<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1995.
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 File No. 33-66870
File No. 811-7922
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 5 /X/
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, MD 21202
(Address of Principal Executive Offices, Zip Code)
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)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pa 19103
- -------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
--- immediately upon filing pursuant to paragraph (b)
X
--- on August 1, 1995 pursuant to paragraph (b)
--- 60 days after filing pursuant to paragraph (a)
--- on (date) pursuant to paragraph (a) of Rule 485.
- -------------------------------------------------------------------------------
Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock $.001 par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its 24f-2 Notice for its
fiscal year ended March 31, 1995 on May 26, 1995.
- -------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
Cross Reference Sheet
July 26, 1995
<TABLE>
<CAPTION>
Registration
Statement
Items Requires by Form N-1A Heading
- --------------------------- -------------
<S> <C>
Part A - Information Required in a Prospectus
- ------
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
</TABLE>
- -------
* Information required by Item 5A is contained in Registrant's 1995 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Registration
Statement
Items Requires by Form N-1A Heading
- --------------------------- -------------
<S> <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; Quarterly 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
- ------
Part C contains the information required by the items contained
therein under the items set forth in the form.
</TABLE>
<PAGE>
(LOGO)
FLAG INVESTORS
MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
This mutual fund (the "Fund") is designed to provide current income exempt
from federal income taxes and Maryland state and local income taxes
consistent with preservation of principal within an intermediate-term
maturity structure. The Fund will invest primarily in municipal obligations
issued by the State of Maryland and its political subdivisions, agencies or
instrumentalities. Under normal circumstances, the dollar weighted expected
average maturity of the portfolio normally will be not less than 3 and not
more than 10 years. (See "Investment Program.")
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 August 1, 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 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
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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.
PROSPECTUS
The date of this Prospectus is August 1, 1995
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX FREE INCOME
FUND, INC.
135 EAST BALTIMORE STREET
BALTIMORE, MARYLAND 21202
TABLE OF CONTENTS
------
Page
1. Fund Expenses .............................................. 2
2. Financial Highlights ....................................... 3
3. Investment Program ......................................... 4
4. Investment Restrictions .................................... 13
5. How to Invest in the Fund .................................. 13
6. How to Redeem Shares ....................................... 18
7. Telephone Transactions ..................................... 20
8. Dividends and Taxes ........................................ 21
9. Management of the Fund ..................................... 24
10. Investment Advisor ......................................... 25
11. Distributor ................................................ 25
12. Custodian, Transfer Agent, Accounting Services ............. 27
13. Performance Information .................................... 27
14. General Information ........................................ 28
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
<PAGE>
===============================================================================
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 ................................................ None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (NET OF FEE WAIVERS
AND REIMBURSEMENTS) (as a percentage of average daily net assets):
- -------------------------------------------------------------------------------
Management Fees (net of fee waivers) ................................ .00%**
12b-1 Fees .......................................................... .25%
Other Expenses (net of reimbursements) .............................. .45%**
-----
Total Fund Operating Expenses (net of fee waivers and reimbursements) .70%**
=====
- -------------------------------------------------------------------------------
* Purchases of $1 million or more are not subject to an initial sales
charge. However, a contingent deferred sales charge of .50% will be
imposed on such purchases in the event of redemption within 24 months
following such purchase. (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 and/or reimbursements, Management
Fees would be .35%, Other Expenses would be 1.25% and the Fund's Total
Operating Expenses would be 1.85% of its average daily net assets.
EXAMPLE:
- -------------------------------------------------------------------------------
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 $51 $82 $175
- -------------------------------------------------------------------------------
*The example is based on Total Fund Operating Expenses net of fee waivers and
reimbursements. Absent such fee waivers and reimbursements, expenses would
be higher.
The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in 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 Total Fund
2
<PAGE>
Operating Expenses appearing in the table above are based on the Fund's
expenses for the fiscal year ended March 31, 1995 which, net of fee waivers
and reimbursements, were .70% of the Fund's average daily net assets.
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 has offered the Shares since October 1, 1993. The financial
highlights included in this table are a part of the Fund's financial
statements for the fiscal year ended March 31, 1995 and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
financial highlights for the fiscal year ended March 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 March 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
For the Year October 1, 1993*
Ended through
March 31, 1995 March 31, 1994
-------------- ----------------
<S> <C> <C>
Per Share Operating Performance: ....................
Net asset value at beginning of period ............ $ 9.50 $ 10.00
-------------- ----------------
Income from Investment Operations: ..................
Net investment income ............................. 0.40 0.14
Net realized and unrealized gain/(loss) on
investments .................................... 0.05 (0.53)
-------------- ----------------
Total from Investment Operations .................. 0.45 (0.39)
Less Distributions: .................................
Dividends from net investment income .............. (0.43)_ (0.11)
-------------- ----------------
Net asset value at end of period .................. $ 9.52 $ 9.50
============== ================
Total Return** ...................................... 5.12% (4.06)%
Ratios to Average Net Assets: .......................
Expenses(2) ....................................... 0.70% 0.29%(1)
Net investment income(3) .......................... 4.44% 3.84%(1)
Supplemental Data: ..................................
Net assets at end of period ....................... $12,919 $11,872
Portfolio turnover rate ........................... 33 % 9 %
</TABLE>
- ------
* Commencement of operations.
** Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charges.
(1)Annualized.
(2) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average net assets would have been 1.85% and 2.46%
(annualized) for the year ended March 31, 1995 and the period ended March
31, 1994, respectively.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average net assets would have been
3.29% and 1.68% (annualized) for the year ended March 31, 1995 and the
period ended March 31, 1994, respectively.
===============================================================================
3. INVESTMENT PROGRAM
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund seeks to provide current income exempt from federal income taxes
and Maryland state and local income taxes consistent with preservation of
principal within an intermediate-term maturity structure. There is no
assurance this objective will be met.
Under normal conditions, the Fund expects to be as fully invested as
practicable in obligations which, in the opinion of bond counsel to the
issuers, produce interest exempt from federal income tax and Maryland
4
<PAGE>
state and local income tax and at least 65% of the Fund's total assets will
be invested in securities of Maryland issuers. These include municipal
obligations issued by the State of Maryland and its political subdivisions,
agencies or instrumentalities. The Fund may invest up to 35% of its assets in
obligations of other issuers of securities the interest on which is exempt
from Maryland state and local taxes. These issuers would include territories
or possessions of the United States. However, the Fund has no present
intention to invest in securities issued by such territories or possessions.
As a matter of fundamental policy, under normal conditions, the Fund will
invest at least 80% of its total assets in securities the interest on which
is exempt from federal and Maryland state and local income taxes and 80% of
the Fund's assets will be invested in municipal securities the income from
which is not subject to the alternative minimum tax. Income derived from
securities subject to the alternative minimum tax is not included when
computing income exempt from federal and Maryland state and local income
taxes. Under normal conditions, the Fund may invest up to 20% of its net
assets in municipal securities the income from which is not exempt from
Maryland state and local income taxes. For temporary, defensive purposes
when, in the opinion of the Fund's investment advisor, Investment Company
Capital Corp. ("ICC" or the "Advisor"), securities exempt from Maryland state
and local income tax are not readily available or of sufficient quality, the
Fund can invest up to 100% of its assets in securities which pay interest
which is exempt only from federal income taxes or in taxable U.S. Treasury
securities.
The Fund is a non-diversified investment company which means that more
than 5% of its assets may be invested in each of one or more issuers. Since a
relatively high percentage of assets of the Fund may be invested in the
obligations of a limited number of issuers, the value of shares of the Fund
may be more susceptible to any single economic, political or regulatory
occurrence than the shares of a diversified investment company would be. The
Fund intends to satisfy the diversification requirements necessary to qualify
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code").
The Fund currently contemplates that it will not invest more than 25% of
its total assets (at market value at the time of purchase) in municipal
securities, the interest on which is paid from revenues of projects with
similar characteristics. See also "Special Considerations Relating To
Maryland Municipal Securities."
Under normal circumstances the Fund's portfolio will have a dollar
weighted average maturity of not less than 3 and not more than 10 years.
5
<PAGE>
The value of obligations purchased by the Fund will change as interest rates
change. Thus, a decrease in interest rates generally will result in an
increase in the value of shares of the Fund. Conversely, an increase in
interest rates will generally result in a decrease in the value of the shares
of the Fund. The magnitude of these fluctuations will be greater as the
average maturity of the Fund increases.
Municipal notes in which the Fund may invest will be limited to those
obligations (i) which are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) which are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii)
which, if not rated, are of comparable quality in the Advisor's judgement.
Municipal bonds in which the Fund may invest must be rated BBB or better by
S&P or Baa or better by Moody's at the time of investment or, if unrated must
be of comparable quality in the Advisor's judgement. Securities rated Baa or
BBB are deemed to have speculative characteristics. Tax-exempt commercial
paper will be limited to investments in obligations which are rated at least
A-1 by S&P or Prime-1 by Moody's at the time of investment or, if unrated,
are of comparable quality in the Advisor's judgement. These ratings may be
based in part on credit support provided by a bank or other entity.
Accordingly, a decline in the creditworthiness of the entity providing such
support could affect the rating of the security, as well as the payment of
interest and principal. For a description of the above ratings, see the
"Appendix".
The Fund may also enter into futures contracts and options on futures
contracts, although it has no present intention to do so. Gains recognized by
the Fund from such transactions would constitute taxable income to
shareholders.
The Fund may also purchase variable and floating rate demand notes and
bonds. The Advisor will invest in commitments to purchase securities on a
"when-issued" basis and reserves the right to engage in "put" transactions on
a daily, weekly or monthly basis.
- -------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Municipal securities that the Fund may purchase consist of (i) debt
obligations issued by or on behalf of public authorities to obtain funds to
be used for various public facilities, for refunding outstanding obligations,
for general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain
6
<PAGE>
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. Municipal notes include general obligation
notes, tax anticipation notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes, construction loan notes
and participation interests therein. Municipal bonds include general
obligation bonds, revenue or special obligation bonds, private activity
bonds, industrial development bonds and participation interests therein.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility, tolls from a toll bridge, or lease payments, for example. The
payment of principal and interest on private activity and industrial
development bonds generally is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
The Fund may purchase municipal lease obligations, including certificates
of participation ("COPs") in municipal leases. The Fund may acquire municipal
lease obligations that may be assigned by the lessee to another party
provided the obligation continues to provide tax-exempt interest. The Fund
will not purchase municipal lease obligations to the extent it holds
municipal lease obligations and illiquid securities in an amount exceeding
10% of its net assets unless the Advisor determines that the municipal lease
obligations are liquid pursuant to guidelines established by the Board of
Directors of the Fund. Pursuant to these guidelines, the Advisor, in making
this liquidity determination, will consider, among other factors, the
strength and nature of the secondary market for such obligations, the
prospect for its future marketability and whether such obligations are rated.
The Fund expects that it will purchase only rated municipal lease
obligations. In addition, the Fund may purchase participation interests in
other municipal securities (such as industrial development bonds). (See
"Participation Interests.")
Municipal obligations purchased by the Fund which fall below the above
rating criteria after the purchase by the Fund shall be sold promptly.
- -------------------------------------------------------------------------------
INSURED OBLIGATIONS
The Fund may invest in obligations that are insured as to the scheduled
payment of all installments of principal and interest as they fall due. The
purpose of this insurance is to minimize credit risks to the Fund and its
shareholders associated with defaults in Maryland municipal obligations owned
by the Fund. This insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the
7
<PAGE>
Fund's investment portfolio upon which the net asset value of the Fund's
shares is based. The market value will continue to fluctuate in response to
fluctuations in interest rates or the bond market. Similarly, this insurance
does not cover or guarantee the value of the shares of the Fund. The ratings
of the insured obligations may be based in part on insurance provided by an
insurance company. Accordingly, a decline in the creditworthiness of the
insurance company providing the insurance could affect the rating of the
security, as well as the payment of interest and principal.
- -------------------------------------------------------------------------------
PARTICIPATION INTERESTS
The Fund may invest in COPs representing participation interests in
municipal securities (such as AMT-Subject Bonds). A participation interest
may pay a fixed, floating or variable rate of interest and gives the
purchaser an undivided interest in the municipal security in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal security and provides a demand repurchase feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank that meets the prescribed quality standards of the Fund. The Fund has
the right to sell the instrument back to the issuing bank or draw on the
letter of credit on demand for all or any part of the Fund's participation
interest in the municipal security, plus accrued interest. Banks will retain
or receive a service fee, letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid
on the municipal securities over the negotiated yield at which the
instruments were purchased by the Fund. Participation interests in the form
to be purchased by the Fund are new instruments, and no ruling of the
Internal Revenue Service has been secured relating to their tax-exempt
status. The Fund intends to purchase participation interests based upon
opinions of counsel to the issuer to the effect that income from them is
tax-exempt to the Fund. For purposes of complying with diversification
requirements, the Fund will treat both the trust, or similar entity
established to issue COPs, and the issuers of the underlying municipal
securities as issuers. Also, the Fund will limit its investments in COPs to
less than 25% of its total assets.
- -------------------------------------------------------------------------------
PUTS
A "put" feature permits the Fund to sell a security at a fixed price prior
to maturity. The underlying municipal securities subject to a put may be sold
at any time at the market rates. The Fund will purchase only securities
subject to a put where the put is an integral part of the security as origi-
8
<PAGE>
nally issued. Such puts may not be marketable or assignable. Therefore, the
put would have value only to the Fund. In certain cases a premium may be paid
for put features. The payment of a premium will have the effect of reducing
the yield otherwise payable on the security. The purpose of engaging in
transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible
in municipal securities. The Fund's ability to enforce a put obligation is
subject to the risk that the seller may default on its obligation to purchase
the security. The Fund will limit its put transactions to institutions which
the Advisor believes present minimal credit risk. The Fund will ordinarily
invest no more than 40% of its net assets at any time in securities subject
to puts.
- -------------------------------------------------------------------------------
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. U.S.
Treasury securities include Treasury bills, Treasury notes, Treasury bonds
and Separate Trading of Registered Interest and Principal of Securities
("STRIPS"), all of which are direct obligations of the U.S. Government and
are supported by the full faith and credit of the United States. 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. Default by the
seller may, 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.
- -------------------------------------------------------------------------------
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS
The Fund may purchase variable and floating rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess
of one year, but which permit the holder to demand payment of principal
either at any time or at specified intervals. The interest rates on these
obligations fluctuate from time to time in response to changes in the market
interest rates. Frequently, such obligations are secured by letters of credit
or other credit support arrangements provided by banks. Where these
obligations are not secured by letters of credit or other credit support
9
<PAGE>
arrangements, the Fund's right to redeem will be dependent on the ability of
the borrower to pay principal and interest on demand. Each demand note and
bond purchased by the Fund will meet the quality criteria established for the
purchase of other municipal obligations. The Advisor, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations in the Fund's portfolio.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. The Fund will not
invest more than 10% of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on less
than seven days' notice if there is no secondary market available for these
obligations.
- -------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES
New issues of municipal obligations are usually offered on a when-issued
basis, which means that delivery and payment for such municipal obligations
normally take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on a when-issued security are fixed at the time the purchase commitment is
entered into, although no interest on such security accrues to the Fund prior
to payment and delivery. 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
when-issued basis only with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date if it is deemed
advisable to limit the effects of adverse market action. The securities so
purchased or sold are subject to market fluctuation so, at the time of
delivery of the securities, their value may be more or less than the purchase
or sale price. The Fund will ordinarily invest no more than 40% of its net
assets at any time in municipal obligations purchased on a when-issued basis.
- -------------------------------------------------------------------------------
ZERO COUPON TREASURY SECURITIES
The Fund may invest in "zero coupon" Treasury securities which are U.S.
Treasury bills, notes, and bonds which have been stripped of their
10
<PAGE>
unmatured interest coupons and receipts or certificates representing
interests in such stripped debt obligations and coupons. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value (sometimes referred to as a
"deep discount" price).
Currently U.S. Treasury securities issued without coupons include Treasury
bills and Treasury STRIPS. In addition, a number of banks and brokerage firms
separate the principal portions from the coupon portions of the U.S. Treasury
bonds and notes and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments (which
instruments are generally held by a bank in a custodial or trust account).
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, those securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which make current
distributions of interest. In certain circumstances, the Fund could fail to
recoup its initial investment in those securities.
- -------------------------------------------------------------------------------
SPECIAL CONSIDERATIONS RELATING TO MARYLAND
MUNICIPAL SECURITIES
The Fund's concentration in securities issued by the State of Maryland and
its political subdivisions involves greater risk than a fund broadly invested
across many states and municipalities. Specifically, the credit quality of
the Fund will depend upon the continued financial strength of the State of
Maryland, as well as the financial condition of numerous public bodies and
municipalities. As of March 8, 1995, the State was rated Aaa by Moody's and
AAA by S&P.
For more than a century, the State of Maryland has paid the principal and
interest on its general obligation bonds when due, and has not issued
short-term tax anticipation notes, or made any other similar short-term
borrowings for its own needs. In 1985, however, the State issued bond
anticipation notes in connection with a savings and loan crisis; all such
notes have been discharged. There is no general debt limit imposed by the
State Constitution or public general laws. State and local debt on a per
capita basis or as a percentage of property values have increased by 27.7%
and 7.1%, respectively, since 1990.
11
<PAGE>
During fiscal years 1991 through 1993, the national recession and weakened
regional economy caused shortfalls in the State's budgeted revenues and
increases in the demand for State services. During that period the State was
forced both to cut local aid and other State expenditures and to raise taxes.
Showing improvement from prior years, the State ended its fiscal year 1994
with a general fund surplus of $60 million. The State estimates that it
finished its fiscal year 1995 with general fund surplus of $105.9 million and
$283.7 million in the Revenue Stabilization Account.
In April 1995, the General Assembly of the State approved a $14.4 billion
budget for fiscal year 1996, an 8.2% increase over the fiscal year 1995
budget. This budget includes funds sufficient to meet all fiscal year 1995
deficiencies, to provide cost of living adjustments for state employees and
$161 million of increased aid to local governments. When the fiscal year 1996
budget was enacted, the State projected that it would end the fiscal year
with a general fund surplus of $12.8 million and a balance in the Revenue
Stabilization Account and a new Citizens Tax Reduction and Fiscal Reserve
Account of the State Reserve Fund of $370.9 and $190 million, respectively.
The Fund expects to invest a substantial portion of its assets in the debt
obligations of local governments and public authorities. While local
governments in Maryland are predominantly reliant on independent revenue
sources, such as property taxes, they are not immune to budget shortfalls
caused by cutbacks in State aid. The Fund may purchase obligations issued by
public authorities in Maryland which are not backed by the full faith and
credit of the State or a local government and may or may not be subject to
annual appropriations from the State's general fund. In addition, certain
Maryland counties are subject to voter approved limitations on property tax
increases or increases in governmental spending.
The Fund may also invest in certain sectors with unique risks. These
include but are not limited to investments in health care issues, solid waste
revenue issues, and other private activity bonds without governmental
backing. The U.S. hospital industry has been under significant pressure to
reduce expenses and limit length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. There may be substantial
operating, legal, economic and regulatory risks associated with solid waste
facilities which can affect the security for the bonds.
Credit ratings and the financial and economic condition of the State,
local governments, public authorities, and other borrowers in which the Fund
may invest are subject to change at any time.
A more detailed discussion of these and other considerations is contained
in the Statement of Additional Information.
12
<PAGE>
===============================================================================
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 and 2 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 3 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, provided that this limitation does not apply to
investments in tax-exempt securities issued by governments or political
subdivisions of governments (for these purposes the U.S. Government and
its agencies and instrumentalities are not considered an issuer);
2) 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
3) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
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 directly from the Fund by
completing the Application Form attached to this Prospectus and returning it,
together with payment of the purchase price plus any applicable front-end
sales charge, to the Fund at the address shown on the Application Form.
13
<PAGE>
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.) 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 directly from the Fund 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
each Business Day. Net asset value per Share is calculated by valuing all
assets held by the Fund, deducting liabilities, and dividing the resulting
amount by the number of then outstanding Shares. 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.
14
<PAGE>
- -------------------------------------------------------------------------------
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 Dealer
as % of 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
purchases of shares of Flag Investors Intermediate-Term 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 not less than $100,000 within a 13-month period in Shares. Each
purchase of Shares under a Letter of Intent will be made at the Offering
15
<PAGE>
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 will 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. 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 Fund 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 shares of Flag Investors Intermediate-Term
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, Participating Dealers and
their respective affiliates.
16
<PAGE>
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 Flag Investors Intermediate-Term 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.
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). 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.
17
<PAGE>
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below).
The exchange privilege may be exercised only in those states where the
class of shares of such other 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. This amount 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 shareholder upon 30 days' prior written notice to
the other party. A shareholder who wishes to enroll in the Automatic
Investing Plan or who wishes to obtain additional purchase information may do
so by completing the appropriate section of the Application Form attached to
this Prospectus.
===============================================================================
6. HOW TO REDEEM SHARES
Shareholders may redeem all or part of their 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) 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:
18
<PAGE>
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;
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.
19
<PAGE>
===============================================================================
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 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. 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 redeemed by telephone. (See "How to Invest in the Fund --
Purchases by Exchange" and "How to Redeem Shares.")
20
<PAGE>
===============================================================================
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 Shares at net asset
value. However, 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 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 concerning
taxes.
The Fund intends to qualify as a "regulated investment company" under the
Code and to distribute to its investors all of its net investment income
(including its net tax-exempt income) and net short-term and long-term
capital gain income, if any, so that it is not required to pay federal taxes
on amounts so distributed. In addition, the Fund expects to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax. Shareholders will be advised at least annually as to the
federal income tax consequences of distributions made during the year.
21
<PAGE>
Dividends derived from the Fund's net exempt-interest income and
designated by the Fund as exempt-interest dividends may be treated by the
Fund's shareholders as items of interest excludable from their gross income
for federal income tax purposes if the Fund qualifies as a regulated
investment company and if, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets consists of securities
the interest on which is excluded from gross income. Although exempt-interest
dividends are excludable from a shareholder's gross income for regular income
tax purposes, they may have collateral Federal income tax consequences,
including alternative minimum tax consequences. (See the Statement of
Additional Information.)
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Fund to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirements for the payment of
exempt-interest dividends. All or a portion of the interest on indebtedness
incurred or continued by a shareholder to purchase or carry Shares is not
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisers before purchasing Shares. (See the
Statement of Additional Information.)
Under the Code, dividends attributable to interest on certain "private
activity bonds" issued after August 7, 1986, will be included in alternative
minimum taxable income for the purpose of determining liability (if any) for
the alternative minimum tax for individuals and for corporations.
Additionally, in the case of corporations, all tax-exempt interest dividends
will be taken into account in determining "adjusted current earnings" (as
defined for federal income tax purposes) for purposes of computing the
alternative minimum tax imposed on corporations.
To the extent, if any, that dividends paid to investors are derived from
taxable income, such dividends will be subject to federal income tax. If the
Fund purchases a municipal security at a market discount, any gain realized
by the Fund upon sale or redemption of the municipal obligation shall be
treated as taxable interest income to the extent such gain does not exceed
the market discount and any gain realized in excess of the market discount
will be treated as capital gain. Distributions of net investment income
and/or the excess, if any, of net short-term capital gains over net long-term
capital losses are taxable to investors as ordinary income, regardless of
whether such distributions are paid in cash or reinvested in additional
Shares. Distributions of net capital gains (the excess of net long-term capi-
22
<PAGE>
tal gains over net short-term capital losses) that are designated by the Fund
as capital gain dividends are taxable to investors as long-term capital
gains, regardless of the length of time the investor owned the Shares. Since
substantially all of the net investment income of the Fund is expected to be
derived from earned interest, it is anticipated that no part of the Fund's
distributions will be eligible for the corporate dividends-received
deduction.
Dividends declared payable to shareholders of record in October, November
or December of one year, but paid in January of the following year, will be
deemed for tax purposes to have been paid by the Fund and received by the
shareholders in the year in which the dividends were declared.
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 advisers concerning the application of state and local
taxes to investments in the Fund.
- -------------------------------------------------------------------------------
MARYLAND TAX DISCLOSURE
To the extent the Fund qualifies as a regulated investment company under
the Code, it will be subject to tax only on (1) that portion of its income on
which tax is imposed for federal income tax purposes under Section 852(b)(1)
of the Code and (2) that portion of its income which consists of federally
tax exempt interest on obligations other than Maryland Exempt Obligations
(hereinafter defined) to the extent such interest is not paid to Fund
shareholders in the form of exempt-interest dividends. To the extent
dividends paid by the Fund represent interest excludable from gross income
for federal income tax purposes, that portion of exempt-interest dividends
that represents interest received by the Fund on obligations issued by the
State of Maryland, its political subdivisions, Puerto Rico, the U.S. Virgin
Islands, or Guam and their respective authorities or municipalities
("Maryland Exempt Obligations"), will be exempt from Maryland state and local
income taxes when allocated or distributed to a shareholder of the Fund
except in the case of a shareholder that is a financial institution. Except
as noted below, all other dividend distributions will be subject to Maryland
state and local income taxes.
Capital gains distributed by the Fund to a shareholder or any gains
realized by a shareholder from a redemption or sale of shares must be
recognized for Maryland state and local income tax purposes to the extent
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of shareholders for federal income
23
<PAGE>
tax purposes are subtracted from capital gains income for Maryland income tax
purposes to the extent such distributions are derived from the disposition of
debt obligations issued by the State of Maryland, its political subdivisions
and authorities.
Except in the case of a shareholder that is a financial institution,
dividends received by a shareholder from the Fund that are derived from
interest on U.S. government obligations will be exempt from Maryland state
and local income taxes.
In the case of individuals, Maryland presently imposes an income tax on
items of tax preference with reference to such items as defined in the Code
for purposes of calculating the federal alternative minimum tax. Interest
paid on certain private activity bonds is a preference item for purposes of
calculating the federal alternative minimum tax. Accordingly, if the Fund
holds such bonds, the excess of 50% of that portion of exempt interest
dividends which is attributable to interest on such bonds over a threshold
amount may be taxable by Maryland. Interest on indebtedness incurred or
continued (directly or indirectly) by a shareholder in order to purchase or
carry shares of the Fund will not be deductible for Maryland state and local
income tax purposes. Individuals will not be subject to personal property tax
on their shares of the Fund. Shares of the Fund held by a Maryland resident
at death may be subject to Maryland inheritance and estate taxes.
===============================================================================
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:
*Richard T. Hale Chairman M. Elliott Randolph, Jr. President
*Truman T. Semans Director Paul D. Corbin Executive Vice President
James J. Cunnane Director Edward J. Veilleux Vice President
N. Bruce Hannay Director Gary V. Fearnow Vice President
John F. Kroeger Director Monica M. Hausner Vice President
Louis E. Levy Director Brian C. Nelson Vice President and
Secretary
Eugene J. McDonald Director Diana M. Ellis Treasurer
*Rebecca W. Rimel Director
Harry Woolf Director Laurie D. DePrine Assistant Secretary
- ------
* Messrs. Hale and Semans are, and Ms. Rimel may be, "interested persons" of
the Fund.
24
<PAGE>
===============================================================================
10. INVESTMENT ADVISOR
Investment Company Capital Corp., the Fund's investment advisor, is a
wholly-owned subsidiary of Alex. Brown, the Fund's distributor. 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 $3.7 billion of net assets
as of June 30, 1995. The address of ICC 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. 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
Fund's average daily net assets. For the fiscal year ended March 31, 1995,
ICC waived all advisory fees and reimbursed expenses of $90,867.
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 21 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 over 16 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 the Shares. Alex. Brown is an
investment banking firm which offers a broad range of investment services to
25
<PAGE>
individual, institutional, corporate and municipal clients. It is a wholly-
owned subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan.
Pursuant to a Distribution Agreement and related Plan of Distribution (the
"Plan") adopted pursuant to Rule 12b-1 under the 1940 Act, the Fund
compensates Alex. Brown for distribution at the rate of .25% of the Fund's
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 entity.
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 average daily net assets of the Fund 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.
26
<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 such accounting services, ICC receives from the Fund an
annual fee equal to $13,000, plus a percentage of the Fund's average daily
net assets in excess of $10 million at a maximum rate of .100% of net assets
and declining at various asset levels to a minimum rate of .001% on net
assets of $1 billion or more. (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. The Fund may also advertise a
"tax-equivalent yield", which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent of the Fund's yield, assuming certain tax brackets for a
shareholder. 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. During its first year of
operation, the Fund may, in lieu of annualizing its total return, use an
aggregate total return calculated in the same manner. 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.
27
<PAGE>
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
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 July
23, 1993 and is authorized to issue 30 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 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.
28
<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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
FUND COUNSEL
Morgan, Lewis & Bockius serves as counsel to the Fund.
29
<PAGE>
APPENDIX
The following descriptions or ratings have been published by Standard &
Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's").
- -------------------------------------------------------------------------------
DESCRIPTION OF MUNICIPAL BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to debt obligations.
Such a rating indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong and in the majority of
instances they differ from AAA issues only in small degree. Bonds rated A
have a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. Bonds rated BBB
have an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher
rate categories.
Bonds which are rated Aaa by Moody's 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 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.
Bonds rated Aa by Moody's are judged to be of high quality by all standards.
Together with bonds rated Aaa, 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. 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
sometime in the future. Bonds rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
A-1
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes
is MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1
are of the best quality. They have strong protection from established cash
flows of funds for their servicing or from established and broad-based
access to the market for refinancing or both.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment.
- -- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- -- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
- -------------------------------------------------------------------------------
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded 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. Those rated A-2 reflect a safety regarding timely payment but not as
high as A-1.
Commercial paper issues 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 MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc." and mail with this application to:
Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc.
For assistance in completing this
application please call: 1-800-553-8080 8:30 a.m. to 5:30 p.m.,
Eastern Time, Monday-Friday
To open an IRA account, call 1-800-767-3524 to request an IRA
application
I enclose a check for $_______ payable to "Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc." for the purchase of Fund shares. 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 Maryland
Intermediate Tax Free 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 appropriate boxes. If none of the options are elected, all
distributions will be reinvested in additional shares of the Fund at no sales
charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
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)
[ ] Quarterly ($250 minimum)
______________________________________________________________________________
Bank Name
______________________________________________________________________________
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
______________________________________________________________________________
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 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
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: ________________________________________________________________________
Address: _____________________________________________________________________
______________________________________________________________________________
Bank Account No: _____________________________________________________________
Bank Account Name: ___________________________________________________________
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated August 1, 1995. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:_______________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
______________________________________________________________________________
Signature Date
______________________________________________________________________________
Signature (if joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name:_________________________________ Dealer Code:_________________
Dealer's Address:______________________________ Branch Code:_________________
______________________________
Representative: ______________________________ Rep. No. _________________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
--------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE 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: August 1, 1995
Relating to Prospectus Dated: August 1, 1995
<PAGE>
TABLE OF CONTENTS
Page
1. General Information and History........................ 1
2. Investment Objectives and Policies..................... 1
3. Valuation of Shares and Redemption.................... 10
4. Federal Tax Treatment of Dividends and
Distributions...................................... 11
5. Management of the Fund................................ 14
6. Investment Advisory and Other Services............... 18
7. Distribution of Fund Shares......................... 19
8. Brokerage............................................ 22
9. Capital Stock....................................... 23
10. Semi-Annual Reports.................................. 24
11. Custodian, Transfer Agent, Accounting Services ...... 24
12. Independent Auditors ................................ 24
13. Performance Information.............................. 25
14. Control Persons and Principal Holders of
Securities......................................... 27
15. Financial Statements................................. 27
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Maryland Intermediate Tax Free 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.
Important information concerning the Fund is included in the Fund's current
Prospectus which 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 of the Fund ("Shares") to prospective investors. Prospectuses may
also be obtained from Shareholder Servicing Agents. Some of the information
required to be in this Statement of Additional Information is also included
in the Fund's current Prospectus. To avoid unnecessary repetition,
references are made to related sections of the Prospectus. In addition, the
Prospectus 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
July 23, 1993. The Fund filed a registration statement with the SEC
registering itself as an open-end non-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.
Under a license agreement dated October 1, 1993 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 current income exempt from federal
income taxes and Maryland state and local income taxes 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 primarily in municipal obligations issued by the State of
Maryland and its political subdivisions, agencies or instrumentalities.
There can be no assurance that the Fund's investment objective will be
achieved.
Municipal Obligations
Municipal obligations include debt securities issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities,
the interest on which is exempt from federal income tax. For a discussion of
quality, maturity and other criteria the Fund applies in investing in
municipal obligations, see "Investment Objectives, Policies and Risk
Considerations" in the Prospectus.
Municipal obligations can be classified into three principal categories:
"general obligation bonds", "revenue bonds" and "notes". General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable
from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other specific
revenue source, but not from the general taxing power of the issuer. Revenue
bonds include "tax exempt industrial development bonds", i.e., bonds issued
-1-
<PAGE>
by or on behalf of public authorities to obtain funds for privately-operated
facilities. Tax-exempt industrial development bonds do not generally carry
the pledge of the credit of the issuing municipality, but are generally
guaranteed by the corporate entity on whose behalf they are issued. Notes
are short-term instruments used to provide for short-term capital or
operating needs. They are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues.
Other Tax-Exempt Instruments
Other tax-exempt instruments which are permissible investments include
floating rate notes. Investments in such floating rate instruments will
normally involve industrial development or revenue bonds which provide that
the rate of interest is set as a specific percentage of a designated base
rate (such as the prime rate) at a major commercial bank, and that the Fund
can demand payment of the obligation at all times or at stipulated dates on
short notice (not to exceed 30 days) at par plus accrued interest. Such
obligations are frequently secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying credit
or of the bank, as the case may be, must, in the opinion of the Fund's
investment advisor, Investment Company Capital Corp. ("ICC" or the "Advisor")
be comparable to the long-term bond or commercial paper ratings stated in the
Prospectus. The Advisor will monitor the earning power, cash flow and
liquidity ratios of the issuers of such instruments and the ability of an
issuer of a demand instrument to pay principal and interest on demand.
Money Market Securities
From time to time the Fund may purchase taxable short-term securities.
These securities include direct obligations of the U.S. Government which
consist of bills, notes and bonds issued by the U.S. Treasury. Obligations
issued by agencies of the U.S. Government, while not direct obligations of
the U.S. Government, are either backed by the full faith and credit of the
U.S. or are guaranteed by the U.S. Treasury or supported by the issuing
agencies' right to borrow from the U.S. Treasury.
The obligations of U.S. commercial banks include certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
negotiable interest-bearing instruments with a specific maturity.
Certificates of deposit are issued by banks and savings and loan institutions
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. Time deposits are non-negotiable
receipts issued by a bank in exchange for the deposit of funds. Time
deposits earn a specified rate of interest over a definite period of time;
however time deposits cannot be traded in the secondary market. Bankers'
acceptances are bills of exchange or time drafts drawn on and accepted by a
commercial bank. Bankers' acceptances are used by corporations to finance
the shipment and storage of goods and furnish dollar exchanges. Maturities
are generally six months or less.
The commercial paper which may be purchased includes variable amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. Such notes provide that the interest rate on the
amount outstanding varies on a daily, weekly or monthly basis depending upon
a stated short-term interest rate index. Both the lender and the borrower
have the right to reduce the amount of outstanding indebtedness at any time.
There is no secondary market for the notes. It is not generally contemplated
that such instruments will be traded. Variable or floating rate instruments
bear interest at a rate which varies with changes in market rates. The
holder of an instrument with a demand feature may tender the instrument back
to the issuer at par prior to maturity. A variable amount master demand note
is issued pursuant to a written agreement between the issuer and the holder,
-2-
<PAGE>
its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon
an agreed formula. The quality of the underlying credit must, in the opinion
of the Advisor, be equivalent to the ratings applicable to permitted
investments for the Fund. The Advisor will monitor on an ongoing basis the
earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
Puts
The Fund may engage in put transactions. The Advisor has the authority
to purchase securities at a price which would result in a yield to maturity
lower than that generally offered by the seller at the time of purchase when
the Fund can simultaneously acquire the right to sell the securities back to
the seller, the issuer, or a third party (the "writer") at an agreed-upon
price at any time during a stated period or on a certain date. Such a right
is generally denoted as a "standby commitment" or a "put". The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. The right to put the securities depends
on the writer's ability to pay for the securities at the time the put is
exercised. The Fund would limit its put transactions to institutions which
the Advisor believes present minimum credit risks, and the Advisor would use
its best efforts initially to determine and continue to monitor the financial
strength of the sellers of the options by evaluating their financial
statements and such other information as is available in the marketplace. It
may, however, be difficult to monitor the financial strength of the writers
because adequate current financial information may not be available. In the
event that any writer is unable to honor a put for financial reasons, the
Fund would be a general creditor (i.e., on a parity with all other unsecured
creditors) of the writer. Furthermore, particular provisions of the contract
between the Fund and the writer may excuse the writer from repurchasing the
securities; for example, a change in the published rating of the underlying
securities or any similar event that has an adverse effect on the issuer's
credit or a provision in the contract that the put will not be exercised
except in certain special cases, for example, to maintain portfolio
liquidity. The Fund could, however, at any time sell the underlying
portfolio security in the open market or wait until the portfolio security
matures, at which time it should realize the full par value of the security.
The securities purchased subject to a put, may be sold to third persons
at any time, even though the put is outstanding, but the put itself, unless
it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only
to the Fund. Sale of the securities to third parties or lapse of time with
the put unexercised may terminate the right to put the securities. Prior to
the expiration of any put option, the Fund could seek to negotiate terms for
the extension of such an option. If such a renewal cannot be negotiated on
terms satisfactory to the Fund, the Fund could, of course, sell the security.
The maturity of the underlying security will generally be different from that
of the put. There will be no limit to the percentage of portfolio securities
that the Fund may purchase subject to a put but the amount paid directly or
indirectly for premiums on all puts outstanding will not exceed 2% of the
value of the total assets of the Fund calculated immediately after any such
put is acquired. For the purpose of determining the "maturity" of securities
purchased subject to an option to put, and for the purpose of determining the
dollar-weighted average maturity of the Fund including such securities the
Fund will consider "maturity" to be the first date on which it has the right
to demand payment from the writer of the put although the final maturity of
the security is later than such date.
Futures Contracts and Options on Futures Contracts
The Fund may invest in futures contracts and related options including
futures contracts on fixed income securities and contracts based on municipal
bond or other financial indices.
-3-
<PAGE>
The Fund may buy or sell financial futures contracts or purchase options
on such futures as a hedge against anticipated interest rate changes. A
futures contract sale creates an obligation by the Fund, as seller, to
deliver the specified type of financial instrument called for in the contract
at a specified future time for a specified price or, in "cash settlement"
futures contracts, to pay to (or receive from) the buyer in cash the
difference between the price in the futures contract and the market price of
the instrument on the specified date, if the market price is higher (or
lower, as the case may be). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right for the premium paid to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put).
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission ("CFTC")
with which the Fund must comply in order not to be deemed a commodity pool
operator within the meaning and intent of the Commodity Exchange Act and the
regulations promulgated thereunder.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial
intermediary as security for its obligations an amount of cash or other
specified debt securities which initially is 1% to 5% of the face amount of
the contract and which thereafter fluctuates on a periodic basis as the value
of the contract fluctuates. An investment in options involves payment of a
premium for the option without any further obligation on the part of the
Fund.
Regulations of the CFTC applicable to the Fund currently require that
all of the Fund's futures and options on futures transactions constitute bona
fide hedging transactions or be undertaken incidental to the Fund's
activities in the securities markets. In accordance with CFTC regulations,
the Fund may not purchase or sell futures contracts or options thereon if
immediately thereafter the sum of the amounts of initial margin deposits on
the Fund's existing futures positions and premiums paid for options on
futures would exceed 5% of the fair market value of the Fund's total assets.
The Advisor reserves the right to comply with such different standard as may
be established by CFTC rules and regulations with respect to the purchase or
sale of futures contracts or options thereon.
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value
of the Fund's position. In addition, futures and futures option markets may
not be liquid in all circumstances. As a result, in volatile markets, the
Fund may not be able to close out a transaction without incurring losses
substantially greater than the initial deposit. Although the contemplated
use of these contracts should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in the value of
such position. The ability of the Fund to hedge successfully will depend on
the Advisor's ability to forecast pertinent market movements, which cannot be
assured. Finally, the daily deposit requirements in futures contracts create
an ongoing greater potential financial risk than do options purchased by the
Fund, where the exposure is limited to the cost of the initial premium.
Losses due to hedging transactions will reduce net asset value. Income
earned by the Fund from its hedging activities generally will be treated as
capital gains.
Other Investment Practices
In addition, the Fund may enter into repurchase agreements and make
purchases of when-issued securities as described below.
-4-
<PAGE>
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 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 at least be 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.
When-Issued Securities. The Fund may purchase debt obligations on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of commitment to purchase. The Fund will make
commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
The payment obligation and the interest rate that will be received on the
securities are each fixed at the time the purchaser enters into the
commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market
when the delivery takes place may actually be higher than those obtained in
the transaction itself. In that case there could be an unrealized loss at
the time of delivery.
Segregated accounts will be established with the Fund's custodian and
will maintain liquid assets in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will place additional liquid assets in the account
on a daily basis so that the value of the assets in the account is equal to
the amount of such commitments.
Determining Average Portfolio Maturity
For purposes of calculating the Fund's dollar-weighted average portfolio
maturity, the maturity of a portfolio instrument will be deemed to be the
period remaining (calculated from the trade date or such other date on which
the Fund's interest in the instrument is subject to market action) until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption,
the date on which the redemption payment must be made. However, because the
maturity of an instrument should correspond to its price and volatility
characteristics, the Fund may shorten the maturity of a variable or floating
rate instrument subject to a demand feature if it determines that there is
not more than a minimal risk that the demand feature will not be honored. In
the case of a demand feature the exercise of which is contingent on the
continued credit quality of the underlying security or other conditions, this
would include a determination that there is minimal risk that any condition
precluding honoring the demand feature will occur.
Therefore, to determine the maturity of portfolio securities, an
instrument that has a variable rate, the principal amount of which is
scheduled on the face of the instrument to be paid in 397 calendar days or
less, will be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate. A variable rate instrument that
-5-
<PAGE>
is subject to a demand feature will be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand. A floating rate instrument that is subject to a demand
feature will be deemed to have a maturity equal to the period remaining until
the principal amount can be recovered through demand. A repurchase agreement
will be deemed to have a maturity equal to the period remaining until the
date on which the repurchase of the underlying securities is scheduled to
occur, or, where no date is specified, but the agreement is subject to a
demand, the notice period applicable to a demand for the repurchase of the
securities.
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, except that
the Fund may invest in financial futures and options thereon;
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 and may
make loans through the use of repurchase agreements;
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); or
8. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs.
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
-6-
<PAGE>
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. Purchase or sell puts or calls, or any combination thereof, except
that the Fund may purchase put options and invest in futures contracts and
options on futures contracts as disclosed in the Fund's Prospectus;
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.
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. For the
fiscal year ended March 31, 1995 and for the fiscal period ended March 31,
1994, the Fund's portfolio turnover rate was 33% and 9%, respectively.
Risk Factors Associated With a Maryland Portfolio
The Fund's concentration in the debt obligations of one state carries a
higher risk than a portfolio that is geographically diversified. In addition
to the State of Maryland and its agencies, there are 23 counties and 156
incorporated municipalities in Maryland (including Baltimore City), many of
which have outstanding debt. As described below, a number of Maryland public
authorities also issue debt.
Economy. The economy of the State of Maryland continues to demonstrate
relatively strong performance, with personal income well above the national
average. Total State employment was 2.68 million in May, 1995 with the
majority of jobs in trade, service, and government sectors. The national
recession caused a loss of jobs in Maryland since employment levels peaked
in mid-1990 but employment levels began to recover in mid-1992. Unemployment
was 5.0% in May, 1995, compared to a national average of 5.8%. The State's
population in 1993 was 5 million, with 83% concentrated in the Baltimore-
Washington corridor.
Debt. The State of Maryland and its political subdivisions issue four
basic types of debt having varying degrees of credit risk: general obligation
bonds backed by the unlimited taxing power of the issuer, revenue bonds
secured by specific pledged taxes or revenue streams, conduit revenue bonds
payable from the repayment of certain loans to entities such as hospitals and
universities, and tax-exempt lease obligations (including certificates of
participation in the same), the payments under which are subject to annual
appropriation. In 1994, $3,420,500,000 in state and local debt was issued in
Maryland, with approximately 44% representing general obligation debt and 56%
revenue bonds or lease-backed debt, compared to 35% general obligation and
65% revenue backed bonds nationally.
Total combined tax supported debt outstanding of the State, Baltimore
City, and all of the counties, municipalities, and special districts within
Maryland totaled $11.4 billion as of June 30, 1994. The State of Maryland
had $2.53 billion in general obligation bonds outstanding as of December 31,
1994. General obligation debt of the State of Maryland is rated Aaa by
-7-
<PAGE>
Moody's, AAA by Standard & Poor's and AAA by Fitch; there can be no assurance
that these ratings will continue. There is no general limit on state general
obligation bonds imposed by the State Constitution or laws; state general
obligation bonds are payable from ad valorem taxes and, under the State
Constitution, may not be issued unless the debt is authorized by a law
levying an annual tax or taxes sufficient to pay the debt service within 15
years and prohibiting the repeal of the tax or taxes or their use for another
purpose until the debt has been paid. State and local general obligation
debt on a per capita basis and as a percentage of property values have
increased by 27.7% and 7.1%, respectively since 1990. Although the State may
borrow up to $100 million in short-term notes in anticipation of taxes and
revenues, the State has not made use of this authority.
Many agencies and instrumentalities of the State government are
authorized to borrow money under legislation which expressly provides that
the obligations shall not be deemed to constitute a debt or a pledge of the
faith and credit of the State. The Department of Transportation issues
limited, special obligations payable primarily from fixed-rate excise taxes
and other revenues related mainly to highway use, the amount of which was
limited by the General Assembly to $1.135 billion for fiscal year 1995
(ending June 30, 1995) and $1.054 billion for fiscal year 1996; the principal
amount of such bonds outstanding as of December 31, 1994 was $1,059.5
million. The Maryland Transportation Authority, the Community Development
Administration of the Department of Housing and Community Development, the
Maryland Stadium Authority, the Maryland Environmental Service, the public
educational institutions (which include the University of Maryland System,
Morgan State University, St. Mary's College of Maryland and Baltimore City
Community College), the Maryland Food Center Authority and the Maryland Water
Quality Financing Administration also have issued and have outstanding bonds,
the principal of and interest on which are payable solely from specified
sources, principally fees or loan payments generated from use of the
facilities, enterprises financed by the bonds, or other dedicated fees. None
of these bonds constitute debts or pledges of the faith and credit of the
State. The issuers of these obligations are subject to various economic
risks and uncertainties, and the credit quality of the securities issued by
them may vary considerably from that of the State's general obligation bonds.
Total outstanding revenue and enterprise debt of these State units at
December 31, 1994 was approximately $3.6 billion.
Certain State agencies also execute capital lease or conditional
purchase agreements to finance certain facilities; all of the payments under
these arrangements are subject to annual appropriation by the State. In the
event that appropriations are not made, the State and its agencies may not be
held contractually liable for the lease payments. As of December 31, 1994
$155 million of lease and conditional purchase financings were outstanding.
In addition, the Maryland Health and Higher Educational Facilities
Authority, the Maryland Industrial Development Financing Authority, the
Northeast Maryland Waste Disposal Authority and the Maryland Economic
Development Corporation issue conduit revenue bonds, the proceeds of which
are lent to borrowers eligible under relevant State and federal law. These
bonds are payable solely from the loan payments made by the borrowers, and
their credit quality vary with the financial strengths of the respective
borrowers.
Financial. To a large degree, the risk of the portfolio is dependent
upon the financial strength of the State of Maryland, its political
subdivisions and the obligors on conduit revenue bonds. During the 1991,
1992 and 1993 fiscal years, Maryland experienced the effects of the national
recession and a weakened economy. During this period, the State experienced
unanticipated shortfalls in revenues. At the same time, the State
experienced increased expenditures for public assistance. To address this
situation, the State reduced appropriations, including aid to local
governments, on several instances.
-8-
<PAGE>
As a result of successive rounds of cuts in local and other State
expenditures and increases in taxes, the financial situation of the State
stabilized in fiscal year 1993 with revenues coming in, at or above budgeted
amounts, permitting the State to conclude fiscal year 1993 with a general
fund surplus (budgetary basis) of $10.5 million (after $24.5 million of
transfers to reserve accounts) and a $50.9 million balance in the Revenue
Stabilization Account of the State Reserve Fund. Demonstrating continued
improvement, the State ended its fiscal year 1994 with a general fund surplus
of $60 million. When it enacted its $13.3 billion fiscal year 1995 budget,
the State projected that its general fund surplus would be approximately $9.7
million and a balance in the Revenue Stabilization Account of $219 million;
the current estimates are $105.9 million and $283.7 million, respectively.
In April, 1995 the State's General Assembly approved a $14.4 billion
budget for fiscal year 1996, an 8.2% increase above the fiscal year 1995
spending level. This budget did not include any expenditures based upon
additional revenue from new or broad-based taxes, but included a $330 million
appropriation to the State Reserve Fund, providing $20 million to its Economic
Development Account, $120 million to the Revenue Stabilization Account and
$190 million to a new Citizen Tax Reduction and Fiscal Reserve Account, a
reserve which may be used either to effect future income tax reduction or to
offset the impact of federal fiscal policies. When the fiscal year 1996
budget was enacted, the State projected that it would end the fiscal year
with a general fund surplus of $12.8 million and a balance in the new Citizen
Tax Reduction and Fiscal Reserve Account of the State Reserve Fund of $190
and $370.9 million, respectively.
Other Maryland Issuers
Many local Maryland governments have also suffered from fiscal stress
and general declines in financial performance. Recessionary impacts have
resulted in downturns in real estate related receipts, declines in the growth
of income tax revenues, lower cash positions and reduced interest income. To
compensate for reductions in State aid to local governments, local
governments closed this gap by increasing property and other taxes, program
cuts, and curtailing pay raises. Certain counties in Maryland are subject to
voter approval limitations on property tax levy increases or on increases in
governmental spending which limits their flexibility in responding to
external changes. Various tax initiatives to reform existing tax structures
in certain counties were placed on the November 1992 election ballot and were
adopted. Future initiatives, if proposed and adopted, could create pressure
on the counties and other local governments and their ability to raise
revenues. The Fund cannot predict the impact of any such future tax
limitations on debt quality.
Many Maryland counties have established agencies with bond issuing
authority, such as housing authorities. Maryland municipalities also have
the power to issue conduit revenue bonds. Maryland local governments and
their authorities are subject to various risks and uncertainties, and the
credit quality of the bonds issued by them may vary considerably from that of
State general obligation bonds.
Sectors. Certain areas of potential investment concentration present
unique risks. In recent years, 6 to 12% of tax-exempt debt issues in
Maryland has been for public or non-profit hospitals. A significant portion
of the Fund's assets may be invested in health care issues. Since 1983, the
hospital industry has been under significant pressure to reduce expenses and
limit length of stay, a phenomenon which has negatively affected the
financial health of many hospitals. While each issue is separately secured
by the individual hospital's revenues, third party reimbursement mechanisms
for patient care are common to the group. At the present time Maryland
hospitals operate under a system which reimburses hospitals according to a
State administered set of rates and charges rather than the Federal Diagnosis
Related Group (DRG) system for Medicare payments. Since 1983, Maryland
hospitals have operated below the national average in terms of Medicare cost
increases, allowing them to continue operating under a Medicare waiver.
-9-
<PAGE>
However, any loss of this waiver in the future may have an adverse impact
upon the credit quality of Maryland hospitals. Additionally, national focus
on health care reform and any resulting legislation may further impact the
financial condition of hospitals in Maryland and other states.
The Fund may from time to time invest in solid waste revenue bonds which
have exposure to environmental, technological and market risks which could
affect the security and value of the bonds. Such risks include construction
delay or shortfalls in construction funds due to increased regulation, and
market disruption and revenue variability due to recent court decisions and
legislative proposals.
Investments in Puerto Rico
Although the Fund has no present intention to do so, from time to time,
the Fund may invest in obligations of the Commonwealth of Puerto Rico and its
public corporations exempt from federal and Maryland state and local income
taxes. These investments will not be considered Maryland municipal
securities for purposes of the Fund's policy to invest, under normal market
conditions, 65% of its assets in Maryland municipal securities. The majority
of the Commonwealth's debt is issued by ten public agencies that are
responsible for many of the island's public functions, such as water,
wastewater, highways, telecommunications, education, and public construction.
As of May 31, 1995, outstanding public sector debt issued by the Commonwealth
and its public corporations totaled $15.9 billion.
Investment in Puerto Rico obligations requires a careful assessment of
certain risk factors. These include reliance on substantial federal
assistance and favorable tax programs, above average levels of unemployment
and low wealth levels, and an economy vulnerable to adverse shifts in energy
prices and U.S. foreign trade/monetary policies. These risks are countered
by strong security provisions, a long history of timely debt repayment, and
improved financial practices.
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. The Fund reserves the right to suspend
the sale of Shares at any time.
Net asset value per Share is calculated by valuing all assets held by
the Fund, deducting liabilities, and dividing the resulting amount by the
number of then outstanding Shares. 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
-10-
<PAGE>
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, and (iii) 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 Shares by check as
described in the Prospectus. 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 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 discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
The Fund expects to qualify as a regulated investment company under
Subchapter M of the Code. However, to qualify as a regulated investment
company 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 each
taxable year (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
-11-
<PAGE>
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 regulated investment
companies, 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 or similar trades or businesses or related
trades or businesses (the "Asset Diversification Test"). Generally, the Fund
will not lose its status as a regulated investment company 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.
As noted in the prospectus, exempt-interest dividends are excludable
from a shareholder's gross income for regular federal income tax purposes.
Exempt-interest dividends may nevertheless be subject to the alternative
minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code
or the environmental tax (the "Environmental Tax") imposed by Section 59A of
the Code. The Alternative Minimum Tax is imposed at rates up to 28% in the
case of non-corporate taxpayers and at the rate of 20% in the case of
corporate taxpayers, to the extent it exceeds the taxpayer's regular tax
liability. The Environmental Tax is imposed at the rate of 0.12% and applies
only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-
interest dividends derived from certain "private activity bonds" issued after
August 7, 1986, will generally be an item of tax preference for both
corporate and non-corporate taxpayers. Second, exempt-interest dividends,
regardless of when the bonds from which they are derived were issued or
whether they are derived from private activity bonds, will be included in the
corporation's "adjusted current earnings," as defined in Section 56(g) of the
Code, in calculating the corporation's alternative minimum taxable income for
purposes of determining the Alternative Minimum Tax and the Environmental
Tax.
Under Subchapter M, the Fund is exempt from federal income tax on its
taxable net investment income and net capital gains which it distributes to
shareholders, provided generally that it distributes at least 90% of its
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).
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)
-12-
<PAGE>
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.
If capital gain distributions have been made with respect to Shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Any gain or loss recognized on a sale or redemption of Shares
of the Fund by a shareholder who is not a dealer in securities will generally
be treated as a long-term capital gain or loss if the Shares have been held
for more than twelve months and otherwise will be generally treated as a
short-term capital gain or loss. Any loss recognized by a shareholder upon
the sale or redemption of Shares of the Fund held for six months or less,
however, will be disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such Shares. If Shares on which
a net capital gain distribution has been received are subsequently sold or
redeemed and such Shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the
long-term capital gain distribution.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a
portion of exempt-interest dividends received or accrued during any taxable
year. Foreign corporations engaged in a trade or business in the United
States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends. Individuals whose "modified income" exceeds a base amount will be
subject to federal income tax up to one-half of their social security
benefits. Modified income currently includes adjusted gross income, one-half
of social security benefits and tax-exempt interest, including
exempt-interest dividends paid by the Fund. Beginning in 1994, individuals
whose modified income exceeds certain base amounts are required to include in
gross income up to 85% of their social security benefits.
Issuers of bonds purchased by the Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with
the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Shareholders
should be aware that exempt-interest dividends may become subject to federal
income taxation retroactively to the date of issuance of the bonds to which
such dividends are attributable if such representations are determined to
have been inaccurate or if the issuers (or the beneficiary) of the bonds fail
to comply with certain covenants made at that time.
If for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at
regular corporate rates without any 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 to the
United States Treasury 31% of 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.
-13-
<PAGE>
The Code imposes a nondeductible 4% excise tax on regulated investment
companies 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 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, shareholders 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 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
Managing Director, Alex. Brown & Sons Incorporated.
*TRUMAN T. SEMANS, Director
Managing Director, Alex. Brown & Sons Incorporated; Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated.
JAMES J. CUNNANE, Director
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 (mutual fund).
N. BRUCE HANNAY, Director
201 Condon Lane, Port Ludlow, Washington 98365. Formerly, Vice
President, Research and Patents, AT&T Bell Laboratories; Formerly,
Director, Rohm & Haas Company (diversified chemicals), General
Signal Corp. (control equipment & systems) and Plenum Publishing
Corp.
-14-
<PAGE>
JOHN F. KROEGER, Director
Swan Road, P.O. Box 464, Martingham, St. Michaels, Maryland 21663.
Director/Trustee AIM Funds; Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm) and General Manager, Shell Oil
Company.
LOUIS E. LEVY, Director
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (banking and finance); Chairman of the
Quality Control Inquiry Committee, American Institute of Certified
Public Accountants; Formerly, Trustee, Merrill Lynch Funds for
Institutions, 1991-1993, Adjunct Professor, Columbia University-
Graduate School of Business, 1991-1992 and Partner, KPMG Peat
Marwick.
EUGENE J. MCDONALD, Director
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).
*REBECCA W. RIMEL, Director
Pew Charitable Trust, One Commerce Square, 2005 Market Street, Suite
1700, Philadelphia, PA 19103. President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice
President, The Glenmede Trust Company; Formerly, Executive Director,
The Pew Charitable Trusts.
HARRY WOOLF, Director
Institute for Advanced Study, South Olden Lane, Princeton, New
Jersey 08540. Professor-at-Large Emeritus, Institute for Advanced
Study; Director, Merrill Lynch Cluster C Funds (registered
investment companies) and ATL and Spacelabs Medical Corp. (medical
equipment); Family Health International (nonprofit research and
education).
M. ELLIOTT RANDOLPH, President
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
Principal, Alex. Brown & Sons Incorporated, 1991 - Present; Senior
Vice President, First National Bank of Maryland, 1985-1991.
EDWARD J. VEILLEUX, Vice President
Principal, Alex. Brown & Sons Incorporated; President, Investment
Company Capital Corp. (registered investment advisor); and Vice
President, Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President
Managing Director, Alex. Brown & Sons Incorporated and Manager,
Special Products Department, Alex. Brown & Sons Incorporated.
-15-
<PAGE>
MONICA M. HAUSNER, Vice President
Vice President, Fixed Income Management Department, Alex. Brown &
Sons Incorporated, March 1992-Present; Formerly, Assistant Vice
President, First National Bank of Maryland, 1984-1992.
BRIAN C. NELSON, Vice President and Secretary
Vice President, Alex. Brown & Sons Incorporated, Investment Company
Capital Corp. (registered investment advisor) and Armata Financial
Corp. (registered broker-dealer).
DIANA M. ELLIS, Treasurer
Manager, Portfolio Accounting Department, Investment Company Capital
Corp. (registered investment advisor); Mutual Fund Accounting
Department, Alex. Brown & Sons Incorporated, 1991-Present;
Formerly, Accounting Manager, Downtown Press Inc. (printer), 1987-
1991.
LAURIE D. DePRINE, Assistant Secretary
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student 1989-1991.
- -------------
*Messrs. Hale and Semans are Directors who are "interested persons", as
defined in the Investment Company Act. Ms. Rimel will be treated by the
Fund as if she could be deemed to be an "interested person".
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. Semans serves as a Director of seven
funds in the Fund Complex. Mr. Hale serves as President and Director of one
fund, Vice President of one fund and Director of 10 funds in the Fund
Complex. Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald, and Woolf serve
as Directors of each fund in the Fund Complex. Ms. Rimel serves as Director
of five funds in the Fund Complex. Mr. Veilleux serves as Executive Vice
President of one fund and as Vice President of 11 funds in the Fund Complex.
Mr. Nelson serves as Vice President and Secretary, Ms. Ellis 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 one fund
and Assistant Vice President of one fund 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
-16-
<PAGE>
(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. 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 March 31, 1995, Non-Interested Directors' fees attributable
to the assets of the Fund totalled approximately $1,000. 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 March 31, 1995.
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
March 31, 1995 Paid to Directors
in the Fiscal Year
Ended March 31, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Richard T. Hale, Chairman and Director $0 $0
*Truman T. Semans, Director $0 $0
**James J. Cunnane, Director $33(1)** $9,750 for service on 13
Boards in the Fund Complex**
N. Bruce Hannay, Director $132(1) $39,000 for service on 13
Boards in the Fund Complex
John F. Kroeger, Director $145(1) $42,900 for service on 13
Boards in the Fund Complex
***Louis E. Levy, Director $104(1)*** $29,250 for service on 13
Boards in the Fund Complex ***
Eugene J. McDonald, Director $132(1) $39,000 for service on 13
Boards in the Fund Complex
****Rebecca W. Rimel, Director N/A **** N/A ****
Harry Woolf, Director $132(1) $39,000 for service on 13
Boards in the Fund Complex
</TABLE>
- ---------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Elected to the Board on December 14, 1994.
*** Elected to the Board on June 17, 1994.
**** Elected to the Board on June 1, 1995.
(1) $0 of this amount has been 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 five years
-17-
<PAGE>
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by him in his last year of
service. Upon retirement, each Participant will receive annually 10% of such
fee for each year that he served after completion of the first five years, up
to a maximum annual benefit of 50% of the fee earned by him in his last year
of service. The fee will be paid quarterly, for life, by each Fund for which
he serves. The Retirement Plan is unfunded and unvested. Messrs. Hannay,
Kroeger and Woolf have qualified but have not received benefits, and no such
benefits are being accrued for them since they have not yet retired. The
Fund has one Participant, a Director who retired effective December 31, 1994,
who has qualified for the Retirement Plan and who will be paid a quarterly
fee of $4,875 by the Fund Complex for the rest of his life. Such fee is
allocated to each fund in the Fund Complex based upon the relative net assets
of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from
the Fund is permitted to defer a minimum of 50%, or up to all, of his annual
compensation pursuant to a Deferred Compensation Plan.
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"). 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 Non-Interested Directors, preclear any
personal securities investments (with limited 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 October 1, 1993, 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 Alex. Brown Cash Reserve Fund, Inc., Flag Investors
Telephone Income Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag
Investors International Fund, Inc., Flag Investors Emerging Growth Fund,
Inc., Flag Investors Intermediate-Term Income Fund, Inc., Flag Investors Real
Estate Securities Fund, Inc. and Flag Investors Equity Partners 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
-18-
<PAGE>
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 Fund's average daily
net assets. 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 Fund's 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.
The Investment Advisory Agreement has an initial term of two years and
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 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). For the fiscal year ended March 31, 1995 and for the Fund's
initial fiscal period ended March 31, 1994, ICC waived all advisory fees
($45,630 and $12,065, respectively). In addition, for the same period, ICC
reimbursed the Fund for other expenses aggregating $90,867 and $63,115,
respectively. Absent such waivers and reimbursements, the Fund's total
operating expenses would have been 1.85% and 2.46%, respectively, of the
Fund's 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.")
7. DISTRIBUTION OF FUND SHARES
The Distribution Agreement provides that Alex. Brown has the exclusive
right to distribute 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 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
-19-
<PAGE>
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 Shares. The
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 as described above, Alex.
Brown receives an annual fee, paid monthly, equal to .25% of the Fund's
average daily net assets. As compensation for providing distribution
services for the fiscal year ended March 31, 1995 and the period from October
1, 1993 (commencement of operations) through March 31, 1994 Alex. Brown
received from the Fund aggregate commissions and fees in the amount of
$32,593 and $8,617, respectively, and from such fees paid $28,431 and $2,667,
respectively, to its investment representatives and $494 and $0,
respectively, to outside broker-dealers as compensation. Alex. Brown expects
to allocate most of its annual fee to its investment representatives and up
to all of its fee to broker-dealers who enter into Sub-Distribution
Agreements with Alex. Brown.
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 (the "Plan"). Under the Plan, the Fund pays a fee to Alex.
Brown for distribution and other shareholder servicing assistance as set
forth in the Distribution Agreement, and Alex. Brown is authorized to make
payments out of its fee to its investment representatives and to
participating broker-dealers. The Distribution Agreement, including the Plan
and a form of Sub-Distribution Agreement, was approved by the sole
shareholder of the Fund on October 1, 1993. The Distribution Agreement has
an initial term of two years and the Distribution Agreement and the
Distribution Plan encompassed therein will remain in effect from year to year
as 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. The Distribution
Plan was most recently approved in this manner by the Fund's Board of
Directors on September 21, 1994.
In approving the Plan, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plan would benefit the Fund and its shareholders. The Plan will be renewed only
if the Directors make a similar determination in each subsequent year. The Plan
may not be amended to increase materially the fee to be paid pursuant to the
Distribution Agreement without the approval of the shareholders of the Fund. The
Plan may be terminated at any time and the 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
Distribution Agreement and any Sub-Distribution Agreement shall automatically
terminate in the event of assignment.
During the continuance of the Plan, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
-20-
<PAGE>
the payments made under the Plan to Alex. Brown pursuant to the Distribution
Agreement and to broker-dealers pursuant to Sub-Distribution Agreements.
Such reports will be made by the persons authorized to make such payments.
In addition, during the continuance of the Plan, the selection and nomination
of the Fund's Non-Interested Directors will be committed to the discretion of
the Non-Interested Directors then in office.
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. 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 this Prospectus 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 Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown
under the Plan. 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 Fund's average daily net assets for any
period, the unexpended portion of the distribution fee may be retained by
Alex. Brown. The Plan does not provide for any charges to the Fund for
excess amounts expended by Alex. Brown and, if the Plan is terminated in
accordance with its terms, the obligation of the Fund to make payments to
Alex. Brown pursuant to the Plan will cease and the Fund will not be required
to make any payments past the date the related Distribution Agreement
terminates.
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 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
-21-
<PAGE>
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 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.
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
-22-
<PAGE>
"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
Agreement between Alex. Brown and the Fund does 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. In the fiscal year ended March 31, 1995,
the Fund paid no brokerage commissions to Alex. Brown
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.
During the fiscal year ended March 31, 1995, Alex. Brown directed no
transactions to broker-dealers and paid no related commissions to broker
dealers because of research services provided.
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 March 31, 1995,
the Fund held a 6.10% repurchase agreement issued by Goldman Sachs & Co.
which was valued at $67,000.
9. CAPITAL STOCK
The Fund is authorized to issue 30 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.
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.
-23-
<PAGE>
10. SEMI-ANNUAL 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., 135 East Baltimore Street, Baltimore, Maryland 21202, has been
retained to act as transfer and dividend disbursing agent. As compensation
for providing these services, the Fund pays ICC up to $15.00 per account,
plus reimbursement for out of pocket expenses incurred in connection
therewith. ICC has served as the Fund's Transfer Agent since February 28,
1994 and for such services for the fiscal year ended March 31, 1995 received
fees of $6,359.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC is entitled to receive an annual fee,
calculated daily and paid monthly as shown below.
Average Net Assets Accounting Services Fee
------------------ -----------------------
$ 0- $ 10,000,000 $13,000(fixed fee)
$ 10,000,001- $ 20,000,000 .100%
$ 20,000,001- $ 30,000,000 .080%
$ 30,000,001- $ 40,000,000 .060%
$ 40,000,001- $ 50,000,000 .050%
$ 50,000,001- $ 60,000,000 .040%
$ 60,000,001- $ 70,000,000 .030%
$ 70,000,001- $ 99,999,999 .020%
$100,000,001- $ 500,000,000 .015%
$500,000,001- $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following out of pocket
expenses incurred in connection with provision of ICC's accounting services:
express delivery service, independent pricing and storage.
For the fiscal year ended March 31, 1995 ICC received accounting fees of
$16,037.
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.
-24-
<PAGE>
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end non-diversified management investment companies and to
stock or other relevant indices or averages 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:
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. In calculating the
ending redeemable value, the maximum sales load 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 Prospectus 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 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 Investment
Technologies, Inc. or Morningstar Inc., 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
-25
<PAGE>
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 SEC rules, for the one-year period ended March
31, 1995, the ending redeemable value of a hypothetical $1,000 payment for
the Fund's Shares was $1,035, resulting in a total return for such shares
equal to 3.54%. For the period from the effectiveness of the Fund's
registration statement on October 1, 1993 through the fiscal year ended March
31, 1995 the ending redeemable value of a hypothetical $1,000 payment was
$958 resulting in an average annual total return for such shares equal to
- -4.5%.
Calculated according to the alternative computation, which assumes no
sales charges and reinvestment of all distributions, for the one-year period
ended March 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in Shares was $1,051, resulting in a total return for such shares
equal to 5.1%. For the period from the effectiveness of the Fund's
registration statement on October 1, 1993 through the fiscal year ended March
31, 1995, the ending redeemable value of a hypothetical $10,000 investment
was $10,085 resulting in an average annual total return equal to 7.60%.
Yield Calculations
The Fund's yield for the 30 day period ended March 31, 1995 was 3.66%
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 semiannual
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%. 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.
The Fund may also advertise a "tax-equivalent yield", which is
calculated by determining the rate of the return that would have to be
achieved on a fully taxable investment to produce the after-tax equivalent of
the Fund's yield, assuming certain tax brackets for a shareholder. The
Fund's tax-equivalent yield based on the 30 day period ended March 31, 1995
was 5.30% for a shareholder in the 31% bracket.
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.
-26-
<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.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 7, 1995, the following persons owned of record or
beneficially 5% or more of the Fund's total outstanding Shares:
Alex. Brown & Sons Incorporated, 135 E. Baltimore Street, Baltimore, MD
21202 owned beneficially 93.33% of the Fund's outstanding shares.
As of such date, Directors and officers as a group owned less than 1% of
the Fund's total outstanding shares.
15. FINANCIAL STATEMENTS
See next page.
-27-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Net Assets March 31, 1995
<TABLE>
<CAPTION>
RATINGS PERCENT
PAR (MOODY'S/ VALUE OF NET
(000) S&P)1 (NOTE A) ASSETS
<S> <C> <C> <C>
MUNICIPAL BONDS - 97.3%
GENERAL OBLIGATION - 65.8%
$500 Anne Arundel County,MD,Solid Waste Project
4.50%,2/1/03................................ Aa/AA+ $467,580 3.6%
500 Baltimore County,MD,Metropolitan District,64th Issue,
Callable 8/1/03 @ $102
4.50%,8/1/06................................ Aaa/AA+ 448,440 3.5
500 Baltimore County,MD Metropolitan District,61st Issue,
6.80%,4/1/00................................ Aaa/AA+ 540,530 4.2
400 Calvert County,MD,Refunding Consolidated Public.
Improvement Project,Callable 7/15/03 @ $102
4.80%,7/15/07............................... Aa/A+ 364,828 2.8
250 Cecil County,MD (FGIC Insured),Refunding Consolidated
Public Improvement Project,Callable 12/1/03 @ $102
5.00%,12/1/06............................... Aaa/AAA 242,457 1.9
500 Charles County,MD,Refunding Consolidated Public
Improvement Project
6.00%,6/1/99................................ Aa/AA- 522,185 4.0
400 Frederick County,MD,Refunding,Series "C"
4.60%,8/1/03................................ Aa/AA- 376,928 2.9
500 Frederick,MD,Refunding and Improvement (FGIC Insured)
5.80%,12/1/02............................... Aaa/AAA 519,045 4.0
350 Harford County,MD,Refunding Consolidated
Public Improvement
4.40%,12/1/01............................... Aa/AA- 333,232 2.6
200 Howard County,MD,Refunding Consolidated
Public Improvement Project,Series "A"
4.875%,8/15/02.............................. Aa1/AA+ 196,890 1.5
Maryland State and Local Facilities Loan,Third Series,
Callable 7/15/01 @ $101
600 4.30%,7/15/03................................................. Aaa/AAA 552,918 4.3
300 6.50%,7/15/04................................................. Aaa/AAA 323,838 2.5
500 Maryland State Capital Improvement and Refunding,
Callable 4/15/03 @ $100
5.00%,4/15/04............................... Aaa/AAA 492,495 3.8
750 Maryland State Capital Improvement and Refunding
4.90%,4/15/03............................... Aaa/AAA 736,800 5.7
</TABLE>
-28-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Net Assets (CONTINUED) March 31, 1995
<TABLE>
<CAPTION>
RATINGS PERCENT
PAR (MOODY'S/ VALUE OF NET
(000) S&P)1 (NOTE A) ASSETS
<S> <C> <C> <C>
GENERAL OBLIGATION - (CONTINUED)
$275 Montgomery County,MD,Maryland National Capital
Park & Planning Commission,Series "N-2"
4.40%,7/1/01................................ Aaa/AAA $ 262,521 2.0%
600 Montgomery County,MD,Refunding Consolidated Public
Improvement Project,Series "A"
4.50%,10/1/03............................... Aaa/AAA 564,354 4.4
500 Ocean City,MD,Refunding (MBIA Insured)
5.00%,3/15/03............................... Aaa/AAA 490,030 3.8
250 Prince George's County,MD,Refunding Consolidated
Improvement Project,Series "A"(MBIA Insured)
Callable 3/1/02 @ $102
5.40%,9/1/02................................ Aaa/AAA 254,415 2.0
250 Prince George's County,MD,Refunding Consolidated
Public Improvement Project,Callable 3/15/03 @ $102
(AMBAC Insured)
5.50%,3/15/05............................... Aaa/AAA 250,560 1.9
300 Rockville, MD, Refunding
4.60%,4/15/01............................... Aa1/AA+ 291,219 2.3
250 Washington Suburban Sanitary District, MD,
Prerefunded 11/1/01 @ $102
6.40%,11/1/04............................... Aaa/AAA 272,290 2.1
8,503,555 65.8
OTHER REVENUE - 29.5%
350 Baltimore County, MD, Mortgage Revenue, Silver Spring
Apartments, Callable 11/1/03 @ $102
6.60%,11/1/14............................... NR*/AAA 361,270 2.8
100 Baltimore, MD Convention Center,
Callable 9/1/04 @ $100 (FGIC Insured)
5.60%,9/1/06................................ Aaa/AAA 101,014 0.8
250 Charles County, MD, Housing Revenue, (MBIA Insured)
Callable 7/1/03 @ $102
5.375%,7/1/09............................... Aaa/AAA 234,237 1.8
200 Maryland State Health and Higher Education Facilities
Authority, Revenue for Frederick Memorial
Hospital (FGIC Insured)
4.70%,7/1/02................................ Aaa/AAA 190,752 1.5
</TABLE>
-29-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Net Assets (CONTINUED) March 31, 1995
<TABLE>
<CAPTION>
RATINGS PERCENT
PAR (MOODY'S/ VALUE OF NET
(000) S&P)1 (NOTE A) ASSETS
<S> <C> <C> <C>
OTHER REVENUE - (CONTINUED)
$500 Maryland State Health and Higher Education Facilities
Authority, Revenue for Good Samaritan
Hospital
5.40%,7/1/04................................ A/A $ 486,485 3.8%
500 Maryland State Health and Higher Education Facilities
Authority, Revenue for Harford Memorial and
Fallston General Hospitals
Callable 7/1/97 @ $102
8.50%,7/1/14................................ Baa1/NR* 530,585 4.1
200 Maryland State Health and Higher Education Facilities
Authority, Revenue for Howard County General
Hospital
4.55%,7/1/98................................ Baa1/BBB 193,132 1.5
300 Maryland State Health and Higher Education Facilities
Authority, Revenue for Peninsula Regional
Medical, Callable 7/1/03 @ $102
5.00%,7/1/06................................ A/A 274,761 2.1
300 Maryland State Health and Higher Education Facilities
Authority, Revenue for Suburban Hospital
4.75%,7/1/03................................ A1/A 279,177 2.2
160 Maryland State Health and Higher Education Facilities
Authority, Revenue for University of Maryland
Medical Systems Callable 7/1/03 @ $102
(FGIC Insured)
5.375%,7/1/13............................... Aaa/AAA 148,312 1.1
250 Maryland State Health and Higher Education Facilities
Authority, Revenue for Washington County
Hospital (MBIA Insured)
4.45%,1/1/02................................ Aaa/AAA 234,940 1.8
400 Maryland State Center for Physics Headquarters
5.80%,1/1/01................................ NR*/BBB 397,640 3.1
100 Maryland State Community Development Administration,
Single Family Program, Third Series
4.55%,4/1/02................................ Aa/NR* 93,273 0.7
300 Montgomery County, MD, Maryland Housing Opportunities
Commission, Callable 7/1/03 @ $102
4.70%,7/1/04................................ Aa/NR* 278,226 2.2
3,803,804 29.5
</TABLE>
-30-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Net Assets (CONCLUDED) March 31, 1995
<TABLE>
<CAPTION>
RATINGS PERCENT
PAR (MOODY'S/ VALUE OF NET
(000) S&P)1 (NOTE A) ASSETS
<S> <C> <C> <C>
TRANSPORTATION REVENUE - 2.0%
$275 Washington,D.C.,Metropolitan Area Transportation Authority
for Gross Revenue (FGIC Insured)
4.50%,1/1/01.............................. Aaa/AAA $ 261,316 2.0%
TOTAL MUNICIPAL BONDS
(Cost $13,017,069)........................ 12,568,675 97.3
REPURCHASE AGREEMENT - 0.5%
67 GOLDMAN SACHS & CO. 6.10%
Dated 3/31/95,to be repurchased on 4/3/95,
collateralized by U.S.Treasury Bonds with a
market value of $69,198
(Cost $67,000)............................... 67,000 0.5
TOTAL INVESTMENT IN SECURITIES
(Cost $13,084,069)**......................... 12,635,675 97.8
OTHER ASSETS IN EXCESS OF LIABILITIES, NET................ 283,423 2.2
NET ASSETS................................................ $12,919,098 100.0%
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE
($12,919,098 divided by 1,356,953
shares outstanding).......................... $9.52
MAXIMUM OFFERING PRICE PER SHARE
($9.52 divided by .985)...................... $9.66
</TABLE>
1 The Moody's or Standard & Poor's ratings are believed to be the most
recent ratings available as of March 31, 1995.
* Not rated.
** Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
-31-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Operations For the Year Ended March 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME (NOTE A):
Interest............................................. $ 670,403
EXPENSES:
Investment advisory fee (Note B)..................... 45,630
Legal................................................ 41,366
Distribution fee (Note B)............................ 32,593
Audit................................................ 29,681
Printing and postage................................. 23,071
Custodian fee........................................ 19,876
Accounting fee (Note B).............................. 16,037
Organizational expense (Note A)...................... 10,249
Miscellaneous........................................ 8,619
Registration fees.................................... 7,189
Transfer agent fees (Note B)......................... 6,359
Directors'fees....................................... 1,000
Insurance............................................ 263
Total expenses...................................... 241,933
Less: Fees waived and expenses reimbursed (Note B)... (136,497)
Net expenses........................................ 105,436
Net investment income................................ 564,967
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from security transactions......... (116,538)
Change in unrealized appreciation of
investments........................................ 122,723
Net realized and unrealized gain on investments...... 6,185
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ 571,152
</TABLE>
See accompanying Notes to Financial Statements.
-32-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED OCTOBER 1, 1993*
MARCH 31, THROUGH
1995 MARCH 31, 1994
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 564,967 $ 133,281
Net realized loss from security transactions........... (116,538) (895)
Change in unrealized appreciation/(depreciation)
of investments........................................ 122,723 (571,117)
Net increase/(decrease) in net assets
resulting from operations......................... 571,152 (438,731)
DIVIDENDS TO SHAREHOLDERS FROM (NOTE F):
Net investment income.................................. (606,205) (92,043)
Distributions in excess of income...................... (8,865) -
Total distributions.................................... (615,070) (92,043)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 617,845 and 1,355,851
shares, respectively................................. 5,832,374 13,460,866
Value of 44,409 and 6,380 shares issued in
reinvestment of dividends,respectively................ 415,255 63,163
Cost of 554,945 and 122,587 shares repurchased,
respectively.......................................... (5,156,129) (1,221,739)
Total increase in net assets derived from capital
share transactions................................... 1,091,500 12,302,290
Total increase in net assets........................ 1,047,582 11,771,516
NET ASSETS:
Beginning of period.................................... 11,871,516 100,000**
End of period.......................................... $12,919,098 $11,871,516
</TABLE>
* Commencement of Operations.
** On October 1, 1993, the Fund sold 10,000 shares to a subsidiary of
Alex.Brown & Sons Incorporated for $100,000.
See accompanying Notes to Financial Statements.
-33-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED OCTOBER 1, 1993*
MARCH 31, THROUGH
1995 MARCH 31, 1994
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period... $9.50 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.40 0.14
Net realized and unrealized gain/(loss)
on investments......................... 0.05 (0.53)
Total from Investment Operations....... 0.45 (0.39)
LESS DISTRIBUTIONS:
Dividends from net investment income..... (0.43) (0.11)
Net asset value at end of period......... $9.52 $9.50
TOTAL RETURN............................... 5.12% (4.06)%
RATIOS TO AVERAGE NET ASSETS:
Expenses(2).............................. 0.70% 0.29%(1)
Net investment income(3)................. 4.44% 3.84%(1)
SUPPLEMENTAL DATA:
Net assets at end of period (000)........ $12,919 $11,872
Portfolio turnover rate.................. 33% 9%
</TABLE>
*Commencement of Operations.
(1) Annualized.
(2) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of expenses to average net assets would have been 1.85% and 2.46%
(annualized) for the year ended March 31,1995 and the period ended March 31,
1994, respectively.
(3) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of net investment income to average net assets would have been
3.29% and 1.68% (annualized) for the year ended March 31,1995 and the period
ended March 3, 1994, respectively.
See accompanying Notes to Financial Statements.
-34-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Notes to Financial Statements
A. SIGNIFICANT ACCOUNTING POLICIES - Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc. (the "Fund") was organized as a Maryland Corporation
on July 23, 1993 and commenced operations October 1, 1993. The Fund is
registered under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company designed to provide current income
exempt from federal income taxes and Maryland state and local income taxes
consistent with preservation of principal within an intermediate-term maturity
structure by investing primarily in municipal obligations issued by the State of
Maryland and its political subdivisions,agencies or instrumentalities.
The Fund's concentration in securities involves greater risk than one that
broadly invests.
SECURITY VALUATION - Municipal bonds 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. 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.
REPURCHASE AGREEMENTS - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller, under a repurchase agreement, will be required
on a daily basis to maintain as collateral the value of the securities subject
to the agreement at no less than the repurchase price. The agreement is
conditional upon the collateral being deposited under the Federal Reserve
book-entry system.
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
and to make requisite distributions to the shareholders which 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 net
investment income and net realized capital gains.
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.
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 the 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 billion; and
0.25% of the Fund's average daily net assets in excess of $1.5 billion.
-35-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Notes to Financial Statements (CONCLUDED)
ICC has agreed to reduce its aggregate fees attributable to the Fund or
make payments to the Fund, if necessary, to the extent required to satisfy any
expense limitations imposed by any securities laws or regulations thereunder of
any state in which the shares of the Fund are qualified for sale. ICC has
voluntarily agreed to waive its fees to the extent required to maintain expenses
at not more than 0.70% of the Fund's average daily net assets. For the year
ended March 31, 1995, CC waived fees of $45,630 and reimbursed expenses of
$90,867, of which $69,925 is recorded as a receivable due from the advisor.
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 $16,037 for accounting services for the year ended March
31, 1995.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC received $6,359 for transfer
agent services for the year ended March 31, 1995.
As compensation for providing distribution services, Alex. Brown 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. For the year ended March
31, 1995, distribution fees aggregated $32,593. Alex. Brown received no
commissions from the Fund for the year ended March 31, 1995.
C. CAPITAL SHARE TRANSACTIONS - The Fund is authorized to issue up to 30
million shares of $.001 par value common stock.
D. INVESTMENT TRANSACTIONS - Purchases and sales of investment
securities, other than short-term obligations, aggregated $6,512,463 and
$3,976,886, respectively, for the year ended March 31, 1995.
At March 31, 1995, aggregated gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $29,296 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $477,690.
E. NET ASSETS - At March 31, 1995, net assets consisted of:
[S] [C]
Paid-in-capital......... $13,484,925
Accumulated net realized
loss from security
transactions.......... (117,433)
Unrealized depreciation
of investments........ (448,394)
-----------
$12,919,098
F. DISTRIBUTIONS - Of the net investment income distributions paid monthly
by the Fund during the taxable year ended March 31, 1995, 96.30% qualify as
tax-exempt interest dividends for federal income tax purposes. Additionally,
there were no capital gains distributed by the Fund during the year.
-36-
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
Independent Auditors' Report
The Board of Directors and Shareholders,
Flag Investors Maryland Intermediate Tax-Free
Income Fund,Inc.:
We have audited the accompanying statement of net assets of Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. as of March 31, 1995, the
related statements of operations for the year then ended and changes in net
assets and the financial highlights for the year then ended and for the period
October 1, 1993 (commencement of operations) to March 31, 1994. These financial
statements and the 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
March 31, 1995 by correspondence with the custodian and brokers. 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
Maryland Intermediate Tax-Free Income Fund, Inc. as of March 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
April 30,1995
-37-
<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 Parts A and B of the
Registration Statement:
- Statement of Net Assets at March 31,
1995
- Statement of Changes in Net Assets
for the fiscal year ended March 31,
1995 and for the period ended March
31, 1994
- Statement of Operations for the
fiscal year ended March 31, 1995
- Financial Highlights for the fiscal
year ended March 31, 1995 and for
the period from October 1, 1993
(commencement of operations) through
March 31, 1994
- Notes to Financial Statements
- Independent Auditors' Report
(2) All required financial statements are
included in Parts A and B hereof. All other
financial statements and schedules are
inapplicable.
(b) Exhibits
(1) Articles of Incorporation.(1)
(2) By-Laws.(1)
(3) Not Applicable.
(4) Specimen Security.(2)
(5) Investment Advisory Agreement between
Registrant and Flag Investors Management
Corp.(now known as Investment Company
Capital Corp.)(1)
(6)(a) Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated.(1)
(6)(b) Form of Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and
Participating Dealers.(1)
(6)(c) Form of Shareholder Servicing Agreement
between Registrant and Shareholder
Servicing Agents.(1)
(7) Not Applicable.
(8) Custodian Agreement between Registrant and
PNC Bank, National Association.(1)
(9) Form of Master Services Agreement between
Registrant and Investment Company Capital
Corp.(1)
(10) Opinion of Counsel.(1)
(11) Consent of Independent Accountants.(1)
(12) Not Applicable.
(13) Form of Subscription Agreement.(1)
C-1
<PAGE>
(14) Not Applicable.
(15) Distribution Plan.(1)
(16) Schedule of Computation of Performance
Quotations (unaudited).(1)
(24) Powers of Attorney.(1)
(27) Financial Data Schedule.(1)
- -----------------------------------------------------------------------------
1 Filed herewith.
2 Incorporated by reference to Pre-Effective
Amendment No. 1 to Registrant's
Registration Statement on Form N-1A
(File No. 33-66870), filed with the
Securities and Exchange Commission on
September 23, 1993.
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 July 7, 1995:
Title of Class Number of Record Holders
--------------------------------------------------------------
Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. 246
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:
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.
C-2
<PAGE>
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.
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.
-----------------------
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
advisor:
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
C-3
<PAGE>
Investors Emerging Growth Fund, Inc., Flag Investors Total Return
U.S. Treasury Fund Shares of Total Return U.S. Treasury Fund,
Inc., Flag Investors Managed Municipal Fund Shares of Managed
Municipal Fund, Inc., Flag Investors Intermediate-Term Income
Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag
Investors Real Estate Securities Fund, Inc. and Flag Investors
Equity Partners Fund, Inc., all registered open-end management
investment companies.
Furnish information with respect to each director, officer or partner of
each principal underwriter named in answer to Item 21 of Part B (Underwriters):
<TABLE>
<CAPTION>
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------ --------------- -------------
<S> <C> <C>
Alvin B. Krongard Chairman, Chief None
Executive
Officer and
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
</TABLE>
- --------
* 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.
Alex. Brown & Sons Incorporated (Registrant's distributor) and
Investment Company Capital Corp. (Registrant's investment advisor,
transfer agent and dividend disbursing agent), 135 E. Baltimore Street,
Baltimore, Maryland 21202, will maintain physical possession of each such
account, book or other document of the Registrant, except for those
accounts, books and documents pursuant to Rule 31a-1(b)(1) maintained by
the Registrant's custodian, PNC Bank, 17th & Chestnut Streets,
Philadelphia, Pennsylvania 19103.
C-4
<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.
Not Applicable.
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) Registrant hereby undertakes to furnish each prospective person
to whom a prospectus will be delivered with a copy of the
Registrant's latest annual report to shareholders containing
information called for by Item 5A of Form N-1A, upon request
and without charge by contacting Registrant at (800) 767-3524.
C-5
<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 amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to its 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 July, 1995.
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
*/s/ Truman T. Semans Director July 26, 1995
- ----------------------- -------------
Truman T. Semans Date
*/s/ Richard T. Hale Director July 26, 1995
- ----------------------- -------------
Richard T. Hale Date
/s/ Rebecca W. Rimel Director July 26, 1995
- ----------------------- -------------
Rebecca W. Rimel Date
/s/ James J. Cunnane Director July 26, 1995
- ----------------------- -------------
James J. Cunnane Date
*/s/ N. Bruce Hannay Director July 26, 1995
- ----------------------- -------------
N. Bruce Hannay Date
*/s/ John F. Kroeger Director July 26, 1995
- ----------------------- -------------
John F. Kroeger Date
*/s/ Louis E. Levy Director July 26, 1995
- ----------------------- -------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director July 26, 1995
- ----------------------- -------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director July 26, 1995
- ----------------------- -------------
Harry Woolf Date
*/s/ Diana M. Ellis Chief Financial and July 26, 1995
- ----------------------- Accounting Officer -------------
Diana M. Ellis Date
/s/ M. Elliott Randolph, Jr. President July 26, 1995
- ---------------------------- -------------
M. Elliott Randolph, Jr. Date
*By: /s/ Brian C. Nelson
----------------------
Brian C. Nelson
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
[CAPTION]
<TABLE>
EDGAR
Exhibit Page
Number Documents Number
- -------- --------------------------------------------------- ------
<S> <C> <C>
EX-99.B(1) Articles of Incorporation, filed herewith.
EX-99.B(2) By-Laws, filed herewith.
(3) Not Applicable.
(4) Specimen Security is hereby incorporated by reference to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-66870), filed with the Securities and Exchange Commission
on September 23, 1993.
EX-99.B(5) Form of 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, filed herewith.
EX-99.B(6)(b) Form of Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Dealers, filed herewith.
EX-99.B(6)(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents, filed herewith.
(7) Not Applicable.
EX-99.B(8) Custodian Agreement between Registrant and PNC Bank, National
Association, filed herewith.
EX-99.B(9) Form of Master Services Agreement between Registrant and
Investment Company Capital Corp., filed herewith.
EX-99.B(10) Opinion of Counsel, filed herewith.
EX-99.B(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
EX-99.B(13) Subscription Agreement, filed herewith.
(14) Not Applicable.
EX-99.B(15) Distribution Plan, filed herewith.
EX-99.B(16) Schedule of Computation of Performance Quotations
(unaudited), filed herewith.
EX-99.B(24) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
</TABLE>
<PAGE>
EX-99.B(1)
ARTICLES OF INCORPORATION
OF
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME 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 Maryland Intermediate
Tax Free Income 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.
(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.
<PAGE>
(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.
(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 thirty million shares, of
the par value of 1 mil ($.001) per share and of the aggregate par value of
thirty thousand dollars ($30,000), all of which shares are designated Common
Stock. Unless otherwise prohibited by law, so long as the Corporation is
<PAGE>
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.
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 non-assessable.
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.
(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.
<PAGE>
(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 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.
<PAGE>
(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.
(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 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
<PAGE>
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 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.
(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.
<PAGE>
ARTICLE VII
The number of directors of the Corporation shall be six (6), 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.
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,
<PAGE>
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 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:
(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.
<PAGE>
(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 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
Maryland Intermediate Tax Free Income Fund, Inc. has signed these articles of
incorporation on this 22 day of July, 1993.
/s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Incorporator
<PAGE>
THE UNDERSIGNED incorporator of Flag Investors Maryland
Intermediate Fund, Inc. who executed the foregoing 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
<PAGE>
EX-99.B(2)
BY-LAWS
OF
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME 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, as amended (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 properly be
brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter or 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 of
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 a meeting at which a
quorum is present is sufficient to elect a director.
<PAGE>
(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.
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.
<PAGE>
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 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 of 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.
<PAGE>
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
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; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act,
this Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a
plan) pursuant to Rule 12b-1 under the 1940 Act.
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; provided, however, that for so
long as the Corporation is registered as an investment company under the 1940
Act, this Section shall be inapplicable to the approval of any investment
advisory agreement, sub-advisory agreement or any plan (or agreement
containing a plan) pursuant to Rule 12b-1 under the 1940 Act.
<PAGE>
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.
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.
<PAGE>
Section 4. General. 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.
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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 March in each year.
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.
<PAGE>
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 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, the Securities Act of 1933 (the "1933 Act")
and the 1940 Act, as such statutes are now or hereafter in force.
<PAGE>
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,
the 1933 Act 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.
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>
EX-99.B(5)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of
October, 1993 by and between FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE
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, 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 Advisors 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 July 23, 1993 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");
(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 Act of 1940 Act on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on August 2, 1993;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), (File No. 33-66870) and
under the 1940 Act as filed with the SEC on July 28, 1993 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").
<PAGE>
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 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
<PAGE>
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 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
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 accounts 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.
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 Federal and State law.
<PAGE>
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
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 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.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of
Directors, but shall not be responsible for the sub-advisor's performance
under the sub-advisory agreement.
(b) 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, the Fund shall pay to the Advisor monthly
compensation at an annual rate of .35% of the Fund's average daily net
assets.
<PAGE>
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.
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.
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).
<PAGE>
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.
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 MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
Attest: /s/ M. Simons By: /s/ Brian C. Nelson
--------------- ---------------------
[SEAL] FLAG INVESTORS MANAGEMENT CORP.
Attest: /s/ M. Simons By: /s/ Edward J. Veilleux
--------------- -------------------------
<PAGE>
EX-99.B(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 1st day of October, 1993, by and between
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE 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, 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 July 23, 1993 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 August 2, 1993;
<PAGE>
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), (File No. 33-66870) and
under the 1940 Act as filed with the SEC on July 28, 1993 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 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 Federal and State law.
<PAGE>
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 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.
<PAGE>
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.
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 negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
<PAGE>
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 MARYLAND INTERMEDIATE TAX FREE
INCOME FUND, INC.
Attest:/s/ M. Simons By /s/ Edward J. Veilleux
--------------- -----------------------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ M. Simons By /s/ Richard T. Hale
-------------- -----------------------------------
<PAGE>
EX-99.B(6)(b)
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.
<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:______________________________
EX-99.B(6)(c)
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SHAREHOLDER SERVICING AGREEMENT
_________________, 19__
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating
and processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii)
processing dividend payments from us on behalf of Customers; (iii) providing
information periodically to Customers showing their positions in Shares; (iv)
arranging for bank wires; (v) responding to Customer inquiries relating to
the services performed by you; (vi) providing subaccounting with respect to
Shares beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and
tax notices) to Customers; and (viii) providing such other similar services
as we may reasonably request to the extent you are permitted to do so under
applicable statutes, rules or regulations. You will provide to Customers a
schedule of any fees that you may charge directly to them for such services.
You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer
will be the beneficial owner of Shares purchased and held by you in
accordance with the Customer's instructions ("Customers' Shares") and the
Customer may exercise all rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required
by law relating to transactions in Shares and, upon our request, promptly
make such of these records available to us as we may reasonably request in
connection with our operations, and (ii) promptly notify us if you experience
any difficulty in maintaining the records described in the foregoing clauses
in an accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be a part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees, agents
or assignees are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as agent
for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct
or indirect liabilities or losses resulting from requests, directions,
actions or inactions of or by you or your officers, employees, agents or
assignees regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Shares by or on behalf of Customers.
You and your employees will, upon request, be available during normal
business hours to consult with us or our designees concerning the performance
of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee (as we may determine from time to
time in writing) computed as a percentage of the average daily net assets of
the Customers' Shares held of record by you from time to time, which fee will
be computed daily and payable no less often than annually. For purposes of
determining the fees payable under this Section 5, the average daily net
assets of the Customers' Shares will be computed in the manner specified in
our registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes
of purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us or by our distributor, at any time upon notice
to you. Further, we may, in our discretion and without notice, suspend or
withdraw the sale of Shares, including the sale of such shares to you for the
account of any Customer or Customers.
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they
may reasonably request (including, without limitation, periodic
certifications confirming the provision to Customers of the services
described herein), and shall otherwise cooperate with us and our designees
(including, without limitation, any auditors designated by us), in connection
with the preparation of reports to our Board of Directors concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor,
and is terminable, without penalty, at any time by us or by you upon ten
days' notice to the other party hereto and shall automatically terminate in
the event of its assignment, as that term is defined in the Investment
Company Act of 1940, as amended.
Section 9. This Agreement will be construed in accordance with the
laws of the State of Maryland.
Section 10. All notices and other communications to either you or
us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to
you, at the address specified by you after your signature below:
Flag Investors Family of Funds
135 East Baltimore Street
Baltimore, Maryland 21202
Attention: Edward J. Veilleux
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and
promptly return it to us, at the address set forth in Section 10 above.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
Date:_____________________ By:_______________________________________
Authorized Officer
Confirmed and Accepted:
Firm Name: _______________________________
By: _______________________________
Address: _______________________________
_______________________________
Date: _______________________________
EX-99.B(8)
CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of October 1, 1993 by and between FLAG
INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC. (the "Fund"), a
Maryland corporation, and PNC BANK, NATIONAL ASSOCIATION ("PNC Bank"), 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 PNC Bank to provide custodian services, and PNC Bank wishes to
furnish custodian services, either directly or though 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
<PAGE>
and any 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 PNC Bank from an Authorized Person or from a
person reasonably believed by PNC Bank to be an Authorized Person.
f. "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 PNC Bank or which PNC Bank 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 PNC Bank from time to time,
from or on behalf of the Fund.
g. "PNC Bank". The term "PNC Bank" shall mean PNC Bank, National
Association or a subsidiary or affiliate of PNC Bank.
h. "SEC". The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE>
i. "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, and the "CEA", the Commodities
Exchange Act, as amended.
j. "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.
k. "Written Instructions". The term "Written Instructions" shall
mean written instructions signed by two Authorized Persons and received by
PNC Bank. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide
custodian services, and PNC Bank accepts such appointment and agrees to
furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide PNC Bank with the following:
a. certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of PNC Bank
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;
d. a copy of the Fund's distribution agreement or agreements;
e. a copy of the Fund's administration agreements if PNC Bank is
not providing the Fund with such services;
<PAGE>
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. PNC Bank 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
PNC Bank hereunder. Except as specifically set forth herein, PNC Bank assumes
no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC
Bank shall act only upon Oral and Written Instructions. PNC Bank shall be
entitled to rely upon any Oral and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PNC Bank to be an
Authorized Person) pursuant to this Agreement. PNC Bank 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.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank 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 PNC
<PAGE>
Bank shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank 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 PNC Bank is in doubt as to any action
it should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
b. Advice of Counsel. If PNC Bank shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PNC
Bank 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 PNC Bank, at the
option of PNC Bank).
c. Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank receives from the
Fund, and the advice it receives from counsel, PNC Bank shall be entitled to
rely upon and follow the advice of counsel.
d. Protection of PNC Bank. PNC Bank 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 PNC Bank believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
<PAGE>
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (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 PNC Bank's properly
taking or not taking such action.
7. Records. The books and records pertaining to the Fund, which are
in the possession of PNC Bank, 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 PNC Bank's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an authorized representative of the
Fund, at the Fund's expense.
8. Confidentiality. PNC Bank 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 PNC Bank be required to provide such information or records to
duly constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), PNC Bank shall not be required to seek
the Fund's consent prior to disclosing such information; provided that PNC
<PAGE>
Bank gives the Fund prior written notice of the provision of such information
and records.
9. Cooperation with Accountants. PNC Bank 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. PNC Bank 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, PNC Bank shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
11. Compensation. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Fund will pay to PNC Bank a fee
or fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless
PNC Bank 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
<PAGE>
directly or indirectly from any action which PNC Bank 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 PNC Bank, 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
PNC Bank's or its nominees' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement or PNC Bank's own grossly negligent failure to perform its duties
under this Agreement.
13. Responsibility of PNC Bank. PNC Bank 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 PNC Bank, in writing. PNC Bank shall
be 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.
PNC Bank 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 PNC Bank'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, PNC Bank, 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
<PAGE>
conforms to the applicable requirements of this Agreement, and which PNC Bank
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank'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, PNC Bank
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 PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by PNC
Bank.
14. Description of Services.
a. Delivery of the Property. The Fund will deliver or arrange
for delivery to PNC Bank, 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. PNC Bank will not be responsible for such property
until actual receipt.
b. Receipt and Disbursement of Money. PNC Bank, 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, PNC Bank shall open separate custodial accounts for each
separate series, portfolio or class of the Fund and shall hold in such
<PAGE>
account(s) all cash received from or for the accounts of the Fund
specifically designated to each separate series, portfolio or class.
PNC Bank 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 PNC
Bank or PNC Bank's nominee as provided in sub-paragraph
(j) and for which PNC Bank 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 PNC Bank;
iii. payment of, subject to Written Instructions, 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 distributions 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, PNC Bank 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,
PNC Bank and the Fund's transfer agent.
v. payments, upon receipt Written Instructions, in
connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund and
held by or delivered to PNC Bank;
vi. payments of the amounts of dividends received with
respect to securities sold short;
<PAGE>
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.
PNC Bank 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. PNC Bank 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. All such
securities shall be held or disposed of only upon
Written Instructions of the Fund pursuant to the terms
of this Agreement. PNC Bank 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 PNC Bank's own expense and for its own convenience,
PNC Bank may enter into subcustodian 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 PNC Bank, or at least twenty million
dollars ($20,000,000) if such bank or trust company is
not a subsidiary or affiliate of PNC Bank. In
addition, such bank or trust company must be qualified
to act as custodian and agree to comply with the
relevant provisions of the 1940 Act and other applicable
rules and regulations.
<PAGE>
Any such arrangement will not be entered into without
prior written notice to the Fund.
PNC Bank 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 the acts and omissions of any sub-custodian
chosen by PNC Bank under the terms of this sub-
paragraph (c).
d. Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, PNC Bank, directly or through the use
of the Book-Entry System, shall:
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 PNC Bank;
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
<PAGE>
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
only upon payment to PNC Bank 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
herefor; 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 PNC Bank; and
xi. release and deliver or exchange securities owned by the
Fund for other corporate purposes.
PNC Bank must also receive a certified resolution
describing the nature of the corporate purpose and the
<PAGE>
name and address of the person(s) to whom delivery
shall be made when such action is pursuant to sub-
paragraph (d).
e. Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing
and instructing PNC Bank on a continuous and on-going basis, to deposit in
the Book-Entry System all securities belonging to the Fund eligible for
deposit 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. PNC Bank
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 PNC Bank shall identify by Book-Entry or otherwise
those securities belonging to the Fund. PNC Bank 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 PNC Bank in other
than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities.
PNC Bank and its sub-custodian, if any, will pay out
<PAGE>
money only upon receipt of securities and will deliver
securities only upon the receipt of money.
iii. All books and records maintained by PNC Bank which
relate to the Fund's participation in the Book-Entry
System will at all times during PNC Bank'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.
iv. PNC Bank will provide the Fund with copies of any
report obtained by PNC Bank on the system of internal
accounting control of the Book-Entry System promptly
after receipt of such a report by PNC Bank.
PNC Bank 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 PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed
nominee(s) of the Fund, PNC Bank, Book-Entry system or sub-custodian. The
Fund reserves the right to instruct PNC Bank as to the method of registration
and safekeeping of the securities of the Fund. The Fund agrees to furnish to
PNC Bank appropriate instruments to enable PNC Bank to hold or deliver in
proper form for transfer, or to register its registered nominee or in the
<PAGE>
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. PNC Bank 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.
g. Voting and Other Action. Neither PNC Bank 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. PNC
Bank, 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, PNC Bank is authorized to take the following
actions:
i. Collection of Income and Other Payments.
(1) 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;
(2) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment
of money;
(3) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
<PAGE>
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to
any portfolio securities belonging to the Fund held by
PNC Bank hereunder;
(4) 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
(5) 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.
(1) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(a) for examination by a broker or dealer selling
for the account of the Fund in accordance with
street delivery custom;
(b) for the exchange of interim receipts or
temporary securities for definitive securities;
and
(c) for transfer of securities into the name of the
Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number
of bonds, 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 PNC Bank.
<PAGE>
(2) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(a) 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;
(b) collect interest and cash dividends received,
with notice to the Fund, to the account of the
Fund;
(c) hold for the account of the Fund all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC
Bank; and
(d) 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. PNC Bank shall upon receipt of Written or Oral
Instructions establish and maintain a segregated
account(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:
(1) for the purposes of compliance by the Fund with the
procedures required by a securities or option
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
(2) upon receipt of Written Instructions, for other
proper corporate purposes.
<PAGE>
ii. PNC Bank 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, PNC Bank and the Fund's transfer agent.
j. Purchases of Securities. PNC Bank 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. PNC Bank 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 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. Sales of Securities. PNC Bank 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;
<PAGE>
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.
PNC Bank 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, PNC Bank 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. PNC Bank shall furnish the Fund the following reports:
(1) such periodic and special reports as the Fund may
reasonably request;
(2) 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;
(3) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
(4) such other information as may be agreed upon from
time to time between the Fund and PNC Bank.
ii. PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or
<PAGE>
conversion or similar communication received by it as
custodian of the Property. PNC Bank 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 PNC Bank) shall be at the sole risk of
the Fund. If payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank 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. PNC Bank shall not be obliged to take legal
action for collection unless and until reasonably indemnified to its
satisfaction. PNC Bank shall also notify the Fund as soon as reasonably
practicable whenever income due on securities is not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the
Fund to dissolve or to function without a custodian of its cash, securities
or other property), PNC Bank 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 PNC Bank'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
<PAGE>
terms similar to those of this Agreement. PNC Bank shall not be required to
make any such delivery or payment until full payment shall have been made to
PNC Bank of all of its fees, compensation, costs and expenses. PNC Bank
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 PNC Bank at
PNC Bank's address, Airport Business Center, International Court 2, 200
Stevens Drive, Lester, 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.
<PAGE>
18. Delegation. PNC Bank may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp, provided that (i) PNC Bank gives the
Fund thirty (30) days prior written notice; (ii) the delegate agrees with PNC
Bank to comply with all relevant provisions of the 1940 Act; and (iii) PNC
Bank 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.
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 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.
<PAGE>
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.
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.
PNC BANK, NATIONAL ASSOCIATION
By:/s/ John Foster
-------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE
INCOME FUND, INC.
By:/s/ Brian C. Nelson
-------------------------------------------
EX-99.B(9)
FORM OF
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the ___ day of _______, ____ by and
between Maryland Intermediate Tax Free 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.
<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
_______________________________________, Attention: ____________, 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.
<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 Maryland Intermediate
Tax-Free Income Fund, Inc.
By: ___________________________________________
Title:
INVESTMENT COMPANY CAPITAL CORP.
By: ___________________________________________
Title:
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
Maryland Intermediate Tax-Free 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 ___________ ___, 19___ (the "Master Services
Agreement") between _______________ 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
receive 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.
<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.
(d) 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.
<PAGE>
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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
<PAGE>
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.
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.
<PAGE>
Appendix II
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE 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 ____________ ___, 19___ (the "Master
Services Agreement") between FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE
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;
<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:
* Schedule of Investments;
* Statement of Net Assets and Liabilities;
* Statement of Operations;
* Statement of Changes in Net Assets;
* Cash Statement;
* Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
* Federal and State Tax Returns;
* Excise Tax Returns;
* Annual, Semi-Annual and Quarterly Shareholder Reports;
* Rules 24 (e)-2 and 24 (f)-2 Notices;
* Annual and Semi-Annual Reports on Form N-SAR;
* 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.
EX-99.B(10)
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS]
September 30, 1993
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
135 East Baltimore Street
Baltimore, MD 21202
Ladies and Gentlemen:
We have acted as counsel to you in connection with the organization of
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc. (the "Fund")
and with the proposed offering of thirty million shares of common stock of
the Fund, par value $.001 per share (the "Shares").
Having prepared the Articles of Incorporation and By-Laws of the Fund,
and having assisted in the preparation of the Fund's Registration Statement
on Form N-1A (File No. 33-66870) 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 30,000,000
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 therefore 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 of sale of Shares under any such state or
territorial securities laws.
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 an exhibit 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>
EX-99.B(11)
CONSENT OF INDEPENDENT AUDITORS
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 3 to Registration
Statement No. 33-66870 of our report dated April 30, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 26, 1995
EX-99.B(13)
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
SUBSCRIPTION AGREEMENT
For and in consideration of the mutual agreements herein contained,
Alex. Brown Financial Corp. ("Alex. Brown") hereby agrees to purchase from
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc., a Maryland
corporation (the "Fund"), and the Fund agrees to sell 10,000 shares of the
Fund's common stock, par value $.001 per share, at a price of $10.00 per
share (the "Shares"), upon the terms and conditions set forth herein and as
part of a public offering pursuant to the terms and conditions of the Fund's
Registration Statement on Form N-1A (No. 33-66870), as amended and
supplemented, initially filed with the Securities and Exchange Commission on
July 28, 1993.
Alex. Brown agrees to purchase such Shares and to pay the full
consideration therefor to the Fund upon demand.
Alex. Brown hereby confirms to the Fund its representations and
that it is purchasing such Shares for investment purposes, with no present
intention of redeeming or reselling any portion thereof, and its agreement
that in the event it should dispose of any such Shares, such transaction will
be effected by redeeming such Shares through the Fund.
Dated September 28, 1993
ALEX. BROWN FINANCIAL CORP.
By: /s/ Beverly Wright
-------------------------------------
Title
-------------------------------------
Subscription Accepted:
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE
INCOME FUND, INC.
By: /s/ Edward J. Veilleux
-----------------------------------------
Title: Vice President
---------------------------------------
EX-99.B(15)
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax
Free 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 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
and the Fund's 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 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' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of
any advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
<PAGE>
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 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. 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.
EX-99.B(16)
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
Schedule of Computation of Performance Quotations
(unaudited)
This Schedule is included to illustrate how total return and yield will be
calculated.
1. Total Return
The examples presented use actual data for the Fund's Shares for the period
from October 1, 1993 (commencement of operations) through December 31, 1993.
(a) Aggregate Total Return Pursuant to SEC Rules
P(1+T) = ERV
P = initial payment = $1,000
ERV = $ 992
T = aggregate total return = (0.76)%
(b) Aggregate Total Return Pursuant to Non-Standardized Computation
P(1+T) = ERV
P = initial payment = $10,000
ERV = $ 10,075
T = aggregate total return = 0.75%
2. Yield
The examples presented use actual data from the Fund's Shares for
the 30 day period ended December 31, 1993.
(a) Yield = Divide (i) the difference of b subtracted from a by (ii)
the product of c multiplied by d. Add 1 to the result.
Raise this amount to the sixth power, subtract 1, and
multiply the result by 2.
a = dividends and interest earned during the period = $ 22,394.18
<PAGE>
b = expenses accrued for the period (net of reimbursements)
= $3,900.24
c = average daily number of shares outstanding during the period
that were entitled to receive dividends = 662,740.252
d = maximum offering price per share on the last day of the period
= $ 10.20
Yield = 3.31%
(b) Tax-Equivalent Yield (for an investor in the 31% tax bracket)
x-y
| ----------------------- |
|1 - shareholder's tax rate | + y tax-equivalent yield
x = Fund's 30 day effective yield for period ended December 31,
1993 = 3.31%
y = amount of portfolio's 30 day effective yield for the period
ended December 31, 1993 that is taxable = .28%
| .0331 - .0028 |
| ------------- |
|1 - .31 |
| .0303 |
| ----- |
|1 - .31 | = 4.39% = Tax-Equivalent Yield
EX-99.B(24)
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax Free 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: July 26, 1995
---------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Diana M. Ellis, whose
signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Brian C. Nelson, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments, in her name, place and stead, which said attorney-in-fact and
agent may deem necessary or advisable or which may be required to enable Flag
Investors Maryland Intermediate Tax Free 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 her hand and seal
as of the date set forth below.
/s/ Diana M. Ellis
-----------------------------------
Diana M. Ellis
Date: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax Free 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/ Richard T. Hale
---------------------------------
Richard T. Hale
Date: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, N. Bruce Hannay, 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 Maryland Intermediate Tax Free 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/ N. Bruce Hannay
--------------------------------
N. Bruce Hannay
Date: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax Free 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: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland
Intermediate Tax Free 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: July 21, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax Free 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: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland Intermediate Tax Free 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: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J.
Veilleux and 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 Maryland Intermediate Tax Free 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/ Rebecca W. Rimel
------------------------------------------
Rebecca W. Rimel
Date: July 26, 1995
-----------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J.
Veilleux and 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 Maryland Intermediate Tax Free 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/ Truman T. Semans
--------------------------------------------
Truman T. Semans
Date: February 22, 1994
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE 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 Maryland
Intermediate Tax Free 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: February 22, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000910065
<NAME> FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 13,084,069
<INVESTMENTS-AT-VALUE> 12,635,675
<RECEIVABLES> 267,202
<ASSETS-OTHER> 41,309
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,944,552
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 25,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,484,925
<SHARES-COMMON-STOCK> 1,356,953
<SHARES-COMMON-PRIOR> 1,249,644
<ACCUMULATED-NII-CURRENT> (117,433)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (448,394)
<NET-ASSETS> 12,919,098
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 670,403
<OTHER-INCOME> 0
<EXPENSES-NET> 105,436
<NET-INVESTMENT-INCOME> 564,967
<REALIZED-GAINS-CURRENT> (116,538)
<APPREC-INCREASE-CURRENT> 122,723
<NET-CHANGE-FROM-OPS> 571,152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 606,205
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 8,865
<NUMBER-OF-SHARES-SOLD> 617,845
<NUMBER-OF-SHARES-REDEEMED> 554,945
<SHARES-REINVESTED> 44,409
<NET-CHANGE-IN-ASSETS> 1,047,582
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45,630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 241,933
<AVERAGE-NET-ASSETS> 13,037,235
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
