<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997.
File No. 33-66870
File No. 811-7922
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 7 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 9 /X/
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (410) 727-1700
Edward J. Veilleux
One South 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, 1997 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, 1997 on May 15, 1997.
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<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Class A Shares)
Cross Reference Sheet
July 29, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- ---------------------------- -------------
Part A - Information Required in a Prospectus
- -------
<S> <C> <C>
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights
Item 4. General Description of
Registrant........................................ Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent 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; Telephone
Transactions
Item 8. Redemption or Repurchase.......................... How to Redeem Shares;
Telephone Transactions
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
- --------
* Information required by Item 5A is contained in Registrant's 1997
Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not
applicable.
</TABLE>
<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>
Supplement dated August 1, 1997 to the
Institutional Shares, Class A Shares and ABCAT Shares Prospectuses
dated August 1, 1997
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.
(the "Fund")
Each of the above prospectuses is hereby amended and supplemented as
follows:
Alex. Brown Incorporated ("Alex. Brown") has entered into an Agreement
and Plan of Merger with Bankers Trust New York Corporation ("Bankers Trust"),
dated as of April 6, 1997, under which Alex. Brown would merge with and into a
subsidiary of Bankers Trust (the "Merger"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund. After the Merger
and provided shareholders of the Fund approve a new investment advisory
agreement at a meeting to be held on August 14, 1997, the Fund's current
investment advisor will continue to provide investment advisory services to the
Fund. The new investment advisory agreement (including fees) is substantially
the same as the Fund's current advisory agreement. Affiliates of Alex. Brown
also will continue to provide services to Fund shareholders who are Alex. Brown
customers. However, as a result of the Merger, individuals affiliated with Alex.
Brown will not be able to hold positions as certain executive officers of the
Fund and at least 75% of the members of the Board of Directors must not be
interested persons of the investment advisor or Bankers Trust. In addition, the
Fund will be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
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[GRAPHIC OMITTED]
FLAG INVESTORS
MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
(Class A Shares)
Prospectus and Application -- August 1, 1997
- -----------------------------------------------------------------
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.
Class A Shares of the Fund ("Class A Shares") are available through your
securities dealer or the Fund's transfer agent (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, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fund Expenses ............... 1
Financial Highlights ......... 2
Investment Program ............ 3
Investment Restrictions ...... 5
How to Invest in the Fund ... 6
How to Redeem Shares ......... 8
Telephone Transactions ...... 9
Dividends and Taxes ......... 10
Management of the Fund ...... 11
Investment Advisor ............ 12
Distributor .................. 12
Custodian, Transfer Agent and
Accounting Services ......... 13
Performance Information ...... 13
General Information ......... 13
Application .................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<PAGE>
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- -----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
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FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ 1.50%*
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds,
whichever is lower) ..................................................................... 0.50%*
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
Management Fees ........................................................................ 0.00%**
12b-1 Fees .............................................................................. 0.25%
Other Expenses (net of reimbursements) ................................................ 0.45%**
--------
Total Fund Operating Expenses (net of fee waivers and reimbursements) .................. 0.70%**
========
</TABLE>
- ---------------
* 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 0.50% 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 0.70% of the Fund's average
daily net assets. Absent fee waivers and/or reimbursements, Management Fees
would be .35%, Other Expenses would be 0.74% and the Fund's Total Fund
Operating Expenses would be 1.34% of its average daily net assets.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- -------- --------- --------- ---------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:* ........................... $22 $37 $53 $101
</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 Expenses and 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 Fund investors may pay directly and indirectly. A person who
purchases Class A Shares through a financial institution may be charged
separate fees by the financial institution.
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 Conduct
Rules of the National Association of Securities Dealers, Inc.
1
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<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund has offered Class A 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, 1997 and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
financial highlights for the fiscal year ended March 31, 1997 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, 1997, which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Year Ended October 1, 1993(1)
March 31, through
1997 1996 1995 March 31, 1994
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <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 ....................................... 0.44 0.39 0.40 0.14
Net realized and unrealized gain/(loss) on investments ...... (0.05) 0.38 0.05 (0.53)
------- ------- ------- ----------
Total from Investment Operations ........................... 0.39 0.77 0.45 (0.39)
------- ------- ------- ----------
Less Distributions:
Dividends from net investment income ........................ (0.44) (0.39) (0.40) (0.11)
Distributions in excess of income ........................... (0.01) (0.06) (0.03) --
------- ------- ------- ----------
Total distributions .......................................... (0.45) (0.45) (0.43) (0.11)
------- ------- ------- ----------
Net asset value at end of period ........................... $ 9.78 $ 9.84 $ 9.52 $ 9.50
======= ======= ======= ==========
Total Return(2) ................................................ 4.05% 8.20% 5.12% (4.06)%
Ratios to Average Daily Net Assets:
Expenses(3) .................................................. 0.70% 0.70% 0.70% 0.29%(5)
Net investment income(4)....................................... 4.29% 4.09% 4.44% 3.84%(5)
Supplemental Data:
Net assets at end of period (000) ........................... $11,538 $12,066 $12,919 $ 11,872
Portfolio turnover rate .................................... 33.18% 8.79% 33.00% 8.51%
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.34%,
1.69%, 1.85% and 2.46% (annualized) for the years ended March 31, 1997,
1996 and 1995 and the period ended March 31, 1994, respectively.
(4) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
3.66%, 3.13%, 3.29% and 1.68% (annualized) for the years ended March 31,
1997, 1996 and 1995 and the period ended March 31, 1994, respectively.
(5) Annualized.
2
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<PAGE>
- --------------------------------------------------------------------------------
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 that, 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 (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 that pay interest
that 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 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) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. 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
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that 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 judgment. 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 to 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.
3
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<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 expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with orderly disposition.
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 securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; 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
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to 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.
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 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 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.
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not 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). This restriction may not be changed without
shareholder approval.
2) Additionally, the Fund will not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements with maturities of
greater than seven days. This restriction may be changed by a vote of the
Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
5
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<PAGE>
- --------------------------------------------------------------------------------
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
Class A Shares may be purchased from the Fund's distributor (the
"Distributor"), through any securities dealer that is authorized to distribute
Shares ("Participating Dealers"), or through any financial institution that has
entered into a shareholder servicing agreement with the Fund ("Shareholder
Servicing Agents"). Class A Shares may also be purchased by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price (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 the
Distributor or the Advisor. Purchase orders for Class A 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 the Distributor or a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such entity's
payment procedures. The Distributor may, in its sole discretion, refuse to
accept any purchase order.
The net asset value per share is determined 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
Class A Shares may be purchased from the Distributor, Participating
Dealers or Shareholder Servicing Agents at the Offering Price, which includes a
sales charge that is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
Sales Charge Dealer
as % of Compensation
------------------------
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- -------------------------- ---------- ------------ ---------------
Less than $100,000 ...... 1.50% 1.52% 1.25%
$100,000 - $499,999 ...... 1.25% 1.27% 1.00%
$500,000 - $999,999 ...... 1.00% 1.01% 0.75%
$1,000,000 and over ...... None* None* None*
- -----------
* Purchases of $1 million or more may be subject to a contingent deferred sales
charge. (See below.) The Distributor may make payments to dealers in the
amount of .50% of the Offering Price.
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Class A Shares and purchases of
shares of other Flag Investors funds with the same or a higher front-end sales
charge. 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 the Distributor, either directly or through a
Participating Dealer or Shareholder Servicing Agent, as applicable, with
sufficient
6
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<PAGE>
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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
Class A 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 Class A Shares. Each
purchase of Class A 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. Class A
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 Class A Shares actually purchased if
the full amount indicated is not invested. Such escrowed Class A 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 Class A 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 Class A 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
Class A Shares redeemed within 24 months of purchase if the Participating
Dealer and the Distributor have entered into an agreement under which the
Participating Dealer agrees to return any payments received on the sale of such
shares. In determining whether a contingent deferred sales charge is payable,
and, if so, the amount of the charge, it is assumed that Class A Shares not
subject to such charge are the first redeemed followed by other Class A Shares
held for the longest period of time.
The Fund may sell Class A 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 Class A
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 the same or
a higher front-end sales charge, 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 the Distributor, Participating
Dealers and their respective affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact the
Distributor, a Participating Dealer or Shareholder Servicing Agent.
<PAGE>
Purchases by Exchange
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of Class A shares of Flag Investors Short-Intermediate 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 Class A Shares. Class A 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 Class A Shares upon payment of the difference in sales
charges, as applicable.
When a shareholder acquires Class A 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 Class A Shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon a
redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day, provided
that the exchange request is received prior to 4:00 p.m.
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(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 the Distributor 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. Class A 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 Class A 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 Class A 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 Class A Shares have
been held for more than 24 months following the purchase date.
The exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below). 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 Class A Shares regularly by means of an
Automatic Investing Plan with a pre-authorized check drawn on their checking
accounts. Under this plan, the shareholder may elect to have a specified amount
invested monthly or quarterly in Class A 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 Class A Shares at the applicable
Offering Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by the
Fund or the shareholder upon 30 days' prior written notice to the other party.
A shareholder who wishes to enroll in the Automatic Investing Plan or who
wishes to obtain additional purchase information may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
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 Class A 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
at the address listed on the inside back cover of this Prospectus, 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.
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent") at its address listed on the back
inside cover to this Prospectus. 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 Class A 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
Class A 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 following
documents:
1) A letter of instructions, specifying the shareholder's
8
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<PAGE>
- --------------------------------------------------------------------------------
account number with a Participating Dealer, if applicable, and the number
of Class A Shares or dollar amount to be redeemed, signed by all owners of
the Class A 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 Class A Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for Class
A 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 Class A Shares will
be paid on the next dividend payable date. If all of the Class A 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 Class A 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 Class A 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 Class A 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
Class A 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.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Class A Shares in amounts up to $50,000, by
notifying the Transfer Agent by telephone 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 on the back inside cover of this Prospectus. 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. 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. Class A 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.")
9
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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 summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue 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
income 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 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 Class A Shares may not be
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisors before purchasing Class A 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 Class A 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 Class A 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.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders
10
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of record in December of one year, but paid in January of the following year,
will be deemed for tax purposes to have been received by the shareholders and
paid by the Fund in the year in which the dividends were declared. The Fund
intends to make sufficient distributions of its ordinary income and capital
gain net income prior to the end of each calendar year to avoid liability for
federal excise tax.
The sale, exchange or redemption of Class A 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 that 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.
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 that 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.
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. A majority of the Directors of the Fund have no affiliation with the
Distributor or the Advisor.
The Fund's Directors and officers are as follows:
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
M. Elliott Randolph, Jr. President
Paul D. Corbin Executive Vice President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Monica M. Hausner Vice President
Scott J. Liotta Vice President and Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
11
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INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Alex. Brown Incorporated
(described below). ICC is also the investment advisor to, and the Distributor
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
$5.5 billion of net assets as of May 31, 1997.
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 0.70% of the Fund's average daily net
assets. For the fiscal year ended March 31, 1997, ICC waived all advisory fees,
amounting to $79,698, and reimbursed expenses of $64,880.
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, Jr. has 23 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 18 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") acts
as distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned subsidiary
of Alex. Brown Incorporated, which has engaged directly and through
subsidiaries and affiliates in the investment business since 1800. Alex. Brown
is a member of the New York Stock Exchange and other leading securities
exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has offices
throughout the United States and, through subsidiaries, maintains offices in
London, England, Geneva, Switzerland and Tokyo, Japan.
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 Class A Shares for the
fiscal year ended March 31, 1997, Alex. Brown received a fee from the Fund that
represented .25% of the Shares' average daily net assets.
The Distributor 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 agreements with certain financial
institutions, such as banks, to provide shareholder services pursuant to which
The Distributor will allocate up to all of its distribution fee as compensation
for such 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.
Payments under the Plan are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor 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 the payments received the unexpended portion may be retained by the
Distributor. The Distributor will from time to time and from its own resources
pay or allow additional discounts or promotional incentives in the form of cash
or other compensation (including merchandise or travel) to Participating
Dealers.
12
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CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. 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, 1997, ICC received a fee equal to 0.11% of the Fund's average
daily net assets. (See the Statement of Additional Information.) PNC Bank,
National Association acts as custodian of the Fund's assets.
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.
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 that 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 financial institutions with respect to customer
accounts through which Shares may be purchased, although not included in
calculations of performance, will reduce performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 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
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
additional voting rights, payments of dividends, rights upon liquidation or
distribution of the assets of the Fund and any other restrictions permitted by
law and the Fund's charter.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio or securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors 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 two other classes of shares in addition to the shares offered hereby: "Flag
Investors Maryland Intermediate Tax-Free Income Fund Institutional Shares" and
"Alex. Brown Capital Advisory & Trust Maryland Intermediate Tax-Free Income
Shares." Additional information concerning the Fund's other classes may be
obtained by calling the Distributor 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.
Shareholder Inquiries
Shareholders with inquiries concerning their Shares should contact the
Fund at (800)553-8080, Alex. Brown at (800) 767-FLAG, or any Participating
Dealer or Shareholder Servicing Agent, as appropriate.
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------
Make check payable to "Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc." and mail with this Application to:
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday-Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time)
To open an IRA account, call 1-800-767-3524 for an IRA information kit.
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
- -----------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------
Social Security Number
- -----------------------------------------------------------
Joint Tenant Initial Last Name
Corporations, Trusts, Partnerships, etc.
- -----------------------------------------------------------
Name of Corporation, Trust or Partnership
- ------------------- -------------------------------------
Tax ID Number Date of Trust
- -----------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -----------------------------------------------------------
For the Benefit of
<PAGE>
Gifts to Minors
- -----------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------
Social Security Number of Minor
under the --------- Uniform Gifts to Minors Act
State of Residence
Mailing Address
- -----------------------------------------------------------
Street
- -----------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------
Daytime Phone
- -----------------------------------------------------------
- -------------------------------------------------------------------------------
Letter of Intent (Optional)
[ ] I agree to the Letter of Intent and Escrow Arrangement 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) set forth below to be
applied for a reduced sales charge. List the Account numbers of other Flag
Investors Funds (except Class B shares) 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
--------- ----------- ------------ ------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A-1
- -------------------------------------------------------------------------------
<PAGE>
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Class A Shares at no sales
charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
- -------------------------------------------------------------------------------
Automatic Investing Plan (Optional)
[ ] I authorize you, as Agent for the Automatic Investing Plan, to automatically
invest $--------- for me, on a monthly or quarterly basis, on or about the 20th
of each month or if quarterly, the 20th of January, April, July and October, and
to draw a bank draft in payment of the investment against my checking account.
(Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
-----------------------------
Please attach a voided check.
[ ] Monthly ($100 minimum) -----------------------------
[ ] Quarterly ($250 minimum)
- ---------------------------------- ----------------------------------------
Bank Name Depositor's Signature Date
- ---------------------------------- ----------------------------------------
Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (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
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
/ / U.S. Citizen/Taxpayer:
/ / I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
/ / If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a
penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080).
/ / Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:-------------------------
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal Revenue
Service.
{End of box]
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
{End of box]
- ---------------------------- -------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- -------------------------------------------------------------------------------
For Dealer Use Only
- ---------------------
Dealer's Name: Dealer Code:
--------------------- --------------------
Dealer's Address: Branch Code:
------------------ --------------------
------------------ --------------------
Representative: Rep. No.:
------------------- ----------------------
A-2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Class A Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
INVESTMENT COMPANY CAPITAL CORP. ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-553-8080 1-800-767-FLAG
Custodian Independent Accountants
PNC BANK, NATIONAL ASSOCIATION DELOITTE & TOUCHE LLP
Airport Business Park 117 Campus Drive
200 Stevens Drive Princeton, New Jersey 08540
Lester, Pennsylvania 19113
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
15
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Cross Reference Sheet
July 29, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- ---------------------------- -------------
Part A - Information Required in a Prospectus
- --------
<S> <C> <C>
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights
Item 4. General Description of
Registrant........................................ Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent 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; Telephone Transactions
Item 8. Redemption or Repurchase.......................... How to Redeem Institutional
Shares; Telephone Transactions
Item 9. Pending Legal Proceedings......................... **
Part B - Information Required in a Statement of Additional Information
- --------
Item 10. Cover Page........................................ Cover Page
- --------
* Information required by Item 5A will be contained in Registrant's
1997 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and
History........................................... General Information and
History
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
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>
Supplement dated August 1, 1997 to the
Institutional Shares, Class A Shares and ABCAT Shares Prospectuses
dated August 1, 1997
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.
(the "Fund")
Each of the above prospectuses is hereby amended and supplemented as
follows:
Alex. Brown Incorporated ("Alex. Brown") has entered into an Agreement
and Plan of Merger with Bankers Trust New York Corporation ("Bankers Trust"),
dated as of April 6, 1997, under which Alex. Brown would merge with and into a
subsidiary of Bankers Trust (the "Merger"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund. After the Merger
and provided shareholders of the Fund approve a new investment advisory
agreement at a meeting to be held on August 14, 1997, the Fund's current
investment advisor will continue to provide investment advisory services to the
Fund. The new investment advisory agreement (including fees) is substantially
the same as the Fund's current advisory agreement. Affiliates of Alex. Brown
also will continue to provide services to Fund shareholders who are Alex. Brown
customers. However, as a result of the Merger, individuals affiliated with Alex.
Brown will not be able to hold positions as certain executive officers of the
Fund and at least 75% of the members of the Board of Directors must not be
interested persons of the investment advisor or Bankers Trust. In addition, the
Fund will be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
FLAG INVESTORS
MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Prospectus & Application -- August 1, 1997
- -----------------------------------------------------------------
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.
Institutional Shares of the Fund ("Institutional Shares") are available through
your securities dealer or the Fund's transfer agent and may be purchased only
by eligible institutions or by clients of investment advisory affiliates of
Alex. Brown & Sons Incorporated. (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, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fund Expenses .............................. 2
Financial Highlights ........................ 3
Investment Program ........................ 4
Investment Restrictions ..................... 6
How to Invest in Institutional Shares ...... 7
How to Redeem Institutional Shares ......... 7
Telephone Transactions ..................... 8
Dividends and Taxes ........................ 8
Management of the Fund ..................... 10
Investment Advisor ........................ 10
Distributor ................................. 11
Custodian, Transfer Agent and
Accounting Services ..................... 11
Performance Information ..................... 11
General Information ........................ 12
Application ................................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- -----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ......... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, which-
ever is lower) None
</TABLE>
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
<TABLE>
<S> <C>
Management Fees (net of fee waivers) ................................. 0.00%*
12b-1 Fees ............................................................ None
Other Expenses (net of reimbursements) ................................. 0.45%*
-------
Total Fund Operating Expenses (net of fee waivers and reimbursements) 0.45%*
=======
</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 0.45% of the Institutional Shares'
average daily net assets. Absent fee waivers and/or reimbursements, Management
Fees would be 0.35%, Other Expenses would be 0.74% and Total Fund Operating
Expenses would be 1.09% of the Institutional Shares' average daily net assets.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- --------- -------- --------- ---------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:* ........................... $5 $14 $25 $57
</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 Expenses and 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 Fund investors may pay directly and indirectly. A person who
purchases Institutional Shares through a financial institution may be charged
separate fees by that institution.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund has offered the Institutional Shares since November 2, 1995. 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, 1997 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, 1997, which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(For a Share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Shares
-------------------------------------
For the Period
For the Year November 2, 1995(1)
Ended March through
31, 1997 March 31, 1996
-------------- --------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........................ $ 9.93 $ 9.93
--------- ----------
Income from Investment Operations:
Net investment income .......................................... 0.48 0.15
Net realized and unrealized gain/(loss) on investments ......... (0.07) (0.03)
--------- ----------
Total from Investment Operations ................................. 0.41 0.12
--------- ----------
Less Distributions:
Dividends from net investment income and short-term gains ...... (0.47) (0.12)
Distributions in excess of income .............................. -- --
--------- ----------
Net asset value at end of period ................................. $ 9.87 $ 9.93
========= ==========
Total Return ..................................................... 4.27% 2.83%(2)
Ratios to Average Daily Net Assets:
Expenses(3) ...................................................... 0.45 0.45%(2)
Net investment income(4) ....................................... 4.55% 4.45%(2)
Supplemental Data:
Net assets at end of period (000) .............................. $ 11,971 $ 7,068
Portfolio turnover rate .......................................... 33.18% 8.79%
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.08% and
1.30% (annualized) for the year ended March 31, 1997 and the period ended
March 31, 1996.
(4) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
3.92% and 3.67% (annualized) for the year ended March 31, 1997 and the
period ended March 31, 1996.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 that, 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 (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 that pay interest
that 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 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.
<PAGE>
Municipal notes in which the Fund may invest will be limited to those
obligations (i) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. 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
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that 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 judgment. 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 to 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
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with ordinary disposition.
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.
<PAGE>
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 securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; 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
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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 creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to 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.
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 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 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.
<PAGE>
INVESTMENT RESTRICTIONS
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The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not 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). This restriction may not be changed without
shareholder approval;
2) Additionally, the Fund will not invest more than 10% of the Fund's net
assets in illiquid securities, including repurchase agreements with
maturities of greater than seven days. This restriction may be changed by a
vote of the Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
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HOW TO INVEST IN INSTITUTIONAL SHARES
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Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counselors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of Alex.
Brown & Sons Incorporated ("Alex. Brown") may purchase Institutional Shares
through the Fund's distributor (the "Distributor"), through any securities
dealer that is authorized to distribute Institutional Shares ("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 $500,000, except
that the minimum initial investment is $1,000,000 for qualified retirement
plans. There is no minimum for clients of investment advisory affiliates of
Alex. Brown or for subsequent investments. The Fund reserves the right to
suspend the sale of Institutional Shares at any time at the discretion of the
Distributor and the Advisor.
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 the Distributor or a Participating Dealer must be in accordance
with such entity's payment procedures. The Distributor may, at its sole
discretion, refuse to accept any purchase order.
The net asset value per share is determined 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 will be valued at amortized
cost, which constitutes fair value as determined by the Fund's Board of
Directors.
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 the
Fund's transfer agent (the "Transfer Agent") or its agents. Shareholders will
have the same rights and ownership with respect to such shares as if
certificates had been issued.
<PAGE>
HOW TO REDEEM INSTITUTIONAL SHARES
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Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through the Distributor or a
Participating Dealer, or by regular or express mail to the Transfer Agent at
its address listed on the inside back cover of this Prospectus. 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.
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The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 upon 60 days' written notice.
TELEPHONE TRANSACTIONS
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Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Institutional Shares in amounts up to $500,000,
by notifying the Transfer Agent by telephone 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 on the inside back cover of this Prospectus. 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. 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.")
DIVIDENDS AND TAXES
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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 the
Distributor 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 summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue 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
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it is not required to pay federal income 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 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 may not be
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisors before purchasing 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 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 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.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Institutional Shares is a taxable
event 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 that 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.
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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.
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 that 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.
MANAGEMENT OF THE FUND
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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. A majority of the Directors of the Fund have no affiliation with the
Advisor or the Distributor.
The Fund's Directors and officers are as follows:
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
M. Elliott Randolph, Jr. President
Paul D. Corbin Executive Vice President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Monica M. Hausner Vice President
Scott J. Liotta Vice President and Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
<PAGE>
INVESTMENT ADVISOR
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Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Alex. Brown Incorporated
(described below). ICC is also the investment advisor to, and the Distributor
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
$5.5 billion of net assets as of May 31, 1997.
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 0.45% of the Institutional Shares'
average daily net assets. For the fiscal year ended March 31, 1997, ICC waived
all advisory fees, amounting to $79,698, and reimbursed expenses of $64,880.
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.
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M. Elliott Randolph, Jr. has 23 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 18 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
DISTRIBUTOR
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Alex. Brown & Sons Incorporated (the "Distributor") acts as distributor of
each class of the Fund's shares. Alex. Brown is an investment banking firm that
offers a broad range of investment services to individual, institutional,
corporate and municipal clients. It is a wholly-owned subsidiary of Alex. Brown
Incorporated, which has engaged directly and through subsidiaries and affiliates
in the investment business since 1800. Alex. Brown is a member of the New York
Stock Exchange and other leading securities exchanges. Headquartered in
Baltimore, Maryland, Alex. Brown has offices throughout the United States and,
through subsidiaries, maintains offices in London, England, Geneva, Switzerland
and Tokyo, Japan.
The Distributor receives no compensation for distributing the
Institutional Shares. The Distributor bears all expenses associated with
advertisements, promotional materials, sales literature and printing and mailing
prospectuses to individuals and entities other than Fund shareholders.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
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Investment Company Capital Corp. 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, 1997, ICC received a fee equal to 0.11% of the Fund's average
daily net assets. (See the Statement of Additional Information.) PNC Bank,
National Association acts as custodian of the Fund's assets.
PERFORMANCE INFORMATION
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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 that 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.
11
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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 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.
GENERAL INFORMATION
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Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 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 two other classes of shares in addition to the shares offered hereby:
"Flag Investors Maryland Intermediate Tax-Free Income Fund Class A Shares" and
"Alex. Brown Capital Advisory & Trust Maryland Intermediate Tax-Free Income
Shares." Additional information concerning the Fund's other classes may be
obtained by calling the Distributor 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 meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi- annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors, Deloitte & Touche
LLP.
Shareholder Inquiries
Shareholders with inquiries concerning their Institutional Shares should
contact the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080 or a
Participating Dealer, as appropriate.
12
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
INVESTMENT COMPANY CAPITAL CORP. ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-553-8080 1-800-767-FLAG
Custodian Independent Accountants
PNC BANK, NATIONAL ASSOCIATION DELOITTE & TOUCHE LLP
Airport Business Park 117 Campus Drive
200 Stevens Drive Princeton, New Jersey 08540
Lester, Pennsylvania 19113
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------
Send completed Application by overnight carrier to:
Flag Investors Funds
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday-Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
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)
Name on Account Mailing Address
- ---------------------------- ----------------------------------
Name of Corporation, Trust or Name of Individual to Receive
Partnership Correspondence
- ---------------------------- ----------------------------------
Tax ID Number Street
/ / Corporation / / Partnership
/ / Trust ----------------------------------
City State Zip
/ / Non-Profit or Charitable
Organization / / Other
------- ( )
----------------------------------
If a Trust, please provide the Daytime Phone
following:
- -----------------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- --------------------------------------------------------------------------------
Initial Investment
The minimum initial purchase for the Institutional Shares of the Fund is
$500,000, except that the minimum initial purchase is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of Alex. Brown or 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 "For further credit to ----------------------------- ."
(Investor's Fund Account Number)
- -------------------------------------------------------------------------------
<PAGE>
Distribution Options
Please check appropriate boxes. If none of the options are 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
A-1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Acknowledgment, Certificate and Signature
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
[ ] If no Tax ID Number has been provided above, I have applied, or intend
to apply, to the IRS for a Tax ID Number, and I understand that if I do
not provide such number to the Transfer Agent within 60 days of the date
of this Application or if I fail to furnish my correct Tax ID Number, I
may be subject to a penalty and a 31% backup withholding on distributions
and redemption proceeds. (Please provide your Tax ID Number on IRS Form
W-9. You may request such form by calling the Transfer Agent at
800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax
purposes: ----------------------------
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
{End of box]
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
{End of box]
- -----------------------------------------------------------------------------
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.
- -----------------------------------------------------------------
<PAGE>
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 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
A-2
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(ABCAT Shares)
Cross Reference Sheet
July 29, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- ---------------------------- -------------
Part A - Information Required in a Prospectus
- --------
<S> <C> <C>
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights (with
respect to Flag Investors
Institutional Shares only)
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 ABCAT
Shares; Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem ABCAT
Shares
Item 9. Pending Legal Proceedings......................... **
Part B - Information Required in a Statement of Additional Information
- --------
Item 10. Cover Page........................................ Cover Page
- --------
* Information required by Item 5A will be contained in Registrant's
Annual Report to Shareholders containing results of operations of
the ABCAT Shares when available.
** Omitted since the answer is negative or the item is not applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and
History........................................... General Information and
History
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
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 (with respect
to Flag Investors Institutional
Shares only)
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>
Supplement dated August 1, 1997 to the
Institutional Shares, Class A Shares and ABCAT Shares Prospectuses
dated August 1, 1997
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.
(the "Fund")
Each of the above prospectuses is hereby amended and supplemented as
follows:
Alex. Brown Incorporated ("Alex. Brown") has entered into an Agreement
and Plan of Merger with Bankers Trust New York Corporation ("Bankers Trust"),
dated as of April 6, 1997, under which Alex. Brown would merge with and into a
subsidiary of Bankers Trust (the "Merger"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor and distributor will each
become affiliates of Bankers Trust.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund. After the Merger
and provided shareholders of the Fund approve a new investment advisory
agreement at a meeting to be held on August 14, 1997, the Fund's current
investment advisor will continue to provide investment advisory services to the
Fund. The new investment advisory agreement (including fees) is substantially
the same as the Fund's current advisory agreement. Affiliates of Alex. Brown
also will continue to provide services to Fund shareholders who are Alex. Brown
customers. However, as a result of the Merger, individuals affiliated with Alex.
Brown will not be able to hold positions as certain executive officers of the
Fund and at least 75% of the members of the Board of Directors must not be
interested persons of the investment advisor or Bankers Trust. In addition, the
Fund will be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST MARYLAND INTERMEDIATE
TAX-FREE INCOME SHARES
(A Class of Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.)
Prospectus -- August 1, 1997
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
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.
Alex. Brown Capital Advisory & Trust Shares of the Fund ("ABCAT Shares") are
available solely for the discretionary accounts of Alex. Brown Capital Advisory
& Trust Company and its affiliates. (See "How to Invest in ABCAT 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, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-3524.
TABLE OF CONTENTS
Fund Expenses ..................... 2
Financial Highlights ............... 3
Investment Program .................. 4
Investment Restrictions ............ 6
How to Invest in ABCAT Shares ...... 7
How to Redeem ABCAT Shares ......... 7
Dividends and Taxes ............... 7
Management of the Fund ............ 9
Investment Advisor .................. 9
Distributor ........................ 10
Custodian, Transfer Agent and
Accounting Services ............... 10
Performance Information ............ 10
General Information ............... 11
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds,
whichever is lower) ..................................................................... None
</TABLE>
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
<TABLE>
<S> <C>
Management Fees (net of fee waivers) .................................... 0.00%*
12b-1 Fees ............................................................ None
Other Expenses (net of reimbursements) ................................. 0.45%*
-------
Total Fund Operating Expenses (net of fee waivers and reimbursements) 0.45%*
=======
</TABLE>
- -----------
* Alex. Brown Capital Advisory & Trust Company intends, consistent with
applicable legal requirements, to reimburse its clients at the account level
in an amount such that the additional cost for client assets invested in
ABCAT Shares is 0.20%. Absent this arrangement, clients would be subject to
the expenses of the Fund shown above. In this regard, 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 0.45% of the ABCAT Shares' average daily net assets. Absent
fee waivers and/or reimbursements, Management Fees would be 0.35%, Other
Expenses would be 0.74% and Total Fund Operating Expenses would be 1.09% of
the ABCAT Shares' average daily net assets.
<TABLE>
<CAPTION>
Example: 1 year 3 years
- ------------------------------------------------------------------------------- -------- --------
<S> <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:* ......... $5 $14
</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 Expenses and 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 a Fund investor may pay directly and indirectly. (For more
complete descriptions of the various costs and expenses, see "How to Invest in
ABCAT Shares," "Investment Advisor" and "Distributor.") The Expenses and
Example for the ABCAT Shares, which have been offered since January 10, 1997
are based on the expenses for the Flag Investors Institutional Shares, another
class of shares offered by the Fund.
2
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund has offered the ABCAT Shares since January 10, 1997. However, the
Fund has offered Flag Investors Institutional Shares since November 2, 1995.
Historical financial information about this class is not fully applicable to the
ABCAT Shares because the expenses paid by the class differ from those the ABCAT
Shares will incur. (See "Fund Expenses.") Accordingly, the financial highlights
included in this table have been derived from the Fund's financial statements
for the Flag Investors Institutional Shares 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, 1997 and the
report thereon of Deloitte & Touche LLP are included in the Statement of
Additional Information. Additional performance information for the Flag
Investors Institutional Shares is contained in the Fund's Annual Report for the
fiscal year ended March 31, 1997, which can be obtained at no charge by calling
the Fund at (800) 767-3524.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Flag Investors
Institutional Shares
-------------------------------------
For the Period
For the Year November 2, 1995(1)
Ended through
March 31, 1997 March 31, 1996
---------------- ------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........................ $ 9.93 $ 9.93
------- ---------
Income from Investment Operations:
Net investment income .......................................... 0.48 0.15
Net realized and unrealized gain/(loss) on investments ......... (0.07) (0.03)
------- ---------
Total from Investment Operations .............................. 0.41 0.12
---------
Less Distributions:
Dividends from net investment income and short-term gains ...... (0.47) (0.12)
------- ---------
Total distributions ............................................. (0.47) (0.12)
------- ---------
Net asset value at end of period .............................. $ 9.87 $ 9.93
======= =========
Total Return ...................................................... 4.27% 2.83%(4)
Ratios to Average Daily Net Assets:
Expenses(2) ...................................................... 0.45% 0.45%(4)
Net investment income(3) ......................................... 4.55% 4.45%(4)
Supplemental Data:
Net assets at end of period (000) .............................. $11,971 $ 7,068
Portfolio turnover rate ....................................... 33.18% 8.79%
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.08% and
1.30% (annualized) for the year ended March 31, 1997 and the period ended
March 31, 1996, respectively.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
3.92% and 3.67% (annualized) for the year ended March 31, 1997 and the
period ended March 31, 1996, respectively.
(4) Annualized.
3
<PAGE>
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 that, 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 (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 that pay interest
that 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 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) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. 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
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that 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 judgment. 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 to 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.
4
<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 expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with orderly disposition.
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.
<PAGE>
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 securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; 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
5
<PAGE>
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 creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to 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.
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 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 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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not 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). This restriction may not be changed without
shareholder approval.
2) Additionally, the Fund will not invest more than 10% of the Fund's net
assets in illiquid securities, including repurchase agreements with
maturities of greater than seven days. This restriction may be changed by a
vote of the Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
6
<PAGE>
HOW TO INVEST IN ABCAT SHARES
- --------------------------------------------------------------------------------
Alex. Brown Capital Advisory & Trust Company and its affiliates may
acquire ABCAT Shares on behalf of their discretionary accounts by placing
orders with the Fund's distributor (the "Distributor"). Beneficial ownership of
ABCAT Shares will be reflected on books maintained by Alex. Brown Capital
Advisory & Trust Company or an affiliate. There is no minimum for initial or
subsequent investments in ABCAT Shares.
It is the responsibility of Alex. Brown Capital Advisory & Trust Company
and its affiliates to transmit orders for ABCAT Share purchases and to deliver
required funds to the Distributor. Orders for purchases of ABCAT Shares are
accepted on any day on which the New York Stock Exchange is open for business
(a "Business Day"). Purchase orders for ABCAT Shares will be executed at a per
share purchase price equal to the net asset value next determined after receipt
of the purchase order and immediately available funds. The Fund reserves the
right to suspend the sale of ABCAT Shares at any time or reject any order.
The net asset value per share is determined 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 will be valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of Directors.
In the interest of economy and convenience and because of the operating
procedures for the ABCAT Shares, certificates representing such shares will not
be issued. Beneficial owners of ABCAT Shares ("Shareholders") will have the
same rights and ownership with respect to such shares as if certificates had
been issued.
HOW TO REDEEM ABCAT SHARES
- --------------------------------------------------------------------------------
ABCAT Shares may be redeemed by, or at the direction of, Alex. Brown
Capital Advisory & Trust Company or an affiliate, as appropriate, on any
Business Day by transmission of a redemption order through the Distributor, or
by regular or express mail to the Fund's transfer agent (the "Transfer Agent")
at its address listed on the back inside cover of this Prospectus. A redemption
is effected at the net asset value per share next determined after receipt of
the order in proper form. Redemption orders received after 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier, will
be effected at the net asset value next determined on the following Business
Day. Payment for redeemed ABCAT Shares will be made to, or at the direction of,
Alex. Brown Capital Advisory & Trust Company or an affiliate, as appropriate,
for the benefit of Shareholders. Payment will be made as promptly as feasible
and, under most circumstances, within three Business Days.
Dividends payable up to the date of the redemption of ABCAT Shares will
be paid on the next dividend payment date.
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.
7
<PAGE>
Unless other arrangements are made, 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 ABCAT Shares at net asset value.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the Shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue 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
income 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. The Fund will provide advice 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
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 ABCAT Shares may not be deductible for federal
income tax purposes. Furthermore, entities or persons who are "substantial
users" (or persons related to "substantial users") of facilities financed by
"private activity bonds" or "industrial development bonds" should consult their
tax advisors before purchasing ABCAT 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 long-term capital
losses are taxable to investors as ordinary income, regardless of whether such
distributions are paid in cash or reinvested in additional ABCAT 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 ABCAT 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 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.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior
8
<PAGE>
to the end of each calendar year to avoid liability for federal exise tax.
The sale, exchange or redemption of ABCAT 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 that consists of federally
tax-exempt interest on obligations other than Maryland Exempt Obligations
(hereinafter defined) to the extent such interest is not paid to 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.
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.
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 that 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.
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. A majority of the Directors of the Fund have no affiliation with the
Distributor or the Advisor.
The Fund's Directors and officers are as follows:
Richard T. Hale Chairman M. Elliott Randolph, Jr. President
Truman T. Semans Director Paul D. Corbin Executive Vice
James J. Cunnane Director President
John F. Kroeger Director Edward J. Veilleux Vice President
Louis E. Levy Director Gary V. Fearnow Vice President
Eugene J. McDonald Director Monica M. Hausner Vice President
Rebecca W. Rimel Director Scott J. Liotta Vice President
& Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant
Secretary
<PAGE>
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Alex. Brown Incorporated
(described below) and an affiliate of Alex. Brown Capital Advisory & Trust
Company. ICC is also the investment advisor to, and the Distributor 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 $5.5 billion
of net assets as of May 31, 1997.
9
<PAGE>
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 0.45% of the ABCAT Shares' average
daily net assets. For the fiscal year ended March 31, 1997, ICC waived all
advisory fees, amounting to $79,698, and reimbursed expenses of $64,880.
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, Jr. has 23 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 18 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor"), acts
as distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned subsidiary
of Alex. Brown Incorporated, which has engaged directly and through subsidiaries
and affiliates in the investment business since 1800. Alex. Brown is a member of
the New York Stock Exchange and other leading securities exchanges.
Headquartered in Baltimore, Maryland, Alex. Brown has offices throughout the
United States and, through subsidiaries, maintains offices in London, England,
Geneva, Switzerland and Tokyo, Japan.
The Distributor receives no compensation for distributing the ABCAT
Shares. The Distributor bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses to
individuals and entities other than Fund shareholders.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
ICC is the Fund's transfer and dividend disbursing agent and provides
accounting services to the Fund. As compensation for providing accounting
services for the fiscal year ended March 31, 1997, ICC received from the Fund a
fee equal to 0.11% of the Fund's average daily net assets. (See the Statement of
Additional Information.) PNC Bank, National Association acts as custodian of
the Fund's assets.
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.
10
<PAGE>
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 that 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. Performance
is generally a function of the type and quality of instruments held by the
Fund, operating expenses and market conditions.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 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 "Alex. Brown Capital
Advisory & Trust Maryland Intermediate Tax-Free Income Shares." The Board has
no present intention of establishing any additional series of the Fund but the
Fund does have two other classes of shares in addition to the shares offered
hereby: "Flag Investors Maryland Intermediate Tax-Free Income Fund Class A
Shares," and "Flag Investors Maryland Intermediate Tax-Free Income Fund
Institutional Shares." Additional information concerning the Fund's other
classes of shares may be obtained by calling the Distributor at (800) 767-3524.
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
ABCAT 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 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
shareholder communications in connection with the meeting.
Reports
The Fund furnishes semi-annual reports containing information about the
Fund and its operations, including a list of investments held in the Fund's
portfolio and financial statements. The annual financial statements are audited
by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
Shareholders with inquiries concerning their ABCAT Shares should contact
their account manager at Alex. Brown Capital Advisory & Trust Company.
11
<PAGE>
- --------------------------------------------------------------------------------
ALEX. BROWN CAPITAL ADVISORY & TRUST
MARYLAND INTERMEDIATE TAX-FREE INCOME SHARES
(ABCAT Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
INVESTMENT COMPANY CAPITAL CORP. ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-553-8080 1-800-767-FLAG
Custodian Independent Accountants
PNC BANK, NATIONAL ASSOCIATION DELOITTE & TOUCHE LLP
Airport Business Park 117 Campus Drive
200 Stevens Drive Princeton, New Jersey 08540
Lester, Pennsylvania 19113
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
12
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
One South 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, ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202, OR BY
CALLING (800) 767-FLAG.
Statement of Additional Information Dated: August 1, 1997
Relating to Prospectuses Dated: August 1, 1997 --
Relating to the Flag Investors Class A Shares,
Flag Investors Institutional Shares
and
Alex. Brown Capital Advisory & Trust Shares
<PAGE>
TABLE OF CONTENTS
Page
1. General Information and History.............................. 1
2. Investment Objectives and Policies........................... 1
3. Valuation of Shares and Redemption........................... 10
4. Federal Tax Treatment of Dividends and
Distributions.............................................. 11
5. Management of the Fund....................................... 14
6. Investment Advisory and Other Services....................... 19
7. Distribution of Fund Shares.................................. 20
8. Brokerage.................................................... 23
9. Capital Stock................................................ 25
10. Semi-Annual Reports.......................................... 26
11. Custodian, Transfer Agent and Accounting Services ........... 26
12. Independent Auditors ........................................ 26
13. Performance Information...................................... 27
14. Control Persons and Principal Holders of
Securities................................................. 29
15. Financial Statements......................................... 30
<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 three classes of shares: Flag Investors Maryland
Intermediate Tax-Free Income Fund Class A Shares (the "Flag Investors Class A
Shares"), Flag Investors Maryland Intermediate Tax-Free Income Fund
Institutional Shares (the "Flag Investors Institutional Shares") and Alex. Brown
Capital Advisory & Trust Maryland Intermediate Tax-Free Income Shares (the
"ABCAT Shares") (collectively, the "Shares"). As used herein, the "Fund" refers
to Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., and specific
references to any class of the Fund's Shares will be made using the name of such
class. The Flag Investors Class A Shares were formerly known as the Flag
Investors Shares.
There are three separate prospectuses for the Fund's Shares: one for the
Flag Investors Class A Shares, one for the Flag Investors Institutional Shares
and one for the ABCAT Shares. Each prospectus contains important information
concerning the class of Shares offered thereby and the Fund and may be obtained
without charge from the Fund's Distributor (the "Distributor") or, with respect
to the Flag Investors Class A Shares and the Flag Investors Institutional
Shares, from Participating Dealers that offer shares to prospective investors.
Prospectuses for the Flag Investors 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 three 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 any 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 Flag Investors Class A Shares on October 1, 1993 and the Flag
Investors Institutional Shares on November 2, 1995. The ABCAT Shares have been
offered since January 10, 1997.
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
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primarily in municipal obligations issued by the State of Maryland and its
political subdivisions, agencies or instrumentalities. There can be no assurance
that the Fund's investment objective will be achieved.
Municipal Obligations
Municipal obligations include debt securities issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from federal income tax. For a discussion of
quality, maturity and other criteria the Fund applies in investing in municipal
obligations, see "Investment Objectives, Policies and Risk Considerations" in
the Prospectus.
Municipal obligations can be classified into three principal categories:
"general obligation bonds," "revenue bonds" and "notes". General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source,
but not from the general taxing power of the issuer. Revenue bonds include "tax
exempt industrial development bonds," i.e., bonds issued 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 (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. 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
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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.
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
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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 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
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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.
Under rules adopted by the Commodities Futures Trading Commission, the
Fund may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
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
creditworthy by the Fund's Board of Directors under criteria established with
the guidance of the Advisor. A repurchase agreement is a short-term investment
in which the purchaser (i.e., the Fund) acquires ownership of a debt security
and the seller agrees to repurchase the obligation at a future time and set
price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. The value of
underlying securities will 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.
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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 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. 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 equaling 5%
or more of the Fund's total assets are outstanding, the Fund will not purchase
securities; and
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts, except that
the Fund may invest in financial futures and options thereon;
4. 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;
5. Issue senior securities;
6. 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;
7. Effect short sales of securities;
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions); or
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9. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs.
The following investment restriction may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law.
Risk Factors Associated With a Maryland Portfolio
The Fund's concentration in the debt obligations of one state carries a
higher risk than a portfolio that is geographically diversified. In addition to
the State of Maryland and its agencies, there are 23 counties and 156
incorporated municipalities in Maryland (including Baltimore City), many of
which have outstanding debt. As described below, a number of Maryland public
authorities also issue debt.
Economy. The economy of the State of Maryland continues to demonstrate
relatively strong performance, with personal income well above the national
average. Total State employment was 2.73 million in April 1997 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 4.4% in April
1997, compared to a national average of 4.8%. The State's population in 1996 was
approximately 5.07 million with 87% 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 1996,
$2.8 billion in state and local debt was issued in Maryland, with approximately
46% representing general obligation debt and 54% 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 $13.9 billion as of June 30, 1996. The State of Maryland had
$3.05 billion in general obligation bonds outstanding as of March 31, 1997.
General obligation debt of the State of Maryland is rated Aaa by Moody's, AAA by
Standard & Poor's Ratings Group 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 24.7% and
16.4%, respectively, between fiscal years 1992 and 1996. 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
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use, the amount of which is limited by the General Assembly to $1.074 billion
for fiscal year 1998 (ending June 30, 1998); the principal amount of such bonds
outstanding as of March 31, 1997 was $965.6 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 System of Maryland, 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, 1997 was approximately $3.6
billion.
Certain State agencies also execute capital lease or conditional
purchase agreements to finance certain facilities; all of the payments under
these arrangements are subject to annual appropriation by the State. In the
event that appropriations are not made, the State and its agencies may not be
held contractually liable for the lease payments. As of March 31, 1997, $140
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, 1995 and
1996 with surpluses.
In April, 1996, the General Assembly approved a $14.6 billion 1997
fiscal year budget. The budget as enacted includes funds sufficient to meet all
fiscal year 1996 deficiencies and to meet all specific statutory funding
requirements; the budget incorporates $29 million in savings from revisions to
the State personnel system and reform to the welfare and Medicare programs. When
this budget was enacted, the State estimated that the General Fund surplus on a
budgetary basis at June 30, 1996 would be approximately $22.5 million, in
addition to which the State projected that there would be $490.4 million in the
Revenue Stabilization Account of the State Reserve Fund. The State currently
projects a General Fund balance on a budgetary basis of $144.5 million.
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In April, 1997 the General Assembly approved a $15.4 billion 1998 fiscal
year budget. This budget (i) includes funds sufficient to meet all specific
statutory funding requirements; (ii) incorporates the first year of a five-year
phase-in of a 10% reduction in personal income taxes (estimated to reduce
revenues by $38.5 million in fiscal year 1998 and $450 million when fully phased
in) and certain reductions in sales taxes on certain manufacturing equipment
(estimated to reduce revenues by $38.6 million when the reductions are fully
phased in fiscal year 2001); and (iii) includes the first year's $30 million
fundidng under an agreement to provide additional funds totaling $230 million
over a five-year period to schools in the City of Baltimore and related grants
to other subdivisions totaling $32 million. When this budget was enacted, the
State estimated the General Fund surplus on a budgetary basis would be $28.2
million, in addition to which the State projected that thre would be a balance
of $554 million in the Revenue Stabilization Account of the State Reserve Fund.
Other Maryland Issuers
Many local Maryland governments have also suffered from fiscal stress
and general declines in financial performance. Recessionary impacts have
resulted in downturns in real estate related receipts, declines in the growth of
income tax revenues, lower cash positions and reduced interest income. To
compensate for reductions in State aid to local governments, local governments
closed this gap by increasing property and other taxes, program cuts, and
curtailing pay raises. Certain counties in Maryland are subject to voter
approval limitations on property tax levy increases or on increases in
governmental spending which limits their flexibility in responding to external
changes. Various tax initiatives to reform existing tax structures in certain
counties were placed on the November 1992 election ballot and were adopted.
Future initiatives, if proposed and adopted, could create pressure on the
counties and other local governments and their ability to raise revenues. The
Fund cannot predict the impact of any such future tax limitations on debt
quality.
Many Maryland counties have established agencies with bond issuing
authority, such as housing authorities. Maryland municipalities also have the
power to issue conduit revenue bonds. Maryland local governments and their
authorities are subject to various risks and uncertainties, and the credit
quality of the bonds issued by them may vary considerably from that of State
general obligation bonds.
Sectors. Certain areas of potential investment concentration present
unique risks. In recent years, 6 to 12% of tax-exempt debt issues in Maryland
has been for public or non-profit 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 Medicare Prospective Payment 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, under the terms of the Medicare
waiver, a retroactive adjustment could occur if certain performance standards
are not attained, and 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.
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Investments in Puerto Rico
Although the Fund has no present intention to do so, from time to time,
the Fund may invest in obligations of the Commonwealth of Puerto Rico and its
public corporations exempt from federal and Maryland state and local income
taxes. These investments will not be considered Maryland municipal securities
for purposes of the Fund's policy to invest, under normal market conditions, 65%
of its assets in Maryland municipal securities. The majority of the
Commonwealth's debt is issued by ten public agencies that are responsible for
many of the island's public functions, such as water, wastewater, highways,
telecommunications, education, and public construction. As of May 31, 1995,
outstanding public sector debt issued by the Commonwealth and its public
corporations totaled $15.9 billion.
Investment in Puerto Rico obligations requires a careful assessment of
certain risk factors. These include reliance on substantial federal assistance
and favorable tax programs, above average levels of unemployment and low wealth
levels, and an economy vulnerable to adverse shifts in energy prices and U.S.
foreign trade/monetary policies. These risks are countered by strong security
provisions, a long history of timely debt repayment, and improved financial
practices.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on 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, Martin Luther King, Jr's. Birthday,
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.
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 Flag Investors Class A
Shares by check, Flag Investors Institutional Shares by wire transfer of funds
and ABCAT Shares by transfer of funds by, or at the direction of, Alex. Brown
Capital Advisory & Trust Company or an affiliate, 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.
-10-
<PAGE>
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
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<PAGE>
Revenue Service that it is unable to satisfy the Distribution Requirement by
reason of distributions previously made for the purpose of avoiding liability
for federal excise tax (discussed below).
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 whose "modified
income" exceeds a base amount will be subject to federal income tax in a portion
of their social security or railroad retirement benefits. Modified income
currently includes adjusted gross income, one-half of social security or
railroad retirement benefits and tax-exempt interest, including exempt-interest
-12-
<PAGE>
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 or railroad retirement 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 advisor 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 advisors as to the consequences of these and other state and local tax
rules affecting an investment in the Fund and also as to the application of the
rules set forth above to a shareholder's particular circumstances.
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<PAGE>
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 One South Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered
investment advisor); Chartered Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director,
Investment Company Capital Corp. (registered investment
advisor); Formerly, Vice Chairman, Alex. Brown & Sons
Incorporated.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice-President and Chief Financial Officer,
General Dynamics Corporation (defense), 1989-1993 and Director,
The Arch Fund (registered investment companies).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee,
AIM Funds (registered investment companies); Formerly,
Consultant, Wendell & Stockel Associates, Inc. (consulting firm)
and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (banking and finance); Chairman of the
Quality Control Inquiry Committee, American Institute of
Certified Public Accountants; Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993, Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992 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 health care); Director,
Central Carolina Bank & Trust (banking), Key Funds (registered
investment companies), and AMBAC Treasurers Trust (registered
investment companies) and DP Mann Holdings (insurance).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market
Street, Suite 1700, Philadelphia, PA 19103. President and Chief
Executive Officer, The Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede Trust Company; Formerly,
Executive Director, The Pew Charitable Trusts.
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<PAGE>
M. ELLIOTT RANDOLPH, President (1/10/42)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present.
PAUL D. CORBIN, Executive Vice President (7/24/52)
Principal, Alex. Brown & Sons Incorporated, 1991 - Present.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Vice President,
Armata Financial Corp. (registered broker-dealer); Executive
Vice President, Investment Company Capital Corp. (registered
investment advisor).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager,
Private Client Marketing, Alex. Brown & Sons Incorporated.
MONICA M. HAUSNER, Vice President (10/26/61)
Vice President, Fixed Income Management Department, Alex. Brown
& Sons Incorporated, March 1992-Present; Formerly, Assistant
Vice President, First National Bank of Maryland, 1984-1992.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65)
Manager, Fund Administration, Alex. Brown & Sons Incorporated,
July 1996-Present; Formerly, Manager and Foreign Markets
Specialist, Putnam Investments Inc. (registered investment
companies), April 1994-July 1996; and Supervisor, Brown Brothers
Harriman & Co. (domestic and global custody), August 1991-April
1994.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated and Vice
President, Investment Company Capital Corp. (registered
investment advisor), September 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (mutual
funds) and Vice President, Delaware Management Company, Inc.
(investments), 1980-August 1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present.
- -------------
* 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 Chairman of five funds and as
a Director of five other funds in the Fund Complex. Mr. Hale serves as Chairman
of three funds, as President and Director of one fund and as Director of each of
the other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy, and
McDonald serve as Directors of each fund in the Fund Complex. Ms. Rimel serves
as Director of ten 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. Liotta serves as Vice President and Secretary, Mr. Finelli
serves as Treasurer and Ms. Collidge serves as Assistant Secretary,
respectively, of each fund in the Fund Complex. Mr. Randolph serves as President
of two funds and Vice
-15-
<PAGE>
President of one fund in the Fund Complex. Mr. Corbin serves as Executive Vice
President of two funds and as Vice President of one fund in the Fund Complex.
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 the Distributor 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, 1997, Non-Interested Directors' fees
attributable to the assets of the Fund totaled approximately $1,511.
The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
March 31, 1997.
-16-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation From Pension or Retirement Total Compensation from the Fund and
Position the Fund Payable to Directors Benefits Accrued as Part of Fund Complex Payable to Directors for the
for the Fiscal Year Ended Fund Expenses Fiscal Year Ended March 31, 1997
March 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale (1) $0 $0 $0
Chairman and Director
Truman T. Semans (1) $0 $0 $0
Director
James J. Cunnane $156(2) (3) $39,000 for service on 12
Director
Boards in the Fund Complex
John F. Kroeger $196(2) (3) $49,000 for service on 12
Director
Boards in the Fund Complex
Louis E. Levy $156(2) (3) $39,000 for service on 12
Director
Boards in the Fund Complex
Eugene J. McDonald $156(2) (3) $39,000 for service on 12
Director
Boards in the Fund Complex
Rebecca W. Rimel $178(2) (3) $39,000 for service on 10
Director
Boards in the Fund Complex (5)
Harry Woolf (4) $116(2) (3) $29,250 for service on 12
Director Boards in the Fund Complex
</TABLE>
- --------------------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) None of this amount has been deferred pursuant to a deferred
compensation plan.
(3) The Fund Complex has adopted a retirement plan for eligible Directors,
as described below. The actuarially computed pension expense for the
year ended March 31, 1997 was approximately $950.
(4) Retired on December 31, 1996.
(5) Ms. Rimel receives proportionately higher compensation from each fund
for which she serves as a Director.
The Fund Complex has adopted a retirement plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by 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. Mr. Kroeger has qualified but has not received
benefits. The Fund has two Participants, a Director who retired effective
December 31, 1994 and a Director who retired effective December 31, 1996, who
have qualified for the Retirement Plan by serving thirteen and fourteen years,
respectively, as Directors in the Fund Complex, and each of whom will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Another
Participant, who retired on January 31, 1996 and died on June 2, 1996 was paid
fees of $8,090 by the Fund Complex under the Retirement Plan in the fiscal year
ended March 31, 1997. Such fees are allocated to each fund in the Fund Complex
based upon the relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of
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<PAGE>
service at March 31, 1997 are as follows: for Mr. Cunnane, 2 years; for Mr.
Kroeger, 14 years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years and for Ms.
Rimel, 1 year, respectively.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<C> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, and McDonald and Ms.
Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select various Flag Investors and Alex. Brown Cash
Reserve Funds in which all or part of their deferral account shall be deemed to
be invested. Distributions from the deferring Directors' deferral accounts will
be paid in cash, in generally equal quarterly installments over a period of ten
years.
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
applies to the personal investing activities of all directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisor and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisor'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 covered employees of the Advisor,
certain directors or officers and all Fund Directors who are "interested
persons", 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. Officers,
directors and employees of the Advisor and the Distributor may comply with codes
of ethics instituted by those entities so long as they contain similar
requirements and restrictions.
-18-
<PAGE>
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 Investment Company Capital
Corp. ("ICC" or the "Advisor"). 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 Short-Intermediate Income Fund, Inc. (formerly 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 Flag Investors Class A Shares' average daily net assets and .45% of the Flag
Investors Institutional Shares' and the ABCAT Shares' respective average daily
net assets. The services of ICC to the Fund are not exclusive and ICC is free to
render similar services to others.
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 30, 1996. 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, 1997, March
31, 1996 and March 31, 1995, ICC waived all advisory fees ($79,698, $51,908 and
$45,630 respectively). In addition, for the same period, ICC reimbursed the Fund
for other expenses aggregating $64,880, $87,047 and $90,867, respectively.
Absent such waivers and reimbursements, the Fund's total operating expenses
would have been 1.34%, 1.69% and 1.85%, respectively, of the Flag Investors
Class A Shares' average daily net assets for the fiscal years ended March 31,
1997, March 31, 1996 and March 31, 1995. For the fiscal year ended March 31,
1997 and the period ended March 31, 1996, total operating expenses would have
been 1.09% and 1.30% (annualized), respectively, of the Flag Investors
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.")
-19-
<PAGE>
7. DISTRIBUTION OF FUND SHARES
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor")
serves as the distributor of each class of the Fund's Shares pursuant to three
separate Distribution Agreements, one for the Flag Investors Class A Shares (the
"Class A Distribution Agreement"), one for the Flag Investors Institutional
Shares (the "Flag Investors Institutional Distribution Agreement") and one for
the ABCAT Shares (the "ABCAT Distribution Agreement") (collectively, the
"Distribution Agreements").
The Flag Investors Class A Shares
The Flag Investors Class A Distribution Agreement provides that Alex.
Brown has the exclusive right to distribute the Flag Investors Class A Shares
either directly or through other broker-dealers. The Flag Investors Class A
Distribution Agreement further provides that Alex. Brown will: (a) solicit and
receive orders for the purchase of Flag Investors 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 Flag Investors Class A Shares. The Flag Investors
Class A Distribution Agreement further provides that, in connection with the
distribution of Flag Investors 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 Flag
Investors 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 Flag
Investors 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, 1997, March 31, 1996 and March 31,
1995, Alex. Brown received distribution fees of $29,887, $32,318, and $32,593
respectively.
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 Flag Investors Class A Shares (the "Flag Investors Class A Plan"). Under
the Flag Investors Class A Plan, the Fund pays a fee to Alex. Brown for
distribution and other shareholder servicing assistance as set forth in the Flag
Investors 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 Flag Investors Class A Distribution Agreement, including the
Flag Investors Class A Plan and a form of Sub-Distribution Agreement, was
approved by the sole shareholder of the Fund on October 1, 1993. The Flag
Investors Class A Distribution Agreement has an initial term of two years and
the Flag Investors Class A Distribution Agreement and the Flag Investors 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 Flag
Investors Class A Plan was most recently approved in this manner by the Fund's
Board of Directors on September 25, 1995.
In approving the Flag Investors Class A Plan, the Directors concluded,
in the exercise of reasonable business judgment, that there was a reasonable
likelihood that the Flag Investors Class A Plan would benefit the Fund and its
shareholders. The Flag Investors Class A Plan will be renewed only if the
Directors make a similar determination in each subsequent year. The Flag
Investors Class A Plan may not be amended to increase materially the fee to be
paid pursuant to the Flag Investors Class A Distribution Agreement without the
approval of the shareholders of the Fund. The Flag Investors Class A Plan may be
terminated at any time and the Flag Investors 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 Flag Investors Class A Shares (as
defined under "Capital Stock"). Any Sub-Distribution Agreement may be terminated
in the same manner at any time. The Flag Investors Class A Distribution
Agreement and any Sub-Distribution Agreement shall automatically terminate in
the event of assignment.
During the continuance of the Flag Investors 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 Flag Investors Class A
Plan to Alex. Brown pursuant to the Flag Investors 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 Flag Investors 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, 1997, the Fund paid $29,887 to
Alex. Brown, the Fund's distributor, pursuant to the Flag Investors Class A
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, carrying or other financing charges.
In addition, with respect to the Flag Investors Class A Shares, the
Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, such as banks, to act as Shareholder Servicing Agents, pursuant to
which Alex. Brown will allocate a portion of its distribution fee as
compensation for such financial institutions' ongoing shareholder services.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Fund, according to interpretations by
various bank regulatory authorities, financial institutions are not prohibited
from acting in other capacities for investment companies, such as the
shareholder servicing capacities described above. Should future legislative,
judicial or administrative action prohibit or restrict the activities of the
Shareholder Servicing Agents in connection with the Shareholder Servicing
Agreements, the Fund may be required to alter materially or discontinue its
arrangements with the Shareholder Servicing Agents. Such financial institutions
may impose separate fees in connection with these services and investors should
review the Prospectus and this Statement of Additional Information in
conjunction with any such institution's fee schedule.
Under the Flag Investors Class A Plan, amounts allocated to
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to Alex. Brown under the Flag Investors Class A Plan. Payments under the
Flag Investors 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
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<PAGE>
the Flag Investors 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 Flag Investors Class A Plan does not provide for
any charges to the Fund for excess amounts expended by Alex. Brown and, if the
Flag Investors Class A Plan is terminated in accordance with its terms, the
obligation of the Fund to make payments to Alex. Brown pursuant to the Flag
Investors Class A Plan will cease and the Fund will not be required to make any
payments past the date the related Flag Investors Class A Distribution Agreement
terminates.
For the fiscal years ended March 31, 1997, March 31 1996 and March 31,
1995 Alex. Brown received sales commissions on the Flag Investors Class A Shares
of $5,618, $11,719, and $48,153 respectively, and from such amounts retained
$5,618, $11,719, and $48,153 for each such year, respectively.
The Flag Investors Institutional Shares and the ABCAT Shares
The Flag Investors Institutional Distribution Agreement and the ABCAT
Distribution Agreement provide that Alex. Brown has the exclusive right to
distribute the related class of shares, either directly or through Participating
Dealers, and further provide that Alex. Brown will solicit and receive orders
for the purchase of Flag Investors Institutional Shares or ABCAT Shares, as
appropriate, accept or reject such orders on behalf of the Fund in accordance
with the Fund's currently effective Prospectus for such 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 related class of shares.
Alex. Brown has not undertaken to sell any specific number of Flag Investors
Institutional or ABCAT Shares. The Flag Investors Institutional Distribution
Agreement and the ABCAT Distribution Agreement further provide that, in
connection with the distribution of the related class of shares, Alex. Brown
will be responsible for all of the promotional expenses. The services provided
by Alex. Brown to the Fund are not exclusive, and Alex. Brown is free to provide
similar services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown or any losses sustained by
the Fund or its shareholders, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The ABCAT Shares are
available solely for the discretionary accounts of Alex. Brown Capital Advisory
& Trust Company and its affiliates.
Alex. Brown receives no compensation for distributing the Flag
Investors Institutional Shares or the ABCAT Shares.
With respect to the Flag Investors 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. It is not currently
anticipated that Alex. Brown will enter into Sub-Distribution Agreements for the
ABCAT Shares.
The Flag Investors 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. The ABCAT Distribution Agreement was approved
by the Fund's Board of Directors on September 30, 1996. Each such Agreement has
an initial term of two years and will remain in effect from year to year
thereafter if specifically approved at least annually by the Fund's Board of
Directors and by the affirmative vote of a majority of the Non-Interested
Directors by votes cast at a meeting called for such purpose. Each
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<PAGE>
Agreement 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 shares of the class (as defined under Capital Stock).
The Flag Investors Institutional Distribution Agreement, the ABCAT 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 One South Street, Baltimore, Maryland
21202.
8. BROKERAGE
ICC is responsible for decisions to buy and sell securities for the
Fund, for the broker-dealer selection and for negotiation of commission rates.
Purchases and sales of securities on a securities exchange are effected through
broker-dealers who charge a commission for their services. ICC may direct
purchase and sale orders to any broker-dealer, including, to the extent and in
the manner permitted by applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a
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<PAGE>
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, 1997, the Fund paid no brokerage commissions
to Alex. Brown.
ICC manages other investment accounts. It is possible that, at times,
identical securities will be acceptable for the Fund and one or more of such
other accounts; however, the position of each account in the securities of the
same issuer may vary and the length of time that each account may choose to hold
its investment in such securities may likewise vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
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<PAGE>
During the fiscal year ended March 31, 1997, 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, 1997, the
Fund held a 6.25% repurchase agreement issued by Goldman Sachs & Co.
which was valued at $293,000.
9. CAPITAL STOCK
The Fund is authorized to issue 40 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 four 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, Flag Investors Maryland Intermediate Tax-Free Income
Fund Institutional Shares and Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax-Free Income Shares. The Flag Investors Institutional Shares are
offered only to certain eligible institutions and to clients of investment
advisory affiliates of Alex. Brown. The ABCAT Shares are offered only to clients
of Alex. Brown Capital Advisory & Trust Company and its affiliates. The Flag
Investors 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.
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<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.,
One South 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 $12.83
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, 1997 which totaled $11,297.
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 Incremental Annual Accounting Fees
------------------ ----------------------------------
$ 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, 1997, ICC received accounting fees
of $25,202.
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP.
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<PAGE>
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end non-diversified management investment companies and to
stock or other relevant indices or averages in advertisements or in certain
reports to shareholders, performance will generally be stated both in terms of
total return and in terms of yield. However, the Fund may also from time to time
state the performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1-, 5- or 10-)
ERV = ending redeemable value at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the 1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover one-,
five-, and ten-year periods or a shorter period dating from the effectiveness of
the Fund's registration statement (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 Flag Investors 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 Flag Investors Institutional Shares and the
ABCAT Shares are sold without a sales load.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 payment for the period
ended March 31, 1997 were as follows:
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
One-Year Period Ended Since Inception
March 31, 1997
-----------------------------------------------------------------------------------
Ending Average Ending Average
Redeemable Annual Total Reedeemable Annual Total
Class Value Return Value Return
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Class A $1024.91 4.05% $1118.37 3.25%
October 1, 1993*
- ----------------------------------------------------------------------------------------------------------------
Institutional $1042.68 4.27% $1054.81 3.86%
November 2, 1995*
- ----------------------------------------------------------------------------------------------------------------
ABCAT
January 10, 1997* N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Inception Date
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or Morningstar Inc., the Fund calculates its aggregate and average annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. For this alternative computation,
the Fund assumes that the $10,000 invested in Shares is net of all sales charges
(as distinguished from the computation required by the SEC where the $1,000
payment is reduced by sales charges before being invested in Shares). The Fund
will, however, disclose the maximum sales charges and will also disclose that
the performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules, and all advertisements containing
performance data will 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.
Yield Calculations
The Fund's yield for the 30-day period ended March 31, 1997 was 4.24%
for the Flag Investors Class A Shares and 4.55% for the Flag Investors
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
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<PAGE>
the difference. The Fund's yield calculations assume a maximum sales charge of
1.50% for the Flag Investors Class A Shares and no sales charge for the Flag
Investors Institutional Shares or the ABCAT 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, 1997, for a shareholder
in the 31% bracket, was 6.14% for the Flag Investors Class A Shares and 6.59%
for the Flag Investors 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, 1997 and March 31, 1996, the Fund's portfolio turnover rate was
33.18% and 8.79, 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 23, 1997, the following persons owned of record or
beneficially 5% or more of the Fund's total outstanding Shares:
Alex. Brown & Sons Incorporated* 11.46%
FBO 250-10788-16
PO Box 1346
Baltimore, MD 21203
Alex. Brown & Sons Incorporated* 9.48%
FBO 01-01-170-7036337
PO Box 1346
Baltimore, MD 21203
As of July 23, 1997, to Fund management's knowledge, Directors and
officers as a group owned less than 1% of the Fund's total outstanding Shares.
- -------------
* As of July 23, 1997, to Fund management's knowledge, Alex. Brown &
Sons, Incorporated owned beneficially less than 5% of such Shares.
-29-
<PAGE>
15. FINANCIAL STATEMENTS
See next page.
-30-
<PAGE>
ALEX BROWN MD INTERMEDIATE TAX-FREE AR
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS -- 96.8%
$ 500 Baltimore County, MD, Consolidated
Public Improvement
5.00%, 6/1/03 Aaa/AAA $ 505,250 2.1%
1,000 Baltimore County, MD, Consolidated
Public Improvement
5.50%, 6/1/04 Aaa/AAA 1,037,660 4.4
500 Baltimore County, MD, Metropolitan
District, 61st Issue
6.80%, 4/1/00 Aaa/AAA 531,220 2.3
250 Cecil County, MD (FGIC Insured),
Refunding Consolidated Public
Improvement Project,
Callable 12/1/03 @ $102
5.00%, 12/1/06 Aaa/AAA 247,155 1.1
500 Charles County, MD, Refunding
Consolidated Public Improvement,
Callable 6/1/01 @ $102
6.25%, 6/1/02 Aa3/AA- 533,025 2.3
500 Charles County, MD, Refunding
Consolidated Public Improvement
6.00%, 6/1/99 Aa3/AA- 516,390 2.2
500 Frederick, MD, Refunding and
Improvement (FGIC Insured)
5.80%, 12/1/02 Aaa/AAA 524,010 2.2
1,000 Howard County, MD, Refunding
Consolidated Public Improvement
Project, Series "A"
5.75%, 2/15/01 Aaa/AA+ 1,037,790 4.4
375 Laurel, MD, Refunding, Series "A"
(MBIA Insured), Prerefunded
7/1/01 @ $102
6.60%, 7/1/03 Aaa/AAA 408,220 1.7
500 Maryland National Capital Park &
Planning Commission, Prince George's
County, Park Aquisition &
Development, Series T-2,
Callable 7/1/05 @ $101
5.00%, 7/1/08 Aa2/AA 490,690 2.1
</TABLE>
31
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500 Maryland State Capital Improvement
and Refunding
4.90%, 4/15/03 Aaa/AAA $ 502,585 2.1%
500 Maryland State Capital Improvement
and Refunding, Callable
4/15/03 @ $100
5.00%, 4/15/04 Aaa/AAA 503,355 2.1
500 Maryland State and Local Facilities Loan,
First Series
4.00%, 2/15/03 Aaa/AAA 475,780 2.0
100 Maryland State and Local Facilities Loan,
First Series, Callable 5/15/02 @ $102
6.00%, 5/15/07 Aaa/AAA 105,597 0.5
1,000 Maryland State and Local Facilities Loan,
Second Series
5.25%, 6/15/05 Aaa/AAA 1,019,280 4.3
1,250 Maryland State and Local Facilities Loan,
Second Series, Callable 6/15/06 @ $101
5.25%, 6/15/09 Aaa/AAA 1,247,663 5.3
1,000 Maryland State and Local Facilities Loan,
Third Series
5.00%, 10/15/06 Aaa/AAA 996,980 4.2
300 Maryland State and Local Facilities Loan,
Third Series, Callable 7/15/01 @ $101
6.50%, 7/15/04 Aaa/AAA 323,670 1.4
1,000 Montgomery County, MD,
Consolidated Public Improvement
Project, Series "A", Callable
10/1/04 @ $102
5.75%, 10/1/07 Aaa/AAA 1,049,230 4.5
500 Ocean City, MD, Refunding
(MBIA Insured)
5.00%, 3/15/03 Aaa/AAA 502,285 2.1
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 257,190 1.1
</TABLE>
32
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 250 Prince George's County, MD,
Refunding Consolidated Public
Improvement Project (AMBAC Insured),
Callable 3/15/03 @ $102
5.50%, 3/15/05 Aaa/AAA $ 257,455 1.1%
250 St. Mary's County, MD,
Metropolitan Commission,
Callable 11/1/03 @ $102
5.65%, 11/1/07 A/A+ 257,698 1.1
250 Washington Suburban Sanitary
District, MD, Prerefunded
11/1/01 @ $102
6.40%, 11/1/04 #AAA/AAA 271,370 1.2
360 Washington Suburban Sanitary
District, MD
8.00%, 1/1/02 Aa1/AA 408,046 1.7
1,000 Washington Suburban Sanitary
District, MD, Callable 6/1/03 @ $102
5.00%, 6/1/06 Aa1/AA 992,680 4.3
----------- ----
15,002,274 63.8
----------- ----
Other Revenue -- 33.0%
350 Baltimore County, MD, Mortgage
Revenue (FHA Insured),
Callable 11/1/03 @ $102
6.60%, 11/1/14 NR**/AAA 364,382 1.5
100 Baltimore, MD, Convention Center
(FGIC Insured), Callable 9/1/04 @ $100
5.60%, 9/1/06 Aaa/AAA 102,678 0.4
230 Charles County, MD, Housing
Revenue (MBIA Insured),
Callable 7/1/03 @ $102
5.375%, 7/1/09 Aaa/AAA 228,859 1.0
100 Frederick County, MD, College
Revenue for Hood College,
Callable 7/1/00 @ $102
6.95%, 7/1/02 Baa1/NR** 108,437 0.5
700 Kent County, MD, College, Project &
Refunding--Washington College
Project, Callable 7/1/99 @ $102
7.70%, 7/1/18 Baa2/NR** 752,507 3.2
</TABLE>
33
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 400 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Bon Secours Heartland,
Issue A, Prerefunded 7/1/00 @ $102
7.375%, 9/1/17 NR**/A+ $ 433,711 1.8%
500 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Good Samaritan Hospital
5.40%, 7/1/04 A1/A 505,390 2.2
1,000 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Greater Baltimore Medical
Center, Prerefunded 7/1/01 @ $102
6.75%, 7/1/19 #AAA/AAA 1,092,440 4.6
640 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** 657,050 2.8
200 Maryland State Health and Higher
Education Facilities Authority, Revenue
for Howard County General Hospital
4.55%, 7/1/98 Baa1/BBB 200,422 0.9
250 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Johns Hopkins University
6.00%, 7/1/07 Aa2/AA- 264,490 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 A2/A 292,818 1.2
300 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Suburban Hospital
4.75%, 7/1/03 A1/A+ 291,294 1.2
1,000 Maryland State Health and Higher
Education Facilities Authority,
Revenue for University of Maryland
Medical Systems, Callable
7/1/03 @ $102 (FGIC Insured)
5.40%, 7/1/08 Aaa/AAA 1,005,860 4.3
</TABLE>
34
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 400 Maryland State Industrial Development
Authority, Revenue for American
Center Physics Headquarters
5.80%, 1/1/01 NR**/BBB $ 403,708 1.7%
500 Montgomery County, MD, Maryland
Housing Opportunities Commission,
Single Family Mortgage Revenue,
Callable 7/1/06 @ $102
5.40%, 7/1/16 Aa2/NR** 502,090 2.2
500 University of Maryland Systems
Auxiliary Facilities & Tuition Revenue,
Series B, Prerefunded 10/1/02 @ $102
6.40%, 4/1/06 Aa3/AAA 546,740 2.4
----------- -----
7,752,876 33.0
----------- -----
Total Municipal Bonds
(Cost $22,741,883) 22,755,150 96.8
----------- -----
REPURCHASE AGREEMENT -- 1.2%
293 Goldman Sachs & Co., 6.25%
Dated 3/31/97, to be repurchased on 4/1/97,
collateralized by U.S. Treasury Notes with
a market value of $299,276.
(Cost $293,000) 293,000 1.2
----------- -----
Total Investments in Securities
(Cost $23,034,883)*** 23,048,150 98.0
Other Assets in Excess of Liabilities, Net 460,634 2.0
----------- -----
Net Assets $23,508,784 100.0%
=========== =====
Net Asset Value Per:
Class A Share
($11,537,534 / 1,179,735 shares outstanding) $9.78
=====
Institutional Share
($11,971,250 / 1,212,724 shares outstanding) $9.87
=====
Maximum Offering Price Per:
Class A Share
($9.78 / 0.985) $9.93
=====
Institutional Share $9.87
=====
</TABLE>
- ------------
* The Moody's and Standard and Poor's ratings are believed to be the most
recent ratings available as of March 31, 1997.
** Not rated.
*** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
35
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $1,138,292
----------
Expenses:
Investment advisory fee (Note 2) 79,698
Legal 47,690
Printing and postage 30,587
Distribution fee (Note 2) 29,887
Accounting fee (Note 2) 25,202
Audit 21,100
Registration fees 16,492
Transfer agent fees (Note 2) 11,297
Organizational expense (Note 1) 10,224
Custodian fee 3,056
Directors' fees 1,511
Miscellaneous 337
Insurance 300
----------
Total expenses 277,381
Less: Fees waived and expenses reimbursed (Note 2) (144,578)
----------
Net expenses 132,803
----------
Net investment income 1,005,489
----------
Net realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions (85,513)
Change in unrealized appreciation or depreciation
of investments 27,235
----------
Net realized and unrealized loss on investments (58,278)
----------
Net increase in net assets resulting from operations $ 947,211
==========
See Notes to Financial Statements.
36
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended March 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 1,005,489 $ 613,033
Net loss from security transactions (85,513) (2,588)
Change in unrealized appreciation or
depreciation of investments 27,235 434,427
----------- -----------
Net increase in net assets resulting
from operations 947,211 1,044,872
----------- -----------
Distributions to Shareholders from:
Net investment income:
Class A Shares (513,444) (528,695)
Institutional Shares (509,983) (60,193)
Distributions in excess of income
(Class A Shares) (32,984) (68,882)
----------- -----------
Total distributions (1,056,411) (657,770)
Capital Share Transactions (Note 3):
Proceeds from sale of shares 7,978,261 10,461,018
Value of shares issued in reinvestment
of dividends 455,395 402,890
Cost of shares repurchased (3,949,236) (5,036,544)
----------- -----------
Total increase in net assets derived
from capital share transactions 4,484,420 5,827,364
----------- -----------
Total increase in net assets 4,375,220 6,214,466
Net Assets:
Beginning of year 19,133,564 12,919,098
----------- -----------
End of year $23,508,784 $19,133,564
=========== ===========
See Notes to Financial Statements.
37
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 9.84
------
Income from Investment Operations:
Net investment income 0.44
Net realized and unrealized gain/(loss)
on investments (0.05)
------
Total from Investment Operations 0.39
Less Distributions:
Dividends from net investment income (0.44)
Distributions in excess of income (0.01)
------
Total distributions (0.45)
------
Net asset value at end of period $ 9.78
======
Total Return(2) 4.05%
Ratios to Average Daily Net Assets:
Expenses(3) 0.70%
Net investment income(4) 4.29%
Supplemental Data:
Net assets at end of period (000) $11,538
Portfolio turnover rate 33.18%
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average net daily assets would have been 1.34%,
1.69%, 1.85% and 2.46% for the years ended March 31, 1997, 1996, 1995 and
the period ended March 31, 1994, respectively.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of net investment income to average daily net assets would have
been 3.66%, 3.13%, 3.29% and 1.68% for the years ended March 31, 1997,
1996, 1995 and the period ended March 31, 1994, respectively.
(5) Annualized.
38
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
October 1, 1993(1)
through
For the Year Ended March 31, March 31,
- ------------------------------------------------------------------------------------------------------
1996 1995 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) --
------ ------ -------
Total distributions (0.45) (0.43) (0.11)
------ ------ -------
Net asset value at end of period $ 9.84 $ 9.52 $ 9.50
====== ====== =======
Total Return(2) 8.20% 5.12% (4.06)%
Ratios to Average Daily Net Assets:
Expenses(3) 0.70% 0.70% 0.29%(5)
Net investment income(4) 4.09% 4.44% 3.84%(5)
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>
See Notes to Financial Statements.
39
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
For the Period
For the Year Nov. 2, 1995(1)
Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1997 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 9.93 $ 9.93
------ ------
Income from Investment Operations:
Net investment income 0.48 0.15
Net realized and unrealized loss
on investments (0.07) (0.03)
------ ------
Total from Investment Operations 0.41 0.12
Less Distributions:
Dividends from net investment income
and short-term gains (0.47) (0.12)
------ ------
Net asset value at end of period $ 9.87 $ 9.93
====== ======
Total Return 4.27% 2.83%(2)
Ratios to Average Daily Net Assets:
Expenses(3) 0.45% 0.45%(2)
Net investment income(4) 4.55% 4.45%(2)
Supplemental Data:
Net assets at end of period (000) $11,971 $7,068
Portfolio turnover rate 33.18% 8.79%(2)
- ------------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.08% and 1.30% for the year ended
March 31, 1997 and the period ended March 31, 1996, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.92% and 3.67% for the
year ended March 31, 1997 and the period ended March 31, 1996,
respectively.
See Notes to Financial Statements.
40
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Finaicial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the
"Fund"), which was organized as a Maryland Corporation on July 23, 1993,
commenced operations October 1, 1993. The Fund is registered under the
Investment Company Act of 1940 as a non-diversified, open-end Management
Investment Company. It 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 invests primarily in municipal obligations issued by the State of Maryland
and its political subdivisions, agencies or instrumentalities. Since the Fund
has a specialized focus, it carries more risk than a fund that invests more
generally.
The Fund consists of two share classes: Class A Shares, which commenced
October 1, 1993, and Institutional Shares, which commenced November 2, 1995.
The Class A Shares have a 1.50% maximum front-end sales charge and a 0.25%
distribution fee. The Institutional Shares have neither a front-end sales charge
nor a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--Municipal obligations are usually traded in the
over-the-counter market. When there is an available market quotation,
the Fund values a municipal obligation by using the most recent price
provided by an investment dealer. The Fund may also value a municipal
obligation by using a price from an independent pricing service that
the Investment Advisor has determined reflects the obligation's fair
market value. When a market quotation is unavailable, the Investment
Advisor determines a fair value using procedures that the Board of
Directors establishes and monitors. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
41
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Finaicial Statements (continued)
NOTE 1--concluded
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
D. Security Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated
to each class based on its respective average net assets. Class
specific expenses are charged directly to each class. Dividend income
and distributions to shareholders are recorded on the ex-dividend
date. The Fund has deferred the costs incurred by its organization and
the initial public offering of shares. These costs are being amortized
on the straight-line method over a five-year period from the Fund's
commencement of operations.
42
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor. As compensation for its
advisory services, the Fund pays ICC an annual fee. This fee is based on the
Fund's average daily net assets and is calculated daily and paid monthly at the
following annual rates: 0.35% of the first $1 billion, 0.30% of the next $500
billion and 0.25% of the amount over $1.5 billion.
ICC has agreed to waive its fees when necessary so that expenses are no
more than 0.70% of the Class A Shares' average daily net assets and 0.45% of the
Institutional Shares' average daily net assets. For the year ended March 31,
1997, ICC waived fees of $79,698 and reimbursed expenses of $64,880.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $25,202 for accounting services for the year ended
March 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $11,297 for
transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the Class
A Shares' average daily net assets. For the year ended March 31, 1997,
distribution fees aggregated $29,887. The Fund did not pay Alex. Brown any
commissions for the year ended March 31, 1997.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period April
1, 1996 through March 31, 1997 was approximately $950, and the accrued liability
was approximately $2,200.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 40 million shares of $.001 par value
capital stock (25 million Class A, 2 million Class B, 5 million Institutional, 5
million Alex. Brown Capital Advisory & Trust and 3 million undesignated).
Transactions in shares of the Fund are listed on the following page.
43
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Finaicial Statements (concluded)
NOTE 3--continued
Class A Shares
-----------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold 77,427 318,331
Shares issued to shareholders on
reinvestment of dividends 33,825 39,023
Shares redeemed (157,261) (488,564)
----------- -----------
Net decrease in shares outstanding (46,009) (131,210)
=========== ===========
Proceeds from sale of shares $ 750,704 $ 3,133,248
Value of reinvested dividends 331,270 382,490
Cost of shares redeemed (1,538,466) (4,810,545)
----------- -----------
Net decrease from capital share transactions $ (456,492) $(1,294,807)
=========== ===========
Institutional Shares
-----------------------------------
For the Period
For the Nov. 2, 1995*
Year Ended through
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold 731,797 731,839
Shares issued to shareholders on
reinvestment of dividends 12,570 2,037
Shares redeemed (243,131) (22,388)
----------- ----------
Net increase in shares outstanding 501,236 711,488
=========== ==========
Proceeds from sale of shares $ 7,227,557 $7,327,770
Value of reinvested dividends 124,125 20,400
Cost of shares redeemed (2,410,770) (225,999)
----------- ----------
Net increase from capital share transactions $ 4,940,912 $7,122,171
=========== ==========
- ----------
*Commencement of operations.
44
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $12,702,143 and sales of investment securities aggregated $7,177,895
for the year ended March 31, 1997.
On March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $138,678 and
aggregate gross unrealized depreciation of all securities in which there is an
excess of tax cost over value was $125,411.
NOTE 5--Net Assets
On March 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares ............................................. $11,637,968
Institutional Shares ....................................... 12,063,083
Accumulated net realized loss from securities transactions .... (205,533)
Unrealized appreciation of investments ........................ 13,266
-----------
$23,508,784
===========
NOTE 6--Distributions
Of the net investment income distributions paid monthly by the Fund during
the taxable year ended March 31, 1997, 96.91% qualify as tax-exempt interest
dividends for federal tax purposes. The Fund did not distribute any capital
gains during the year.
NOTE 7--Capital Loss Carryforward
At March 31, 1997, there was a tax capital loss carryforward of $164,603 of
which $36,982 expires in 2003, $83,039 expires in 2004 and $44,582 expires in
2005. This carryforward will be used to offset any future net capital gains.
NOTE 8--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
45
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.:
We have audited the accompanying statement of net assets of the Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. as of March 31, 1997,
and the related statements of operations for the year then ended and changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the respective periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1997 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1997, 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 25, 1997
46
<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
A-1
<PAGE>
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.
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, 1997
- Statement of Changes in Net Assets for the fiscal
years ended March 31, 1997 and March 31, 1996
- Statement of Operations for the fiscal year ended
March 31, 1997
- Financial Highlights for Flag
Investors Class A Shares for the
fiscal years ended March 31, 1997,
March 31, 1996 and March 31, 1995
and for the period from October 1,
1993 (commencement of operations)
through March 31, 1994
- Financial Highlights for Flag
Investors Institutional Shares for
the fiscal year ended March 31, 1997
and for the period November 2, 1995
(commencement of operations) through
March 31, 1996
- 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, dated October 6, 1995.(3)
(1)(c) Articles Supplementary, dated April 24, 1996.(3)
(1)(d) Articles Supplementary with respect to creation of
ABCAT Shares Class, dated November
1, 1996, filed herewith.
(2) By-Laws, as amended through December 18, 1996, filed
herewith.(1)
(3) Not Applicable.
(4) Incorporated by reference to Exhibit (1)(a) Articles of
Incorporation and Exhibit (2) By-Laws
(5) Investment Advisory Agreement between Registrant and Flag
Investors Management Corp.(now known as Investment
Company Capital Corp.)(1)
C-2
<PAGE>
(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, filed herewith.
(6)(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents.(1)
(6)(d) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Flag Investors Maryland
Intermediate Tax Free Income Fund Institutional Shares.(3)
(6)(e) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Alex. Brown Capital
Advisory & Trust Maryland Intermediate Tax Free Income
Shares, filed herewith.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and PNC Bank,
National Association.(1)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp.(3)
(10) Opinion of Counsel.(1)
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15) Distribution Plan with respect to Class A Shares.(1)
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
(18)(a) Registrant's 18f-3 Plan.(4)
(b) Registrant's 18f-3 Plan, as amended through March 26,
1997, filed herewith.
(24) Powers of Attorney, filed herewith.
(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.
(3) Incorporated by reference to Post-Effective Amendment No. 5
to Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange
Commission via EDGAR on July 29, 1996.
(4) Incorporated by reference to Post-Effective Amendment No. 6
to Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange
Commission via EDGAR on October 18, 1996.
C-3
<PAGE>
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 23, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
Flag Investors Class A Shares 200
Flag Investors Institutional Shares 39
ABCAT Shares 1
Item 27. Indemnification.
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Section 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation
Law, no director or officer of the Corporation shall have any liability to
the Corporation or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
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
C-4
<PAGE>
security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, has engaged in any
other business, profession, vocation or employment of a substantial nature other
than that of the business of investment management and, through affiliates,
investment banking.
Item 29. Principal Underwriters.
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
advisor:
a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Total Return U.S. Treasury Fund
Shares of Total Return U.S. Treasury Fund, Inc., Flag Investors
Managed Municipal Fund Shares of Managed Municipal Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc. (formerly Flag
Investors Intermediate-Term Income Fund, Inc.), Flag Investors Value
Builder Fund, Inc., Flag Investors 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):
C-5
<PAGE>
<TABLE>
<CAPTION>
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------ ------------- -------------
<S> <C> <C>
Alvin B. Krongard Chairman, Chief None
Executive
Officer and
Director
Benjamin Howell Griswold, IV Director None
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial None
Officer and
Treasurer
Robert F. Price Secretary and None
General Counsel
- -------------
* One South Street
Baltimore, Maryland 21202
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Alex. Brown & Sons Incorporated (Registrant's distributor) and
Investment Company Capital Corp. (Registrant's investment advisor,
transfer agent and dividend disbursing agent), 135 E. Baltimore Street,
Baltimore, Maryland 21202, will maintain physical possession of each such
account, book or other document of the Registrant, except for those
accounts, books and documents pursuant to Rule 31a-1(b)(1) maintained by
the Registrant's custodian, PNC Bank, Airport Business Park, 200 Stevens
Drive, Lester, Pennsylvania 19113.
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.
C-6
<PAGE>
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-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 7 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 29th day of July, 1997.
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:
<TABLE>
<CAPTION>
<S> <C> <C>
* Director July 29, 1997
- ---------------------- --------------------
Richard T. Hale Date
* Director July 29, 1997
- ---------------------- --------------------
Truman T. Semans Date
* Director July 29, 1997
- ---------------------- --------------------
James J. Cunnane Date
* Director July 29, 1997
- ---------------------- --------------------
John F. Kroeger Date
* Director July 29, 1997
- ---------------------- --------------------
Louis E. Levy Date
* Director July 29, 1997
- ---------------------- --------------------
Eugene J. McDonald Date
* Director July 29, 1997
- ---------------------- --------------------
Rebecca W. Rimel Date
/s/ M. Elliott Randolph, Jr. President July 29, 1997
- ---------------------- --------------------
M. Elliott Randolph, Jr. Date
/s/ Joseph A. Finelli Chief Financial July 29, 1997
- ---------------------- and Accounting --------------------
Joseph A. Finelli Officer Date
* By: /s/ Scott J. Liotta
-----------------------
Scott J. Liotta
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Documents
-------- ----------
(1)(a) Articles of Incorporation.(1)
(1)(b) Articles Supplementary, dated October 6, 1995.(3)
(1)(c) Articles Supplementary, dated April 24, 1996.(3)
EX-99.B(1)(d) Articles Supplementary with respect to creation of
ABCAT Shares Class, dated November 1, 1996, filed
herewith.
EX-99.B(2) By-Laws, as amended through December 18, 1996,
filed herewith.
(3) Not Applicable.
(4) Incorporated herein by reference to Exhibit (1)(a) Articles
of Incorporation and Exhibit (2) By-Laws.
(5) Form of 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)
EX-99.B(6)(b) Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Dealers, filed herewith.
(6)(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents.(1)
(6)(d) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Flag Investors Maryland
Intermediate Tax Free Income Fund Institutional Shares.
EX-99.B(6)(e) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Alex. Brown Capital
Advisory & Trust Maryland Intermediate Tax Free Income
Shares, filed herewith.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and PNC Bank,
National Association.(1)
(9) Master Services Agreement between Registrant and Investment
Company Capital Corp.(3)
(10) Opinion of Counsel.(1)
EX-99.B(11) Consent of Independent Accountants, filed herewith.
<PAGE>
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15) Distribution Plan with respect to Class A Shares.(1)
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
(18)(a) Registrant's 18f-3 Plan.(4)
EX-99.B (b) Registrant's 18f-3 Plan, as amended through March 26, 1997,
filed herewith.
EX-99.B(24) Powers of Attorney, filed herewith.
EX-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.
(3) Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on July 29, 1996.
(4) Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 33-66870), filed with the
Securities and Exchange Commission via EDGAR on October 18, 1996.
<PAGE>
EX-99.B(1)(d)
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 forty million (40,000,000) shares of
Common Stock, of the par value of 1 mil ($.001) per share and of the aggregate
par value of forty thousand dollars ($40,000), all of which shares are
designated and classified as follows: twenty-five million (25,000,000) shares
are designated "Flag Investors Maryland Intermediate Tax Free Income Fund Class
A Shares," two million (2,000,000) shares are designated "Flag Investors
Maryland Intermediate Tax Free Income Fund Class B Shares," five million
(5,000,000) shares are designated "Flag Investors Maryland Intermediate Tax Free
Income Fund Institutional Shares," five million (5,000,000) shares are
designated "Alex. Brown Capital Advisory & Trust Maryland Intermediate Tax Free
Income Shares" and three million (3,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty-five million (35,000,000) shares of Common Stock, of
the par value of 1 mil ($.001) per share and of the aggregate par value of
thirty-five thousand dollars ($35,000), all of which shares were designated and
classified 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.
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 31st day of October, 1996.
<PAGE>
[CORPORATE SEAL]
FLAG INVESTORS MARYLAND INTERMEDIATE TAX
FREE INCOME FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Vice President
Attest: /s/ Edward J. Stoken
------------------------------
Edward J. Stoken
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
--------------------------
Edward J. Veilleux
Vice President
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EX-99.B(2)
As Amended Through
December 18, 1996
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
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,
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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
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
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of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of shareholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the Corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease.
Directors need not be shareholders.
Section 3. Election and Term of Directors. Directors shall be
elected by plurality 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.
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Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of Directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A Director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a Director serves for the balance of the term of the
removed Director.
Section 7. Regular Meetings. Regular meetings of the Board may
be held with notice at such times and places as may be determined by the Board
of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
Directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each Director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
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Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another Director chosen by a majority of the Directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
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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,
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.
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Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more Directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or issue
capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require shareholder approval.
Section 4. General. 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.
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ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
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Section 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
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Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
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.
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ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
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Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
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<PAGE>
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the Secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of March in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
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<PAGE>
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
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<PAGE>
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify
its Directors to the fullest extent that indemnification of Directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a Director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former Director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as such statutes are now or hereafter in force.
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
- 16 -
<PAGE>
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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<PAGE>
EX-99.B(6)(b)
FLAG INVESTORS FAMILY OF FUNDS
One South 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 (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
<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 NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830. 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
<PAGE>
registration or qualification is required. We will inform you as to the states
or other jurisdictions in which we believe the Shares have been qualified for
sale under, or are exempt from the requirements of, the respective securities
laws of such states. You agree that you will offer Shares to your customers only
in those states where such Shares have been registered, qualified, or an
exemption is available. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
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.
<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:______________________________
<PAGE>
EX-99.B(6)(e)
FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE INCOME FUND, INC.
ALEX. BROWN CAPITAL ADVISORY & TRUST SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 9th day of January, 1997, 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 three classes of shares of the Fund known respectively as the Flag Investors
Maryland Intermediate Tax Free Income Fund Class A Shares, the Flag Investors
Maryland Intermediate Tax Free Income Fund Class B Shares and the Flag Investors
Maryland Intermediate Tax Free Income Fund Institutional Shares; and
WHEREAS, the Fund's Board of Directors has further authorized the
creation of an additional class of shares of the Fund known as the Alex. Brown
Capital Advisory & Trust Maryland Intermediate Tax Free Income 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.
<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 "ByLaws");
(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
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<PAGE>
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:
(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
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<PAGE>
(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
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<PAGE>
of the Fund's Board of Directors. Such services will be performed on behalf of
the Fund and Alex. Brown's charge in rendering such services may be billed
monthly to the Fund, subject to examination by the Fund's independent
accountants. Payment or assumption by Alex. Brown of any Fund expense that Alex.
Brown is not required to pay or assume under this Agreement shall not relieve
Alex. Brown of any of its obligations to the Fund or obligate Alex. Brown to pay
or assume any similar Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for the
services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal and redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund, and communicating with the Fund and its transfer
agent on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All Sub-
Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that Directors, officers or
employees of Alex. Brown may serve as Directors or officers of the Fund, and
that Directors or officers of the Fund may serve as Directors, officers and
employees of Alex. Brown to the extent permitted by law; and that Directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, Directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
-5-
<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.
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<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/ Laurie D. Collidge By /s/ Edward J. Veilleux
- ------------------------------ -------------------------
Title: Vice President
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Laurie D. Collidge By /s/ Richard T. Hale
- ------------------------------ ------------------------
Title: Managing Director
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<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
One South Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
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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 NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830 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.
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<PAGE>
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
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>
EX-99.B(11)
INDEPENDENT AUDITORS' CONSENT
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 7 to the Registration
Statement of Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
(Registration No. 33-66870) of our report dated April 25, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the references to us under the caption "Financial Highlights"
appearing in the Prospectuses, which also are a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
June 25, 1997
<PAGE>
EX-99.B(18)(b)
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B,
Flag Investors Institutional and
Alex. Brown Capital Advisory & Trust Shares Classes
Adopted December 13, 1995
Amended through March 26, 1997
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of 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 its 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, Flag
Investors Institutional and Alex. Brown Capital Advisory & Trust) and future
classes of Fund shares. The Flag Investors Class A Shares have been offered
since the Fund's inception on October 1, 1993 and the Flag Investors
Institutional Shares have been offered since November 2, 1995. The Flag
Investors Class B Shares are not currently being offered. The Alex. Brown
Capital Advisory & Trust Shares have been offered since January 10, 1997.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. For each additional class of
<PAGE>
shares approved by the Fund's Board of Directors after the date hereof, the
appropriate officers of the Fund will attest the resolutions approving such
class as an exhibit hereto. Before any material amendment of the Plan, the Fund
is required to obtain a finding by a majority of the Board, and a majority of
the Independent Directors, that the Plan as proposed to be amended, including
the expense allocations, is in the best interests of each class individually and
the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")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.
- --------
1/ Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a) to Post-Effective Amendment
No. 3 to Registrant's Registration Statement on Form N-1A (Registration No.
33-66870), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-95-000313) on July 26, 1995 is incorporated herein by
reference.
2. Articles Supplementary establishing the ABCAT Shares is filed as Exhibit
(1)(d) to this Registration Statement on Form N-1A (Registration No. 33-66870)
and is incorporated herein by reference.
3. By-Laws, as amended through December 18, 1996 are filed as Exhibit (2) to
this Registration Statement on Form N-1A (Registration No. 33-66870) and are
incorporated herein by reference.
4. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
with respect to Maryland Intermediate Tax Free Income Fund Class A Shares, filed
as Exhibit (6)(a) to Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-66870), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-95-000313) on July
26, 1995 is incorporated herein by reference.
5. Form of Sub-Distribution Agreement between Alex. Brown & Sons Incorporated is
filed as Exhibit (6)(b) to this Registration Statement on Form N-1A
(Registration No. 33-66870) and is incorporated herein by reference.
6. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
with respect to Flag Investors Maryland Intermediate Tax Free Income Fund
Institutional Shares filed as Exhibit (6)(d) to Post-Effective Amendment No. 5
to Registrant's Registration Statement on Form N-1A (Registration No. 33-66870),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000685) on July 29, 1996 is incorporated herein by reference.
7. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
with respect to Alex. Brown Capital Advisory & Trust Maryland Intermediate Tax
Free Income Shares is filed as Exhibit (6)(e) to this Registration Statement on
Form N-1A (Registration No. 33- 66870), and is incorporated herein by reference.
8. Registrant's Distribution Plan with respect to Class A Shares filed as
Exhibit (15) to Post- Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-66870),filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000950116-95-000313) on July 26,
1995 is incorporated herein by reference.
<PAGE>
9. Prospectus relating to Maryland Intermediate Tax Free Income Fund Class A
Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-66870) and, as amended from time to time, is incorporated
herein by reference.
10. Prospectus relating Maryland Intermediate Tax Free Income Fund Institutional
Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-66870) and, as amended from time to time, is incorporated
herein by reference.
11. Prospectus relating to Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax Free Income Shares is filed as part of this Registration
Statement on Form N-1A (Registration No. 33-66870) and, as amended from time to
time, is incorporated herein by reference.
<PAGE>
BOARD APPROVALS
Date Approved: September 23, 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";
FURTHER RESOLVED, that the proper officers of the foregoing
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
matter.
Date Approved: April 1, 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.
<PAGE>
Date Approved: September 23, 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total # of Shares Class A Class B Unclassified
- ----------------- ------- ------- ------------
30,000,000 25,000,000 2,000,000 3,000,000
</TABLE>
FURTHER RESOLVED, that the proper officers of the Fund be, and
each of them hereby is, authorized and directed to file articles supplementary
to the Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between 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.
<PAGE>
Approved: September 26, 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;
Approved: September 26, 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.
<PAGE>
Approved October 1, 1996
Resolutions of Board Approving
Alex. Brown Capital Advisory & Trust 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-five million
(35,000,000) to forty million (40,000,000) and that from such amount, five
million (5,000,000) authorized and unissued shares be, and hereby are,
designated and classified as the "Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax-Free Income Shares";
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 file Articles Supplementary to the respective Fund's
Articles of Incorporation to effectuate the increase in authorized shares and to
designate and classify the new class;
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.
Approved: October 1, 1996
Approval of Distribution Agreements
for New Alex. Brown Capital Advisory & Trust Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. and Alex. Brown &
Sons Incorporated for the Alex. Brown Capital Advisory & Trust Shares of said
Fund be, and the same hereby is, approved in substantially the form presented to
this meeting; and
FURTHER RESOLVED, that the proper officers of Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. be, and they hereby are,
authorized and directed to enter into and execute the appropriate 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.
<PAGE>
Date Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of Directors of
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc. (the "Fund"),
that the Directors, including a majority of the Directors who are not
"interested persons" of the Fund, have determined that the Fund's amended Rule
18f-3 Plan, including the expense allocations described therein, is in the best
interests of the fund and each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 Plan for the Fund be, and
hereby is, approved, in substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to take any and all actions necessary or
appropriate to cause the amended Rule 18f-3 Plan to be filed with the Securities
and Exchange Commission.
<PAGE>
EX-99.B(24)
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
-------------------------
Richard T. Hale
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
--------------------------
Eugene J. McDonald
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, M. Elliott Randolph, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as President of the Fund such Registration Statement and any and
all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ M. Elliott Randolph, Jr.
------------------------------
M. Elliott Randolph, Jr.
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
-------------------------
Louis E. Levy
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
-----------------------
James J. Cunnane
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
---------------------------
Rebecca W. Rimel
Date: June 17, 1997
------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as Chief Financial and Accounting Officer of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
------------------------
Joseph A. Finelli
Date: June 17, 1997
------------------
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