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FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Intermediate-Term Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate
Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
Alex. Brown & Sons
INCORPORATED
[Flag Investors Logo]
Flag
Investors
Maryland
Intermediate
Tax-Free
Income
Fund
Semi-Annual Report
September 30, 1996
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Report Highlights
(bullet) In a period of rising rates, the municipal bond market posted
respectable returns for the past nine months.
(bullet) To take advantage of higher yield levels during the summer, we
extended the Fund's weighted average maturity from 7.5 years to 8.1
years. To improve the Fund's defensive characteristics, we increased
its commitment to higher coupon issues.
(bullet) The Fund has continued to generate compelling after-tax yields for
Maryland taxpayers.
Fund Highlights
Portfolio Composition
SECTOR*
[Pie Chart appears here -- plot points are listed below]
Short-term Investments 5%
Pre-refunded 14%
Housing 1%
Hospital and
Education 15%
General Obligation-
Local 38%
Transportation 1%
General Obligation
State 20%
Revenue 6%
QUALITY*
[Pie Chart appears here -- plot points are listed below]
BBB 10%
A 9%
AA 9%
AAA 72%
- --------------------------------------------------------------------------------
Portfolio Data
Net Asset Value Per:
Class A Share $9.82
Institutional Share $9.91
Total Net Assets $23,736,047
Average Maturity 8.1 years
Average Duration 5.2 years
Maturity Breakdown:*
0-1 year 7%
1-5 years 8%
5-10 years 44%
10-15 years 24%
15+ years 17%
- --------------------------------------------------------------------------------
*Calculated as a percentage of net assets. The Quality Breakdown listed above is
calculated using Standard & Poor's ratings. The BBB classification includes
holdings that are not rated by Standard & Poor's, but are rated by Moody's (see
p. 6). These ratings are believed to be the most recent ratings available as of
September 30, 1996.
1
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Dear Shareholders:
We are pleased to report on the progress of your Fund for the six months
ended September 30, 1996.
Although hindered somewhat by investor concerns that the economy was
gathering too much strength, the municipal bond market enjoyed near-perfect
conditions during the past six months. The fortuitous combination of
strong demand, dwindling supply, fading fears of tax reform and a favorable
inflation outlook enabled municipal bonds, as an asset class, to post
respectable returns. Indicative of its defensive characteristics and the
attractiveness of this popular maturity range, your Fund recorded a total
return of 2.1% for the six months and 4.5% for the twelve months ended
September 30, 1996. During the summer, we took steps to stabilize the Fund's NAV
at the $9.80 to $9.85 level, so the bulk of these returns came from coupon
interest income.
The Fund's total return slightly exceeded the performance of two comparable
indices for the twelve-month period ended September 30, 1996 (see table, top
right). Within the Lipper Universe of Other States Intermediate Municipal Debt
Funds, the Fund's performance achieved a ranking of #17 out of a universe of 69
comparable-purpose funds.(1)
Portfolio Considerations
In response to monthly reports of strong employment gains and attendant
inflationary pressures, tax-exempt rates, along with their taxable counterparts,
rose erratically during the summer (see chart, bottom right). After shortening
the Fund's weighted average maturity to 7.5 years earlier this year and
accumulating sizable cash reserves from purchase inflows dur-
Total Return Comparisons(2)
Weighted
Six Year to Twelve Average
Periods ended 9/30/96: Months Date Months Maturity
Flag Investors Maryland
Intermediate Tax-Free
Income Fund 2.1% 1.7% 4.5% 8.1 years
Lehman Brothers 7-Year
Municipal Bond Index 2.2% 1.9% 4.4% 6.9 years
Lehman Brothers
Municipal Bond Index 2.3% 1.8% 6.0% 14.3 years
Lipper Other States
Intermediate
Municipal Debt
Funds Average n/a 1.2% 3.9% n/a
10-Year AAA General Obligation
Municipal Yields
9/30/95-9/30/96
[Graph appears here -- plot points are listed below]
9/95
4.8
4.74
4.65
4.69
4.77
4.7
4.75
4.7
4.71
4.63
4.58
12/95
4.68
4.72
4.64
4.7
4.75
4.66
4.7
4.58
4.48
4.44
4.56
3/96
4.58
4.86
5.05
4.92
4.92
5.05
5.02
4.99
4.94
5.14
5.08
6/96
5.05
5.01
5.14
5.29
5.24
5.21
5.11
5.28
5.18
5.1
5.09
9/96
4.9
4.83
4.87
4.97
5.07
5.08
4.98
5.04
5.04
4.95
Source: Bloomberg Inc.
(1) Lipper categorizes funds according to investment objective and ranks them
by total return performance (excluding sales charge) relative to other
funds in their respective categories. Lipper's Other States Intermediate
Municipal Debt Funds category includes municipal debt issues that have
dollar-weighted average maturities of five to ten years and are exempt from
taxation by a specified city or state. This category links Maryland with
18 other states that do not have enough intermediate-term bond funds to
have a state specific category.
(2) These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. The unmanaged
indices listed above are widely recognized as indicators of performance
in their respective sectors. Since investment return and principal value
will fluctuate, an investor's shares may be worth more or less than
their original cost when redeemed. Past performance is not an indicator
of future results. Please review the Additional Performance Information on
page 5.
2
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
ing the spring, we took advantage of this brief cyclical rise in rates to
extend the Fund's weighted average maturity to 8.1 years. Where
appropriate, we applied the proceeds from the sale of several lower coupon
discount bonds together with cash reserves toward less price sensitive, fuller
5% to 6% coupon issues. By moving from "discounts," which had appreciated
substantially since the late-1994 market setback, to higher coupons, we
sought to insulate the Fund's NAV from price erosion should rates turn
upward. With quality spreads so narrow (the yield difference between AAA and
lower quality A issues), we increased the Fund's commitment to the AAA
sector from 60% to 72%.
We were able to execute these changes despite a gradual contraction in the
supply of outstanding Maryland issues, a trend that is endemic to the national
municipal bond market (see chart, top right). While not borne out in the past
six months' performance results, we are confident that these defensive measures
should shield the Fund from any eventual rise in rates.
Market Outlook
Like other capital markets, investor expectations coupled with traditional
supply and demand factors will continue to affect investment returns from
municipal bonds. For the balance of 1996, and well into 1997, we are optimistic
about the overall tone of the municipal bond markets.
New Issue Volume
1990-1995
[Graph appears here -- plot points are listed below]
($ in billions)
1990 1991 1992 1993 1994 1995
$127.828 $172.444 $234.623 $291.854 $164.559 $159.37
Source: The Bond Buyer
Although tax-exempt yields as a percentage of U.S. Treasury yields have
fallen recently (see table below), we expect the demand-side trends of the past
quarter to continue as investors grow more comfortable with the inflation
outlook, which we expect will stabilize at a 2.5% rate (CPI) well into 1997.
AAA-Rated Municipal Yield
as a Percentage of U.S. Treasury Yield
AAA-rated
Municipals 9/30/95 12/31/95 3/31/96 9/30/96
10-year 77.7% 83.3% 77.8% 74.3%
20-year 89.4% 85.9% 82.0% 80.1%
Source: Bloomberg Inc.
Likewise, the supply-side of the equation continues to be favorably influenced
by a general
3
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
contraction in the overall forward supply of municipal underwritings.
Although issues surrounding tax-reform may re-emerge, we consider current
tax-exempt rate levels for Maryland-domiciled municipals--at 75% to 80% of
comparable ten-year U.S. Treasury yields--very attractive for the high tax
bracket Maryland investor.
Dividend Policy
The Fund's monthly dividend remains at $0.0375. In view of its inherently
defensive bias, the Fund has broad appeal for Maryland investors whose portfolio
objectives require a competitive level of tax-exempt current yield and moderate
principal volatility. We appreciate the confidence you have placed in us.
Sincerely,
/s/ M. Elliott Randolph, Jr.
- ----------------------------
M. Elliott Randolph, Jr.
President
/s/ Paul D. Corbin
- ------------------
Paul D. Corbin
Executive Vice President
October 15, 1996
4
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 1.50% maximum sales charge for the Fund's Class A Shares.
AVERAGE ANNUAL TOTAL RETURN
Class (A) Institutional
Periods ended 9/30/96: Shares Shares
- --------------------------------------------------------------------------------
One Year 2.90% --
- --------------------------------------------------------------------------------
Since Inception* 3.16% 3.75%**
- --------------------------------------------------------------------------------
*Inception dates: Class A Shares 10/1/93; Institutional Shares 11/2/95.
**Annualized.
These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid.
Any performance figures shown are for the full period indicated. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
5
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Statement of Net Assets September 30, 1996
(Unaudited)
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P)(1) (Note A) Assets
- -------------------------------------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS -- 94.7%
General Obligation -- 54.3%
$ 500 Baltimore County, MD, Consolidated Public Improvements
5.00%, 6/1/03 Aaa/AAA $ 508,470 2.1%
1,000 Baltimore County, MD, Consolidated Public Improvements
5.50%, 6/1/04 Aaa/AAA 1,044,400 4.4
500 Baltimore County, MD, Metropolitan District, 64th Issue,
Callable 8/1/03 @ $102
4.50%, 8/1/06 Aaa/AAA 473,285 2.0
500 Baltimore County, MD, Metropolitan District, 61st Issue
6.80%, 4/1/00 Aaa/AAA 537,790 2.3
400 Calvert County, MD, Refunding Consolidated Public
Improvement Project, Callable 7/15/03 @ $102
4.80%, 7/15/07 Aa/A+ 382,236 1.6
250 Cecil County, MD (FGIC Insured), Refunding
Consolidated Public Improvement Project,
Callable 12/1/03 @ $102
5.00%, 12/1/06 Aaa/AAA 247,432 1.0
500 Charles County, MD, Refunding Consolidated Public
Improvement Project, Series 94
6.00%, 6/1/99 Aa/AA- 520,420 2.2
500 Frederick, MD, Refunding and Improvement (FGIC Insured)
5.80%, 12/1/02 Aaa/AAA 528,300 2.2
500 Howard County, MD, Unlimited Consolidated Public
Improvement Project, Series "A"
Pre-refunded 5/15/00 @ $100
7.00%, 5/15/08 AAA/AAA 541,520 2.3
375 Laurel, MD, Refunding, Series "A" Project (MBIA Insured),
Callable 7/1/01 @ $102
6.60%, 7/1/03 Aaa/AAA 415,590 1.8
500 Maryland National Capital Park & Planning Commission
(Prince George's County), Callable 7/1/05 @ $101
5.00%, 7/1/08 Aa/AA 488,245 2.1
500 Maryland State and Local Facilities Loan, First Series
4.00%, 2/15/03 Aaa/AAA 474,540 2.0
100 Maryland State and Local Facilities Loan, First Series,
Callable 5/15/02 @ $102
6.00%, 5/15/07 Aaa/AAA 105,954 0.5
</TABLE>
6
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P)(1) (Note A) Assets
- -------------------------------------------------------------------------------------------------------------------
<S><C>
General Obligation-- (continued)
$ 500 Maryland State Capital Improvement and Refunding,
Callable 4/15/03 @ $100
5.00%, 4/15/04 Aaa/AAA $ 505,545 2.1%
1,000 Maryland State and Local Facilities Loan, Second Series
5.25%, 6/15/05 Aaa/AAA 1,024,490 4.3
1,250 Maryland State and Local Facilities Loan, Second Series,
Callable 6/15/06 @ $101
5.25%, 6/15/09 Aaa/AAA 1,244,175 5.2
300 Maryland State and Local Facilities Loan, Third Series,
Callable 7/15/01 @ $101
6.50%, 7/15/04 Aaa/AAA 325,302 1.4
500 Maryland State Capital Improvement and Refunding
4.90%, 4/15/03 Aaa/AAA 505,565 2.1
1,000 Montgomery County, MD, Refunding Consolidated
Public Improvement Project, Series "A"
5.75%, 10/1/07 Aaa/AAA 1,048,040 4.4
500 Ocean City, MD, Refunding (MBIA Insured)
5.00%, 3/15/03 Aaa/AAA 504,655 2.1
250 Prince George's County, MD, Refunding Consolidated
Improvement Project, Series "A" (MBIA Insured),
Callable 3/1/02 @ $102
5.40%, 9/1/02 Aaa/AAA 259,595 1.1
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 258,008 1.1
250 St. Mary's County, MD, Metropolitan Commission,
Callable 11/1/03 @ $102
5.65%, 11/1/07 A/A+ 257,285 1.1
250 Washington Suburban Sanitary District, MD
Pre-refunded 11/1/01 @ $102
6.40%, 11/1/04 AAA/AAA 274,157 1.2
360 Washington Suburban Sanitary District, MD
8.00%, 1/1/02 Aa1/AA 414,328 1.7
12,889,327 54.3
Other Revenue -- 39.2%
350 Baltimore County, MD, Mortgage Revenue (FHA Insured)
6.60%, 11/1/14 NR(2)/AAA 366,016 1.5
</TABLE>
7
<PAGE>
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FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P)(1) (Note A) Assets
- -------------------------------------------------------------------------------------------------------------------
<S><C>
Other Revenue-- (continued)
$ 100 Baltimore, MD, Convention Center (FGIC Insured)
5.60%, 9/1/06 Aaa/AAA $ 102,826 0.5%
240 Charles County, MD, Housing Revenue (MBIA Insured),
Callable 7/1/03 @ $102
5.375%, 7/1/09 Aaa/AAA 238,994 1.0
700 Kent County, MD, College, Project & Refunding--
Washington College Project
7.70%, 7/1/18 Baa/NR(2) 760,753 3.2
400 Maryland State Health and Higher Education
Facilities Authority, Revenue for Bon Secours
Heartlands, Issue A
Pre-refunded 7/1/00 @ $102
7.375%, 9/1/17 AAA/A+ 436,888 1.8
500 Maryland State Health and Higher Education Facilities
Authority, Revenue for Good Samaritan Hospital
5.40%, 7/1/04 A1/A 505,000 2.1
1,000 Maryland State Health and Higher Education Facilities
Authority, Revenue for Greater Baltimore Medical Center
Pre-refunded 7/1/01 @ $102
6.75%, 7/1/19 AAA/AAA 1,106,420 4.7
580 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(2) 603,113 2.5
200 Maryland State Health and Higher Education Facilities
Authority, Revenue for Howard County General Hospital
4.55%, 7/1/98 Baa1/BBB 199,920 0.9
250 Maryland State Health and Higher Education Facilities
Authority, Revenue for Johns Hopkins University Hospital
6.00%, 7/1/07 Aa/AA- 271,228 1.1
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 292,521 1.2
300 Maryland State Health and Higher Education Facilities
Authority, Revenue for Suburban Hospital
4.75%, 7/1/03 A1/A 291,540 1.2
</TABLE>
8
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Ratings Percent
Par (Moody's/ Value of Net
(000) S&P)(1) (Note A) Assets
- -------------------------------------------------------------------------------------------------------------------
<S><C>
Other Revenue-- (continued)
Maryland State Health and Higher Education Facilities
Authority, Revenue for University of Maryland
Medical Systems, Callable 7/1/03 @ $102
(FGIC Insured)
$ 160 5.375%, 7/1/13 Aaa/AAA $ 155,766 0.8%
1,000 5.40%, 7/1/08 Aaa/AAA 1,001,430 4.2
250 Maryland State Health and Higher Education Facilities
Authority, Revenue for Washington County Hospital
(MBIA Insured)
4.45%, 1/1/02 Aaa/AAA 245,508 1.0
400 Maryland State Industrial Development Financing Authority,
Revenue for American Center Physics Headquarters
5.80%, 1/1/01 NR(2)/BBB 403,928 1.7
Maryland State Stadium Authority Lease,
Ocean City Convention Center
300 4.80%, 12/15/03 Aa/AA 300,051 1.3
200 4.80%, 12/15/05 Aa/AA 196,368 0.8
400 Maryland State Transportation Authority,
Transportation Facility Projects Revenue
6.625%, 7/1/03 AAA/AAA 422,104 1.8
500 Montgomery County, MD, Housing Opportunity,
Series "A"
5.40%, 7/1/16 Aa/NR(2) 503,895 2.1
350 Northeast, MD, Waste Disposal Authority Recovery
Revenue (MBIA Insured)
6.65%, 1/1/97 Aaa/AAA 352,471 1.5
500 University of Maryland Systems Auxiliary Facilities
& Tuition Revenue, Series B
Pre-refunded 10/1/02 @ $102
6.40%, 4/1/06 Aa/AAA 552,685 2.3
9,309,425 39.2
Transportation Revenue -- 1.2%
275 Washington, D.C., Metropolitan Area Transportation
Authority for Gross Revenue (FGIC Insured)
4.50%, 1/1/01 Aaa/AAA 273,930 1.2
Total Municipal Bonds
(Cost $22,446,368) 22,472,682 94.7
</TABLE>
9
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Statement of Net Assets (concluded) September 30, 1996
(Unaudited)
Percent
Par Value of Net
(000) (Note A) Assets
- -------------------------------------------------------------------------------------------------------------------
<S><C>
REPURCHASE AGREEMENT -- 4.6%
$1,096 Goldman Sachs & Co., 5.65%
Dated 9/30/96, to be repurchased on 10/1/96,
collateralized by U.S. Treasury Notes with a
market value of $1,118,264.
(Cost $1,096,000) $ 1,096,000 4.6%
Total Investment in Securities
(Cost $23,542,368)(3) 23,568,682 99.3
Other Assets in Excess of Liabilities, Net 167,365 0.7
Net Assets $23,736,047 100.0%
Net Asset Value Per:
Class A Share
($11,916,246 / 1,213,395 shares outstanding) $9.82
Institutional Share
($11,819,801 / 1,192,705 shares outstanding) $9.91
Maximum Offering Price Per:
Class A Share ($9.82 / 0.985) $9.97
Institutional Share $9.91
</TABLE>
(1) The Moody's and Standard and Poor's ratings are believed to be the
most recent ratings available as of September 30, 1996.
(2) Not rated.
(3) Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
10
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Statement of Operations For the Six Months Ended September 30, 1996
(Unaudited)
INVESTMENT INCOME (NOTE A):
Interest $536,970
EXPENSES:
Investment advisory fee (Note B) 37,257
Legal 20,000
Distribution fee (Note B) 15,077
Accounting fee (Note B) 12,010
Audit 11,999
Printing and postage 11,249
Custodian fee 9,999
Organizational expense (Note A) 5,126
Miscellaneous 4,302
Registration fees 3,599
Transfer agent fees (Note B) 3,250
Directors' fees 500
Insurance 265
Total expenses 134,633
Less:Fees waived and expenses reimbursed (Note B) (71,207)
Net expenses 63,426
Net investment income 473,544
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from security transactions (44,582)
Change in unrealized appreciation or depreciation of investments 40,281
Net realized and unrealized loss on investments (4,301)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $469,243
See accompanying Notes to Financial Statements.
11
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
September 30, 1996 Ended
(Unaudited) March 31, 1996
- ---------------------------------------------------------------------------------------------------
<S><C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 473,544 $ 613,033
Net loss from security transactions (44,582) (2,588)
Change in unrealized appreciation or depreciation
of investments 40,281 434,427
Net increase in net assets resulting
from operations 469,243 1,044,872
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Flag Investors Class A Shares (183,424) (528,695)
Flag Investors Institutional Shares (214,489) (60,193)
Distributions in excess of income (Class A Shares) (92,287) (68,882)
Total distributions (490,200) (657,770)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 6,350,316 10,461,018
Value of shares issued in reinvestment of dividends 241,576 402,890
Cost of shares repurchased (1,968,452) (5,036,544)
Total increase in net assets derived from
capital share transactions 4,623,440 5,827,364
Total increase in net assets 4,602,483 6,214,466
NET ASSETS:
Beginning of period 19,133,564 12,919,098
End of period $23,736,047 $19,133,564
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Financial Highlights--Flag Investors Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six For the Year For the Period
Months Ended Ended October 1, 1993(1)
Sept. 30, 1996 March 31, through
(Unaudited) 1996 1995 March 31, 1994
- --------------------------------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.84 $ 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 0.06 0.38 0.05 (0.53)
Total from Investment Operations 0.21 0.77 0.45 (0.39)
Less Distributions:
Dividends from net investment income (0.15) (0.39) (0.40) --
Distributions in excess of income (0.08) (0.06) (0.03) (0.11)
Total distributions (0.23) (0.45) (0.43) (0.11)
Net asset value at end of period $ 9.82 $ 9.84 $ 9.52 $ 9.50
Total Return(2) 2.13% 8.20% 5.12% (4.06)%
Ratios to Average Daily Net Assets:
Expenses(4) 0.70%(3) 0.70% 0.70% 0.29%(3)
Net investment income(5) 4.35%(3) 4.09% 4.44% 3.84%(3)
Supplemental Data:
Net assets at end of period (000) $11,916 $12,066 $12,919 $11,872
Portfolio turnover rate 18.96% 8.79% 33.00% 8.51%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note
B), the ratio of expenses to average daily net assets would have been
1.37%, 1.69%, 1.85% and 2.46% for the six months ended September 30,
1996, the years ended March 31, 1996 and 1995 and the period ended March
31, 1994, respectively.
(5) Without the waiver of advisory fees and reimbursement of expenses (Note
B), the ratio of net investment income to average daily net assets would
have been 3.68%, 3.13%, 3.29% and 1.68% for the six months ended
September 30, 1996, the years ended March 31, 1996 and 1995 and the
period ended March 31, 1994, respectively.
See accompanying Notes to Financial Statements.
13
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[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
Financial Highlights--Flag Investors Institutional Shares
(For a share outstanding throughout each period)
For the Six For the Period
Months Ended November 2, 1995(1)
September 30, 1996 through
(Unaudited) March 31, 1996
- --------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 9.93 $ 9.93
Income from Investment Operations:
Net investment income 0.26 0.15
Net realized and unrealized loss
on investments (0.04) (0.03)
Total from Investment Operations 0.22 0.12
Less Distributions:
Dividends from net investment income
and short-term gains (0.24) (0.12)
Net asset value at end of period $ 9.91 $ 9.93
Total Return 2.23% 2.83%(2)
Ratios to Average Daily Net Assets:
Expenses(3) 0.45%(2) 0.45%(2)
Net investment income(4) 4.60%(2) 4.45%(2)
Supplemental Data:
Net assets at end of period (000) $11,820 $7,068
Portfolio turnover rate 18.96% 8.79%(2)
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(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees (Note B), the ratio of expenses
to average daily net assets would have been 1.12% and 1.30% for the
six months ended September 30, 1996 and the period ended March 31, 1996,
respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of net
investment income to average daily net assets would have been 3.93% and
3.67% for the six months ended September 30, 1996 and the period
ended March 31, 1996, respectively.
See accompanying Notes to Financial Statements.
14
<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 distribution fee of 0.25%. 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. The Fund invests 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 obligations for which quotations are readily
available are valued at the most recent quote price provided by
investment dealers. Municipal obligations may be valued on the basis of
prices provided by an independent pricing service when such prices are
determined by the Investment Advisor to reflect the fair market value of
such obligations. Securities for which market quotations are not readily
available are valued at fair value as 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
Financial Corp., serves as the Fund's investment advisor. As compensation for
its advisory services, ICC receives from the Fund an annual fee, calculated
daily and paid monthly, at the annual rate of 0.35% of the first $1
billion of the Fund's average
15
<PAGE>
[Flag Investors Logo]
FLAG INVESTORS
MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
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 six months ended
September 30, 1996, ICC waived fees of $37,257 and reimbursed expenses of
$33,950.
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 $12,010 for accounting services for the six
months ended September 30, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC received $3,250 for
transfer agent services for the six months ended September 30, 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 six months ended September 30, 1996, distribution fees
aggregated $15,077. Alex. Brown received no commissions from the Fund
for the six months ended September 30, 1996.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated
to the Fund for the period January 1, 1996 through September 30, 1996
was approximately $300, and the accrued liability was approximately $1,700.
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 Six
Months Ended For the
Sept. 30, 1996 Year Ended
(Unaudited) March 31, 1996
Shares sold 48,710 318,331
Shares issued to share-
holders on reinvestment
of dividends 17,668 39,023
Shares redeemed (78,726) (488,564)
Net decrease in shares
outstanding (12,348) (131,210)
Proceeds from sale
of shares $ 466,536 $ 3,133,248
Value of reinvested
dividends 171,878 382,490
Cost of shares redeemed (761,781) (4,810,545)
Net decrease from capital
share transactions $(123,367) $(1,294,807)
Institutional Shares
---------------------------------
For the Six For the Period
Months Ended Nov. 2, 1995*
Sept. 30, 1996 through
(Unaudited) March 31, 1996
Shares sold 596,573 731,839
Shares issued to share-
holders on reinvestment
of dividends 7,099 2,037
Shares redeemed (122,454) (22,388)
Net increase in shares
outstanding 481,218 711,488
Proceeds from sale
of shares $5,883,780 $7,327,770
Value of reinvested
dividends 69,698 20,400
Cost of shares redeemed (1,206,671) (225,999)
Net increase from capital
share transactions $4,746,807 $7,122,171
*Commencement of operations.
16
<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 $8,931,162 and $3,806,183,
respectively, for the six months ended September 30, 1996.
At September 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $165,256
and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $138,942.
E. Net Assets - At September 30, 1996, net assets for Flag Investors Class A
Shares consisted of:
Paid-in capital $12,075,617
Accumulated net
realized loss from
security transactions (144,908)
Unrealized appreciation
of investments 77,824
Overdistribution of net
investment income (92,287)
$11,916,246
At September 30, 1996, net assets for Flag Investors Institutional Shares
consisted of:
Paid-in capital $11,868,977
Accumulated net realized loss
from security transactions (19,695)
Unrealized depreciation
of investments (51,510)
Undistributed net investment
income 22,029
$11,819,801
Directors and Officers
Richard T. Hale
Chairman
Truman T. Semans
Director
James J. Cunnane
Director
John F. Kroeger
Director
Louis E. Levy
Director
Eugene J. McDonald
Director
Rebecca W. Rimel
Director
Harry Woolf
Director
M. Elliott Randolph
President
Paul D. Corbin
Executive Vice President
Gary V. Fearnow
Vice President
Monica M. Hausner
Vice President
Edward J. Veilleux
Vice President
Scott J. Liotta
Vice President
Joseph A. Finelli
Treasurer
Edward J. Stoken
Secretary
Laurie D. DePrine
Assistant Secretary
Investment Objective
An open-end mutual fund 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.
17
