<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996.
File No. 33-66870
File No. 811-7922
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 7 /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 LLP
2000 One Logan Square
Philadelphia, Pa 19103
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It is proposed that this filing will become effective (check appropriate box)
______ immediately upon filing pursuant to paragraph(b)
___X__ on August 1, 1996 pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)
______ 75 days after filing pursuant to paragraph (a)
______ on (date) pursuant to paragraph (a) of Rule 485.
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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, 1996 on May 23, 1996.
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
(Class A Shares)
Cross Reference Sheet
July 29, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
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<S> <C> <C>
Part A - Information Required in a Prospectus
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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 and
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
</TABLE>
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* Information required by Item 5A is contained in Registrant's
1996 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not
applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
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 and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
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
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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.
(Class A Shares)
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 will be between 3 and 10 years. (See
"Investment Program.")
Class A Shares of the Fund ("Shares") are available through Alex. Brown &
Sons Incorporated ("Alex. Brown"), as well as through Participating Dealers
and Shareholder Servicing Agents. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated August 1, 1996, has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 767-FLAG.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
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, 1996.
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX FREE INCOME
FUND, INC.
(Class A Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fund Expenses ...................................... 2
2. Financial Highlights ............................... 3
3. Investment Program ................................. 4
4. Investment Restrictions ............................ 10
5. How to Invest in the Fund .......................... 11
6. How to Redeem Shares ............................... 16
7. Telephone Transactions ............................. 18
8. Dividends and Taxes ................................ 19
9. Management of the Fund ............................. 22
10. Investment Advisor ................................. 23
11. Distributor ........................................ 24
12. Custodian, Transfer Agent and Accounting Services .. 25
13. Performance Information ............................ 25
14. General Information ................................ 26
</TABLE>
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the Fund or
by its distributor in any jurisdiction in which such offering may not
lawfully be made. Shares may be offered only to residents of those states
in which such shares are eligible for purchase.
1
<PAGE>
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
Maximum Deferred Sales Charge ........................... 0.50%*
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ANNUAL FUND OPERATING EXPENSES
(NET OF FEE WAIVERS AND REIMBURSEMENTS):
(as a percentage of average daily net assets)
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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%**
=====
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* Purchases of $1 million or more by persons not otherwise eligible for
sales load waivers are not subject to an initial sales charge, however, a
contingent deferred sales charge of .50% may be imposed on such purchases.
(See "How to Invest in the Fund -- Offering Price.")
** The Fund's investment advisor currently intends to waive its fee or to
reimburse the Fund on a voluntary basis to the extent required so that
Total Fund Operating Expenses do not exceed .70% of the Fund's average
daily net assets. Absent fee waivers and/or reimbursements, Management
Fees would be .35%, Other Expenses would be 1.09% and the Fund's Total
Operating Expenses would be 1.69% of its average daily net assets.
EXAMPLE:
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<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the
end of each time period*: 1 year 3 years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
$22 $37 $54 $104
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* The example is based on Total Fund Operating Expenses, net of fee waivers
and reimbursements. Absent such fee waivers and reimbursements, expenses
would be higher.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Shares through a financial institution may be charged
separate fees by the financial institution. (For more complete descriptions
of the various costs and expenses, see "How to Invest in the Fund -- Offering
Price," "Investment Advisor" and "Distributor.") The Total Fund
2
<PAGE>
Operating Expenses and Example appearing in the table above are based on the
Fund's expenses for the fiscal year ended March 31, 1996 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, 1996 and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
financial highlights for the fiscal year ended March 31, 1996 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, 1996 which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(For a Share outstanding throughout each period)
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<TABLE>
<CAPTION>
For the Period
For the Year Ended October 1, 1993*
March 31, through
1996 1995 March 31, 1994
------- ------ ----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period . $ 9.52 $ 9.50 $ 10.00
--------- --------- ----------------
Income from Investment Operations:
Net investment income .................. 0.39 0.40 0.14
Net realized and unrealized gain/(loss)
on investments ....................... 0.38 0.05 (0.53)
--------- --------- ----------------
Total from Investment Operations ....... 0.77 0.45 (0.39)
--------- --------- ----------------
Less Distributions:
Dividends from net investment income ... (0.39) (0.40) (0.11)
Distributions in excess of income ...... (0.06) (0.03) --
--------- --------- ----------------
Net asset value at end of period ....... $ 9.84 $ 9.52 $ 9.50
========= ========= ================
Total Return** ........................... 8.20% 5.12% (4.06)%
Ratios to Average Net Assets:
Expenses(2) ............................ 0.70% 0.70% 0.29%(1)
Net investment income(3) ............... 4.09% 4.44% 3.84%(1)
Supplemental Data:
Net assets at end of period (000) ...... $12,066 $12,919 $11,872
Portfolio turnover rate ................ 8.79% 33.00% 8.51%
</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 1.69%, 1.85% and
2.46% (annualized) for the years ended March 31, 1996 and 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
3.13%, 3.29% and 1.68% (annualized) for the years ended March 31, 1996
and March 31, 1995 and the period ended March 31, 1994, respectively.
- ------------------------------------------------------------------------------
3. Investment Program
INVESTMENT OBJECTIVE, 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 between 3 and 10 years. The value of obliga-
5
<PAGE>
tions 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 by S&P or Moody's, 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 by S&P or Moody's 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 by S&P or Moody's, 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 in the
Statement of Additional Information.
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
(i) may pay a fixed, floating or variable rate of interest (ii) 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 (iii) 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 the
participation interests 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.
...............................................................................
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.
8
<PAGE>
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
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
When-issued securities are securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Fund will
9
<PAGE>
generally not pay for such securities or start earning interest on them until
they are received. When-issued commitments will not be used for speculative
purposes and will be entered into only with the intention of actually acquiring
the securities. The 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.
...............................................................................
SPECIAL CONSIDERATIONS RELATING TO MARYLAND MUNICIPAL SECURITIES
The Fund's concentration in securities issued by the State of Maryland and
its political subdivisions, agencies and instrumentalities involves greater
risk than a fund broadly invested across many states and municipalities. In
particular, changes in economic conditions and governmental policies of the
State of Maryland and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see "Risk Factors Associated with a Maryland Portfolio" in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
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
10
<PAGE>
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 by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price (including any applicable front-end sales
charge), to the address shown on the Application Form.
The minimum initial investment is $2,000, except that the minimum initial
investment for shareholders of any other Flag Investors fund or class is $500
and the minimum initial investment for participants in the Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100,
except that the minimum subsequent investment under the Fund's Automatic
Investing Plan is $250 for quarterly investments and $100 for monthly
investments. (See "Purchases through Automatic Investing Plan" below.)
Orders for purchases of Shares are accepted on any day on which the New
York Stock Exchange is open for business (a "Business Day"). The Fund
reserves the right to suspend the sale of Shares at any time at the
discretion of Alex. Brown and ICC. Purchase orders for Shares will be
executed at a per Share purchase price equal to the net asset value next
determined after receipt of the purchase order plus any applicable front-end
sales charge (the "Offering Price") on the date such net asset value is
determined (the "Purchase Date"). Purchases made by mail must be accompanied
by payment of the Offering Price. Purchases made through Alex. Brown or a
Participating Dealer or Shareholder Servicing Agent must be in accordance
with such entity's payment procedures. Alex. Brown may, in its sole
discretion, refuse to accept any purchase order.
11
<PAGE>
The net asset value per Share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing its share of the Fund's assets, deducting all liabilities
attributable to that class, and dividing the resulting amount by the number
of then outstanding shares of the class. For this purpose, portfolio
securities are given their market value where feasible. Portfolio securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Such procedures may include the use of an independent pricing
service which uses prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Debt obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors.
...............................................................................
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which includes a sales
charge which is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
<TABLE>
<CAPTION>
Sales Charge
as % of Dealer
------------------------------ Retention
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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*
</TABLE>
- ------
* 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
12
<PAGE>
shares of other Flag Investors funds with a higher front-end sales charge and
purchases of Class A 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 at least $100,000 within a 13-month period in Shares. Each purchase of
Shares under a Letter of Intent will be made at the Offering Price applicable
at the time of such purchase to the full amount indicated in the Letter of
Intent. A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of the full amount. Shares purchased with the first 5%
of the full amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales charge applicable
to the Shares actually purchased if the full amount indicated is not
invested. Such escrowed Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. When the full amount indicated has
been purchased, the escrowed Shares will be released. An investor who wishes
to enter into a Letter of Intent in conjunction with an investment in Shares
may do so by completing the appropriate section of the Application Form
attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more. However, a contingent deferred sales charge may be
imposed on such investments in the event of a Share redemption within 24
months following the Share purchase, at the rate of .50% on the lesser of the
value of the Shares redeemed or the total cost of such Shares. No contingent
deferred sales charge will be imposed on purchases of $3 million or more of
Shares redeemed within 24 months of purchase if the Participating Dealer and
Alex. Brown have entered into an agreement under which the
13
<PAGE>
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 Class A 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.
Shares may also be purchased through a Systematic Purchase Plan. An
investor who wishes to take advantage of such a plan should contact Alex.
Brown, a Participating Dealer or Shareholder Servicing Agent.
...............................................................................
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of Class A shares of Flag Investors 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.
14
<PAGE>
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund who have paid
a sales charge may exchange shares of such fund for an equal dollar amount of
Shares by submitting to Alex. Brown or a Participating Dealer the proceeds of
the redemption of such shares, together with evidence of the payment of a
sales charge and the source of such proceeds. Shares issued pursuant to this
offer will not be subject to the sales charges described above or any other
charge.
In addition, shareholders may exchange their Shares for an equal dollar
amount of shares of any other mutual fund in the Flag Investors family of
funds with a higher front-end sales charge. In connection with such exchange,
shareholders will be required to pay the difference between the sales charge
paid on Shares and the sales charge applicable to the purchase of the shares
of such other fund, except that the exchange will be made at net asset value
(without payment of any sales charge) if the Shares have been held for more
than 24 months following the purchase date.
This exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below). The
exchange privilege may be exercised only in those states where the shares of
such other fund may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate these offers of exchange at any time on 60 days' prior
written notice to shareholders and the exchange offers set forth herein are
expressly subject to modification or termination.
...............................................................................
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Shares regularly by means of an Automatic
Investing Plan with a pre-authorized check drawn on their checking accounts.
Under this plan, the shareholder may elect to have a specified amount
invested monthly or quarterly in Shares. The amount specified by the
shareholder will be withdrawn from the shareholder's checking account using
the pre-authorized check and will be invested in Shares at the applicable
Offering Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discon-
15
<PAGE>
tinued either by the Fund or the shareholder upon 30 days' prior written
notice to the other party. A shareholder who wishes to enroll in the
Automatic Investing Plan or who wishes to obtain additional purchase
information may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
..............................................................................
PURCHASES THROUGH DIVIDEND REINVESTMENT
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 without a sales charge. However, shareholders may elect to terminate
automatic reinvestment by giving written notice to the Transfer Agent (see
"Custodian, Transfer Agent and 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.
Alternatively, shareholders may have their distributions invested in
shares of other funds in the Flag Investors family of funds. Shareholders who
are interested in this option should call (800) 553-8080 for additional
information.
- --------------------------------------------------------------------------------
6. How to Redeem Shares
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent"). Shareholders may also redeem
Shares by telephone (in amounts up to $50,000). (See "Telephone Transactions"
below.) A redemption order is effected at the net asset value per Share
(reduced by any applicable contingent deferred sales charge) next determined
after receipt of the order (or, if stock certificates have been issued for
the Shares to be redeemed, after the tender of the stock certificates for
redemption). Redemption orders received after 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, will be effected
at the net asset value next determined on the following Business Day. Payment
for redeemed Shares will be made by check and will be mailed within seven
days after receipt of a duly authorized telephone redemption request or of a
redemption order fully completed and, as applicable, accompanied by the
documents described below:
16
<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.
17
<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 and Accounting
Services." Telephone transaction privileges are automatic. Shareholders may
specifically request that no telephone redemptions or exchanges be accepted
for their accounts. This election may be made on the Application Form or at
any time thereafter by completing and returning appropriate documentation
supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred
sales charge on redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be redeemed by telephone. (See
"How to Invest in the Fund -- Purchases by Exchange" and "How to Redeem
Shares.")
18
<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.
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.
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
19
<PAGE>
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
capital 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.
20
<PAGE>
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, 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 received by the shareholders and paid by the Fund 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 advisors concerning the application of state and local
taxes to investments in the Fund.
The sale, exchange or redemption of Shares is a taxable event for the
shareholder.
..............................................................................
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
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.
21
<PAGE>
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 incomes taxes. Entities subject to the financial institution
franchise tax will generally be subject to tax on distributions from the
Fund.
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 of an issuer other than the State of
Maryland, its political subdivisions or authorities is a preference item
taken into account for this purpose. 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*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
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Brian C. Nelson Vice President
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Harry Woolf Director Edward J. Stoken Secretary
Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
* Messrs. Hale and Semans are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act of 1940 (the
"1940 Act").
22
<PAGE>
- -------------------------------------------------------------------------------
10. Investment Advisor
Investment Company Capital Corp., the Fund's investment advisor, is an
indirect subsidiary of Alex. Brown Incorporated (described below). ICC is also
the investment advisor to, and Alex. Brown & Sons Incorporated ("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 $5.1
billion of net assets as of May 31, 1996. 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, 1996,
ICC waived all advisory fees, amounting to $51,908, and reimbursed expenses
of $87,047.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
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 22 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has over 17 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.
23
<PAGE>
- -------------------------------------------------------------------------------
11. Distributor
Alex. Brown acts as distributor of each class of the Fund's shares. Alex.
Brown is an investment banking firm which offers a broad range of investment
services to individual, institutional, corporate and municipal clients. 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.
The Fund has adopted a Distribution Agreement and related Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. As
compensation for providing distribution services for the Shares for the
fiscal year ended March 31, 1996, Alex. Brown received a fee from the Fund
which represented .25% of the Shares' average daily net assets. Alex. Brown
expects to allocate on a proportional basis most of its annual distribution
fee to its investment representatives or up to all of its fee to
Participating Dealers as compensation for their ongoing shareholder services,
including processing purchase and sale requests and responding to shareholder
inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Alex. Brown will allocate a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services. Such financial institutions may impose separate fees in
connection with these services and investors should review this Prospectus in
conjunction with any such institution's fee schedule. In addition, financial
institutions may be required to register as dealers pursuant to state
securities laws. Amounts allocated to Participating Dealers and Shareholder
Servicing Agents may not exceed amounts payable to Alex. Brown under the Plan
with respect to Shares held by or on behalf of customers of such 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
24
<PAGE>
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.
- -------------------------------------------------------------------------------
12. Custodian, Transfer Agent and Accounting Services
PNC Bank, National Association ("PNC Bank"), a national banking
association, with offices at Airport Business Park, 200 Stevens Drive,
Lester, Pennsylvania 19113, acts as custodian of the Fund's assets.
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore
Maryland 21202 (telephone: (800) 553-8080) is the Fund's transfer and
dividend disbursing agent. ICC also provides accounting services to the Fund.
As compensation for providing accounting services to the Fund for fiscal year
ended March 31, 1996, ICC received a fee equal to .12% of the Fund's average
daily net assets. (See the Statement of Additional Information.) ICC also
serves as the Fund's investment advisor.
- -------------------------------------------------------------------------------
13. Performance Information
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30 day period
by the maximum offering price per Share on the last day of the period and
annualizing the result on a semi-annual basis. 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. 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.
25
<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 35 million shares of capital stock, par
value of $.001 per share, all of which shares are designated common stock.
Each share has one vote and shall be entitled to dividends and distributions
when and if declared by the Fund. In the event of liquidation or dissolution
of the Fund, each share would be entitled to its pro rata portion of the
Fund's assets after all debts and expenses have been paid. The fiscal year
end of the Fund is March 31.
The Board of Directors may classify any authorized but unissued Shares
into classes and may establish certain distinctions between classes relating
to additional voting rights, payments of dividends, rights upon liquidation
or distribution of the assets of the Fund and any other restrictions
permitted by law and the Fund's charter.
26
<PAGE>
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio or securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Class A Shares." The Board has no
present intention of establishing any additional series of the Fund but the
Fund does have another class of shares in addition to the shares offered
hereby: "Flag Investors Maryland Intermediate Tax Free Income Fund
Institutional Shares." Shares of that class, which are not subject to a sales
charge or 12b-1 fee, are offered only to eligible institutions and clients of
investment advisory affiliates of Alex. Brown. Additional information
concerning the Fund's Institutional Shares may be obtained by calling Alex.
Brown at (800) 767-FLAG. Different classes of the Fund may be offered to
certain investors and holders of such shares may be entitled to certain
exchange privileges not offered to Shares. All classes of the Fund share a
common investment objective, portfolio of investments and advisory fee, but
the classes may have different sales load structures, distribution fees or
other expenses and, accordingly, the net asset value per share of classes may
differ at times.
...............................................................................
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
..............................................................................
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors, Deloitte
& Touche LLP.
27
<PAGE>
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
- ------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800)553-8080, Alex. Brown at (800) 767-FLAG, or any
Participating Dealer or Shareholder Servicing Agent, as appropriate.
28
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Make check payable to "Flag Investors Maryland Intermediate For assistance in completing this application please call:
Tax Free Income Fund, Inc." and mail with this application to: 1-800-553-8080, Monday-Friday, 8:30 a.m. to 5:30 p.m.
Alex. Brown & Sons Incorporated/Flag Investors Funds (Eastern Time)
P.O. Box 419663 To open an IRA account, call 1-800-767-3524 for an IRA
Kansas City, MO 64141-6663 information kit.
Attn: Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc.
I enclose a check for $_____________ payable to "Flag Investors Maryland Intermediate Tax Free Income Fund, Inc." for the
purchase of Class A Shares of the Fund. The minimum initial purchase is $2,000, except that the minimum initial purchase for
shareholders of any other Flag Investors Fund or Class is $500 and the minimum initial purchase for participants in the
Fund's Automatic Investing Plan is $250. Each subsequent purchase requires a $100 minimum, except that the minimum subsequent
purchase under the Fund's Automatic Investing Plan is $250 for quarterly purchases and $100 for monthly purchases. The Fund
reserves the right not to accept checks for more than $50,000 that are not certified or bank checks.
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: ___________________
INDIVIDUAL OR JOINT TENANT GIFTS TO MINORS
- -------------------------------------------------------------- --------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- -------------------------------------------------------------- --------------------------------------------------------------
Social Security Number Minor's Name (only one)
- -------------------------------------------------------------- --------------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
under the ____________________ Uniform Gifts to Minors Act
State of Residence
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC. MAILING ADDRESS
- -------------------------------------------------------------- --------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- ---------------------------- ----------------------------- --------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- -------------------------------------------------------------- --------------------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
- --------------------------------------------------------------
For the Benefit of
- ----------------------------------------------------------------------------------------------------------------------------------
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 Class A 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
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all distributions will be reinvested in additional
Class A Shares at no sales charge.
<S> <C>
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other funds in the Flag Investors Family of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically invest $____________________ for me, on a monthly
or quarterly basis, on or about the 20th of each month or if quarterly, the 20th of January, April, July and October, and to
draw a bank draft in payment of the investment against my checking account (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
[ ] Monthly ($100 minimum) PLEASE ATTACH A VOIDED CHECK.
[ ] Quarterly ($250 minimum)
- -------------------------------------------------------------- --------------------------------------------------------------
Bank Name Depositor's Signature Date
- -------------------------------------------------------------- --------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Depositor's Signature Date
(if joint acct., both must sign)
- ---------------------------------------------------------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of __________, 19___ please send me checks on a monthly or quarterly basis, as indicated below, in the
amount of $__________, from Class A Shares that I own, payable to the account registration address as shown above. (Participation
requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
- ----------------------------------------------------------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
You will automatically have telephone redemption privileges (for amounts up to $50,000) and telephone exchange privileges
(with respect to other Flag Investors Funds) unless you mark one or both of the boxes below:
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a
pre-designated bank account, please provide the following information:
Bank: Bank Account No:
------------------------------------------------------ --------------------------------------------
Address: Bank Account Name:
------------------------------------------------------ --------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated August 1, 1996. Unless the box below is checked, I certify under penalties
of perjury, (1) that the number shown on this form is my correct taxpayer identification number and (2) that I am not subject to
backup withholding as a result of a failure to report all interest or dividends, or the Internal Revenue Service has notified me
that I am no longer subject to backup withholding. [ ] Check here if you are subject to backup withholding. If a non-resident
alien, please indicate country of residence:
---------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are automatic and will be effected as described in the Fund's
current prospectus (see "Telephone Transactions"). I also acknowledge that I may bear the risk of loss in the event of fraudulent
use of such privileges. If I do not want telephone redemption or exchange privileges, I have so indicated on this Application.
- -------------------------------------------------------------- ----------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- -----------------------------------------------------------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: Dealer Code:
-------------------------------------------- ----------------------------------------------------
Dealer's Address: Branch Code:
-------------------------------------------- ----------------------------------------------------
--------------------------------------------
Representative: Rep. No.
-------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
(Institutional Shares)
Cross Reference Sheet
July 29, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- --------------
<S> <C> <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 and
Accounting Services
Item 5A. Management's Discussion of Fund
Performance....................................... **
Item 6. Capital Stock and Other
Securities........................................ Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being
Offered........................................... How to Invest in the
Institutional Shares; Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Institutional
Shares
Item 9. Pending Legal Proceedings......................... **
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and
History........................................... General Information and
History
</TABLE>
- --------
* Information required by Item 5A is contained in Registrant's 1996
Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
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 and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
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.
(Institutional Shares)
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 will be between 3 and 10 years. (See
"Investment Program.")
Institutional Shares of the Fund ("Institutional Shares") are available
through Alex. Brown & Sons Incorporated ("Alex. Brown") or Participating
Dealers and may be purchased only by eligible institutions or by clients of
investment advisory affiliates of Alex. Brown. (See "How to Invest in
Institutional Shares.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated August 1, 1996, has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 767-FLAG.
- ------------------------------------------------------------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
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, 1996.
<PAGE>
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX FREE INCOME
FUND, INC.
(INSTITUTIONAL SHARES)
135 EAST BALTIMORE STREET
BALTIMORE, MARYLAND 21202
TABLE OF CONTENTS
------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fund Expenses ...................................... 2
2. Financial Highlights ............................... 3
3. Investment Program ................................. 5
4. Investment Restrictions ............................ 11
5. How to Invest in Institutional Shares .............. 11
6. How to Redeem Institutional Shares ................. 13
7. Telephone Transactions ............................. 14
8. Dividends and Taxes ................................ 15
9. Management of the Fund ............................. 18
10. Investment Advisor ................................. 19
11. Distributor ........................................ 20
12. Custodian, Transfer Agent and Accounting Services .. 20
13. Performance Information ............................ 21
14. General Information ................................ 22
</TABLE>
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the Fund or
by its distributor in any jurisdiction in which such offering may not
lawfully be made. Shares may be offered only to residents of those states
in which such shares are eligible for purchase.
1
<PAGE>
- -------------------------------------------------------------------------------
1. FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases ............... None
Maximum Sales Charge Imposed on Reinvested Dividends .... None
Maximum Deferred Sales Charge ........................... None
- -------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(NET OF FEE WAIVERS AND REIMBURSEMENTS):
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Management Fees (net of fee waivers) .................................... .00%*
12b-1 Fees .............................................................. None
Other Expenses (net of reimbursements) .................................. .45%*
-----
Total Fund Operating Expenses (net of fee waivers and reimbursements) ... .45%*
=====
</TABLE>
- -------------------------------------------------------------------------------
* 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 .45% of the Institutional
Shares' average daily net assets. Absent fee waivers and/or reimbursements,
Management Fees would be .35%, Other Expenses would be .95% and Total
Operating Expenses would be 1.30% of the Institutional Shares' average
daily net assets.
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period*: 1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------------------------------
$5 $15 $25 $58
---------------------------------------------------------------------------------------------------------
</TABLE>
* The example is based on Total Fund Operating Expenses, net of fee waivers
and reimbursements. Absent such fee waivers and reimbursements, expenses
would be higher.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Institutional Shares through a financial institution may
be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in
Institutional Shares," "Investment Advisor" and "Distributor.") The Expenses
and Example appearing in the table above are based on the Fund's expenses
(net of fee waivers and reimbursements) for the Class A Shares, another class
of shares offered by the Fund, for the fiscal year ended March 31, 1996, less
12b-1 fees of .25%.
2
<PAGE>
- -------------------------------------------------------------------------------
2. Financial Highlights
The Fund has offered the Institutional Shares since November 2, 1995. The
Fund has also offered another class of shares since 1993. Historical
financial information about the Fund is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares will incur. (See "Fund Expenses.")
Nevertheless, historical information about the Fund may be useful to
investors if they take into account the differences in expenses. Accordingly,
the financial highlights included in this table have been derived from the
Fund's financial statements for the periods indicated and have been audited
by Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended March 31, 1996 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, 1996 which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(For a share outstanding throughout each period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Shares Class A Shares
-------------------- ---------------------------------------------------
For the Period For the Period
November 2, 1995* October 1, 1993*
through For the Year Ended through
March 31, 1996 March 31, 1996 March 31, 1995 March 31, 1994
-------------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period .. $ 9.93 $ 9.52 $ 9.50 $ 10.00
-------------------- -------------- -------------- ----------------
Income from Investment
Operations:
Net investment income ... 0.15 0.39 0.40 0.14
Net realized and unrealized
gain/(loss) on
investments .......... (0.03) 0.38 0.05 (0.53)
-------------------- -------------- -------------- ----------------
Total from Investment
Operations ........... 0.12 0.77 0.45 (0.39)
-------------------- -------------- -------------- ----------------
Less Distributions:
Dividends from net
investment income .... (0.12) (0.39) (0.40) (0.11)
Distributions in excess of
income ............... -- (0.06) (0.03) --
-------------------- -------------- -------------- ----------------
Net asset value at end of
period ............... $ 9.93 $ 9.84 $ 9.52 $ 9.50
==================== ============== ============== ================
Total Return .............. 2.83%(1) 8.20%** 5.12%** (4.06)%**
Ratios to Average Net Assets:
Expenses(2) ............. 0.45%(1) 0.70% 0.70% 0.29%(1)
Net investment income(3) . 4.45%(1) 4.09% 4.44% 3.84%(1)
Supplemental Data:
Net assets at end of period
(000) ................ $7,068 $12,066 $12,919 $11,872
Portfolio turnover rate . 8.79% 8.79% 33.00% 8.51%
</TABLE>
- ------
* Commencement of operations.
** Total return 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 1.69%, 1.85% and
2.46% (annualized) for the Class A Shares for the years ended March 31,
1996 and March 31, 1995 and the period ended March 31, 1994,
respectively, and 1.30% (annualized) for the Institutional Shares for the
period ended March 31, 1996.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average net assets would have been
3.13%, 3.29% and 1.68% (annualized) for the Class A Shares for the years
ended March 31, 1996 and March 31, 1995 and the period ended March 31,
1994, respectively, and 3.67% (annualized) for the Institutional Shares
for the period ended March 31, 1996.
4
<PAGE>
- -------------------------------------------------------------------------------
3. Investment Program
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, 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 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
5
<PAGE>
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 between 3 and 10 years. 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 by S&P or Moody's, 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 by S&P or Moody's 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 by S&P or Moody's, 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.
6
<PAGE>
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
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
7
<PAGE>
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 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
(i) may pay a fixed, floating or variable rate of interest (ii) 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 (iii) 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
8
<PAGE>
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 the participation interests 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.
...............................................................................
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
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
9
<PAGE>
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.
...............................................................................
SPECIAL CONSIDERATIONS RELATING TO MARYLAND MUNICIPAL SECURITIES
The Fund's concentration in securities issued by the State of Maryland and
its political subdivisions, agencies and instrumentalities involves greater
10
<PAGE>
risk than a fund broadly invested across many states and municipalities. In
particular, changes in economic conditions and governmental policies of the
State of Maryland and its municipalities could adversely affect the value of
the Fund and the securities held by it. For further description of these
risks, see "Risk Factors Associated with a Maryland Portfolio" in the
Statement of Additional Information.
- ------------------------------------------------------------------------------
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 Fund's 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.
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5. How to Invest in Institutional Shares
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of
Alex. Brown may purchase Institutional Shares through Alex. Brown, 135 East
11
<PAGE>
Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080),
through any securities dealer which has entered into a dealer agreement with
Alex. Brown ("Participating Dealers"), or by completing the Application Form
attached to this Prospectus and returning it, together with payment of the
purchase price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $1,000,000 for
qualified retirement plans and $500,000 for all other eligible investors,
except that there is no minimum for clients of investment advisory affiliates
of Alex. Brown. There is no minimum for subsequent investments. The Fund
reserves the right to suspend the sale of Institutional Shares at any time at
the discretion of Alex. Brown and ICC.
Orders for purchases of Institutional Shares are accepted on any day on
which the New York Stock Exchange is open for business (a "Business Day").
Purchase orders for Institutional Shares will be executed at the net asset
value per share next determined after receipt of the purchase order.
Purchases made through Alex. Brown or a Participating Dealer must be in
accordance with such entity's payment procedures. Alex. Brown may, at its
sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing its share of the Fund's assets, deducting liabilities attributable to
the class, and dividing the resulting amount by the number of then
outstanding shares of the class. For this purpose portfolio securities are
given their market value where feasible. Portfolio securities that are
actively traded in the over-the-counter market, including listed securities
for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Such procedures may include the use of an independent pricing
service which uses prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Debt obligations with maturities of
60 days or less will be valued at amortized cost, which constitutes fair
value as determined by the Fund's Board of Directors.
12
<PAGE>
...............................................................................
OTHER INFORMATION
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such
shares will not be issued. All purchases of Institutional Shares are
confirmed and credited to the shareholder's account on the Fund's books
maintained by ICC or its agents. Shareholders will have the same rights and
ownership with respect to such shares as if certificates had been issued.
- -------------------------------------------------------------------------------
6. How to Redeem Institutional Shares
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through Alex. Brown or a
Participating Dealer, or by regular or express mail to the Transfer Agent at
its address listed under "Custodian, Transfer Agent and Accounting Services."
Shareholders may also redeem Institutional Shares by telephone (in amounts up
to $500,000). (See "Telephone Transactions" below.) A redemption request is
effected at the net asset value per share next determined after receipt of
the order in proper form. Redemption orders received after 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier,
will be effected at the next net asset value next determined on the following
Business Day. Payment for redeemed Institutional Shares will be made by wire
transfer of funds to the shareholder's bank, or to a Participating Dealer, as
appropriate, upon receipt of a duly authorized redemption request as promptly
as feasible and, under most circumstances, within three Business Days.
Dividends payable up to the date of the redemption of Institutional Shares
will be paid on the next dividend payment date. If all of the Institutional
Shares in an account have been redeemed on the dividend payment date, the
dividend will be remitted by wire to the shareholder's bank or to a
Participating Dealer, as appropriate .
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemption)
upon 60 days' written notice.
13
<PAGE>
- -------------------------------------------------------------------------------
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Institutional Shares in amounts up to
$500,000, by notifying the Fund's transfer agent (the "Transfer Agent") by
telephone at (800) 553-8080 on any Business Day between the hours of 8:30
a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its
address listed under "Custodian, Transfer Agent and 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 as next determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by express mail or
facsimile. (See "How to Invest in Institutional Shares -- Purchases by
Exchange" and "How to Redeem Institutional Shares.")
14
<PAGE>
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8. DIVIDENDS AND TAXES
...............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any
net capital gains (net long-term capital gains less net short-term capital
losses) on an annual basis or, alternatively, may elect to retain net capital
gains and pay tax thereon.
Unless the shareholder elects otherwise, all income dividends (consisting
of dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Institutional Shares
at net asset value. However, shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent (see "Custodian,
Transfer Agent and Accounting Services"), either directly or through Alex.
Brown or a Participating Dealer, at least five days before the next date on
which dividends or distributions will be paid.
...............................................................................
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.
15
<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 Institutional
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 Institutional Shares.
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. In
addition, as substantially all of the Fund's income is expected to be derived
from earned interest, it is anticipated that no portion of the Fund's
distributions will be eligible for the corporate dividends-received
deduction. 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
16
<PAGE>
long-term capital losses are taxable to investors as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional Institutional Shares. Distributions of net capital gains (the
excess of net long-term capital 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 Institutional Shares.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, 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 received by the shareholders and paid by the Fund 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 advisors concerning the application of state and local
taxes to investments in the Fund.
The sale, exchange or redemption of shares is a taxable event to the
shareholder.
...............................................................................
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 distributed to a shareholder of the Fund. 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
17
<PAGE>
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of shareholders for federal income
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.
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. Entities subject to the financial institution
franchise tax will generally be subject to tax on distributions from the
Fund.
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 of an issuer other than the State of
Maryland, its political subdivisions, or authorities is a preference item
taken into account for this purpose. 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.
18
<PAGE>
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*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
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Brian C. Nelson Vice President
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Harry Woolf Director Edward J. Stoken Secretary
Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
* Messrs. Hale and Semans are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act of 1940 (the
"1940 Act").
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10. Investment Advisor
Investment Company Capital Corp., the Fund's investment advisor, is an
indirect subsidiary of Alex. Brown Incorporated (described below). ICC is also
the investment advisor to, and Alex. Brown & Sons Incorporated ("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
$5.1 billion of net assets as of May 31, 1996. 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 Total Fund Operating Expenses do not exceed .45% of
the Institutional Shares' average daily net assets. For the fiscal year ended
March 31, 1996, ICC waived all advisory fees, amounting to $51,908, and
reimbursed expenses of $87,047.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
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.
19
<PAGE>
M. Elliott Randolph has 22 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has over 17 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.
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11. Distributor
Alex. Brown, 135 East Baltimore Street, Baltimore, Maryland 21202, acts as
distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm which offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly- owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the Institutional Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to
individuals and entities other than Fund shareholders.
- ------------------------------------------------------------------------------
12. Custodian, Transfer Agent and
Accounting Services
PNC Bank, National Association ("PNC Bank"), a national banking
association, with offices at Airport Business Park, 200 Stevens Drive,
Lester, Pennsylvania 19113, acts as custodian of the Fund's assets.
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore
Maryland 21202 (telephone: (800) 553-8080) is the Fund's transfer and
dividend disbursing agent. ICC also provides accounting services to the Fund.
As compensation for providing accounting services to the Fund for the fiscal
year ended March 31, 1996, ICC received a fee equal to .12% of the Fund's
average daily net assets. (See the Statement of Additional Information.) ICC
also serves as the Fund's investment advisor.
20
<PAGE>
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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 over one, five and ten year periods or, if such periods have not
yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding average annual compounded
rates of return over such periods that would equate an assumed initial
investment of $1,000 to the ending redeemable value according to the required
standardized calculation. The standardized calculation is required by the SEC
to provide consistency and comparability in investment company advertising
and is not equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which
such comparative data and indices are stated, which is normally total return
rather than yield.
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
21
<PAGE>
and market conditions. Any fees charged by financial institutions with
respect to customer accounts through which Institutional Shares may be
purchased, although not included in calculations of performance, will reduce
performance results.
- -------------------------------------------------------------------------------
14. GENERAL INFORMATION
...............................................................................
DESCRIPTION OF SHARES
The Fund was incorporated under the laws of the State of Maryland on July
23, 1993 and is authorized to issue 35 million shares of capital stock, par
value of $.001 per share, all of which shares are designated common stock.
Each share has one vote and shall be entitled to dividends and distributions
when and if declared by the Fund. In the event of liquidation or dissolution
of the Fund, each share would be entitled to its pro rata portion of the
Fund's assets after all debts and expenses have been paid. The fiscal year
end of the Fund is March 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Institutional Shares." The Board
has no present intention of establishing any additional series of the Fund
but the Fund does have another class of shares in addition to the shares
offered hereby: "Flag Investors Maryland Intermediate Tax Free Income Fund
Class A Shares." Shares of that class are subject to a maximum front-end
sales charge of 1.50% and a .25% 12b-1 fee. Additional information concerning
the Fund's Institutional Shares may be obtained by calling Alex. Brown at
(800) 767-FLAG. Different classes of the Fund may be offered to certain
investors and holders of such shares may be entitled to certain exchange
privileges not offered to Institutional Shares. All classes of the Fund share
a common investment objective, portfolio of investments and advisory fee, but
the classes may have different distribution fees or sales load structures and
the net asset value per share of the classes may differ at times.
...............................................................................
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
22
<PAGE>
meeting of shareholders be held for the purpose of considering the removal of
a Director from office, and if such a request is made, the Fund will assist
with the shareholder communications in connection with the meeting.
...............................................................................
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors, Deloitte
& Touche LLP.
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
...............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Institutional Shares should
contact Alex. Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080
or a Participating Dealer, as appropriate.
23
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Send completed Application by overnight carrier to: For assistance in completing this Application please
Alex. Brown & Sons Incorporated/Flag Investors Funds call: 1-800-553-8080, Monday-Friday, 8:30 a.m. to 5:30
1004 Baltimore Avenue, 4th Floor p.m. (Eastern Time).
Kansas City, MO 64105
Attn: Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc.
</TABLE>
If you are paying by check, make check payable to "Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc." and mail with this Application. If you
are paying by wire, see instructions below.
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
<TABLE>
<CAPTION>
<S> <C>
Name on Account Mailing Address
- ---------------------------------------------- -----------------------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- ---------------------------------------------- -----------------------------------------------------------
Tax ID Number Street
-----------------------------------------------------------
[ ] Corporation [ ] Partnership [ ] Trust City State Zip
[ ] Non-Profit or Charitable Organization [ ] Other _____________ ( )
If a Trust, please provide the following: ----------------------------------------------------------
Daytime Phone
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INITIAL INVESTMENT
The initial minimum purchase for the Institutional Shares of the Fund is
$1,000,000 for qualified retirement plans and $500,000 for all other eligible
investors, except that there is no minimum for clients of investment advisory
affiliates of Alex. Brown. There is no minimum for subsequent investments.
Indicate the amount to be invested and the method of payment:
______ A. By Mail: Enclosed is a check in the amount of $______ payable to
Flag Investors Maryland Intermediate Tax Free Income Fund,
Inc.
______ B. By Wire: A bank wire in the amount of $______has been sent
from_______________________ _________________________
Name of Bank Wire Control Number
Wire Instructions
Follow the instructions below to arrange for a wire transfer for
initial investment:
o Send completed Application by overnight carrier to Alex. Brown &
Sons Incorporated/Flag Investors Funds at the address listed
above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust
Company ("IFTC"), as follows:
IFTC
a/c Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7528191
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
-- Institutional Shares
o The amount to be invested
o "For further credit to _________________________________."
(Investor's Fund Account Number)
- -------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- -------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want:
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank
account designated below.
- -----------------------------------------------------------------------------
BANK ACCOUNT DESIGNATION
(THIS SECTION MUST BE COMPLETED)
Please attach a blank, voided check to provide account and bank routing
information.
- ---------------------------- --------------------------------------
Name of Bank Branch
- ---------------------------- --------------------------------------
Bank Address City/State/Zip
- ---------------------------- --------------------------------------
Name(s) on Account
- ---------------------------- --------------------------------------
Account Number A.B.A. Number
<PAGE>
- ------------------------------------------------------------------------------
ACKNOWLEDGEMENT, CERTIFICATE AND SIGNATURE
I have received a copy of the Fund's prospectus dated August 1, 1996. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:
- -----------------------------------------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -------------------------------------------------------------------------------
PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
__________* of the Authorized Person(s) is, by lawful and appropriate action of
the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- -------------------------------------------------------------------------------
Name/Title Signature Date
- -------------------------------------------------------------------------------
Name/Title Signature Date
- -------------------------------------------------------------------------------
Name/Title Signature Date
- -------------------------------------------------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that
person's signature. Investment Company Capital Corp. ("ICC") may, without
inquiry, act upon the instructions (whether verbal, written, or provided by
wire, telecommunication, or any other process) of any person claiming to be
an Authorized Person. Neither ICC nor any entity on behalf of which ICC is
acting shall be liable for any claims or expenses (including legal fees) or
for any losses resulting from actions taken upon any instructions believed to
be genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended
Application. Provisions of this Application shall be equally applicable to
any successor of ICC.
* If this space is left blank, any one Authorized Person is authorized to
give instructions and make inquiries. Verbal instructions will be accepted
from any one Authorized Person. Written instructions will require
signatures of the number of Authorized Persons indicated in this space.
- -------------------------------------------------------------------------------
CERTIFICATE OF AUTHORITY
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I _________, Secretary of the above-named investor, do hereby certify that at a
meeting on ___________, at which a quorum was present throughout, the Board of
Directors (Board of Trustees) of the investor duly adopted a resolution which
is in full force and effect and in accordance with the investor's charter and
by-laws, which resolution did the following: (1) empowered the
officers/trustees executing this Application (or amendment) to do so on
behalf of the investor; (2) empowered the above-named Authorized Person(s) to
effect securities transactions for the investor on the terms described above;
(3) authorized the Secretary to certify, from time to time, the names and
<PAGE>
titles of the officers of the investor and to notify ICC when changes in
officers occur; and (4) authorized the Secretary to certify that such a
resolution has been duly adopted and will remain in full force and effect
until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this ________ day of _________, 199____ Secretary
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- ------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf
of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If
there are not enough spaces here for all necessary signatures, complete a
separate certificate containing the language of this Certificate B and attach
it to the Application).
- ------------------------------------------------------------------------------
Signature and title Date
- ------------------------------------------------------------------------------
Signature and title Date
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
--------------------
FLAG INVESTORS 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, 1996
Relating to Prospectuses Dated: August 1, 1996,
Relating to the Class A Shares and Institutional Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History.................................. 1
2. Investment Objectives and Policies............................... 1
3. Valuation of Shares and Redemption............................... 11
4. Federal Tax Treatment of Dividends and
Distributions.................................................. 12
5. Management of the Fund........................................... 15
6. Investment Advisory and Other Services........................... 19
7. Distribution of Fund Shares...................................... 21
8. Brokerage........................................................ 24
9. Capital Stock.................................................... 26
10. Semi-Annual Reports.............................................. 27
11. Custodian, Transfer Agent and Accounting Services ............... 27
12. Independent Auditors ............................................ 28
13. Performance Information.......................................... 28
14. Control Persons and Principal Holders of
Securities..................................................... 30
15. Financial Statements............................................. 31
<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. The
Fund currently offers two classes of shares: Flag Investors Maryland
Intermediate Tax Free Income Fund Class A Shares (the "Class A Shares") and Flag
Investors Maryland Intermediate Tax Free Income Fund Institutional Shares (the
"Institutional Shares") (collectively, the "Shares"). As used herein, the "Fund"
refers to Flag Investors Maryland Intermediate Tax Free Income Fund, Inc., and
specific references to either class of the Fund's Shares will be made using the
name of such class. The Class A Shares were formerly known as the Flag Investors
Shares.
There are two separate prospectuses for the Fund's Shares: one for the
Class A Shares and one for the Institutional Shares. Each prospectus contains
important information concerning the class of Shares offered thereby and the
Fund and may be obtained without charge from Alex. Brown & Sons Incorporated
("Alex. Brown"), 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 767-FLAG) or, from Participating Dealers that offer shares to
prospective investors. Prospectuses for the Class A Shares may also be obtained
from Shareholder Servicing Agents. As used herein, the term "Prospectus"
describes information common to the prospectuses of the two classes of the
Fund's shares, unless the term "Prospectus" is modified by the appropriate class
designation. As used herein, the "Fund" refers to Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. and specific references to either class
of the Fund's Shares will be made using the name of such class. Some of the
information required to be in this Statement of Additional Information is also
included in the Fund's current Prospectuses. To avoid unnecessary repetition,
references are made to related sections of the Prospectuses. In addition, the
Prospectuses and this Statement of Additional Information omit certain
information about the Fund and its business that is contained in the
Registration Statement respecting the Fund and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including such omitted items, may
be obtained from the SEC by paying the charges prescribed under its rules and
regulations.
The Fund was incorporated under the laws of the State of Maryland on
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, as amended. The fund commenced
offering the Class A Shares on October 1, 1993 and the Institutional Shares on
November 2, 1995.
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,
-1-
<PAGE>
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 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.
The Fund may also invest in municipal lease obligations or participation
certificates issued by government authorities or entities to finance the
acquisition or construction of a project or equipment. The certificates
represent participations in a lease or installment purchase contract relating to
such project or equipment. Although such municipal lease obligations do not
constitute general obligations of the issuer to which the issuer's unlimited
taxing power is pledged, lease obligations are frequently backed by the issuer's
covenant to budget for, appropriate and make the payments due under the lease
obligation; however, certain lease obligations contain "non-appropriation"
clauses which provide that the issuer has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult.
-2-
<PAGE>
These securities are a type of financing that has not yet developed the depth of
marketability associated with more conventional securities and may be illiquid.
The Fund will not purchase such lease obligations to the extent that it holds
municipal lease obligations or illiquid securities in an amount exceeding 10% of
its net assets, except that, if the Advisor determines that any municipal lease
obligations are liquid pursuant to guidelines adopted by the Board of Directors,
such municipal lease obligations shall not be included for purposes of
calculating the foregoing limit. 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 of its future
marketability and whether such obligations are rated. The Fund expects that it
will purchase only rated municipal lease obligations.
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, 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.
-3-
<PAGE>
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.
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
-4-
<PAGE>
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.
Repurchase Agreements. The Fund may enter into repurchase agreements
with financial institutions, such as banks and broker-dealers, deemed to be
credit worthy 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
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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.
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;
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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 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.
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.
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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 2.69 million in March, 1996 with the
majority of jobs in trade, service, and government sectors. The national
recession caused a loss of jobs in Maryland after employment levels peaked in
mid-1990 but employment levels began to recover in mid-1992. Unemployment was
4.8% in March, 1996, compared to a national average of 5.8%. The State's
population in 1995 was approximately 5.04 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 1995,
$2,094,900,000 in state and local debt was issued in Maryland, with
approximately 50% representing general obligation debt and 50% revenue bonds or
lease-backed debt.
Total combined tax supported debt outstanding of the State, Baltimore
City and all of the counties, municipalities and special districts within
Maryland totaled $12 billion as of June 30, 1994. The State of Maryland had
$2.89 billion in general obligation bonds outstanding as of March 31, 1996.
General obligation debt of the State of Maryland is rated Aaa by 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 34.0% and 10.7%, respectively,
between fiscal years 1990 and 1994. 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 $1.054 billion for fiscal year 1996 (ending June 30, 1996);
the principal amount of such bonds outstanding as of March 31, 1996 was $990.3
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 and St. Mary's College of Maryland, 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 March 31, 1996 was approximately $3.7 billion.
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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 March 31, 1996, $113
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. The following discussion focuses only
on the recent budgets of the State of Maryland. The soundness of the State's
budget, however, may have little or no correlation to the financial strength (or
weakness) of a particular political subdivision or a particular obligor on
conduit revenue bonds.
During the fiscal years 1991 through 1993, the national recession and
weakened economy caused shortfalls in the State's budgeted revenues and
increases in 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 years 1994 and 1995
with surpluses.
In April 1995, the State's General Assembly approved a $14.4 billion
budget for fiscal year 1996, an 8.2% increase over the fiscal year 1995 budget.
When the fiscal year budget was enacted, the State projected that it would end
the fiscal year with a general fund surplus of $3.1 million.
In December 1995 and March 1996, the State lowered its estimates of
general fund revenues by a total of $148 million. To address this reduction in
revenues, the State plans, among other things, to reduce general fund
appropriations and to transfer $78 million from the Revenue Stabilization
Account of the State Reserve Fund. The State expects the balance in the Revenue
Stabilization Account after this transfer to be $439 million.
In April 1996, the General Assembly of the State approved a $14.6
billion budget for fiscal year 1997, a 1.5% increase over the fiscal year 1996
budget. This budget includes funds sufficient to meet all fiscal year 1996
deficiencies and to meet all specific statutory funding requirements. The fiscal
year 1997 budget also incorporates $29 million in savings from revisions to the
State personnel system and reform to the welfare and Medicaid programs.
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
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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 health care institutions. 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. 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.
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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 (a "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 of a class is calculated by valuing all assets
held by the Fund attributable to the class, deducting any liabilities
attributable to the class, and dividing the resulting amount by the number of
then outstanding Shares of the class. For this purpose, portfolio securities
will be given their market value where feasible. Portfolio securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Advisor to be over-the-counter, are
valued at the quoted bid prices provided by principal market makers. If a
portfolio security is traded primarily on a national exchange on the valuation
date, the last quoted sale price will generally be used. Securities or other
assets for which market quotations are not readily available are valued at their
fair market value as determined in good faith under procedures established from
time to time and monitored by the Fund's Board of Directors. Such procedures may
include (i) the use of an independent pricing service which uses prices based
upon yields or prices of securities of comparable quality, coupon, maturity and
type, (ii) indications as to values from dealers 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 Class A Shares by check
and Institutional Shares by wire transfer of funds, as described in the
Prospectus relating to each class of Shares. However, if the Board of Directors
determines that it would be in the best interests of the remaining shareholders
to make payment of the redemption price in whole or in part by a distribution in
kind of securities from the portfolio of the Fund in lieu of cash, in conformity
with applicable rules of the SEC, the Fund will make such distributions in kind.
If Shares are redeemed in kind, the redeeming shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "Valuation of Shares" and such valuation will be
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.
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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 certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this 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 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.
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
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the Distribution Requirement by reason of distributions previously made for the
purpose of avoiding liability for federal excise tax (discussed below).
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.
For purposes of the Distribution Requirement (as well as for other
purposes), the Fund will be required to treat as interest income any recognized
market discount on debt obligations which it holds. Generally, market discount
is the amount by which the stated redemption price of a bond exceeds the amount
paid by a purchaser of the bond (most common where the value of a bond decreases
after original issue as a result of a decline in the creditworthiness of the
issuer or an increase in prevailing interest rates). Generally, upon the
disposition of a bond bearing market discount or receipt of any principal
payment with respect to such a bond, market discount is recognized by treating a
portion of the proceeds as interest income. The application of these rules (and
the rules regarding original issue discount) to debt obligations held by the
Fund could affect (i) the amount and timing of distributions to shareholders and
(ii) the ability of the Fund to satisfy the Distribution Requirement.
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
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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.
Individuals whose modified income exceeds certain base amounts are required to
include in gross income up to 85% of their social security benefits. Further,
the Fund may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial development bonds or are "related
persons" to such users. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
persons should consult their tax adviser before investing in the Fund.
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.
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, 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, 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
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<PAGE>
and local tax rules affecting an investment in the Fund and also as to the
application of the rules set forth above to a shareholder's particular
circumstances.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective dates
of birth and their principal occupations during the last five years are set
forth below. Unless otherwise indicated, the address of each Director and
executive officer is 135 East Baltimore Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered
Financial Analyst; President, Investment Company Capital Corp.
(registered investment advisor).
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Chartered
Financial Analyst; Director, Investment Company Capital Corp.
(registered investment advisor).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice-President and Chief Financial Officer,
General Dynamics Corporation (defense), 1989-1993 and Director,
The Arch Fund (registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee,
AIM Funds; Formerly, Consultant, Wendell & Stockel Associates,
Inc. (consulting firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (banking and finance); Chairman of the
Quality Control Inquiry Committee, American Institute of
Certified Public Accountants; Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993, Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992 and Partner,
KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West
Main Street, Durham, North Carolina 27705. President, Duke
Management Company (investments); Executive Vice President, Duke
University (education, research and healthcare).
-15-
<PAGE>
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market
Street, Suite 1700, Philadelphia, PA 19103. President and Chief
Executive Officer, The Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede Trust Company; Formerly,
Executive Director, The Pew Charitable Trusts.
HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New
Jersey 08540. Professor-at-Large Emeritus, Institute for
Advanced Study; Director, ATL and Spacelabs Medical Corp.
(medical equipment) and Family Health International (non-profit
research and education); Trustee, Reed College (education);
Director, Research America (non-profit medical research);
Formerly, Trustee, Rockefeller Foundation; and Director, Merrill
Lynch Cluster C Funds (registered investment companies).
M. ELLIOTT RANDOLPH, President (1/10/42)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present;
Principal, Monument Capital Management, Inc., 1988-1991.
PAUL D. CORBIN, Executive Vice President (7/24/52)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present;
Senior Vice President, First National Bank of Maryland,
1985-1991.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Executive Vice
President, Investment Company Capital Corp. (registered
investment advisor); and Vice President, Armata Financial Corp.
(registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager,
Special Products Department, Alex. Brown & Sons Incorporated.
MONICA M. HAUSNER, Vice President (10/26/61)
Vice President, Fixed Income Management Department, Alex. Brown
& Sons Incorporated, 1992-Present; Formerly, Assistant Vice
President, First National Bank of Maryland, 1984-1992.
BRIAN C. NELSON, Vice President (7/31/59)
Vice President, Alex. Brown & Sons Incorporated, Investment
Company Capital Corp. (registered investment advisor) and Armata
Financial Corp. (registered broker-dealer).
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September
1995-Present; Formerly, Vice President and Treasurer, The
Delaware Group of Funds (registered investment companies) and
Vice President, Delaware Management Company, Inc., 1980-August
1995.
EDWARD J. STOKEN, Secretary (8/7/47)
Compliance Officer, Alex. Brown & Sons Incorporated, April 1995
- Present; Formerly, Legal Advisor, Federated Investors
(registered investment advisor), 1991-1995.
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<PAGE>
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
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.
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 eight funds in
the Fund Complex. Mr. Hale serves as President and Director of one fund, Vice
President of one fund and Director of 10 other funds in the Fund Complex.
Messrs. Cunnane, Kroeger, Levy, McDonald, and Woolf serve as Directors of each
fund in the Fund Complex. Ms. Rimel serves as Director of six funds in the Fund
Complex. Mr. Veilleux serves as Executive Vice President of one fund and as Vice
President of each of the other funds in the Fund Complex. Mr. Nelson serves as
Vice President, Mr. Finelli serves as Treasurer, Mr. Stoken serves as Secretary
and Ms. DePrine serves as Assistant Secretary, respectively, of each fund in the
Fund Complex. Mr. Randolph serves as President of two funds and Vice President
of one fund in the Fund Complex. Mr. Corbin serves as Vice President of three
funds and Mr. Fearnow serves as Vice President of 10 funds in the Fund Complex.
Ms. Hausner serves as Vice President of three funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, Alex. Brown in the ordinary course of business. All
such transactions were made on substantially the same terms as those prevailing
at the time for comparable transactions with unrelated persons. Additional
transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of Alex. Brown may be considered to have received remuneration indirectly. As
compensation for his or her services as Director, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested Director"), receives an aggregate annual fee (plus reimbursement
for reasonable out-of-pocket expenses incurred in connection with his or her
attendance at Board and committee meetings) from all Flag Investors/ISI Funds
and Alex. Brown Cash Reserve Fund, Inc. for which he or she serves. In addition,
the Chairman of the Fund Complex's Audit Committee receives an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses are allocated among
all such funds described above in direct proportion to their relative net
assets. For the fiscal year ended March 31, 1996, Non-Interested Directors' fees
attributable to the assets of the Fund totalled approximately $1,000. The
following table shows aggregate compensation and retirement benefits paid to
each of the Fund's Directors by the Fund and the Fund Complex, respectively, in
the fiscal year ended March 31, 1996.
-17-
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Pension or Retirement Estimated Total Compensation from the
Position for the Fiscal Year Ended Benefits Accrued as Annual Benefits Fune and Fund Complex Paid to
March 31, 1996 Part of Fund Expenses Upon Retirement Directors for the Fiscal Year
Ended March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*Richard T. Hale $0 $0 $0 $0
Chairman and Director
*Truman T. Semans $0 $+ $0 $0
Director
James J. Cunnane $123(1) $+ $19,500 $39,000 for service on 13
Director Boards in the Fund Complex(2)
**N. Bruce Hannay $112(1) $+ $19,500 $35,786 for service on 13
Director Boards in the Fund Complex(2)
John F. Kroeger $146(1) $+ $24,500 $45,950 for service on 13
Director Boards in the Fund Complex(2)
Louis E. Levy $123(1) $+ $19,500 $39,000 for service on 13
Director Boards in the Fund Complex(2)
Eugene J. McDonald $123(1) $+ $19,500 $39,000 for service on 13
Director Boards in the Fund Complex(2)
***Rebecca W. Rimel $130*** $+ $19,500 $29,250 for service on 6
Director Boards in the Fund Complex
Harry Woolf $123(1) $+ $19,500 $39,000 for service on 13
Director Boards in the Fund Complex(2)
</TABLE>
- ----------------------------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired on January 31, 1996 and is now deceased.
*** Elected to the Board on June 1, 1995.
+ The Fund Complex has adopted a retirement plan for eligible Directors,
as described below. The actuarially computed pension expense for the
year ended March 31, 1996 was approximately $7,000
1 $0 of this amount has been deferred pursuant to a deferred compensation
plan.
2 One of these funds ceased on May 17, 1995.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by such Participant in his or
her last year of service. Upon retirement, each Participant will receive
annually 10% of such fee for each year that he or she served after completion of
the first five years, up to a maximum annual benefit of 50% of the fee earned by
such participant in his or her last year of service. The fee will be paid
quarterly, for life, by each Fund for which he or she serves. The Retirement
Plan is unfunded and unvested. Messrs. Kroeger and Woolf have qualified but have
not received benefits. 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.
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald, Woolf and
Ms. Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select various Flag and Alex.
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<PAGE>
Brown Funds in which all or part of their deferral account shall be deemed to be
invested. Distributions from the deferring Directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of ten
years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the Investment Company Act. The Code of Ethics significantly
restricts the personal investing activities of all employees of ICC and the
directors and officers of Alex. Brown. As described below, the Code of Ethics
imposes additional, more onerous, restrictions on the Fund's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any director or
officer of Alex. Brown, and all Directors, preclear personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases which are part of an automatic dividend reinvestment plan). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and preclearance of the
acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On 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 Financial Corporation and an indirect subsidiary of
Alex. Brown Incorporated. 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 distributed by Alex. Brown, the Fund's
distributor.
Under the Investment Advisory Agreement, ICC obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Fund. Any investment program undertaken by ICC will
at all times be subject to policies and control of the Fund's Board of
Directors. ICC will provide the Fund with office space for managing its affairs,
with the services of required executive personnel and with certain clerical and
bookkeeping services and facilities. These services are provided by ICC without
reimbursement by the Fund for any costs. ICC shall not be liable to the Fund or
its shareholders for any act or omission by ICC or any losses sustained by the
Fund or its shareholders, except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty. As compensation for its
services, ICC receives an annual fee from the Fund, payable monthly, at the
annual rate of .35% of the 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 Class A Shares' average daily net assets and
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<PAGE>
.45% of the Institutional Shares' average daily net assets. The services of ICC
to the Fund are not exclusive and ICC is free to render similar services to
others.
ICC has also agreed to reduce its aggregate fees on a monthly basis for
any fiscal year to the extent required so that the amount of the ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) paid or incurred by the Fund for such fiscal
year does not exceed the expense limitations applicable to the Fund imposed by
the securities laws or regulations of the states in which the Shares are
registered or qualified for sale, as such limitations may be raised or lowered
from time to time. Currently, the most restrictive of such expense limitations
requires the Advisor to reduce its fees to the extent required so that ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) do not exceed 2.5% of the first $30 million of
the Fund's average daily net assets, 2.0% of the next $70 million of the Fund's
average daily net assets and 1.5% of the Fund's average daily net assets in
excess of $100 million. In addition, if required to do so by any applicable
state securities laws or regulations, ICC will reimburse the Fund to the extent
required to prevent the expense limitations of any state law or regulation from
being exceeded.
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 Investment Advisory Agreement was
most recently approved for continuance by the Fund's Board of Directors on
September 25, 1995. 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 years ended March 31, 1996 and March
31, 1995 and for the Fund's initial fiscal period ended March 31, 1994, ICC
waived all advisory fees ($51,908, $45,630 and $12,065, respectively). In
addition, for the same period, ICC reimbursed the Fund for other expenses
aggregating $87,047, $90,867 and $63,115, respectively. Absent such waivers and
reimbursements, the Fund's total operating expenses would have been 1.69%, 1.85%
and 2.46%, respectively, of the Class A Shares' average daily net assets and for
the period ended March 31, 1996, 1.30% (annualized) of the Institutional Shares'
average daily net assets.
In addition to its services as investment advisor, ICC also provides
accounting services to the Fund and serves as the Fund's transfer and dividend
disbursing agent. (See "Custodian, Transfer Agent and Accounting Services.")
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<PAGE>
7. DISTRIBUTION OF FUND SHARES
Alex. Brown serves as the distributor of each class of the Fund's
Shares pursuant to two separate Distribution Agreements, one for the Class A
Shares (the "Class A Distribution Agreement") and one for the Institutional
Shares (the "Institutional Distribution Agreement") (collectively, the
"Distribution Agreements").
The Class A Shares
The Class A Distribution Agreement provides that Alex. Brown has the
exclusive right to distribute the Class A Shares either directly or through
other broker-dealers. The Distribution Agreement further provides that Alex.
Brown will: (a) solicit and receive orders for the purchase of Class A Shares;
(b) accept or reject such orders on behalf of the Fund in accordance with the
Fund's currently effective Prospectus and transmit such orders as are accepted
to the Fund's transfer agent as promptly as possible; (c) receive requests for
redemptions and transmit such redemption requests to the Fund's transfer agent
as promptly as possible; and (d) respond to inquiries from shareholders
concerning the status of their accounts and the operations of the Fund. Alex.
Brown has not undertaken to sell any specific number of Class A Shares. The
Class A Distribution Agreement further provides that, in connection with the
distribution of Class A Shares, Alex. Brown will be responsible for all of the
promotional expenses. The services provided by Alex. Brown to the Fund are not
exclusive, and Alex. Brown is free to provide similar services to others. Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers") have
entered into Sub-Distribution Agreements under which such broker-dealers have
agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.
As compensation for providing distribution services for the Class A
Shares as described above, Alex. Brown receives an annual fee, paid monthly,
equal to .25% of the average daily net assets of the Class A Shares. Alex. Brown
expects to allocate most of its annual fee to its investment representatives and
up to all of its fee to Participating Dealers. For the fiscal years ended March
31, 1996 and March 31, 1995 and for the period from October 1, 1993
(commencement of operations) through March 31, 1994, Alex. Brown received
distribution fees of $32,318, $32,593 and $8,617, respectively, and from such
fees paid $32,318, $28,431 and $2,667, respectively, to its investment
representatives and $0, $494 and $0, respectively, to outside
broker-dealers as compensation.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted a Plan of Distribution
for the Class A Shares (the "Class A Plan"). Under the Class A Plan, the Fund
pays a fee to Alex. Brown for distribution and other shareholder servicing
assistance as set forth in the Class A Distribution Agreement, and Alex. Brown
is authorized to make payments out of its fee to its investment representatives
and to participating broker-dealers. The Class A Distribution Agreement,
including the Class A Plan and a form of Sub-Distribution Agreement, was
approved by the sole shareholder of the Fund on October 1, 1993. The Class A
Distribution Agreement has an initial term of two years and the Class A
Distribution Agreement and the Class A Plan encompassed therein will remain in
effect from year to year as specifically approved at least annually by the
Fund's Board of
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<PAGE>
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
Class A Plan was most recently approved in this manner by the Fund's Board of
Directors on September 25, 1995.
In approving the Class A Plan, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Class A Plan would benefit the Fund and its shareholders. The Class A Plan will
be renewed only if the Directors make a similar determination in each subsequent
year. The Class A Plan may not be amended to increase materially the fee to be
paid pursuant to the Class A Distribution Agreement without the approval of the
shareholders of the Fund. The Class A Plan may be terminated at any time and the
Class A Distribution Agreement may be terminated at any time upon sixty days'
notice, in either case without penalty, by the vote of a majority of the Fund's
Non-Interested Directors or by a vote of a majority of the outstanding Class A
Shares (as defined under "Capital Stock"). Any Sub-Distribution Agreement may be
terminated in the same manner at any time. The Class A Distribution Agreement
and any Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
During the continuance of the Class A Plan, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Class A Plan to Alex. Brown
pursuant to the Class A Distribution Agreement and to broker-dealers pursuant to
Sub-Distribution Agreements. Such reports will be made by the persons authorized
to make such payments. In addition, during the continuance of the Class A Plan,
the selection and nomination of the Fund's Non-Interested Directors will be
committed to the discretion of the Non-Interested Directors then in office.
For the fiscal year ended March 31, 1996, the Fund paid $32,318 to
Alex. Brown, the Fund's distributor, pursuant to the Plan. Alex. Brown, in turn,
paid the distribution-related expenses of the Fund including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sales personnel; and
interest, carring or other financing charges.
In addition, with respect to the Class A Shares, the Fund may enter
into Shareholder Servicing Agreements with certain financial institutions, such
as banks, to act as Shareholder Servicing Agents, pursuant to which Alex. Brown
will allocate a portion of its distribution fee as compensation for such
financial institutions' ongoing shareholder services. Although banking laws and
regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations by various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the shareholder servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. Such financial institutions may impose
separate fees in connection with these services and investors
-22-
<PAGE>
should review the Prospectus and this Statement of Additional Information in
conjunction with any such institution's fee schedule. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein, and banks and financial institutions may be required to
register as dealers pursuant to state law.
Under the Class A Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Class A Plan. Payments under the Class A Plan are made as described above
regardless of Alex. Brown's actual cost of providing distribution services and
may be used to pay Alex. Brown's overhead expenses. If the cost of providing
distribution services to the Fund in connection with the sale of the Class A
Shares is less than .25% of the Fund's average daily net assets for any period,
the unexpended portion of the distribution fee may be retained by Alex. Brown.
The Class A Plan does not provide for any charges to the Fund for excess amounts
expended by Alex. Brown and, if the Class A Plan is terminated in accordance
with its terms, the obligation of the Fund to make payments to Alex. Brown
pursuant to the Class A Plan will cease and the Fund will not be required to
make any payments past the date the related Class A Distribution Agreement
terminates.
For the fiscal years ended March 31 1996, March 31, 1995 and March 31,
1994, Alex. Brown received sales commissions on the Class A Shares of $11,719,
$48,153 and $126,180, respectively, and from such amounts retained $11,719,
$48,153, and $125,242 for each such year, respectively.
The Institutional Shares
The Institutional Distribution Agreement provides that Alex. Brown has
the exclusive right to distribute the Institutional Shares, either directly or
through Participating Dealers, and further provides that Alex. Brown will
solicit and receive orders for the purchase of Institutional Shares, accept or
reject such orders on behalf of the Fund in accordance with the Fund's currently
effective Prospectus for the Institutional Shares and transmit such orders as
are accepted to the Fund's transfer agent as promptly as possible, receive
requests for redemption and transmit such redemption requests to the Fund's
transfer agent as promptly as possible, respond to inquiries from the Fund's
shareholders concerning the status of their accounts with the Fund, maintain
such accounts, books and records as may be required by law or be deemed
appropriate by the Fund's Board of Directors, and take all actions deemed
necessary to carry into effect the distribution of the Institutional Shares.
Alex. Brown has not undertaken to sell any specific number of Institutional
Shares. The Institutional Distribution Agreement further provides that, in
connection with the distribution of Institutional Shares, Alex. Brown will be
responsible for all of the promotional expenses. The services provided by Alex.
Brown to the Fund are not exclusive, and Alex. Brown is free to provide similar
services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown or any losses sustained by
the Fund or its shareholders, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
Alex. Brown receives no compensation for distributing the Institutional
Shares.
Alex. Brown and Participating Dealers have entered into Sub-Distribution
Agreements under which such Participating Dealers have agreed to process
investor purchase and redemption orders and respond to inquiries from
shareholders concerning the status of their accounts and the operations of the
Fund.
The Institutional Distribution Agreement was approved by the Fund's
Board of Directors on September 25, 1995 and by the sole shareholder of the
class on October 31, 1995. It has an initial term
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<PAGE>
of two years and will remain in effect from year to year thereafter if
specifically approved at least annually by the Fund's Board of Directors and by
the affirmative vote of a majority of the Non-Interested Directors by votes cast
at a meeting called for such purpose. It may be terminated at any time upon
sixty days written notice, without penalty, by the vote of a majority of the
Fund's Non-Interested Directors or by a vote of the outstanding Institutional
Shares (as defined under Capital Stock). The Institutional Distribution
Agreement and any Sub-Distribution Agreement shall automatically terminate in
the event of assignment.
General Information
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the
Non-Interested Directors, and of independent auditors, in connection with any
matter relating to the Fund; a portion of membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by Alex. Brown or ICC.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
8. BROKERAGE
ICC is responsible for decisions to buy and sell securities for the
Fund, for the broker-dealer selection and for negotiation of commission rates.
Purchases and sales of securities on a securities exchange are effected through
broker-dealers who charge a commission for their services. ICC may direct
purchase and sale orders to any broker-dealer, including, to the extent and in
the manner permitted by applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money
-24-
<PAGE>
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
"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.
For the fiscal year ended March 31, 1996, 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
-25-
<PAGE>
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, 1996, 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, 1996, the
Fund held a 5.3% repurchase agreement issued by Goldman Sachs & Co.
which was valued at $2,177,000.
9. CAPITAL STOCK
The Fund is authorized to issue 35 million Shares of common stock, par
value $.001 per share. The Board of Directors may increase or decrease the
number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated three classes of shares: Flag Investors Maryland Intermediate Tax
Free Income Fund Class A Shares, Flag Investors Maryland Intermediate Tax Free
Income Fund Class B Shares, and Flag Investors Maryland Intermediate Tax Free
Income Fund Institutional Shares. The Institutional Shares are offered only to
certain eligible institutions and to clients of investment advisory affiliates
of Alex. Brown. The Class B Shares are not currently being offered. Shares of
the Fund, regardless of series or class would have equal rights with respect to
voting, except that with respect to any matter affecting the rights of the
holders of a particular series or class, the holders of each series or class
would vote separately. In general, each series would be managed separately and
shareholders of each series would have an undivided interest in the net assets
of that series. For tax purposes, the series would be treated as separate
entities. Generally, each class of Shares would be identical to every other
class in a particular series and expenses of the Fund (other than 12b-1 and any
applicable service fees) would be prorated between all classes of a series based
upon the relative net assets of each class. Any matters affecting any class
exclusively will be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all the members of the Board of Directors of
the Fund. In such event, the remaining holders cannot elect any members of the
Board of Directors of the Fund. There are no preemptive, conversion or exchange
rights applicable to any of the Shares. The issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of the
Fund, each Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
-26-
<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 AND 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, serves as transfer and
dividend disbursing agent and provides certain accounting services to the Fund
under a Master Services Agreement between the Fund and ICC. As compensation for
providing dividend and transfer agency services, the Fund pays ICC up to $15.00
per account per year, plus reimbursement for out-of-pocket expenses incurred in
connection therewith. ICC, as the Fund's Transfer Agent, has received fees for
the fiscal year ended March 31, 1996 which totalled $9,919.
ICC also provides certain accounting services to the Fund. As
compensation for providing accounting services, ICC receives 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 - $ 100,000,000 .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 under the Master Services Agreement: express delivery service,
independent pricing and storage.
For the fiscal year ended March 31, 1996, ICC received accounting fees
of $17,831.
ICC also serves as the Fund's investment advisor.
-27
<PAGE>
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP. Deloitte & Touche LLP has offices at 117 Campus Drive, Princeton,
New Jersey 08540.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end 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 (or the later commencement of operations of a
Series or class). During its first year of operations, the Fund may, in lieu of
annualizing its total return, use an aggregate total return calculated in the
same manner. In calculating the ending redeemable value, the maximum sales load
(1.50% for the Class A Shares) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the 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 Institutional Shares are sold without a sales load.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or
-28-
<PAGE>
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 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, 1996, the ending redeemable value of a hypothetical $1,000 payment for the
Class A Shares was $1,066, resulting in an annual total return for such Shares
equal to 6.58%. For the period from the effectiveness of the Fund's registration
statement on October 1, 1993 through the fiscal year ended March 31, 1996, the
ending redeemable value of a hypothetical $1,000 payment for Class A Shares was
$1,075, resulting in an average annual total return for such Shares equal to
2.93%.
Calculated according to SEC rules, for the period from commencement of
operations of the Institutional Shares on November 2, 1995, through the period
ended March 31, 1996, the ending redeemable value of a hypothetical $1,000
payment for Institutional Shares was $1,012, resulting in an aggregate total
return for such Shares equal to 1.16%.
Calculated according to the alternative computation, which assumes no
sales charges and reinvestment of all distributions, for the one-year period
ended March 31, 1996, the ending redeemable value of a hypothetical $10,000
investment in Class A Shares was $10,820, resulting in an annual total return
for such Shares equal to 8.20%. For the period from the effectiveness of the
Fund's registration statement on October 1, 1993 through the fiscal year ended
March 31, 1996, the ending redeemable value of a hypothetical $10,000 investment
in the Class A Shares was $1,091, resulting in an average annual total return
equal to 3.55%.
Calculated according to the alternative computation, which assumes no
sales charges and reinvestment of all distributions, for the period of
commencement of operations of the Institutional Shares on November 2, 1995
through the period ended March 31, 1996, the ending redeemable value of a
hypothetical $10,000 investment in Institutional Shares was $1,012, resulting in
an aggregate total return for such Shares equal to 1.16%.
Yield Calculations
The Fund's yield for the 30 day period ended March 31, 1996 was 4.13%
for the Class A Shares and 4.43% for the Institutional Shares 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
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<PAGE>
Fund's yield calculations assume a maximum sales charge of 1.50% for the Class A
Shares and no sales charge for the Institutional Shares. The Fund's net
investment income per Share earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements.
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 for the 30 day period ended March 31, 1996, for a
shareholder in the 31% bracket, was 5.99% for the Class A Shares and 6.42% for
the Institutional Shares.
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.
Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. For the fiscal years
ended March 31, 1996 and March 31, 1995, the Fund's portfolio turnover rate was
8.79% and 33%, respectively. A high level of portfolio turnover may generate
relatively high transaction costs and may increase the amount of taxes payable
by the Fund's shareholders.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 16, 1996, the following persons owned of record or
beneficially 5% or more of the Fund's total outstanding Shares:
Class A Shares
- ------------------------------
Alex. Brown & Sons Incorporated 94.15%*
135 E. Baltimore Street
Baltimore, MD 21202
As of July 16, 1996, to Fund Management's knowledge, Directors and officers as a
group owned less than 1% of the total outstanding Class A Shares.
Institutional Shares
- ------------------------------
Batrus & Co. 5.70%
P.O. Box 9005
New York, NY 10087-9005
Lauer & Co. Cust.
BAT Customers
c/o Glenmede Income Collection Dept. 8.92%
1650 Market St., Suite 1200
Philadelphia, PA 19103-7301
Lauer & Co. Cust. 64.86%
BAT Customers
c/o Glenmede Income Collection Dept.
1650 Market St., Suite 1200
Philadelphia, PA 19103-7301
Alex. Brown & Sons Incorporated 17.34*%
135 E. Baltimore Street
Baltimore, MD 21202
As of July 16, 1996, to Fund Management's knowledge, 1% of the total
outstanding Institutional Shares.
* As of July 16, 1996, to Fund Management's Knowledge, Alex. Brown & Sons Inc.
owned beneficially less than 1% of such Shares.
-30-
<PAGE>
15. FINANCIAL STATEMENTS
See next page.
-31-
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF NET ASSETS MARCH 31, 1996
<TABLE>
<CAPTION>
Ratings Percent
Par (Moody's Value of Net
(000) S&P(1) (Note A) Assets
<C> <S> <C> <C> <C>
MUNICIPAL BONDS - 90.9%
General Obligation - 57.0%
$500 Anne Arundel County, MD, Solid Waste Project
4.50%, 2/1/03 Aa/AA+ $ 494,180 2.6%
500 Baltimore County, MD, Metropolitan District, 64th Issue,
Callable 8/1/03 @ $102
4.50%, 8/1/06 Aaa/AAA 476,095 2.5
500 Baltimore County, MD, Metropolitan District, 61st Issue
6.80%, 4/1/00 Aaa/AAA 543,360 2.8
350 Baltimore County, MD, Mortgage Revenue,
Callable 11/1/03 @ $102
6.60%, 11/1/14 NR*/AAA 363,052 1.9
400 Calvert County, MD, Refunding Consolidated Public
Improvement Project, Callable 7/15/03 @ $102
4.80%, 7/15/07 Aa/A+ 382,284 2.0
200 Carroll County, MD, Refunding Consolidated Public
Improvement Project
4.60%, 11/1/03 Aa/AA 198,274 1.0
250 Cecil County, MD (FGIC Insured), Refunding Consolidated
Public Improvement Project, Callable 12/1/03 @ $102
5.00%, 12/1/06 Aaa/AAA 248,350 1.3
500 Charles County, MD, Refunding Consolidated Public
Improvement Project, Series 94
6.00%, 6/1/99 Aa/AA- 524,620 2.7
400 Frederick County, MD, Refunding, Series "C"
4.60%, 8/1/03 Aa/AA- 396,636 2.1
500 Frederick, MD, Refunding and Improvement (FGIC Insured)
5.80%, 12/1/02 Aaa/AAA 531,620 2.7
200 Howard County, MD, Refunding Consolidated
Public Improvement Project, Series "A"
4.875%, 8/15/02 Aaa/AA+ 203,442 1.0
500 Howard County, MD, Unlimited Consolidated
Public Improvement Project, Series "A"
Pre-refunded 5/15/00 @ $100
7.00%, 5/15/08 Aaa/AAA 547,560 2.8
500 Kent County, MD, College, Project & Refunding-
Washington College, Callable 7/1/99 @ $102
7.70%, 7/1/18 Baa/NR** 544,140 2.8
375 Laurel, MD, Refunding, Series "A" Project, (MBIA Insured),
Callable 7/1/01 @ $102
6.60%, 7/1/03 Aaa/AAA 413,126 2.2
500 Maryland National Capital Park & Planning Commission
(Prince George's County), Callable 7/1/05 @ $101
5.00%, 7/1/08 Aa/AA 490,980 2.6
</TABLE>
32
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF NET ASSETS (continued) MARCH 31, 1996
<TABLE>
<CAPTION>
Ratings Percent
Par (Moody's Value of Net
(000) S&P(1) (Note A) Assets
<C> <S> <C> <C> <C>
General Obligation - (continued)
$500 Maryland State and Local Facilities Loan, Second Series,
Callable 4/15/03 @ $100
5.00%, 4/15/04 Aaa/AAA $ 507,400 2.7%
Maryland State and Local Facilities Loan, Third Series,
Callable 7/15/01 @ $101
600 4.30%, 7/15/03 Aaa/AAA 584,202 3.1
300 6.50%, 7/15/04 Aaa/AAA 326,196 1.7
100 Maryland State Capital Improvement and Refunding,
Callable 5/15/02 @ $102
6.00%, 5/15/07 Aaa/AAA 106,420 0.6
450 Maryland State Capital Improvement and Refunding
4.90%, 4/15/03 Aaa/AAA 456,683 2.4
600 Montgomery County, MD, Refunding Consolidated Public
Improvement Project, Series "A"
4.50%, 10/1/03 Aaa/AAA 594,348 3.1
500 Ocean City, MD, Refunding (MBIA Insured)
5.00%, 3/15/03 Aaa/AAA 506,440 2.6
250 Prince George's County, MD, Refunding Consolidated
Public Improvement Project, Series "A" (MBIA Insured),
Callable 3/1/02 @ $102
5.40%, 9/1/02 Aaa/AAA 261,003 1.4
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 259,300 1.4
250 St. Mary's County, MD, Metropolitan Commission,
Callable 11/1/03 @ $102
5.65%, 11/1/07 A/A+ 258,398 1.4
250 Washington Suburban Sanitary District, MD
Pre-refunded 11/1/01 @ $102
6.40%, 11/1/04 Aaa/AAA 276,343 1.4
360 Washington Suburban Sanitary District, MD
8.00%, 1/1/02 Aa1/AA 420,250 2.2
10,914,702 57.0
Other Revenue - 32.5%
100 Baltimore, MD, Convention Center,
Callable 9/1/04 @ $100(FGIC Insured)
5.60%, 9/1/06 Aaa/AAA 102,902 0.5
245 Charles County, MD, Housing Revenue (MBIA Insured),
Callable 7/1/03 @ $102
5.375%, 7/1/09 Aaa/AAA 245,081 1.3
</TABLE>
33
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF NET ASSETS (continued) MARCH 31, 1996
<TABLE>
<CAPTION>
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P(1) (Note A) Assets
<C> <S> <C> <C> <C>
Other Revenue - (continued)
$400 Maryland State Center for Physics Headquarters
5.80%, 1/1/01 NR*/BBB $ 401,851 2.2%
100 Maryland State Community Development Administration,
Single Family Program, Third Series
4.55%, 4/1/02 Aa/NR* 98,924 0.5
200 Maryland State Health and Higher Education Facilities
Authority, Revenue for Frederick Memorial Hospital
(FGIC Insured)
4.70%, 7/1/02 Aaa/AAA 199,236 1.0
500 Maryland State Health and Higher Education Facilities
Authority, Revenue for Good Samaritan Hospital
5.40%, 7/1/04 A1/A 504,930 2.6
750 Maryland State Health and Higher Education Facilities
Authority, Revenue for Greater Baltimore Medical Center,
Variable Rate
3.30% at 3/31/96, 7/1/25 (Weekly put option) A1/NR* 750,000 3.9
555 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* 584,670 3.1
200 Maryland State Health and Higher Education Facilities
Authority, Revenue for Howard County General Hospital
4.55%, 7/1/98 Baa1/BBB 200,328 1.0
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 294,786 1.5
300 Maryland State Health and Higher Education Facilities
Authority, Revenue for Suburban Hospital
4.75%, 7/1/03 A1/A 292,788 1.5
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 152,631 0.8
250 Maryland State Health and Higher Education Facilities
Authority, Revenue for Washington County Hospital
(MBIA Insured)
4.45%, 1/1/02 Aaa/AAA 245,972 1.3
Maryland State Stadium Authority Lease,
Ocean City Convention Center
300 4.80%, 12/15/03 Aa/AA 301,131 1.6
200 4.80%, 12/15/05 Aa/AA 197,300 1.0
</TABLE>
34
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF NET ASSETS (concluded) MARCH 31, 1996
<TABLE>
<CAPTION>
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P(1) (Note A) Assets
<C> <S> <C> <C> <C>
Other Revenue - (concluded)
$400 Maryland State Transportation Authority,
Transportation Facility Projects Revenue
6.625%, 7/1/03 Aaa/AAA $ 422,056 2.2%
300 Montgomery County, MD, Maryland Housing Opportunities
Commission, Series "A," Callable 7/1/03 @ $102
4.70%, 7/1/04 Aa/NR* 296,547 1.6
350 Northeast, MD, Waste Disposal Authority Recovery Revenue
(MBIA Insured)
6.65%, 1/1/97 Aaa/AAA 358,117 2.0
500 University of Maryland Systems Auxiliary Facilities &
Tuition Revenue, Series "B"
Pre-refunded 10/1/02 @ $102
6.40%, 4/1/06 Aa/AAA 555,750 2.9
6,205,000 32.5
Transportation Revenue - 1.4%
275 Washington, D.C., Metropolitan Area Transportation
Authority for Gross Revenue (FGIC Insured)
4.50%, 1/1/01 Aaa/AAA 273,471 1.4
Total Municipal Bonds
(Cost $17,407,140) 17,393,173 90.9
REPURCHASE AGREEMENT - 11.4%
2,177 Goldman Sachs & Co., 5.3%
Dated 3/29/96, to be repurchased on 4/1/96, collateralized by
U.S. Treasury Bonds with a market value of $2,199,517.
(Cost $2,177,000) 2,177,000 11.4
Total Investment in Securities
(Cost $19,584,141)** 19,570,173 102.3
Other Liabilities in Excess of Other Assets, Net (436,609) (2.3)
Net Assets--100.0% $19,133,564 100.0%
Net Asset Value Per:
Class A Share ($12,065,983 / 1,225,743 shares outstanding) $9.84
Institutional Share
($7,067,581 / 711,488 shares outstanding) $9.93
Maximum Offering Price Per:
Class A Share ($9.84 / 0.985) $9.99
Institutional Share $9.93
</TABLE>
(1) The Moody's and Standard & Poor's ratings are believed to be the most recent
ratings available as of March 31, 1996.
* Not rated.
** Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
35
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
INVESTMENT INCOME (NOTE A):
Interest $ 716,618
EXPENSES:
Investment advisory fee (Note B) 51,908
Legal 36,987
Distribution fee (Note B) 32,318
Printing and postage 28,581
Audit 24,901
Accounting fee (Note B) 17,831
Organizational expense (Note A) 10,252
Transfer agent fees (Note B) 9,919
Custodian fee 8,168
Miscellaneous 8,025
Registration fees 7,215
Pricing 5,000
Directors' fees 999
Insurance 436
Total expenses 242,540
Less: Fees waived and expenses reimbursed (Note B) (138,955)
Net expenses 103,585
Net investment income 613,033
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from security transactions (2,588)
Change in unrealized appreciation of investments 434,427
Net realized and unrealized gain on investments 431,839
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,044,872
See accompanying Notes to Financial Statements.
36
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
March 31, March 31,
1996 1995
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 613,033 $ 564,967
Net loss from security transactions (2,588) (116,538)
Change in unrealized appreciation
of investments 434,427 122,723
Net increase in net assets resulting
from operations 1,044,872 571,152
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Flag Investors Class A Shares (528,695) (606,205)
Flag Investors Institutional Shares (60,193) --
Distributions in excess of income (Class A Shares) (68,882) (8,865)
Total distributions (657,770) (615,070)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 10,461,018 5,832,374
Value of shares issued in reinvestment of dividends 402,890 415,255
Cost of shares repurchased (5,036,544) (5,156,129)
Total increase in net assets derived from
capital share transactions 5,827,364 1,091,500
Total increase in net assets 6,214,466 1,047,582
NET ASSETS:
Beginning of period 12,919,098 11,871,516
End of period $19,133,564 $12,919,098
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year For the Year For the Period
Ended Ended October 1, 1993*
March 31, March 31, through
1996 1995 March 31, 1994
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.52 $ 9.50 $ 10.00
Income from Investment Operations:
Net investment income 0.39 0.40 0.14
Net realized and unrealized gain/(loss)
on investments 0.38 0.05 (0.53)
Total from Investment Operations 0.77 0.45 (0.39)
Less Distributions:
Dividends from net investment income (0.39) (0.40) (0.11)
Distributions in excess of income (0.06) (0.03) --
Net asset value at end of period $ 9.84 $ 9.52 $ 9.50
Total Return(1) 8.20% 5.12% (4.06)%
Ratios to Average Net Assets:
Expenses(2) 0.70% 0.70% 0.29%**
Net investment income(3) 4.09% 4.44% 3.84%**
Supplemental Data:
Net assets at end of period (000) $12,066 $12,919 $11,872
Portfolio turnover rate 8.79% 33.00% 8.51%
</TABLE>
* Commencement of operations.
** Annualized.
(1) Total return excludes the effect of sales loads.
(2) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of expenses to average net assets would have been 1.69%, 1.85% and
2.46% for the years ended March 31, 1996, 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
3.13%, 3.29% and 1.68%for the years ended March 31, 1996, 1995, and the
period ended March 31, 1994, respectively.
See accompanying Notes to Financial Statements.
38
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(For a share outstanding throughout the period)
For the Period
November 2, 1995*
through
March 31, 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 9.93
Income from Investment Operations:
Net investment income 0.15
Net realized and unrealized loss
on investments (0.03)
Total from Investment Operations 0.12
Less Distributions:
Dividends from net investment income
and short-term gains (0.12)
Net asset value at end of period $ 9.93
Total Return 2.83%**
Ratios to Average Net Assets:
Expenses(1) 0.45%**
Net investment income(2) 4.45%**
Supplemental Data:
Net assets at end of period (000) $7,068
Portfolio turnover rate 8.79%
* Commencement of operations.
** Annualized.
(1) Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 1.30% for the period November 2, 1995
through March 31, 1996.
(2) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 3.67% for the period November
2, 1995 through March 31, 1996.
See accompanying Notes to Financial Statements.
39
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
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, by
offering Class A Shares, which are subject to a maximum front-end sales
charge of 1.50% and a 0.25% distribution fee. On November 2, 1995, the Fund
began offering Institutional Shares, which are not subject to a front-end
sales charge or a distribution fee. The 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 invests more
broadly.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies followed by the Fund.
Security Valuation - 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 face 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 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
under Sub-chapter M of the Internal Revenue Code and to make requisite
distributions to the shareholders that will be sufficient to relieve it from
all or substantially all federal income and excise taxes. The Fund's policy
is to distribute to shareholders substantially all of its long-term taxable
net investment income on a monthly basis and net realized capital gains
annually, if any.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis. 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
40
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
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 next $500 million of the Fund's
average daily net assets; and 0.25% of the Fund's average daily net assets in
excess of $1.5 billion.
ICC has agreed to reduce its aggregate fees 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. ICChas
voluntarily agreed to waive its fees to the extent required to maintain
expenses at no more than 0.70% of the average daily net assets for Class A
Shares and 0.45% for Institutional Shares. For the year ended March 31, 1996,
ICC waived fees of $51,908 and reimbursed expenses of $87,047.
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 $17,831 for accounting services for the year ended
March 31, 1996.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated and paid monthly. ICC received $9,919 for
transfer agent services for the year ended March 31, 1996.
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 Class A
Shares. For the year ended March 31, 1996, distribution fees aggregated
$32,318. Alex. Brown received no commissions from the Fund for the year
ended March 31, 1996.
Flag Investors/ISI Fund complex has adopted a retirement plan for eligible
Directors. The pension expense and liability for the year ended March 31,
1996 were not material.
C. Capital Share Transactions - The Fund is authorized to issue up to 35 million
shares of $.001 par value common stock (25 million Class A, 2 million Class
B, 5 million Institutional and 3 million undesignated). Transactions in
shares of the Fund were as follows:
Class A Shares
For the Year Ended March 31,
1996 1995
Shares sold 318,331 617,845
Shares issued to share-
holders on reinvestment
of dividends 39,023 44,409
Shares redeemed (488,564) (554,945)
Net increase/(decrease) in
shares outstanding (131,210) 107,309
Proceeds from sale
of shares $ 3,133,248 $ 5,832,374
Reinvested dividends 382,490 415,255
Net asset value of shares
redeemed (4,810,545) (5,156,129)
Net increase/(decrease)
from capital share
transactions $(1,294,807) $ 1,091,500
Institutional Shares
For the Period
November 2, 1995*
through
March 31, 1996
Shares sold 731,839
Shares issued to shareholders
on reinvestment of dividends 2,037
Shares redeemed (22,388)
Net increase in shares
outstanding 711,488
Proceeds from sale
of shares $7,327,770
Reinvested dividends 20,400
Net asset value of shares
redeemed (225,999)
Net increase from capital share
transactions $7,122,171
*Commencement of operations.
41
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
D. Investment Transactions - Purchases and sales of investment securities, other
than short-term obligations, aggregated $5,680,137 and $1,226,844,
respectively, for the year ended March 31, 1996.
At March 31, 1996, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $125,072 and aggregate
gross unrealized depreciation for all securities in which there is an excess
of tax cost over value was $139,040.
E. Net Assets - At March 31, 1996, net assets for Flag Investors Class A Shares
consisted of:
Paid-in capital $12,198,984
Accumulated net
realized loss from
security transactions (120,021)
Unrealized appreciation
of investments 64,767
Overdistribution of net
investment income (77,747)
$12,065,983
At March 31, 1996, net assets for Flag Investors Institutional Shares
consisted of:
Paid-in capital $7,122,171
Unrealized depreciation
of investments (78,735)
Undistributed net
investment income 24,145
$7,067,581
F. Distributions - Of the net investment income distributions paid monthly by
the Fund during the taxable year ended March 31, 1996, 94.78% qualify as
tax-exempt interest dividends for federal income tax purposes. Additionally,
there were no capital gains distributed by the Fund during the year.
G. Capital Loss Carryforward - At March 31, 1996, there was a tax capital loss
carryforward of $120,021 of which $36,982 expires in 2003 and $83,039 expires
in 2004. This carryforward will be used to offset future net capital gains,
if any.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1996, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, the financial
highlights of the Class A Shares for each of the years in the two-year period
then ended and the period October 1, 1993 (commencement of operations) to March
31, 1994 and the financial highlights of the Institutional Shares for the period
November 2, 1995 (commencement of operations) to March 31, 1996. 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, 1996 by correspondence with the custodian and broker. 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, 1996, 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, 1996
43
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Moody's Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P-2 or P-3.
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having 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 rated categories.
BB, B, CCC, and CC and C -- Regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
A-1
<PAGE>
D -- In default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or the
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are 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.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<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, 1996
- Statement of Changes in Net Assets for the fiscal years
ended March 31, 1996 and March 31, 1995
- Statement of Operations for the fiscal year ended
March 31, 1996
- Financial Highlights for the fiscal years
ended March 31, 1996 and March 31, 1995
and for the period from October 1, 1993
(commencement of operations) through
March 31, 1994
- Notes to Financial Statements
- Report of Independent Accountants
(2) All required financial statements are included in Parts A and B
hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits
(1)(a)Articles of Incorporation.1
(1)(b)Articles Supplementary, filed herewith.
(1)(c)Articles Supplementary, filed herewith.
(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
(6)(d) Distribution Agreement with respect to Flag
Investors Maryland Intermediate Tax Free
Income Fund Institutional Shares between
Registrant and Alex. Brown & Sons
Incorporated, filed herewith.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and PNC Bank,
National Association.1
C-1
<PAGE>
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp., filed herewith.
(10) Opinion of Counsel.1
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Form of Subscription Agreement.1
(14) Not Applicable.
(15) Distribution Plan.1
(16) Schedule of Computation of Performance Quotations
(unaudited).1
(18) Registrant's 18f-3 Plan, filed herewith.
(24) Powers of Attorney.1
(27) Financial Data Schedule, filed herewith.
- ---------------------------------------------------
1 Incorporated by reference to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange
Commission via EDGAR on July 26, 1995.
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 16, 1996:
Title of Class Number of Record Holders
--------------------------------------------------------------
Class A Investors Shares 222
Institutional Shares 46
Item 27. Indemnification.
----------------
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in
C-2
<PAGE>
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.
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.
C-3
<PAGE>
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 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):
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------ ------------ -------------
Alvin B. Krongard Chairman, Chief None
Executive
Officer 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
- -------------------
* 135 East Baltimore Street
Baltimore, Maryland 21202
(c) Not Applicable.
C-4
<PAGE>
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.
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) 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 its
requirements for effectiveness of this Post-Effective Amendment No. 5 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 25th day of July, 1996.
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 amendment
to the Registration Statement has been signed below by the following persons in
the capacities on the date(s) indicated:
* Director July 25, 1996
- ----------------------------------- -------------
Richard T. Hale Date
* Director July 25, 1996
- ----------------------------------- -------------
Truman T. Semans Date
* Director July 25, 1996
- ----------------------------------- -------------
James J. Cunnane Date
* Director July 25, 1996
- ----------------------------------- -------------
John F. Kroeger Date
* Director July 25, 1996
- ----------------------------------- -------------
Louis E. Levy Date
* Director July 25, 1996
- ----------------------------------- -------------
Eugene J. McDonald Date
* Director July 25, 1996
- ----------------------------------- -------------
Rebecca W. Rimel Date
* Director July 25, 1996
- ----------------------------------- -------------
Harry Woolf Date
/s/ M. Elliott Randolph, Jr. President July 25, 1996
- ----------------------------------- -------------
M. Elliott Randolph, Jr. Date
/s/ Joseph A. Finelli Chief Financial July 25, 1996
- ----------------------------------- and Accounting -------------
Joseph A. Finelli Officer Date
* By: /s/ Brian C. Nelson
--------------------------
Brian C. Nelson
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Documents
- ------ ------------------------------------------------------------
(1)(a) Articles of Incorporation are hereby incorporated by reference
to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-66870), filed
with the Securities and Exchange Commission via EDGAR on July
26, 1995.
EX-99.B(1)(b) Articles Supplementary, filed herewith.
EX-99.B(1)(c) Articles Supplementary, filed herewith.
(2) By-Laws are hereby incorporated by reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A (File No. 33-66870), filed with the Securities and
Exchange Commission via EDGAR on July 26, 1995.
(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.
(5) Form of Investment Advisory Agreement between Registrant and
Flag Investors Management Corp. (now known as Investment
Company Capital Corp.) is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
(6)(a) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
(6)(b) Form of Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Dealers is hereby incorporated
by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-66870), filed
with the Securities and Exchange Commission via EDGAR on July
26, 1995.
(6)(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents is hereby incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-66870), filed
with the Securities and Exchange Commission via EDGAR on July
26, 1995.
<PAGE>
EX-99.B(6)(d) Distribution Agreement with respect to Flag Investors Maryland
Intermediate Tax Free Income Fund Institutional Shares between
Registrant and Alex. Brown & Sons Incorporated, filed
herewith.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and PNC Bank, National
Association is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
EX-99.B(9) Master Services Agreement between Registrant and Investment
Company Capital Corp., filed herewith.
(10) Opinion of Counsel is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
EX-99.B(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
(14) Not Applicable.
(15) Distribution Plan is hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
(16) Schedule of Computation of Performance Quotations (unaudited)
is hereby incorporated by reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A (File No. 33-66870), filed with the Securities and
Exchange Commission via EDGAR on July 26, 1995.
EX-99.B(18) Registrant's 18f-3 Plan, filed herewith.
C-8
<PAGE>
(24) Powers of Attorney are hereby incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 26, 1995.
EX-27 Financial Data Schedule, filed herewith.
C-9
<PAGE>
EXHIBIT 99B(1)B
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC. (the
"Corporation"), having its principal office in the City of Baltimore, certifies
that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to thirty-five million (35,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of thirty-five thousand dollars ($35,000), and classifying
and designating all of such previously unclassified shares of the Corporation as
follows: twenty-five million (25,000,000) shares are designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Shares," two million (2,000,000)
shares are designated "Flag Investors Maryland Intermediate Tax Free Income Fund
Class B Shares," five million (5,000,000) shares are designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Institutional Shares" and three
million (3,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty million (30,000,000) shares of Common Stock, of the
par value of 1 mil ($.001) per share and of the aggregate par value of thirty
thousand dollars ($30,000), all of which shares were designated Common Stock in
the Corporation's Articles of Incorporation.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. has caused these Articles Supplementary to be executed by one
of its Vice Presidents and its corporate seal to be affixed and attested by its
Secretary on this 6th day of October, 1995.
[CORPORATE SEAL]
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE
INCOME FUND, INC.
By: /s/ Edward J. Veilleux
-----------------------------------------
Vice President
Attest: /s/ Brian C. Nelson
-----------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS MARYLAND
INTERMEDIATE TAX FREE INCOME FUND, INC., who executed on behalf of said
corporation the foregoing Articles Supplementary to the Articles of
Incorporation of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles Supplementary
to the Articles of Incorporation to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
By: /s/ Edward J. Veilleux
----------------------------------------
Vice President
<PAGE>
EXHIBIT 99.B(1)(C)
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC. (the
"Corporation"), having its principal office in the City of Baltimore,
certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution redesignating and reclassifying the Corporation's twenty-five million
(25,000,000) previously designated "Flag Investors Maryland Intermediate Tax
Free Income Fund Shares" the "Flag Investors Maryland Intermediate Tax Free
Income Fund Class A Shares."
SECOND: Immediately before the redesignation and reclassification,
the Corporation was authorized to issue thirty-five million (35,000,000) shares
of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of thirty-five thousand dollars ($35,000), which were
classified and designated as follows: twenty-five million (25,000,000) shares
were designated "Flag Investors Maryland Intermediate Tax Free Income Fund
Shares," two million (2,000,000) shares were designated "Flag Investors Maryland
Intermediate Tax Free Income Fund Class B Shares," five million (5,000,000)
shares were designated "Flag Investors Maryland Intermediate Tax Free Income
Fund Institutional Shares" and three million (3,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. has caused these Articles Supplementary to be executed by one
of its Vice Presidents and its corporate seal to be affixed and attested by its
Secretary on this 24th day of April, 1996.
[CORPORATE SEAL]
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE
INCOME FUND, INC.
By: /s/ Brian C. Nelson
------------------------------------------
Vice President
Attest:/s/ Laurie D. DePrine
----------------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS MARYLAND
INTERMEDIATE TAX FREE INCOME FUND, INC., who executed on behalf of said
corporation the foregoing Articles Supplementary to the Articles of
Incorporation of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles Supplementary
to the Articles of Incorporation to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
By: /s/ Brian C. Nelson
-------------------------------------------
Vice President
<PAGE>
EXHIBIT 99.B(6)(D)
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
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, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the Secretary
of State of the State of Maryland on July 23, 1993 (the "Articles"), authorize
the Board of Directors of the Fund to increase or decrease the number of shares
of capital stock of the Fund and the number of shares of any class of capital
stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the designation
of two classes of shares of the Fund known respectively as the Flag Investors
Maryland Intermediate Tax Free Income Fund Shares and the Flag Investors
Maryland Intermediate Tax Free Income Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized the
creation of an institutional class of shares of the Fund known as the Flag
Investors Maryland Intermediate Tax Free Income Fund Institutional Shares (the
"Shares"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the Shares and Alex. Brown wishes to become the distributor of
the Shares.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. Alex. Brown
accepts such appointment and agrees to render the services set forth herein.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on 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 for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning the
status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed necessary to
carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown. Notwithstanding the
provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset value to any
shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders;
(b) Alex. Brown may enter into shareholder processing and servicing
agreements;
(c) Alex. Brown may, and when requested by the Fund shall, suspend
its efforts to effectuate sales of the Shares at any time when in the opinion of
Alex. Brown or of the Fund no sales should be made because of market or other
economic considerations or abnormal circumstances of any kind; and
(d) the Fund may withdraw the offering of the Shares (i) at any time
with the consent of Alex. Brown, or (ii) without such consent when so required
by the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
<PAGE>
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund under
the 1933 Act and the 1940 Act and any amendments and supplements thereto;
(c) the provisions of the Articles of Incorporation of the Fund and
any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost to
the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or sales
literature used by Alex. Brown or furnished by Alex. Brown to purchasers or
dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to Federal, State or other governmental
agencies; all costs and expenses in connection with maintenance of registration
of the Fund and the Shares with the SEC and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above; the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
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.
<PAGE>
Brown of any Fund expense that Alex. Brown is not required to pay or assume
under this Agreement shall not relieve Alex. Brown of any of its obligations to
the Fund or obligate Alex. Brown to pay or assume any similar Fund expense on
any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for the
services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal and redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund, and communicating with the Fund and its transfer
agent on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that Directors, officers or
employees of Alex. Brown may serve as Directors or officers of the Fund, and
that Directors or officers of the Fund may serve as Directors, officers and
employees of Alex. Brown to the extent permitted by law; and that Directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, Directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities of the Shares (as defined in the
1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are
not "interested persons" of the Fund (as defined in the 1940 Act) and do not
have a financial interest in the operation of this Agreement, by votes cast in
person at a meeting specifically called for such purpose.
<PAGE>
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
Attest: /s/ M. Simons By /s/ Edward J. Veilleux
--------------------- ------------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ M. Simons By /s/ Edward J. Veilleux
---------------------- -------------------------------------
Title:
<PAGE>
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the first day of January, 1994 by
and between FLAG INVESTORS 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 ICC
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
11. Notice. Any notice or other communication required to be
given pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, to the Fund at 135 E. Baltimore
Street, Baltimore, Maryland 21202, Attention: Brian C. Nelson, or to ICC at 135
E. Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Edward J.
Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the date
first above written and shall remain in force until terminated. This Agreement,
or any Appendix hereto, may be terminated at any time without the payment of any
penalty, by either party hereto on sixty (60) days' written notice to the other
party.
<PAGE>
(b) This Agreement shall be construed in accordance with
the laws of the State of Maryland.
(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: /s/ Brian Nelson
----------------------------------------
Title: Vice President
INVESTMENT COMPANY CAPITAL CORP.
By: /s/ Edward J. Veilleux
----------------------------------------
Title: President
<PAGE>
Appendix I
TRANSFER AGENCY 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 February 28, 1994 (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. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is fully authorized by
the Fund's Board of Directors, to give Oral and Written Instructions on behalf
of the Fund. Such persons are listed in the Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by ICC from an Authorized Person or from a
person reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received by
ICC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person (or from
a person reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions
confirming Oral Instructions so that ICC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by ICC shall
in no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. The Fund further agrees that ICC shall
incur no liability to the Fund in acting upon Oral or Written Instructions
provided such instructions reasonably appear to have been received from an
Authorized Person.
If ICC is in doubt as to any action it should or should not
take, ICC may request directions or advice, including Oral or Written
Instructions, from the Fund. ICC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which ICC believes,
in good faith, to be consistent with those directions, advice or Oral of Written
Instructions. Notwithstanding the foregoing, ICC shall have no obligation (i) to
seek such directions, advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written Instructions unless,
under the terms of other provisions of this Appendix, the same is a condition of
ICC's properly taking or not taking such action.
<PAGE>
3. Description of Services.
(a) General Services To be Provided. ICC shall provide to the
Fund the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to complete or correct
information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction
with proxy solicitations; solicit and tabulate
proxies; receive and tabulate proxy cards for
meetings of the Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry
response;
(ix) Mail duplicate confirmation to broker-dealers of
their clients' activity, whether executed through
the broker-dealer or directly with ICC;
(x) Provide periodic shareholder lists and statistics to
the Fund;
(xi) Provide detail for underwriter/broker confirmations;
(xii) Mail periodic year-end tax and statement
information;
(xiii) Provide timely notification to investment advisor,
accounting agent, and custodian of Fund activity;
and
(xiv) Perform other participating broker-dealer
shareholder services as may be agreed upon from time
to time.
(b) Purchase of Shares. ICC shall issue and credit an account
of an investor, in the manner described in the Prospectus, once it receives: (i)
a purchase order; (ii) proper information to establish a shareholder account;
and (iii) confirmation of receipt by, or crediting of funds for such order to,
the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares
only in accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the shareholder
tenders his or her shares and directs the method of redemption in accordance
with the terms set forth in the Prospectus. If securities are received in proper
form, Shares shall be redeemed before the funds are provided to ICC. When the
Fund provides ICC with funds, redemption proceeds will be wired (if requested)
or a redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed by the
recordholder and delivered to ICC.
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the declaration and
payment of dividends and distributions, ICC shall issue the dividends and
distributions in shares, or, upon shareholder election, pay such dividends and
distributions in cash. Such issuance or payment shall be made after deduction
and payment of the required amount of funds to be withheld in accordance with
any applicable tax laws or other laws, rules or regulations. The Fund's
shareholders shall receive tax forms and other information, or permissible
substitute notice, relating to dividends and distributions, paid by the Fund as
are required to be filed and mailed by applicable law, rule or regulation. ICC
shall maintain and file with the IRS and other appropriate taxing authorities
reports relating to all dividends and distributions paid by the Fund to its
shareholders as required by tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the
Prospectus, ICC shall arrange for the following services, in accordance with the
applicable terms set forth in the Prospectus: (i) the issuance of Shares
obtained through any pre-authorized check plan and direct purchases through
broker wire orders, checks and applications; (ii) exchanges of shares of any
fund for Shares of the Fund with which the Fund has exchange privileges; (iii)
automatic redemption from an account where that shareholder participates in an
automatic redemption plan; and (iv) redemption of Shares from an account with a
check writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its shareholders,
including, reports to shareholders, confirmations of purchases and sales of
Shares, monthly or quarterly statements, dividend and distribution notices, and
proxy material.
(g) Records. ICC shall maintain records of the accounts for
each shareholder showing the following information: (i) name, address and U.S.
Tax Identification or Social Security number; (ii) number and class of Shares
held and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations; (iii) historical
information regarding the account of each shareholder, including dividends and
distributions paid and the date and price for all transactions on a
shareholder's account; (iv) any stop or restraining order placed against a
shareholder's account; (v) any correspondence relating to the current
maintenance of a shareholder's account; (vi) information with respect to
withholdings; and (vii) any information required in order for ICC to perform any
calculations contemplated or required by this Appendix or the Master Services
Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued upon: (i) the
shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by ICC; and (ii) completion
of a release and indemnification agreement signed by the shareholder to protect
ICC.
(i) Shareholder Inspection of Stock Records. Upon requests
from Fund shareholders to inspect stock records, ICC will notify the Fund and
the Fund shall deliver Oral or Written Instructions granting or denying each
such request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, ICC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of
the Prospectus, ICC shall act upon shareholder requests made by telephone for
redemption or exchange of ISI shares; provided that (i) the shareholder has
authorized telephone transactions on the Fund's Account Application or otherwise
in writing, (ii) if the request is a redemption, the amount to be redeemed does
not exceed $10,000 and (iii) ICC has complied with the identification and other
security procedures required by the Fund in connection with telephone
transactions.
<PAGE>
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third
party all or any part of its obligations under this Appendix; provided that any
such subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
<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 January 1, 1994 (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;
(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:
<PAGE>
o Schedule of Investments;
o Statement of Net Assets and Liabilities;
o Statement of Operations;
o Statement of Changes in Net Assets;
o Cash Statement;
o Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
o Federal and State Tax Returns;
o Excise Tax Returns;
o Annual, Semi-Annual and Quarterly Shareholder
Reports;
o Rules 24(e)-2 and 24(f)-2 Notices;
o Annual and Semi-Annual Reports on Form N-SAR;
o Monthly and Quarterly Statistical Data Information
o 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.
<PAGE>
Appendix III
ADMINISTRATIVE 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 January 1, 1994 (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. Services to be Provided. ICC will perform the following services on an
ongoing basis:
(a) supervise and manage all aspects of the Fund's operations,
other than portfolio management and distribution;
(b) provide the Fund with such executive, administrative,
clerical and bookkeeping services as are deemed advisable by the Fund's Board of
Directors;
(c) provide the Fund with, or obtain, adequate office space
and all necessary equipment and services, including telephone service, heat,
utilities, stationery supplies and similar items for any offices as are deemed
advisable by the Fund's Board of Directors;
(d) 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 filings with the SEC and state Blue
Sky authorities;
(e) supervise the operations of the Fund's transfer and
dividend-disbursing agent; and
(f) 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.
2. Fees. For the service performed by ICC for the Fund 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.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-66870 of our report dated April 30, 1996 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
Parsippanny, New Jersey
July 24, 1996
<PAGE>
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A and Institutional Class
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund"), including a majority of
the Directors of the Fund who are not "interested persons" of the Fund (the
"Independent Directors") pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and
Institutional) and future classes of Fund shares. The Flag Investors Class A
Shares have been offered since the Fund's inception on October 1, 1993, the
Institutional Shares have been offered since November 2, 1995. The Class B
Shares have not yet been offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
-1-
<PAGE>
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's
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operation that are directly attributable to such class ("Class Expenses")(1);
and (v) each class may have conversion features unique to such class, permitting
conversion of shares of such class to shares of another class, subject to the
requirements set forth in Rule 18f- 3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
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(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
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Date Approved: September 1994
Resolutions of Board Creating Flag Investors Shares
FURTHER RESOLVED, that the previously undesignated shares of
common stock, par value $.001 per share, of Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. be, and they hereby are, designated as the "Flag
Investors Shares";
Date Approved: April 1996
Resolutions of Board Renaming Flag Investors Shares
RESOLVED, that the Fund's twenty-five million (25,000,000)
shares of common stock, par value $.001 per share, previously designated and
classified as the "Flag Investors Shares" be, and hereby are, renamed the "Flag
Investors Class A Shares";
FURTHER RESOLVED, that the Articles Supplementary to the
Fund's Articles of Incorporation be, and they hereby are, approved and adopted;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the fund
to take any other action that the officer so acting may deem necessary or
appropriate to effectuate the renaming of the Flag Investors Shares and the
filing and recording of the Articles Supplementary in the appropriate offices in
the State of Maryland.
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Date Approved: September 1994
Resolutions of Board Creating Class B Shares
FURTHER RESOLVED, that an additional class of shares of the Flag
Investors Maryland Intermediate Tax Free Income Fund be, and hereby is,
classified and designated as the "Flag Investors Class B Shares" (the "Class B
Shares") and that unissued shares of common stock, par value $.001 per share of
the Fund be, and the same hereby are, reclassified as follows:
Total # of Shares Class A Class B Unclassified
- ----------------- ------- ------- ------------
30,000,000 25,000,000 2,000,000 3,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares of the Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
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Approved: September 1995
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. is authorized to issue is hereby increased from thirty million
(30,000,000) to thirty-five million (35,000,000) and that from such amount, five
million (5,000,000) authorized and unissued shares be, and hereby are,
designated and classified as the "Flag Investors Maryland Intermediate Tax Free
Income Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and
each of them hereby is, authorized and directed to file Articles Supplementary
to the Fund's Articles of Incorporation to effectuate the increase in authorized
shares and to designate and classify the new class;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund
to make all appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new class of shares and
the related Distribution Agreement approved at this meeting of this Board of
Directors, including, the filing of a post-effective amendment under the
Securities Act of 1933 (the "1933 Act") and under the Investment Company Act of
1940 (the "1940 Act") to the Fund's Registration Statement on Form N-1A, and all
necessary exhibits and other instruments relating thereto (collectively, the
"Registration Statement"), procuring all other necessary signatures thereon, and
filing the appropriate exhibits thereto with the Commission under the 1933 Act
and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed to appear, together with legal counsel,
on behalf of the Fund, before the Commission in connection with any matter
relating to the Registration Statement and to take such other actions, including
Blue Sky filings as may be required in connection with the establishment of the
new class; and
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FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund,
to take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the new
class, the taking of any such action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund;
FURTHER RESOLVED, that any filings previously made and any
actions previously taken by the appropriate officers of each Fund in connection
with the establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
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Approved: September 1995
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Maryland Intermediate Tax Free Income Fund, Inc. and Alex. Brown &
Sons Incorporated for the Flag Investors Institutional Shares of said Fund be,
and the same hereby is, approved;
FURTHER RESOLVED, that the proper officers of Flag Investors
Maryland Intermediate Tax Free Income Fund, Inc. be, and each of them hereby is,
authorized and directed to enter into and execute the Distribution Agreement on
behalf of the Fund, and to take all other actions that such officer deems
necessary or appropriate in connection with the execution of such agreement, the
taking of any action to establish conclusively such officer's authority
therefore and the approval and ratification thereof by the Fund.
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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.
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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.
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
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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.
(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
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<PAGE>
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 ByLaws.
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.
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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
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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 ByLaws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
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
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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.
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,
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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.
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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;
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and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
Section 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the 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.
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Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
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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.
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Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
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
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expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the Secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
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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.
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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
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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.
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.
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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.
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND,
INC. (the "Corporation"), having its principal office in the City of Baltimore,
certifies that:
FIRST: The Corporation's Board of Directors in
accordance with Section 2-105(c) of the Maryland General Corporation Law has
adopted a resolution redesignating and reclassifying the Corporation's
twenty-five million (25,000,000) previously designated "Flag Investors Maryland
Intermediate Tax Free Income Fund Shares" the "Flag Investors Maryland
Intermediate Tax Free Income Fund Class A Shares."
SECOND: Immediately before the redesignation and
reclassification, the Corporation was authorized to issue thirty-five million
(35,000,000) shares of Common Stock, of the par value of 1 mil ($.001) per share
and of the aggregate par value of thirty-five thousand dollars ($35,000), which
were classified and designated as follows: twenty-five million (25,000,000)
shares were designated "Flag Investors Maryland Intermediate Tax Free Income
Fund Shares," two million (2,000,000) shares were designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Class B Shares," five million
(5,000,000) shares were designated "Flag Investors Maryland Intermediate Tax
Free Income Fund Institutional Shares" and three million (3,000,000) shares
remained undesignated.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as amended.
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IN WITNESS WHEREOF, Flag Investors Maryland Intermediate Tax
Free Income Fund, Inc. has caused these Articles Supplementary to be executed by
one of its Vice Presidents and its corporate seal to be affixed and attested by
its Secretary on this 24th day of April, 1996.
[CORPORATE SEAL]
FLAG INVESTORS MARYLAND INTERMEDIATE TAX
FREE INCOME FUND, INC.
By: /s/ Brian C. Nelson
--------------------
Vice President
Attest: /s/ Laurie D. DePrine
---------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS MARYLAND
INTERMEDIATE TAX FREE INCOME FUND, INC., who executed on behalf of said
corporation the foregoing Articles Supplementary to the Articles of
Incorporation of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles Supplementary
to the Articles of Incorporation to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
By: /s/ Brian C. Nelson
-------------------
Vice President
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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:
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(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;
(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-
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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.
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,
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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
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at the annual rate of .25% of the average daily net assets of the Fund. Except
as hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of
Alex. Brown's compensation for the preceding month shall be made as promptly as
possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub- Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
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:
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(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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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
--------------------- ----------------------------
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<PAGE>
New Class B Shares
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
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, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the class of shares of the Fund known as the Flag
Investors Class B Shares (the "Shares") and Alex. Brown wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement. The
Fund may from time to time issue separate series or classes of its shares of
common stock, or classify and reclassify shares of such series as classes, and
the appointment effected hereby shall constitute appointment for the
distribution of such additional series and classes unless the parties shall
otherwise agree in writing. Alex. Brown accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
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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;
(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 for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
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<PAGE>
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation
of the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
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<PAGE>
(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.
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<PAGE>
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .75% of the average daily net assets of the shares of the
Fund. Except as hereinafter set forth, continuing compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee
(as such term is defined in the NASD Rules of Fair Practice) equal to .25% of
the average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub- Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
directors, officers and employees of Alex. Brown are not prohibited from
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<PAGE>
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
16. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
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<PAGE>
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
------------------- ------------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ M. Simons By s/ Edward J. Veilleux
------------------- ------------------------------------
Title:
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<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS - CLASS B SHARES
135 East Baltimore Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds - Class B Shares (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
Flag Investors Class B 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.
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<PAGE>
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.
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
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<PAGE>
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 them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
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.
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<PAGE>
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:______________________________
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<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 31 day of October 1995, 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, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on July 23, 1993 (the "Articles"),
authorize the Board of Directors of the Fund to increase or decrease the number
of shares of capital stock of the Fund and the number of shares of any class of
capital stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of two classes of shares of the Fund known respectively as the Flag
Investors Maryland Intermediate Tax Free Income Fund Shares and the Flag
Investors Maryland Intermediate Tax Free Income Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized
the creation of an institutional class of shares of the Fund known as the Flag
Investors Maryland Intermediate Tax Free Income Fund Institutional Shares (the
"Shares"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the Shares and Alex. Brown wishes to become the
distributor of the Shares.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and of other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement.
Alex. Brown accepts such appointment and agrees to render the services set forth
herein.
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<PAGE>
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto
(such By- Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(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;
(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 for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown. Notwithstanding the
provisions of the foregoing sentence,
-48-
<PAGE>
(a) the Fund may issue its Shares at their net asset
value to any shareholder of the Fund purchasing such Shares with dividends or
other cash distributions received from the Fund pursuant to an offer made to all
shareholders;
(b) Alex. Brown may enter into shareholder processing
and servicing agreements;
(c) Alex. Brown may, and when requested by the Fund
shall, suspend its efforts to effectuate sales of the Shares at any time when in
the opinion of Alex. Brown or of the Fund no sales should be made because of
market or other economic considerations or abnormal circumstances of any kind;
and
(d) the Fund may withdraw the offering of the Shares
(i) at any time with the consent of Alex. Brown, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(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.
-49-
<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; 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
-50-
<PAGE>
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for
the services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal and redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund, and communicating with the Fund and its transfer
agent on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub- Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that Directors,
officers or employees of Alex. Brown may serve as Directors or officers of the
Fund, and that Directors or officers of the Fund may serve as Directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
Directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, Directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
-51-
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
-52-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS MARYLAND
INTERMEDIATE TAX FREE INCOME
FUND, INC.
Attest:/s/ Alisa Stesch By /s/ Edward J. Veilleux
---------------- -------------------
Title: Vice President
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:/s/ Alisa Stesch By /s/ Richard T. Hale
---------------- -------------------
Title: Managing Director
-53-
<PAGE>
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
-54-
<PAGE>
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 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
-55-
<PAGE>
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.
-56-
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors 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 with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to
the Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown as
distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor and
Alex. Brown; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
-57-
<PAGE>
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 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.
-58-
<PAGE>
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
-59-
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000910065
<NAME> MARYLAND INTERMEDIATE
<SERIES>
<NUMBER> 01
<NAME> MARYLAND INTERMEDIATE CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 19,584,140
<INVESTMENTS-AT-VALUE> 19,570,173
<RECEIVABLES> 321,296
<ASSETS-OTHER> 37,160
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,928,629
<PAYABLE-FOR-SECURITIES> 750,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,065
<TOTAL-LIABILITIES> 795,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,267,551
<SHARES-COMMON-STOCK> 1,937,232
<SHARES-COMMON-PRIOR> 1,379,084
<ACCUMULATED-NII-CURRENT> (44,737)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (120,021)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,968
<NET-ASSETS> 19,133,564
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 716,617
<OTHER-INCOME> 0
<EXPENSES-NET> 103,584
<NET-INVESTMENT-INCOME> 613,033
<REALIZED-GAINS-CURRENT> (2,588)
<APPREC-INCREASE-CURRENT> 434,427
<NET-CHANGE-FROM-OPS> 1,044,872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 657,770
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,050,171
<NUMBER-OF-SHARES-REDEEMED> 510,952
<SHARES-REINVESTED> 41,060
<NET-CHANGE-IN-ASSETS> 5,827,364
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (117,433)
<OVERDISTRIB-NII-PRIOR> 8,865
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,908
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,539
<AVERAGE-NET-ASSETS> 12,926,524
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.41
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000910065
<NAME> MARYLAND INTERMEDIATE
<SERIES>
<NUMBER> 02
<NAME> MARYLAND INTERMEDIATE INSTITUTIONAL SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 19,584,140
<INVESTMENTS-AT-VALUE> 19,570,173
<RECEIVABLES> 321,296
<ASSETS-OTHER> 37,160
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,928,629
<PAYABLE-FOR-SECURITIES> 750,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,065
<TOTAL-LIABILITIES> 795,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,267,551
<SHARES-COMMON-STOCK> 1,937,232
<SHARES-COMMON-PRIOR> 1,379,084
<ACCUMULATED-NII-CURRENT> (44,737)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (120,021)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,968
<NET-ASSETS> 19,133,564
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 716,617
<OTHER-INCOME> 0
<EXPENSES-NET> 103,584
<NET-INVESTMENT-INCOME> 613,033
<REALIZED-GAINS-CURRENT> (2,588)
<APPREC-INCREASE-CURRENT> 434,427
<NET-CHANGE-FROM-OPS> 1,044,872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 657,770
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,050,171
<NUMBER-OF-SHARES-REDEEMED> 510,952
<SHARES-REINVESTED> 41,060
<NET-CHANGE-IN-ASSETS> 5,827,364
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (117,433)
<OVERDISTRIB-NII-PRIOR> 8,865
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,908
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,539
<AVERAGE-NET-ASSETS> 4,614,576
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.93
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
