag Investors Intermediate-Term Income Fund, Inc.
and Investment Company Capital Corp.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of February 28, 1994 (the "Master Services
Agreement") between Flag Investors Intermediate-Term Income Fund, Inc. and
Investment Company Capital Corp. Defined terms not otherwise defined herein
shall have the meaning set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is fully authorized by
the Fund's Board of Directors, to give Oral and Written Instructions on behalf
of the Fund. Such persons are listed in the Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by ICC from an Authorized Person or from a
person reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received by
ICC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person (or from
a person reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions
confirming Oral Instructions so that ICC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by ICC shall
in no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. The Fund further agrees that ICC shall
incur no liability to the Fund in acting upon Oral or Written Instructions
provided such instructions reasonably appear to have been received from an
Authorized Person.
If ICC is in doubt as to any action it should or should not
take, ICC may request directions or advice, including Oral or Written
Instructions, from the Fund. ICC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which ICC believes,
in good faith, to be consistent with those directions, advice or Oral of Written
Instructions. Notwithstanding the foregoing, ICC shall have no obligation (i) to
seek such directions, advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written Instructions unless,
under the terms of other provisions of this Appendix, the same is a condition of
ICC's properly taking or not taking such action.
-5-
<PAGE>
3. Description of Services.
(a) General Services To be Provided. ICC shall provide to the
Fund the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to
complete or correct information;
(iv) Direct payment processing of checks or
wires;
(v) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
solicit and tabulate proxies; receive and
tabulate proxy cards for meetings of the
Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct
shareholder use, plus customer liaison staff
for on-line inquiry response;
(ix) Mail duplicate confirmation to broker-
dealers of their clients' activity, whether
executed through the broker-dealer or
directly with ICC;
(x) Provide periodic shareholder lists and
statistics to the Fund;
(xi) Provide detail for underwriter/broker
confirmations;
(xii) Mail periodic year-end tax and statement
information;
(xiii) Provide timely notification to investment
advisor, accounting agent, and custodian of
Fund activity; and
(xiv) Perform other participating broker-dealer
shareholder services as may be agreed upon
from time to time.
(b) Purchase of Shares. ICC shall issue and credit an account
of an investor, in the manner described in the Prospectus, once it receives: (i)
a purchase order; (ii) proper information to establish a shareholder account;
and (iii) confirmation of receipt by, or crediting of funds for such order to,
the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares
only in accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the shareholder
tenders his or her shares and directs the method of redemption in accordance
with the terms set forth in the Prospectus. If securities are received in proper
form, Shares shall be redeemed before the funds are provided to ICC. When the
Fund provides ICC with funds, redemption proceeds will be wired (if requested)
or a redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed by the
recordholder and delivered to ICC.
-6-
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the declaration and
payment of dividends and distributions, ICC shall issue the dividends and
distributions in shares, or, upon shareholder election, pay such dividends and
distributions in cash. Such issuance or payment shall be made after deduction
and payment of the required amount of funds to be withheld in accordance with
any applicable tax laws or other laws, rules or regulations. The Fund's
shareholders shall receive tax forms and other information, or permissible
substitute notice, relating to dividends and distributions, paid by the Fund as
are required to be filed and mailed by applicable law, rule or regulation. ICC
shall maintain and file with the IRS and other appropriate taxing authorities
reports relating to all dividends and distributions paid by the Fund to its
shareholders as required by tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the
Prospectus, ICC shall arrange for the following services, in accordance with the
applicable terms set forth in the Prospectus: (i) the issuance of Shares
obtained through any pre-authorized check plan and direct purchases through
broker wire orders, checks and applications; (ii) exchanges of shares of any
fund for Shares of the Fund with which the Fund has exchange privileges; (iii)
automatic redemption from an account where that shareholder participates in an
automatic redemption plan; and (iv) redemption of Shares from an account with a
check writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its shareholders,
including, reports to shareholders, confirmations of purchases and sales of
Shares, monthly or quarterly statements, dividend and distribution notices, and
proxy material.
(g) Records. ICC shall maintain records of the accounts for
each shareholder showing the following information: (i) name, address and U.S.
Tax Identification or Social Security number; (ii) number and class of Shares
held and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations; (iii) historical
information regarding the account of each shareholder, including dividends and
distributions paid and the date and price for all transactions on a
shareholder's account; (iv) any stop or restraining order placed against a
shareholder's account; (v) any correspondence relating to the current
maintenance of a shareholder's account; (vi) information with respect to
withholdings; and (vii) any information required in order for ICC to perform any
calculations contemplated or required by this Appendix or the Master Services
Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued upon: (i) the
shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by ICC; and (ii) completion
of a release and indemnification agreement signed by the shareholder to protect
ICC.
(i) Shareholder Inspection of Stock Records. Upon requests
from Fund shareholders to inspect stock records, ICC will notify the Fund and
the Fund shall deliver Oral or Written Instructions granting or denying each
such request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, ICC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of
the Prospectus, ICC shall act upon shareholder requests made by telephone for
redemption or exchange of ISI shares; provided that (i) the shareholder has
authorized telephone transactions on the Fund's Account Application or otherwise
in writing, (ii) if the request is a redemption, the amount to be redeemed does
not exceed $10,000 and (iii) ICC has complied with the identification and other
security procedures required by the Fund in connection with telephone
transactions.
-7-
<PAGE>
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third
party all or any part of its obligations under this Appendix; provided that any
such subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
-8-
<PAGE>
Appendix II
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC. and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of
the Master Services Agreement dated as of January 1, 1994 (the "Master Services
Agreement") between FLAG INVESTORS INTERMEDIATE- TERM INCOME FUND, INC. and
INVESTMENT COMPANY CAPITAL CORP. Defined terms not otherwise defined herein
shall have the meaning set forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following
accounting functions if required:
(a) Journalize investment, capital share and income and
expense;
(b) Verify investment buy/sell trade tickets when received
from the Fund's investment advisor and transmit trades to the Fund's custodian
for proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian,
and provide the Fund's investment advisor with the beginning cash balance
available for investment purposes;
(f) Update the cash availability throughout the day as
required by the Fund's investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and
Liabilities and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and
custody fees);
(i) Monitor the expense accruals and notify Fund management of
any proposed adjustments;
(j) Control all disbursements from the Fund and authorize such
disbursements upon written instructions from the President or any other officer
of the Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing
services approved by the investment advisor, or if such quotes are unavailable,
then obtain such prices from the investment advisor, and in either case
calculate the market value of portfolio investments;
(n) Transmit or mail a copy of the daily portfolio valuation
to the Fund's investment advisor;
-9-
<PAGE>
(o) Compute the Fund's net asset value;
(p) As appropriate, compute the yields, total return, expense
ratios, portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include
the following items:
o Schedule of Investments;
o Statement of Net Assets and Liabilities;
o Statement of Operations;
o Statement of Changes in Net Assets;
o Cash Statement;
o Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
o Federal and State Tax Returns;
o Excise Tax Returns;
o Annual, Semi-Annual and Quarterly Shareholder
Reports;
o Rules 24 (e)-2 and 24 (f)-2 Notices;
o Annual and Semi-Annual Reports on Form N-SAR;
o Monthly and Quarterly Statistical Data Information
Reports Sent to Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and
compliance process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of
the Internal Revenue Code.
2. Records. ICC shall keep the following records: (a) all books and records
with respect to the Fund's books of account; and (b) records of the Fund's
securities transactions.
3. Liaison With Accountants. In addition to ICC's obligations relating to the
Fund's independent accountants set forth in the Master Services Agreement, ICC
shall act as liaison with the Fund's independent accountants and shall provide
account analyses, fiscal year summaries, and other audit related schedules.
4. Compensation. For services performed by ICC pursuant to this Appendix, the
Fund will pay to ICC compensation for such services as the parties may agree to
from time to time in writing.
-10-
<PAGE>
EX-99.B(10)
[ LETTERHEAD OF MORGAN, LEWIS & BOCKIUS ]
April 30, 1991
Flag Investors Intermediate-Term Income Fund, Inc.
135 East Baltimore Street
Baltimore, MD 21202
Gentlemen:
We have acted as counsel to you in connection with the organization of
Flag Investors Intermediate-Term Income Fund, Inc. (the "Fund") and with the
proposed offering of shares of common stock of the Fund, par value $.001 per
share (the "Shares").
Having prepared the Articles of Incorporation, including amendments
thereto, and By-Laws of the Fund, and having assisted in the preparation of the
Fund's Registration Statement on Form N-1A (File No. 33-34275) under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including all pre-effective amendments thereto (the "Registration
Statement"), relating to the offering of the Shares, and having assisted in the
preparation of other related documents, we are of the opinion that:
1. The Fund is a Maryland corporation, validly organized and in good
standing under the laws of that state, authorized to issue up to 20,000,000
shares of its common stock, par value $.001 per share.
2. Upon the effectiveness of the Registration Statement, you will, in
jurisdictions where the Shares are qualified for sale, be authorized to make a
public offering of Shares pursuant to the terms of the offering as described in
the Prospectus filed as part of the Registration Statement, and the Shares, when
issued upon receipt of payment therefor as described in the Prospectus, will be
validly issued, fully paid and non-assessable by the Fund.
We have not reviewed the securities laws of any state or territory in
connection with the proposed offering of Shares and we express no opinion as to
the legality of any offer or sale of Shares under any such state or territorial
securities laws.
<PAGE>
Flag Investors Intermediate-Term Income Fund, Inc.
April 30, 1991
Page 2
This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the
Fund's Registration Statement on Form N-1A to be filed with the Securities and
Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Flag Investors Intermediate-Term Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 7 to the Registration
Statement of Flag Investors Intermediate-Term Income Fund, Inc. (Registration
No. 33-34275) of our report dated January 26, 1996 appearing in the Statement of
Additional Information, which is a part of such Registration Statement, and to
the references to us under the caption "Financial Highlights" appearing in the
Prospectuses, which also are a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 23, 1996
<PAGE>
EX-99.B(11)(b)
-----------------------------
CONSENT TO SERVE AS DIRECTOR
------------------------------
I hereby consent to serve as a Director of Flag Investors High Yield
Opportunities Fund, Inc. (the "Fund"), to be formed as a Maryland corporation. I
make this consent for inclusion in the Fund's initial registration statement,
pursuant to Securities and Exchange Commission Rule 438, 17. C.F.R. Section
230.438.
/s/ Richard T. Hale
------------------------------
Richard T. Hale
Dated: 4/11/90
<PAGE>
-----------------------------
CONSENT TO SERVE AS DIRECTOR
------------------------------
I hereby consent to serve as a Director of Flag Investors High Yield
Opportunities Fund, Inc. (the "Fund"), to be formed as a Maryland corporation. I
make this consent for inclusion in the Fund's initial registration statement,
pursuant to Securities and Exchange Commission Rule 438, 17. C.F.R. Section
230.438.
/s/ W. James Price
------------------------
W. James Price
Dated: 4/11/90
<PAGE>
-----------------------------
CONSENT TO SERVE AS DIRECTOR
------------------------------
I hereby consent to serve as a Director of Flag Investors High Yield
Opportunities Fund, Inc. (the "Fund"), to be formed as a Maryland corporation. I
make this consent for inclusion in the Fund's initial registration statement,
pursuant to Securities and Exchange Commission Rule 438, 17. C.F.R. Section
230.438.
/s/ Alonzo G. Decker, Jr.
--------------------------
Alonzo G. Decker, Jr.
Dated: 4/11/90
<PAGE>
-----------------------------
CONSENT TO SERVE AS DIRECTOR
------------------------------
I hereby consent to serve as a Director of Flag Investors High Yield
Opportunities Fund, Inc. (the "Fund"), to be formed as a Maryland corporation. I
make this consent for inclusion in the Fund's initial registration statement,
pursuant to Securities and Exchange Commission Rule 438, 17. C.F.R. Section
230.438.
/s/ John F. Kroeger
------------------------
John F. Kroeger
Dated: 4/11/90
<PAGE>
-----------------------------
CONSENT TO SERVE AS DIRECTOR
------------------------------
I hereby consent to serve as a Director of Flag Investors High Yield
Opportunities Fund, Inc. (the "Fund"), to be formed as a Maryland corporation. I
make this consent for inclusion in the Fund's initial registration statement,
pursuant to Securities and Exchange Commission Rule 438, 17. C.F.R. Section
230.438.
/s/ Harry Woolf
----------------------
Harry Woolf
Dated: 4/11/90
<PAGE>
EX-99.B(15)
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors High Yield Opportunities Fund, Inc. (the
"Fund"). Other capitalized terms herein have the meaning given to them in the
Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown is authorized, pursuant to the
Plan, to make payments to any Participating Dealer under a Sub-Distribution
Agreement, to accept payments made to it under the Distribution Agreement and to
make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average daily
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown, the Fund's
Advisor and the Fund's Sub-Advisor are authorized to pay or cause to be paid on
its behalf and such payments shall not be included in the limitations contained
in this Plan. These expenses include: the fees of the Fund's investment advisor,
sub-advisor and Alex. Brown; the charges and expenses of any registrar, any
<PAGE>
custodian or depository appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock 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 corporate fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and its Shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors who are not "interested persons" of the
Fund (as defined in the 1940 Act) or 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; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) of the Fund and of independent
accountants, in connection with any matter relating to the Fund; a portion of
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 operation unless otherwise explicitly provided therein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
-2-
<PAGE>
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of Directors who are not "interested persons" of the Fund (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not "interested persons" (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
1940 Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
-3-
<PAGE>
Flag Investors Intermediate-Term Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and Flag Investors Institutional
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors
Intermediate-Term Income 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 three classes of shares of
the common stock of the Fund's one existing series (the "Series"). 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 (Flag Investors Class A, Flag Investors Class B and Flag
Investors Institutional) and future classes of Fund shares. The Flag Investors
Class A Shares have been offered since the Fund's inception on May 13, 1991 and
the Flag Investors Institutional Shares have been offered since November 2,
1995. The Flag Investors Class B Shares have not yet been offered.
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. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. 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,
<PAGE>
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") (1); and (v) 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.
- --------
1 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>
EXHIBIT A
Resolutions of Board Approving Distribution Agreement, Plan of Distribution and
Form of Sub-Distribution Agreement
Date Approved: March 1991
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, and that the appropriate officers of the Fund
be, and they hereby are, authorized and directed to enter into and execute such
Distribution Agreement with such modifications as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the"Plan") is
determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved by
the Board of Directors and by the Directors who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) of the Fund and have
no direct or indirect financial interest in the operation of the Plan;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
of the Fund be, and the same hereby is, approved.
Date Approved: September 1994
Resolutions of Board Creating Flag Investors Shares
FURTHER RESOLVED, that the previously undesignated shares of common
stock, par value $.001 per share, of Flag Investors Intermediate-Term Income
Fund, Inc. be, and they hereby are, designated as the "Flag Investors Shares."
Date Approved: April 1996
Resolutions of Board Renaming Flag Investors Shares
RESOLVED, that the Fund's forty-five million (45,000,000) shares of
common stock, par value $.001 per share, previously designated and classified as
the "Flag Investors Shares" be, and hereby are, renamed the "Flag Investors
Class A Shares";
FURTHER RESOLVED, that the Articles Supplementary to the Fund's
Articles of Incorporation be, and they 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 renaming of the Flag Investors Shares and the
filing and recording of the Articles Supplementary in the appropriate offices in
the State of Maryland.
<PAGE>
Date Approved: September 1994
Resolutions of Board Creating Flag Investors Class B Shares
FURTHER RESOLVED, that an additional class of shares of Flag Investors
Intermediate-Term Income Fund, Inc. (the "Fund") be, and hereby is, classified
and designated as the "Flag Investors Class B Shares" (the "Class B Shares") and
that unissued shares of common stock, par value $.001 per share of the Fund be,
and the same hereby are, reclassified as follows:
<TABLE>
<CAPTION>
=============================================================================================================================
Total No. of Shares Class A Shares Class B Shares Unclassified Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50,000,000 45,000,000 2,000,000 3,000,000
=============================================================================================================================
</TABLE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
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 Flag Investors
Intermediate-Term Income Fund, Inc. and Alex. Brown & Sons Incorporated for the
Class B Shares of the 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 shall govern the payment of 12b-1 fees by that
class;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
Date Approved: September 1995
Resolutions of Board Creating Flag Investors Institutional Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Intermediate-Term Income Fund, Inc. (the
"Fund") is authorized to issue is hereby increased from fifty million
(50,000,000) to fifty-five million (55,000,000) and that from such amount, five
million (5,000,000) authorized and unissued shares be, and hereby are,
designated and classified as the "Flag Investors Intermediate-Term Income Fund
Institutional Shares" ("Institutional Shares");
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file Articles Supplementary to the
Fund's Articles of Incorporation to effectuate the increase in authorized shares
and to designate and classify the new class;
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
make all appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new class of shares and
the related Distribution Agreement, including the filing of a post-effective
amendment under the Securities Act of 1933 (the "1933 Act") and under the
Investment Company Act of 1940 (the "1940 Act") to the Fund's Registration
Statement on Form N-1A, and all necessary exhibits and other instruments
relating thereto (collectively, the "Registration Statement"), procuring all
<PAGE>
other necessary signatures thereon, and filing the appropriate exhibits thereto
with the Commission under the 1933 Act and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to appear, together with legal counsel, on
behalf of the Fund, before the Commission in connection with any matter relating
to the Registration Statement and to take such other actions, including Blue Sky
filings as may be required in connection with the establishment of the new
class; and
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 in connection with the establishment and registration of the new
class, the taking of any such action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund;
FURTHER RESOLVED, that any filings previously made and any actions
previously taken by the appropriate officers of the Fund in connection with the
establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of the Fund.
<PAGE>
FOR ARTICLES OF INCORPORATION AS AMENDED AND SUPPLEMENTED TO DATE SEE EXHIBITS
EX-99B(1)(a) THROUGH EX-99.B(1)(f) TO THIS REGISTRATION STATEMENT, AS FILED
HEREWITH.
FLAG INVESTORS INTERMEDIATE TERM-INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERMEDIATE TERM INCOME 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
redesignating and reclassifying the Corporation's forty-five million
(45,000,000) previously designated and classified "Flag Investors
Intermediate-Term Income Fund Shares" the "Flag Investors Intermediate-Term
Income Fund Class A Shares."
SECOND: Immediately before the redesignation and reclassification of
the Corporation's Flag Investors Intermediate-Term Income Fund Shares, the
Corporation was authorized to issue fifty-five million (55,000,000) shares of
Common Stock, of the par value of 1 mil ($.001) per share and of the aggregate
par value of fifty-five thousand dollars ($55,000) classified and designated as
follows: forty-five million (45,000,000) shares were designated "Flag Investors
Intermediate Term Income Fund Shares," two million (2,000,000) shares were
designated "Flag Investors Intermediate Term Income Fund Class B Shares," five
million (5,000,000) shares were designated "Flag Investors Intermediate Term
Income Fund Institutional Shares" and three million (3,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Intermediate Term Income 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 24th day of April, 1996.
[CORPORATE SEAL]
FLAG INVESTORS INTERMEDIATE TERM INCOME FUND, INC.
By: /s/ Brian C. Nelson
----------------------------------------
Vice President
Attest: /s/ Laurie D. DePrine
----------------------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS INTERMEDIATE TERM
INCOME 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.
By: /s/ Brian C. Nelson
------------------------------------------
Vice President
<PAGE>
BY-LAWS
OF
FLAG INVESTORS INTERMEDIATE-TERM BOND FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the shareholders of
the Corporation shall not be required to be held in any year in which
shareholders are not required to elect directors under the Investment Company
Act of 1940 (the "1940 Act") even if the Corporation is holding a meeting of the
shareholders for a purpose other than the election of directors. If the
Corporation is required by the 1940 Act to hold a meeting to elect directors,
the meeting shall be designated as the Annual Meeting of shareholders for that
year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may be properly brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the shareholders,
unless otherwise provided by law or by the Charter of the Corporation may be
called for any purpose or purposes by a majority of the Board of Directors or
the President, and shall be called by the President or Secretary on the written
request of the shareholders as provided by the Maryland General Corporation Law.
Such request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on at it; provided, however, that unless requested
by shareholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
the shareholders held during the preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
<PAGE>
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the shareholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be deemed waived by any
shareholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of shareholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
(c) At least five (5) days prior to each meeting of shareholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of shareholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
shareholder.
Section 5. Organization. At each meeting of the shareholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting of shareholders
may authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or the Corporation or these By- Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at meeting at which a quorum is present is sufficient to elect
director.
(c) If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
<PAGE>
Section 7. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
shareholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each shareholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter
of the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the shareholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be elected
by majority vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
office of each director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
<PAGE>
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number or Directors; provided, however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons (as defined in the 1940 Act) of the Corporation. In the
<PAGE>
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board, who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
director chosen by a majority of the directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time.
Section 16. Compensation. Any Director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the directors may from
time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
<PAGE>
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this Article
IV.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board
shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment
adviser or principal underwriter, as such terms are defined in the 1940 Act, or
take any other action required to be taken by the Board of Directors by the 1940
Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not
require shareholder approval.
Section 4. General. (a) One-third, but not less than two members, of
the members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
(b) All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
<PAGE>
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the shareholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
<PAGE>
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to
the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees of the
Board and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board or the President.
<PAGE>
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
<PAGE>
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of December in each year.
<PAGE>
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the shareholders in accordance with the
provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
<PAGE>
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and officers
Section 1. Indemnification. The Corporation shall indemnify its
directors to the fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its Directors and officers
who while serving as Directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
This Article XIII shall not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person 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.
Section 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law and the 1940 Act, as such statutes are now or hereafter in
force.
Section 3. Procedure. On the request of any current or former director
or officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law and the 1940 Act, as such
statutes are now or hereafter in force, whether the standards required by this
Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
<PAGE>
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 10th day of May, 1991, by and between FLAG
INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
WITNESSETH
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the shares of Common Stock of the Fund (the "Shares") and Alex.
Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Secretary of
State of Maryland on April 16, 1990 and all amendments thereto (the "Articles of
Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on April 17, 1990;
(e) The Fund's Registration Statement on Form N-lA under the Securities
Act of 1933, as amended (the "1933 Act") (File No. 33-34275) and under the 1940
Act as filed with the SEC on April 17, 1990 relating to the Shares of the Fund,
and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have vaild Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
<PAGE>
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and Federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost to the
Fund, the services of personnel to the extent that such services are required to
carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any 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 Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock 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
corporate fees payable by the Fund to federal, state or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and the Shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above, the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or 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 Shares; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), 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 operation unless otherwise explicitly provided herein.
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<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of
Alex. Brown's compensation for the preceding month shall be made as promptly as
possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal 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 the
Fund shareholders.
11. Sub-Distribution Aareements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
-4-
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act) and do not have a
financial interest in the operation of this Agreement, by votes cast in person
at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM INCOME
FUND, INC.
Attest: /s/ Sharon H. Marhaush By /s/ Edward J. Veilleux
------------------------ ------------------------
Vice President
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Nancy Palmer By /s/ Richard T. Hale
--------------------- -------------------------
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<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
<PAGE>
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
<PAGE>
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
____________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors Intermediate-Term Income Fund, Inc. (the
"Fund"). Other capitalized terms herein have the meaning given to them in the
Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown is authorized, pursuant to the
Plan, to make payments to any Participating Dealer under a Sub-Distribution
Agreement, to accept payments made to it under the Distribution Agreement and to
make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average dally
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown, the Fund's
Advisor and the Fund's Sub-Advisor are authorized to pay or cause to be paid on
its behalf and such payments shall not be included in the limitations contained
in this Plan. These expenses include: the fees of the Fund's investment advisor,
sub-advisor and Alex. Brown; 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 stock 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 corporate fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and its Shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors who are not "interested persons" of the
Fund (as defined in the 1940 Act) or 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; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) of the Fund and of independent
<PAGE>
accountants, in connection with any matter relating to the Fund; a portion of
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; extraodinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation urless otherwise explicitly provided therein.
5. Other Distibution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of Directors who are not "interested persons" of the Fund (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not "interested persons" (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
1940 Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
<PAGE>
New Class B Shares
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the ____ day of ___________, 19___, by and
between FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland
corporation (the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland
corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors Class
B Shares (the "Shares") and Alex. Brown wishes to become the distributor of the
Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Secretary of
State of Maryland on April 16, 1990 and all amendments thereto (the "Articles of
Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on April 17, 1990;
(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act") (File No. 33-34275) and under the 1940
Act as filed with the SEC on April 17, 1990 relating to the Shares of the Fund,
and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such prospectus
and all amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
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<PAGE>
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services
are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any 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
Shares, the expenses of advertising in connection with such public
offering and all legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any
registrar, custodian or depositary appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and
any stock 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
corporate fees payable by the Fund to Federal, State or other
governmental agencies; the cost and expense of engraving or printing of
stock certificates representing Shares; all costs and expenses in
connection with maintenance of registration of the Fund and the Shares
with the SEC and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel) except as
provided in subparagraph (a) above, the expenses of printing, including
typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in
the 1940 Act) or 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 Shares; charges
and expenses of legal counsel, including counsel to the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act),
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 operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
-3-
<PAGE>
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .75% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as such
term is defined in the NASD Rules of Fair Practice) equal to .25% of the average
daily net assets of the Shares of the Fund. Such fee shall be calculated and
accrued daily and the amounts of the daily accruals shall be paid monthly in the
manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal 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 the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in the
1940 Act), and
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<PAGE>
(b) by the affirmative vote of a majority of the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act)
and do not have a financial interest in the operation of this
Agreement, by votes cast in person at a meeting specifically called for
such purpose.
15. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
16. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
Attest:__________________ By _____________________________________
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:__________________ By _____________________________________
Title:
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<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
<PAGE>
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
-2-
<PAGE>
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
__________________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
-3-
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Flag
Investors Intermediate-Term Income Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement with respect to distribution of the Shares which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown as distributor
for the Shares is authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's investment advisor and Alex. Brown; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
-4-
<PAGE>
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; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public 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 operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
-5-
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 31st day of October, 1995, by and between
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the Secretary
of State of the State of Maryland on April 16, 1990 (the "Articles"), authorize
the Board of Directors of the Fund to increase or decrease the number of shares
of capital stock of the Fund and the number of shares of any class of capital
stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the designation
of two classes of shares of the Fund known respectively as the Flag Investors
Intermediate-Term Income Fund Shares and the Flag Investors Intermediate-Term
Income Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized the
creation of an institutional class of shares of the Fund known as the Flag
Investors Intermediate-Term Income Fund Institutional Shares (the "Shares") ;
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the Shares and Alex. Brown wishes to become the distributor of
the Shares.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. Alex. Brown
accepts such appointment and agrees to render the services set forth herein.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed
with the Securities and Exchange Commission (the "SEC") on April 17,
1990;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-34275)
and under the 1940 Act as filed with the SEC on April 17, 1990 relating
to the Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown. Notwithstanding the
provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset value to
any shareholder of the Fund purchasing such Shares with dividends or
other cash distributions received from the Fund pursuant to an offer
made to all shareholders;
(b) Alex. Brown may enter into shareholder processing and
servicing agreements;
(c) Alex. Brown may, and when requested by the Fund shall,
suspend its efforts to effectuate sales of the Shares at any time when
in the opinion of Alex. Brown or of the Fund no sales should be made
because of market or other economic considerations or abnormal
circumstances of any kind; and
(d) the Fund may withdraw the offering of the Shares (i) at
any time with the consent of Alex. Brown, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule
or regulation of any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
<PAGE>
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services
are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any 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
Shares, the expenses of advertising in connection with such public
offering and all legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any
registrar, custodian or depositary appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and
any stock 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
corporate fees payable by the Fund to Federal, State or other
governmental agencies; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and
various states and other jurisdictions (including filing fees and legal
fees and disbursements of counsel) except as provided in subparagraph
(a) above; the expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and
reports to shareholders; fees and travel expenses of Directors who are
not "interested persons" of the Fund (as defined in the 1940 Act) or
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 Shares; charges and expenses of legal
counsel, including counsel to the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act), 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
operation unless otherwise explicitly provided herein.
<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. Alex. Brown shall receive no compensation for the
services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal 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 the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that Directors, officers or
employees of Alex. Brown may serve as Directors or officers of the Fund, and
that Directors or officers of the Fund may serve as Directors, officers and
employees of Alex. Brown to the extent permitted by law; and that Directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, Directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act)
and do not have a financial interest in the operation of this
Agreement, by votes cast in person at a meeting specifically called for
such purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
<PAGE>
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
Attest: /s/ Alisa Stesch By /s/ Edward J. Veilleux
------------------------- ------------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s Alisa Stesch By /s/ Richard T. Hale
------------------------- ------------------------------------
Title: Managing Director
<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
<PAGE>
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
<PAGE>
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
__________________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(24)
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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: April 26, 1995
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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: April 25, 1996
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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 Chairman
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: April 26, 1994
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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: April 26, 1994
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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: April 26, 1995
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME 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 Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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: April 26, 1994
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, W. James Price, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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/ W. James Price
------------------------------
W. James Price
Date: April 26, 1994
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, M. Elliott Randolph, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Brian C. Nelson, 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 Flag Investors Intermediate-Term
Income 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
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/ M. Elliott Randolph, Jr.
------------------------------
M. Elliott Randolph, Jr.
Date: April 26, 1994
<PAGE>
FLAG INVESTORS INTERMEDIATE-TERM
INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, 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 Flag Investors Intermediate-Term Income 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/ Harry Woolf
------------------------------
Harry Woolf
Date: April 26, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000862473
<NAME> FLAG INVESTORS INTERMEDIATE TERM INCOME FUND
<SERIES>
<NUMBER> 6
<NAME> FLAG
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 67,285,831
<INVESTMENTS-AT-VALUE> 68,931,828
<RECEIVABLES> 934,751
<ASSETS-OTHER> 22,153
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,888,732
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 587,038
<TOTAL-LIABILITIES> 587,038
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,317,295
<SHARES-COMMON-STOCK> 6,613,035
<SHARES-COMMON-PRIOR> 8,194,190
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,514,478)
<OVERDISTRIBUTION-GAINS> (147,120)
<ACCUM-APPREC-OR-DEPREC> 1,645,997
<NET-ASSETS> 69,301,694
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,829,563
<OTHER-INCOME> 0
<EXPENSES-NET> 504,701
<NET-INVESTMENT-INCOME> 4,324,862
<REALIZED-GAINS-CURRENT> (1,018,416)
<APPREC-INCREASE-CURRENT> 7,180,544
<NET-CHANGE-FROM-OPS> 10,486,990
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,216,212
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 487,580
<NUMBER-OF-SHARES-REDEEMED> 2,330,316
<SHARES-REINVESTED> 261,580
<NET-CHANGE-IN-ASSETS> (9,487,305)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,427,340)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 252,372
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 667,644
<AVERAGE-NET-ASSETS> 73,335,674
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0000
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
