FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE FUND INC/, DEFS14A, 1997-07-16

FLAG INVESTORS MARYLAND INTERMEDIATE TAX FREE FUND INC/
DEFS14A, 1997-07-16

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:

----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:

----------------------------------------------------------------------

5) Total fee paid:

----------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:

___________________________________________________________________________
3) Filing Party:

___________________________________________________________________________
4) Date Filed:

___________________________________________________________________________

<PAGE>

[LETTERHEAD OF FLAG INVESTORS FUNDS]

July 17, 1997

Dear Shareholders:

The enclosed proxy statement relates to a special meeting of the Shareholders of
the Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the
"Fund").

On April 6, 1997, Alex. Brown Incorporated, the parent corporation of the Fund's
investment advisor, entered into a definitive agreement to merge into a
subsidiary of Bankers Trust New York Corporation. Due to the pending change in
control of Alex. Brown Incorporated, we are asking you to approve a new
investment advisory agreement. The same advisor will continue to provide this
service to your Fund. The new agreement is substantially the same as the current
agreement.

We are also asking Shareholders to elect a Board of Directors. Currently, seven
nominees serve as Directors although three were appointed to fill vacancies and
were not previously elected by Shareholders. An eighth nominee has neither been
appointed nor elected. This election will give the Fund flexibility to fill
vacancies in the future.

These proposals have been unanimously approved by your Fund's Board of
Directors, who recommend you vote for the proposals. Your vote is important and
your participation in the governance of the Fund does make a difference.

Sincerely,

/s/ Richard T. Hale
-------------------

Richard T. Hale
Chairman
<PAGE>

FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.

One South Street
Baltimore, Maryland 21202

---------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

AUGUST 14, 1997

TO THE SHAREHOLDERS OF FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME
FUND, INC.

You are cordially invited to a special meeting (the "Special Meeting") of
the shareholders of Flag Investors Maryland Intermediate Tax-Free Income Fund,
Inc. (the "Fund") on Thursday, August 14, 1997, at 11:15 a.m. Eastern Standard
Time at the offices of Investment Company Capital Corp., in The Conference Room
on the 30th Floor of The Alex. Brown Building, One South Street, Baltimore,
Maryland 21202, for the purpose of considering the proposals set forth below
and for the transaction of such other business as may be properly brought
before the Special Meeting:

PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Directors of the Fund.

PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.

Only shareholders of the Fund at the close of business on June 25, 1997
are entitled to notice of, and to vote at, this meeting or any adjournment
thereof.

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON
AS POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.

Scott J. Liotta
Vice President and Secretary

Dated: July 17, 1997
<PAGE>

FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.

One South Street
Baltimore, Maryland 21202

---------------------
PROXY STATEMENT
---------------------

SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 14, 1997

This Proxy Statement is furnished by the Board of Directors of Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the "Fund") in
connection with the solicitation of proxies for use at the special meeting of
shareholders of the Fund to be held on Thursday, August 14, 1997, at 11:15 a.m.
Eastern Standard Time, or at any adjournment thereof (the "Special Meeting"), at
the offices of Investment Company Capital Corp., in The Conference Room on the
30th Floor of The Alex. Brown Building, One South Street, Baltimore, Maryland
21202. It is expected that the Notice of Special Meeting, the Proxy Statement
and a Proxy Card will be mailed to shareholders on or about July 17, 1997.

The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a new Investment Advisory Agreement to take effect
following the consummation of the transactions contemplated by an Agreement and
Plan of Merger, dated as of April 6, 1997 (the "Merger"), between Bankers Trust
New York Corporation and Alex. Brown Incorporated. This action is necessary to
avoid the possibility that the Merger could result in assignment and,
therefore, termination of the Fund's current Investment Advisory Agreement. It
is contemplated that, after the Merger, Investment Company Capital Corp. ("ICC"
or the "Advisor") will remain the investment advisor to the Fund. The Fund's
new Investment Advisory Agreement is identical to the Fund's current Investment
Advisory Agreement, except for the dates of execution, effectiveness and
initial term; the deletion of provisions relating to state expense limits that
have been preempted by federal law; and a proviso to the effect that the
obligation of ICC to make its personnel available to serve as officers of the
Fund is subject to applicable banking regulations. Shareholders will also be
asked to elect a slate of Directors.

If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before 11:15 a.m. Eastern Standard Time on Thursday, August
14, 1997. No postage is required if the Proxy is mailed in the United States. If
the accompanying Proxy is executed properly and returned, shares represented by
it will be voted at the Special Meeting in accordance with the instructions on
the Proxy. However, if no instructions are specified, shares will be voted FOR
the election of the proposed slate of Directors of the Fund ("Proposal 1") and
FOR the new Investment Advisory Agreement ("Proposal 2"). All shareholders of
the Fund are entitled to vote on each Proposal. Shareholders may revoke their
Proxies at any time prior to the time they are voted by giving written notice to
the Secretary of the Fund, by delivering a subsequently dated Proxy or by
attending and voting at the Special Meeting.

The close of business on June 25, 1997, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice
of, and to vote at, the Special Meeting and at any adjournment thereof. On the
Record Date, the Fund had 2,662,944.247 shares outstanding, consisting of
1,163,684.230 Flag Investors Maryland Intermediate Tax-Free Income Fund Class A
Shares, 456,595.115 Flag Investors Maryland Intermediate Tax-Free Income Fund
Institutional Shares and 1,042,664.902 Alex. Brown Capital Advisory & Trust
Maryland Intermediate Tax-Free Income Shares. Each full share will be entitled
to one vote at the Special Meeting and each fraction of a share will be
entitled to the fraction of a vote equal to the proportion of a full share
represented by the fractional share.

1
<PAGE>

The expenses of the Special Meeting will be borne by the Fund, except that
the incremental costs associated with Proposal 2 will be borne by ICC and will
include reimbursement to brokerage firms and others for expenses in forwarding
Proxy solicitation materials to beneficial owners. The solicitation of Proxies
will be largely by mail, but may include telephonic, telegraphic or oral
communication by employees and officers of ICC.

The Fund will furnish to shareholders, without charge, a copy of the
Annual Report for its fiscal year ended March 31, 1997, upon request. The
Annual Report of the Fund may be obtained by written request to the Fund, One
South Street, Baltimore, Maryland 21202 or by calling (800) 767-FLAG.

The Fund is registered as an open-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and its shares are registered under the Securities Act of 1933, as
amended.

PROPOSAL 1: To consider and act upon a proposal to elect a Board of Directors
of the Fund.

At the Special Meeting, it is proposed that eight Directors be elected to
hold office until their successors are duly elected and qualified. The persons
named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the
election of Richard T. Hale, James J. Cunnane, John F. Kroeger, Louis E. Levy,
Eugene J. McDonald, Rebecca W. Rimel, Truman T. Semans and Carl W. Vogt (each a
"Nominee" and collectively, the "Nominees"). Messrs. Hale, Cunnane, Kroeger,
Levy, McDonald and Semans and Ms. Rimel are currently members of the Board of
Directors. Messrs. Hale, Kroeger, McDonald and Semans were last elected by the
sole shareholder of the Fund on September 30, 1993. Messrs. Cunnane and Levy
and Ms. Rimel were appointed by the Board of Directors to fill vacancies on the
Board as they arose and have not previously been elected by the shareholders.
Mr. Vogt has not previously served on the Board and has not previously been
elected by the shareholders. Mr. Harry Woolf retired from the Board effective
December 31, 1996. It is the intention of the Board that at least 75% of its
members will be Disinterested persons within the contemplation of Section 15(f)
of the 1940 Act for at least three years after the Merger.

The proposal to elect the Board of Directors is being presented for
shareholder approval pursuant to requirements under the 1940 Act. Under the
1940 Act, Directors may not fill vacancies unless at least two-thirds of the
Directors holding office after such vacancies are filled have been elected by
the shareholders. The Special Meeting will provide the Board with operating
flexibility by making it possible for the Board of Directors to fill vacancies
that may occur in the future.

Each of the Nominees has consented to being named in this Proxy Statement
and to serving as a Director if elected. The Fund knows of no reason why any
Nominee would be unable or unwilling to serve if elected.

The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in
which the election of Directors is not required to be acted upon under the 1940
Act. The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings. Because the Fund does not hold regular annual
shareholder meetings, each Nominee, if elected, will hold office until his or
her successor is elected and qualified.

Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, including to approve investment policy changes, a
new investment advisory agreement or other matters requiring shareholder action
under the 1940 Act.

A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Directors, in which case shareholders may receive assistance in
communicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied. In addition, Maryland General Corporation Law
provides for the calling of a special meeting by the written request of
shareholders holding at least 25% of the shares entitled to vote at the
meeting.

2
<PAGE>

Information Regarding Nominees

The following information is provided for each Nominee. It includes his or
her name, position with the Fund, length of directorship, age, principal
occupations or employment during the past five years, directorships with other
companies which file reports periodically with the Securities and Exchange
Commission, number of directorships with the 12 registered investment companies
which hold themselves out to investors as related companies for purposes of
investment and investor services to which ICC or an affiliated person of ICC
provides investment advisory or administration services (collectively, the
"Fund Complex"), number of shares of the Fund beneficially owned and percentage
of shares of the Fund beneficially owned. As of May 31, 1997, the Directors and
officers of the Fund as a group and the Nominees as a group beneficially owned
an aggregate of less than 1% of the shares of the Fund.

<TABLE>
<CAPTION>
Business Experience Shares
Name and Position During the Past Five Years Beneficially Owned
with the Fund Age (including all directorships) as of May 31, 1997** Percentage
- ------------------------ ----- -------------------------------------- ---------------------- -----------
<S> <C> <C> <C> <C>
Richard T. Hale* 51 Managing Director, Alex. Brown & None ***
Director and Chairman Sons Incorporated; Director and
of the Board since President, Investment Company
1993 Capital Corp. (registered
investment advisor); Chartered
Financial Analyst. Director of each
fund in the Fund Complex.

James J. Cunnane 59 Managing Director, CBC Capital None ***
Director since 1994 (merchant banking), 1993-Present.
Formerly, Senior Vice President
and Chief Financial Officer,
General Dynamics Corporation
(defense), 1989-1993; and Director,
The Arch Fund (registered
investment company). Director of
each fund in the Fund Complex.

John F. Kroeger 72 Director/Trustee, AIM Funds None ***
Director since 1993 (registered investment companies).
Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting
firm) and General Manager, Shell
Oil Company. Director of each
fund in the Fund Complex.

Louis E. Levy 64 Director, Kimberly-Clark None ***
Director since 1994 Corporation (personal consumer
products) and Household
International (finance and
banking); Chairman of the Quality
Control Inquiry Committee,
American Institute of Certified
Public Accountants. Formerly,
Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct
Professor, Columbia
University-Graduate School of
Business, 1991-1992; Partner,
KPMG Peat Marwick, retired
1990. Director of each fund in the
Fund Complex.
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
Business Experience Shares
Name and Position During the Past Five Years Beneficially Owned
with the Fund Age (including all directorships) as of May 31, 1997** Percentage
- ---------------------- ----- ------------------------------------------ ---------------------- -----------
<S> <C> <C> <C> <C>
Eugene J. McDonald 65 President, Duke Management None ***
Director since 1993 Company (investments); Executive
Vice President, Duke University
(education, research and health
care); Director, Central Carolina
Bank & Trust (banking), Key
Funds (registered investment
companies), AMBAC Treasurers
Trust (registered investment
company) and DP Mann Holdings
(insurance). Director of each fund
in the Fund Complex.

Rebecca W. Rimel 46 President and Chief Executive None ***
Director since 1995 Officer, The Pew Charitable Trusts;
Director and Executive Vice
President, The Glenmede Trust
Company. Formerly, Executive
Director, The Pew Charitable
Trusts. Director of 10 funds in the
Fund Complex.

Truman T. Semans* 70 Managing Director, Alex. Brown & 6,416 shares ***
Director since 1993 Sons Incorporated; Director,
Investment Company Capital Corp.
(registered investment advisor).
Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated.
Director of 10 funds in the Fund
Complex.

Carl W. Vogt, Esq. 61 Senior Partner, Fulbright & None ***
Nominee Jaworski L.L.P. (law); Director,
Yellow Corporation (trucking).
Formerly, Chairman and Member,
National Transportation Safety
Board; Director, National Railroad
Passenger Corporation (Amtrak);
and Member, Aviation System
Capacity Advisory Committee
(Federal Aviation Administration).
Director of 9 funds in the Fund
Complex.
</TABLE>

- ------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act. Such individual's service as Director is conditioned upon Federal
Reserve Board approval. (See "The New Advisory Agreement" below.)
** This information has been provided by each Nominee for Director of the
Fund.
*** As of May 31, 1997, the Nominees of the Fund as a group beneficially owned
an aggregate of less than 1% of the shares of the Fund.

Compensation of Directors

Each Director who is not an "interested person" 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
the Fund and all of the funds in the Fund Complex for which he or she serves.
Payment of such fees and expenses is allocated among all such funds described
above in proportion to their relative net assets.

4
<PAGE>

For the fiscal year ended March 31, 1997, Disinterested Directors' fees
attributable to the assets of the Fund totaled $958. Officers of the Fund
receive no direct remuneration in such capacity from the Fund. Officers of the
Fund who are employees of Alex. Brown Incorporated or its affiliates ("Alex.
Brown") may be considered to have received remuneration indirectly.

Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, and up to 100%, 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 and may defer a
portion of their compensation from the Fund and the Fund Complex. Currently,
the deferring Directors may select various funds in the Fund Complex 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 quarterly installments over a period of ten years.

The aggregate compensation payable by the Fund to each of the Fund's
Directors serving during the fiscal year ended March 31, 1997, is set forth in
the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended March 31, 1997 by the Fund Complex is
also set forth in the compensation table below.

COMPENSATION TABLE

<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation Pension or Retirement From the Fund and Number of Funds in
Payable Benefits Accrued as Fund Complex Fund Complex for
Name and Position from the Fund Part of Fund Expenses Payable to Directors Which Director Serves
- --------------------------------- --------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Richard T. Hale, Director (1) $ 0 $0 $ 0 12
James J. Cunnane, Director ..... $ 156(2) + $39,000 12
John F. Kroeger, Director ....... $ 196(2) + $49,000 12
Louis E. Levy, Director ........ $ 156(2) + $39,000 12
Eugene J. McDonald, Director .... $ 156(2) + $39,000 12
Rebecca W. Rimel, Director .... $ 178(2) + $39,000 10(3)
Truman T. Semans, Director (1) $ 0 $0 $ 0 10
Harry Woolf, Director (4) ....... $ 116(2) + $29,250 12
</TABLE>

- ------------
(1) Denotes an individual who is an "interested person" as defined in the 1940
Act.
(2) None of this amount has been deferred pursuant to the Fund Complex's
Deferred Compensation Plan.
(3) Ms. Rimel receives proportionately higher compensation from each fund for
which she serves as Director.
(4) Retired, effective December 31, 1996.
+ The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the fiscal
year ended March 31, 1997 was approximately $950.

5
<PAGE>

The Fund Complex has adopted a retirement plan (the "Retirement Plan") for
Directors who are not employees of the Fund, the Fund's investment 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 fees 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 the 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 years 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 below. The approximate credited years of service, shown
in parentheses, for each Participant at December 31, 1996, are as follows:
Messrs. Cunnane (2), Kroeger (14), Levy (2) and McDonald (4) and Ms. Rimel (1).

Estimated Annual Benefits Payable By Fund Complex
Upon Retirement
---------------------------------------------------
Years of Service Chairman of Audit Committee Other Participants
- ------------------ ----------------------------- -------------------
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

Meetings and Committees of the Board of Directors

There were four meetings of the Board of Directors held during the fiscal
year ended March 31, 1997. In such fiscal year, all Directors attended at least
75% of the meetings of the Board of Directors held during their respective
terms.

The Board of Directors has an Audit and Compliance Committee. The Audit
and Compliance Committee makes recommendations to the full Board of Directors
with respect to the engagement of independent accountants and reviews, with the
independent accountants, the results of the audit engagement and matters having
a material effect on the Fund's financial operations. The members of the Audit
and Compliance Committee during the fiscal year ended March 31, 1997, were
Messrs. Kroeger (Chairman), Cunnane, Levy, McDonald and Woolf and Ms. Rimel,
each of whom is not an "interested person" within the meaning of the 1940 Act.
Mr. Woolf was a member of the Audit and Compliance Committee until his
retirement on December 31, 1996. The Audit and Compliance Committee met four
times during the fiscal year ended March 31, 1997. In such fiscal year, all
members attended at least 75% of the meetings of the Audit and Compliance
Committee held during their respective terms. The Chairman of the Audit and
Compliance Committee receives an aggregate annual fee of $10,000 from the Fund
Complex. Payment of such fee is allocated among all funds in the Fund Complex
in proportion to their relative net assets.

The Board of Directors has a Nominating Committee. The Nominating
Committee makes recommendations to the full Board of Directors with respect to
candidates for the Board of Directors. The members of the Nominating Committee
during the fiscal year ended March 31, 1997, were Messrs. McDonald (Chairman),
Cunnane, Kroeger, Levy and Woolf and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. Mr. Woolf was a member
of the Nominating Committee until his retirement on December 31, 1996. The
Nominating Committee met once during the fiscal year ended March 31, 1997 and
all members attended the meeting.

6
<PAGE>

The Board of Directors has a Compensation Committee. The Compensation
Committee makes recommendations to the full Board of Directors with respect to
the compensation of Directors. The members of the Compensation Committee during
the fiscal year ended March 31, 1997, were Messrs. Woolf (Chairman), Cunnane,
Kroeger, Levy and McDonald and Ms. Rimel, each of whom is not an "interested
person" within the meaning of the 1940 Act. Mr. Woolf was a member of the
Compensation Committee until his retirement on December 31, 1996. Mr. Cunnane
became Chairman of the Compensation Committee upon Mr. Woolf's retirement. The
Compensation Committee met once during the fiscal year ended May 31, 1997 and
all members attended the meeting.

Board Approval of the Election of Directors

At a meeting of the Board of Directors held June 17, 1997, the Board of
Directors recommended that shareholders vote FOR each of the Nominees for
Director named herein. In recommending that shareholders elect the Nominees as
Directors of the Fund, the Board considered the Nominees' experience and
qualifications.

Shareholder Approval of the Election of Directors

The Election of the Directors requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that one-third of the shares
entitled to vote are present in person or by Proxy at the Special Meeting. If
you give no voting instructions, your shares will be voted FOR all Nominees
named herein. If the Directors are not approved by shareholders of the Fund,
the Board of Directors will consider alternative nominations.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELECTION OF THE DIRECTORS.

7
<PAGE>

PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.

Investment Company Capital Corp. is the Fund's investment advisor. ICC is
an indirect subsidiary of Alex. Brown Incorporated. Alex. Brown Incorporated
has entered into an Agreement and Plan of Merger with Bankers Trust New York
Corporation (together with its affiliates, "Bankers Trust") under which Alex.
Brown Incorporated would merge with and into a subsidiary of Bankers Trust New
York Corporation. Under the terms of the Merger, shares of Alex. Brown
Incorporated to be exchanged had an aggregate value of approximately $1.7
billion at the time the Merger was announced. As of December 31, 1996, Bankers
Trust New York Corporation was the seventh largest bank holding company in the
United States with total assets of approximately $120 billion. Its subsidiary,
Bankers Trust Company, is a worldwide merchant bank dedicated to serving the
needs of corporations, governments, financial institutions and private clients
through a global network of over 120 offices in more than 40 countries.
Investment management is a core business of Bankers Trust, built from its roots
as a trust bank founded in 1903. Bankers Trust Company is one of the nation's
largest and most experienced investment managers with approximately $227
billion in assets under management globally.

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, under which certain regulatory approvals will be necessary. However,
after the Merger, it is expected that ICC will continue to serve as the
Advisor.

The Advisor does not anticipate any reduction in the quality of services
now provided the Fund and does not expect that the Merger will result in any
material changes in the business of the Advisor or in the manner in which the
Advisor renders services to the Fund. Nor does the Advisor anticipate that the
Merger or any ancillary transactions will have any adverse effect on its
ability to fulfill its obligations under the new Investment Advisory Agreement
or to operate its business in a manner consistent with past business practice.

The Investment Advisory Agreements

In anticipation of the Merger, the Directors of the Fund, including the
Directors who are not (i) parties to the new Investment Advisory Agreement
between the Fund and ICC (the "New Advisory Agreement") or (ii) interested
persons of any such party (the "Disinterested Directors"), unanimously approved
the New Advisory Agreement. The form of the New Advisory Agreement is identical
to the Current Advisory Agreement, except for the dates of execution,
effectiveness and initial term; the deletion of provisions relating to state
expense limits that have been preempted by federal law; and a proviso to the
effect that the obligation of ICC to make its personnel available to serve as
officers of the Fund is subject to applicable banking regulations. The holders
of a majority of the outstanding voting securities (within the meaning of the
1940 Act) of the Fund are being asked to approve the New Advisory Agreement. See
"The New Advisory Agreement" below.

The Current Advisory Agreement

The current Investment Advisory Agreement between ICC and the Fund, dated as
of October 1, 1993 (the "Current Advisory Agreement"), was last approved by the
sole shareholder of the Fund on October 1, 1993. The Current Advisory Agreement
was most recently approved by the Fund's Board of Directors, including a
majority of the Disinterested Directors, on October 1, 1996.

The Current Advisory Agreement provides that ICC, in return for its fee,
will (a) supervise and manage all aspects of the Fund's operations, except for
distribution services; (b) formulate and implement continuing programs for the
purchase and sale of securities, consistent with the investment objective and
policies of the Fund; (c) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate office space and all
necessary office equipment and services; (e) obtain and evaluate pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign and otherwise, whether affecting the economy
generally or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in which they
engage, or with respect to securities which ICC considers desirable for
inclusion in the Fund's portfolio; (f) determine which issuers and securities
shall be represented in the Fund's

8
<PAGE>

portfolio and regularly report thereon to the Fund's Board of Directors; (g)
take all actions necessary to carry into effect the Fund's purchase and sale
programs; (h) supervise the operations of the Fund's transfer and dividend
disbursing agent; (i) provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records as are deemed
advisable by the Fund's Board of Directors; and (j) arrange, but not pay for,
the periodic updating of prospectuses and supplements thereto, proxy materials,
tax returns, reports to the Fund's shareholders and reports to and filings with
the SEC and state Blue Sky authorities. Subject to the approval of the Board
and the Fund's shareholders, ICC may delegate certain of its duties enumerated
above to a sub-advisor.

The Current Advisory Agreement provides for compensation to ICC calculated
daily and paid at the end of each calendar month at the annual rate of .35% of
the Fund's average daily net assets.

The Current Advisory Agreement provides that ICC will furnish, at its
expense and without cost to the Fund, the services of one or more officers of
the Fund to the extent that such officers may be required by the Fund for the
proper conduct of its affairs. The Fund assumes and pays or causes to be paid
all other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safe-keeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with 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 of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent 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.

The services of ICC are not to be deemed exclusive, and ICC is free to
render investment advisory and other services to others, including other
investment companies, and to engage in other activities, so long as its
services under the agreement are not impaired thereby. ICC's officers or
directors may serve as officers or Directors of the Fund, the Fund's officers
or Directors may serve as officers or directors of ICC, to the extent permitted
by law, and officers and directors of ICC are not prohibited from engaging in
any other business activity or from rendering services to any other person, or
from serving as partners, officers, trustees or directors of any other firm,
trust or corporation, including other investment companies.

Following the expiration of its initial two-year term, the Current
Advisory Agreement continues in force and effect from year to year, provided
that such continuance is approved at least annually by the Fund's Board of
Directors or by the vote of a majority of the outstanding voting securities of
the Fund, and by the affirmative vote of a majority of the Directors who are
not parties to the agreement or "interested persons" of a party to the
agreement (other than as Directors of the Fund) by votes cast in person at a
meeting specifically called for such purpose.

The Current Advisory Agreement may be terminated, without the payment of
any penalty, by the Fund upon a vote of the Fund's Board of Directors, by a
vote of a majority of the Fund's outstanding voting securities or by ICC, upon
60 days' written notice to the other party. The agreement automatically
terminates in the event of its assignment.

9
<PAGE>

The Current Advisory Agreement obligates ICC, in the performance of its
duties under the agreement, to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under the agreement, but ICC is not liable
for any act or omission which does not constitute willful misfeasance, bad
faith or gross negligence on the part of ICC or its officers, directors or
employees, or reckless disregard by ICC of its duties under the agreement.

The New Advisory Agreement

The Board of Directors approved the proposed New Advisory Agreement
between the Fund and ICC on June 17, 1997, the form of which is attached as
Exhibit A. The form of the proposed New Advisory Agreement is identical to the
Current Advisory Agreement, except for the dates of execution, effectiveness
and initial term; the deletion of provisions relating to state expense limits
that have been preempted by federal law; and a proviso to the effect that the
obligation of ICC to make its personnel available to serve as officers of the
Fund is subject to applicable banking regulations.

The investment advisory fee as a percentage of net assets payable by the
Fund will be the same under the New Advisory Agreement as under the Current
Advisory Agreement. If the investment advisory fee under the New Advisory
Agreement had been in effect for the Fund's most recently completed fiscal
year, the advisory fee to which ICC would have been entitled would have been
identical to that to which it was entitled under the Current Advisory
Agreement.

The Board held a meeting on June 17, 1997, at which the Board, including
the Disinterested Directors, unanimously approved the New Advisory Agreement
for the Fund and recommended the New Advisory Agreement for approval by the
shareholders of the Fund. The New Advisory Agreement would take effect upon the
later to occur of (i) the obtaining of shareholder approval or (ii) the closing
of the Merger. The New Advisory Agreement will continue in effect for an
initial two-year term and thereafter for successive annual periods as long as
such continuance is approved in accordance with the 1940 Act.

In evaluating the New Advisory Agreement, the Board based its
determination primarily on its conclusion that there would be a high degree of
continuity of services to the Fund and took into account that the Fund's
Current Advisory Agreement and the New Advisory Agreement, including their
terms relating to the services to be provided thereunder by ICC and the fees
and expenses payable by the Fund, are substantially identical.

The Board was assured on behalf of Alex. Brown and Bankers Trust that they
intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment advisor to
an investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met. First, for a period
of three years after the change of control, at least 75% of the board members
of the investment company must not be interested persons of the acquired
advisor or the acquiror (Alex. Brown and Bankers Trust, respectively, in this
case). The Fund would be in compliance with this provision of Section 15(f).
Second, an "unfair burden" must not be imposed upon the investment company as a
result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
Merger whereby the investment advisor, or any interested person of any such
advisor, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from
or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter for such investment company). Alex. Brown
and Bankers Trust are not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on the Fund
as a result of the Merger. Alex. Brown and Bankers Trust have agreed that they,
and their affiliates, will take no action that would have the effect of
imposing an "unfair burden" on the Fund as a result of the Merger.

The Board also considered the terms of the Merger and the possible effects
of the Merger upon the Advisor's organization and upon the ability of the
Advisor to provide advisory services to the Fund. The Board considered the
skills and capabilities of the Advisor in this regard and the representations
of Alex. Brown and Bankers Trust that no material change was planned in the
current management or facilities of the Advisor.

10
<PAGE>

The Board was also informed of the resources of Bankers Trust that could
be made available to the Advisor and the Fund. Although the Board focused
primarily on the continuity of services to the Fund, the Directors did consider
Bankers Trust's experience as advisor and service provider to a family of
mutual funds. They also received preliminary information about Bankers Trust's
ability to provide other services, including custody.

The Board also considered the effect on the Fund of ICC becoming an
affiliated person of Bankers Trust. In particular, the Board considered the
potential impact of banking laws and steps that might be necessary to secure
Federal Reserve Board approval of the Merger. In this regard, the Board also
considered the likelihood that the Fund will have to engage an independent
principal underwriter after the Merger but that Alex. Brown & Sons Incorporated
will continue to provide services to its clients in connection with shareholder
accounts with the Fund. The Board also considered the fact that the continued
ability of Alex. Brown personnel to serve as Directors or officers of the Fund
was subject to Federal Reserve Board approval. Following the Merger, the 1940
Act will prohibit or impose certain conditions on the ability of the Fund to
engage in certain transactions with Bankers Trust. For example, absent
exemptive relief, the Fund will be prohibited from entering into securities
transactions in which Alex. Brown or Bankers Trust acts as a principal.
Currently the Fund is prohibited from entering into transactions in which Alex.
Brown acts as principal. The Fund will also have to satisfy certain conditions
in order to engage in securities transactions in which Alex. Brown or Bankers
Trust is acting as an underwriter. The Fund is already required to satisfy such
conditions when engaging in transactions in which Alex. Brown is acting as an
underwriter. In this connection, management of the Advisor represented to the
Board that it does not believe these prohibitions or conditions will have a
material effect on the management or performance of the Fund.

The Board also considered that the costs of the Special Meeting, insofar
as they apply to approval of the new Advisory Agreement, would be borne by ICC.

After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the
Disinterested Directors, unanimously approved the New Advisory Agreement with
respect to the Fund and voted to recommend its approval to the shareholders of
the Fund.

In the event that shareholders of the Fund do not approve the New Advisory
Agreement, the Current Advisory Agreement will remain in effect and the Board
will take such action as it deems in the best interest of the Fund and its
shareholders, which may include proposing that shareholders approve an
agreement in lieu of the New Advisory Agreement. If the Merger is not
consummated, ICC will continue to serve as investment advisor of the Fund
pursuant to the terms of the Current Advisory Agreement.

Investment Company Capital Corp.

ICC is a registered investment advisor that had under management as of May
31, 1997, approximately $5.5 billion, including assets of the Fund and the
assets of ICC's other clients. ICC is an indirect subsidiary of Alex. Brown
Incorporated. The principal address of each is One South Street, Baltimore,
Maryland 21202.

The following information is provided for each Director and the principal
executive officer of ICC.

Directors and Principal Executive Officer
of Investment Company Capital Corp.

<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- ------------------------- --------------------------- --------------------------
<S> <C> <C>
Charles W. Cole, Jr. One South Street Managing Director, Alex.
Chairman Baltimore, Maryland 21202 Brown & Sons Incorporated

Richard T. Hale One South Street Managing Director, Alex.
Director and President Baltimore, Maryland 21202 Brown & Sons Incorporated

David L. Hopkins One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- -------------------------- --------------------------- ----------------------------
<S> <C> <C>
Alvin B. Krongard One South Street Chairman, Chief Executive
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated

Margaret-Mary V. Preston One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated

Robert F. Price One South Street Managing Director and
Director Baltimore, Maryland 21202 General Counsel, Alex.
Brown & Sons Incorporated

Mayo A. Shattuck III One South Street President, Chief Operating
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated

Truman T. Semans One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated

Beverly L. Wright One South Street Managing Director and Chief
Director Baltimore, Maryland 21202 Financial Officer, Alex.
Brown & Sons Incorporated
</TABLE>

For the fiscal year ended March 31, 1997, ICC waived all advisory fees due
it ($79,698) and reimbursed expenses of $64,880. For such fiscal year, the Fund
paid ICC aggregate fees of $11,297 for transfer agency services and $25,202 for
accounting services provided to the Fund. For the fiscal year ended March 31,
1997, the Fund paid Alex. Brown & Sons Incorporated an aggregate distribution
fee of $29,887.

As of May 31, 1997, to Fund Management's knowledge as provided by the
Directors and officers of the Fund, the following Directors and officers of the
Fund beneficially owned shares of Alex. Brown Incorporated. Mr. Hale, a Director
of the Fund and a Director and President of ICC, beneficially owned 90,470
shares of Alex. Brown Incorporated. Mr. Semans, a Director of the Fund and a
Director of ICC, beneficially owned 25,433 shares of Alex. Brown Incorporated.
Mr. M. Elliott Randolph, Jr., President of the Fund, beneficially owned 4,441
shares of Alex. Brown Incorporated. Mr. Paul D. Corbin, Executive Vice President
of the Fund, beneficially owned 3,025 shares of Alex. Brown Incorporated. Mr.
Edward J. Veilleux, a Vice President of the Fund and Executive Vice President of
ICC, beneficially owned 200 shares of Alex. Brown Incorporated. Ms. Monica M.
Hausner, a Vice President of the Fund, beneficially owned 137 shares of Alex.
Brown Incorporated. Mr. Joseph A. Finelli, Treasurer of the Fund and a Vice
President of ICC, beneficially owned 33 shares of Alex. Brown Incorporated. Ms.
Laurie D. Collidge, Assistant Secretary of the Fund, beneficially owned 48
shares of Alex. Brown Incorporated.

Other Funds Advised by ICC with Similar Investment Objectives

ICC does not act as advisor to any other funds which have investment
objectives similar to those of the Fund.

Shareholder Approval of the New Advisory Agreement

Approval of the New Advisory Agreement requires the affirmative vote of a
majority of the outstanding shares of the Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's outstanding shares present at the Meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW ADVISORY AGREEMENT.

12
<PAGE>
ADDITIONAL INFORMATION

Directors and Executive Officers

Information about the Fund's current Directors and principal executive
officers, including their names, positions with the Fund, length of service in
such positions, ages, principal occupations or employment during the past five
years and amount of shares of the Fund beneficially owned as of May 31, 1997,
is set forth below. Each officer of the Fund will hold such office until a
successor has been elected by the Board of Directors. 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 & Sons
Incorporated or its affiliates.

James J. Cunnane Director since 1994 59 See "Information Regarding None ***
Nominees."

John F. Kroeger Director since 1993 72 See "Information Regarding None ***
Nominees."

Louis E. Levy Director since 1994 64 See "Information Regarding None ***
Nominees."

Eugene J. McDonald Director since 1993 65 See "Information Regarding None ***
Nominees."

Rebecca W. Rimel Director since 1995 46 See "Information Regarding None ***
Nominees."

Truman T. Semans* Director since 1993 70 See "Information Regarding 6,416 shares ***
Nominees."

Carl W. Vogt, Esq. Nominee 61 See "Information Regarding None ***
Nominees."

M. Elliott Randolph, Jr. President since 1993 55 Principal, Alex. Brown & Sons None ***
Incorporated, 1991-Present.

Paul D. Corbin Executive Vice 44 Principal, Alex. Brown & Sons None ***
President since 1993 Incorporated, 1991-Present.

Edward J. Veilleux Vice President since 53 Principal, Alex. Brown & Sons None ***
1993 Incorporated; Vice President, Armata
Financial Corp. (registered
broker-dealer); Executive Vice
President, Investment Company Capital
Corp. (registered investment
advisor).

Gary V. Fearnow Vice President since 52 Managing Director, Alex. Brown & None ***
1993 Sons Incorporated and Manager, Private
Client Marketing, Alex. Brown & Sons
Incorporated.

Monica M. Hausner Vice President since 35 Vice President, Fixed Income None ***
1993 Management Department, Alex. Brown
& Sons Incorporated, March 1992-
Present. Formerly, Assistant Vice
President, First National Bank of
Maryland, 1984-1992.
</TABLE>
13
<PAGE>

<TABLE>
<CAPTION>
Business Experience Shares
Position With During the Past Five Years Beneficially Owned
Name the Fund Age (including all directorships) as of May 31, 1997** Percentage
- -------------------- ----------------------- ----- ------------------------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C>
Scott J. Liotta Vice President since 32 Manager, Fund Administration, Alex. None ***
1996; Secretary since Brown & Sons Incorporated, July
1997 1996-Present. Formerly, Manager and
Foreign Markets Specialist, Putnam
Investments Inc. (registered
investment companies), April 1994-July 1996;
Supervisor, Brown Brothers Harriman
& Co. (domestic and global custody),
August 1991-April 1994.

Joseph A. Finelli Treasurer since 1995 40 Vice President, Alex. Brown & Sons None ***
Incorporated and Vice President,
Investment Company Capital Corp.
(registered investment advisor),
September 1995-Present. Formerly,
Vice President and Treasurer, The
Delaware Group of Funds (registered
investment companies) and Vice
President, Delaware Management
Company Inc. (investments), 1980-
August 1995.

Laurie D. Collidge Assistant Secretary 31 Asset Management Department, Alex. None ***
since 1993 Brown & Sons Incorporated,
1991-Present.
</TABLE>
- ------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** This information has been provided by each Director and officer.
*** As of May 31, 1997, the Directors and officers of the Fund as a group (16
persons) beneficially owned an aggregate of less than 1% of the shares of
the Fund.

Investment Advisor

See "Investment Company Capital Corp." on page 10 for additional
information concerning the Advisor.

Principal Underwriter

Alex. Brown & Sons Incorporated, located at One South Street, Baltimore,
Maryland 21202, a wholly-owned subsidiary of Alex. Brown Incorporated, acts as
the Fund's principal underwriter.

Portfolio Transactions

In the fiscal year ended March 31, 1997, the Fund paid no brokerage
commissions to affiliated brokers.

Independent Auditors

A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected Deloitte & Touche LLP as the independent
auditors of the Fund for the fiscal year ending March 31, 1998. A
representative of Deloitte & Touche LLP will be available by telephone during
the Special Meeting, if needed, to make a statement if desired and to respond
to appropriate questions from shareholders.

Beneficial Owners

To the knowledge of Fund Management, as of the Record Date, the following
was a beneficial owner of 5% or more of the outstanding shares of the Fund.

14
<PAGE>

<TABLE>
<CAPTION>
Name and Address Amount of Beneficial Ownership Percent of Total Shares Outstanding
- ---------------- ------------------------------ -----------------------------------
<S> <C> <C>
Alex. Brown Capital Advisory & Trust 250,401 shares 9.40%
FBO 01-01-170-7036337
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>

Submission of Shareholder Proposals

As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions
to be considered to the Fund 60 days in advance of any such meeting for
inclusion in the Fund's proxy statement and form of proxy for such meeting as
is held. The Nominating Committee of the Board of Directors will give
consideration to shareholder suggestions as to nominees for the Board of
Directors. Shareholders retain the right, under limited circumstances, to
request that a meeting of the 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.

Required Vote

Approval of Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that one-third of all shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposal 2 (the New Advisory Agreement) requires the affirmative
vote of a majority of the outstanding shares of the Fund. As defined in the
1940 Act, the vote of a majority of the outstanding shares means the vote of
(i) 67% or more of the Fund's outstanding shares present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares,
whichever is less.

Abstentions and "broker non-votes" will not be counted for or against the
Proposals but will be counted for purposes of determining whether a quorum is
present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting and will therefore have the effect of counting against Proposal
2. The Fund believes that brokers who hold shares as record owners for
beneficial owners have the authority under the rules of the various stock
exchanges to vote those shares with respect to the Proposals when they have not
received instructions from beneficial owners.

Other Matters

No business other than the matter described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of
the Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.

SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.

By Order of the Directors,

Scott J. Liotta
Vice President and Secretary
Dated: July 17, 1997

15
<PAGE>

EXHIBIT A
FORM OF NEW
INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT is made as of the _______ day of
______________, 1997 by and between FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC., a Maryland corporation (the "Fund"), and INVESTMENT
COMPANY CAPITAL CORP., a Maryland corporation (the "Advisor").

WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and

WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.

NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:

1. Appointment of Investment Advisor. The Fund hereby appoints the Advisor
to act as the Fund's investment advisor. The Advisor shall manage the Fund's
affairs and shall supervise all aspects of the Fund's operations (except as
otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service as Advisor.

2. Delivery of Documents. The Fund has furnished the Advisor with copies
properly certified or authenticated of each of the following:

(a) The Fund's Articles of Incorporation, filed with the State of
Maryland on July 23, 1993 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to time be
amended, are herein called the "Articles of Incorporation");

(b) The Fund's By-laws and all amendments thereto (such By-laws, as
presently in effect and as they shall from time to time be amended, are
herein called the "By-laws");

(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of the Advisor and approving this Agreement;

(d) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed with the
Securities and Exchange Commission (the "SEC") on August 2, 1993;

(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act"), (File No. 33-66870) and under the
1940 Act as filed with the SEC on July 28, 1993 relating to the shares of
the Fund, and all amendments thereto; and

(f) The Fund's most recent prospectus (such prospectus, as presently in
effect and all amendments and supplements thereto are herein called
"Prospectus").

The Fund will furnish the Advisor from time to time with copies, properly
certified or authenticated, of all amendments or supplements to the foregoing,
if any, and all documents, notices and reports filed with the SEC.

3. Duties of Investment Advisor. In carrying out its obligations under
Section 1 hereof, the Advisor shall:

(a) supervise and manage all aspects of the Fund's operations, except
for distribution services;

(b) formulate and implement continuing programs for the purchases and
sales of securities, consistent with the investment objective and policies
of the Fund;

A-1
<PAGE>

(c) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Fund's Board of Directors;

(d) provide the Fund with, or obtain for it, adequate office space and
all necessary office equipment and services, including telephone service,
utilities, stationery, supplies and similar items for the Fund's principal
office;

(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio;

(f) determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;

(g) take all actions necessary to carry into effect the Fund's purchase
and sale programs;

(h) supervise the operations of the Fund's transfer and dividend
disbursing agent;

(i) provide the Fund with such administrative and clerical services for
the maintenance of certain shareholder records, as are deemed advisable by
the Fund's Board of Directors; and

(j) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Fund's
shareholders and reports to and filing with the SEC and state Blue Sky
authorities.

4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting securities transactions will be to
obtain the best price and execution on an overall basis. In performing this
function the Advisor shall comply with applicable policies established by the
Board of Directors and shall provide the Board of Directors with such reports
as the Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. In certain instances the Advisor may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the Advisor will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution
of the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers other than Alex. Brown & Sons Incorporated ("Alex. Brown")
who also provide research or statistical material or other services to the Fund
or the Advisor. Such allocation shall be in such amounts and proportions as the
Advisor shall determine and the Advisor will report on said allocation
regularly to the Board of Directors of the Fund, indicating the broker-
dealers to whom such allocations have been made and the basis therefor.

Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.

A-2
<PAGE>

Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to
be received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time." If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more other accounts of the Advisor is considered at or about the
same time, transactions in such securities will be allocated among the accounts
in a manner deemed equitable by the Advisor. Alex. Brown and the Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.

The Fund will not deal with the Advisor or Alex. Brown in any transaction
in which the Advisor or Alex. Brown acts as a principal with respect to any
part of the Fund's order. If Alex. Brown is participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with policies established by the Board of Directors in compliance
with the rules of the SEC.

5. Control by Board of Directors. Any management or supervisory activities
undertaken by the Advisor pursuant to this Agreement, as well as any other
activities undertaken by the Advisor on behalf of the Fund pursuant thereto,
shall at all times be subject to any applicable directives of the Board of
Directors of the Fund.

6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:

(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;

(b) the provisions of the Registration Statement of the Fund under the
1933 Act and the 1940 Act;

(d) the provisions of the By-laws; and

(e) any other applicable provisions of Federal and State law.

7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:

(a) The Advisor shall, subject to compliance with applicable banking
regulations, furnish, at its expense and without cost to the Fund, the
services of and one or more officers of the Fund, to the extent that such
officers may be required by the Fund, for the proper conduct of its
affairs.

(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: payments to the Fund's
distributor under the Fund's plan of distribution, the charges and expenses
of any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions, chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
Federal, State or other governmental agencies; the costs and the expenses
of engraving or printing of certificates representing shares of the Fund;
all costs and expenses in connection with registration and maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors or Director members of any advisory board or
committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not "interested persons" (as defined in the
1940 Act) of the Fund and of independent accountants, in connection with
any matter relating to the Fund;

A-3
<PAGE>

membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto);
and all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.

8. Delegation of Responsibilities.

(a) Subject to the approval of the Board of Directors including a
majority of the Fund's Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of
Directors, but shall not be responsible for the sub-advisor's performance
under the sub-advisory agreement.

(b) The Advisor may, but shall not be under any duty to, perform
services on behalf of the Fund which are not required by this Agreement
upon the request of the Fund's Board of Directors. Such services will be
performed on behalf of the Fund and the Advisor's charge in rendering such
services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by the Advisor of any
Fund expense that the Advisor is not required to pay or assume under this
Agreement shall not relieve the Advisor of any of its obligations to the
Fund nor obligate the Advisor to pay or assume any similar Fund expense on
any subsequent occasions.

9. Compensation. For the services to be rendered and the expenses assumed
by the Advisor, the Fund shall pay to the Advisor monthly compensation at an
annual rate of .35% of the Fund's average daily net assets.

Except as hereinafter set forth, compensation under this Agreement shall
be calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month, compensation for
the part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Payment of the
Advisor's compensation for the preceding month shall be made as promptly as
possible.

10. Non-Exclusivity. The services of the Advisor to the Fund are not to be
deemed to be exclusive, and the Advisor shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities, so long as its services under this Agreement are
not impaired thereby. It is understood and agreed that officers or directors of
the Advisor may serve as officers or Directors of the Fund, and that officers
or Directors of the Fund may serve as officers or directors of the Advisor to
the extent permitted by law; and that the officers and directors of the Advisor
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
trustees or directors of any other firm, trust or corporation, including other
investment companies.

11. Term and Renewal. This Agreement shall become effective as of the date
hereof and shall continue in force and effect, subject to Section 12 hereof,
for two years from the date hereof. Following the expiration of its initial
two-year term, this Agreement shall continue in force and effect from year to
year, provided that such continuance is specifically approved at least
annually:

(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act);
and

(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.

12. Termination. This Agreement may be terminated without the payment of
any penalty, by the Fund upon vote of the Fund's Board of Directors or a vote
of a majority of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Advisor, upon sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).

A-4
<PAGE>

13. Liability of Advisor. In the performance of its duties hereunder, the
Advisor shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under this Agreement, but the Advisor shall
not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.

14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund
and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.

15. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant
to the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement
shall be interpreted in accordance with the laws of Maryland.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective offices as of the day and year first
above written.

[SEAL] FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.

Attest:___________________________ By:_________________________________
Name:
Title:

[SEAL] INVESTMENT COMPANY CAPITAL CORP.

Attest:___________________________ By:_________________________________
Name:
Title:

A-5
<PAGE>

007
<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735

FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS

August 14, 1997

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG INVESTORS MARYLAND
INTERMEDIATE TAX-FREE INCOME FUND,
INC.

This proxy is for your use in voting on various matters relating to Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the "Fund"). The
undersigned shareholder(s) of the Fund, revoking previous proxies, hereby
appoint(s) Scott J. Liotta, I. Alisa Stesch and Laurie D. Collidge and each of
them (with full power of substitution) the proxies of the undersigned to attend
the Special Meeting of Shareholders of the Fund to be held on August 14, 1997
(the "Special Meeting") and any adjournments thereof, to vote all of the shares
of the Fund that the signer would be entitled to vote if personally present at
the Special Meeting and on any matter incident to the conduct of the Special
Meeting, all as set forth in the notice of Special Meeting of Shareholders and
Proxy Statement of the Board of Directors. Said proxies are directed to vote or
refrain from voting pursuant to the Proxy Statement as indicated upon the
matters set forth below.

This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Directors.

<S> <C> <C>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X|
KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY

FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.

Vote on Directors

1. To consider and act upon a proposal to elect a Board of Directors.

Richard T. Hale James J. Cunnane
John F. Kroeger Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt

|_| FOR ALL

|_| WITHHOLD ALL

|_| FOR ALL EXCEPT:

To withhold authority to vote mark "FOR ALL EXCEPT" and write the
nominee's name on the line below.

Vote on The Proposal

2. To approve or disapprove a new Investment Advisory Agreement between the Fund and Investment Company Capital
Corp.

|_| For |_| Against |_| Abstain

</TABLE>

<PAGE>

<S> <C> <C>
Please print and sign your
name in the space provided to
authorize the voting of your __________________________________ _____________________________
shares as indicated and return Signature [PLEASE SIGN WITHIN BOX] Date
promptly. When signing on
behalf of a corporation,
partnership, estate, trust
or in any other __________________________________ _____________________________
representative capacity, Signature (Joint Owners) Date
please sign your name and
title. For joint accounts,
each joint owner must sign.
</TABLE>

PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.