[FLAG INVESTORS LOGO]
FLAG
INVESTORS
MARYLAND
INTERMEDIATE
TAX-FREE INCOME
FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
<PAGE>
[FLAG INVESTORS LOGO]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o In an environment of solid economic growth and low inflation, your Fund had
total returns of 4.8% for the six months and 6.8% for the 12 months ended
September 30, 1997.
o Although we are optimistic about the bond market's long-term prospects, we
cannot ignore the Federal Reserve Board chairman's suggestions that interest
rate decisions will be directed at stopping inflationary pressures before they
develop. Regardless of the magnitude of policy decisions, we believe any rise
in rates would be modest.
o Budget surpluses caused by a strong economy have led to a slight decrease in
Maryland's municipal underwritings, but we continue to see value within the
Maryland municipal bond market for the high tax bracket Maryland investor.
<PAGE>
LETTER TO SHAREHOLDERS
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Dear Shareholders:
We are pleased to report on the progress of your Fund for the six months
ended September 30, 1997.
The U.S. financial markets continued to thrive in an ideal environment of
solid economic growth and low inflation. While equity returns may have received
a greater share of investor and media attention, returns from municipal bonds
were comfortably in the positive column. Your Fund, with its conservative,
intermediate-term maturity range, recorded a total return of 4.8% for the six
months and 6.8% for the 12 months ended September 30, 1997 (see table below).
Coupon interest generated half of these returns; modest share price appreciation
provided the balance. As an asset class, tax-exempt bond returns were favorably
affected by the timely combination of continued strong retail and institutional
demand, dwindling forward supply, and fading fears of tax reform and flat tax
legislation. The returns achieved during this reporting period reflect the
durable resilience of this asset class and its appropriateness in the portfolios
of tax-weary investors.
Total Return Comparisons(1)
<TABLE>
<CAPTION>
Six Twelve Average
Periods Ended September 30, 1997 Months Months Maturity
- ------------------------------------------------------------------------------------
<S><C>
Flag Investors Maryland Intermediate
- ------------------------------------------------------------------------------------
Tax-Free Income Fund-- Class A Shares 4.8% 6.8% 6.4 years
- ------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index 5.5% 7.9% 6.9 years
- ------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.6% 9.0% 14.0 years
- ------------------------------------------------------------------------------------
Lipper Other States Intermediate
- ------------------------------------------------------------------------------------
Municipal Debt Funds Average 4.9% 6.9% n/a
- ------------------------------------------------------------------------------------
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. Also, some of the
Fund's fees were waived during the period. If the maximum 1.5% sales charge
were reflected and if there had been no fee waivers, the quoted performance
would be lower. Since investment return and principal value will fluctuate,
an investor's shares may be worth more or less than their original cost
when redeemed. The Lehman Brothers 7-Year Municipal Bond Index and the
Lehman Brothers Municipal Bond Index are unmanaged indices that are widely
recognized as indicators of performance in the intermediate-term and
long-term municipal bond sectors, respectively. The Lipper Other States
Intermediate Municipal Debt Funds Average is an index of managed funds that
invest in municipal debt issues with dollar-weighted average maturities
of 5 to 10 years and are exempt from taxation on a specified state or
city. Individuals cannot invest directly in any index. Past performance
is not an indicator of future results. Please review the Additional
Performance Information on page 6.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- --------------------------------------------------------------------------------
Portfolio Considerations
Intermediate-term tax-exempt rates moved erratically lower during the past
12 months, trading in a narrow range of 4.7% to 4.2% (see chart below).
Unwilling to make any aggressive moves based on an interest rate forecast, we
kept the Fund's weighted average maturity fairly constant at 6.4 years and its
overall quality bias comfortably in the AAA to AA range. With quality spreads
among Maryland issuers so narrow (the yield difference between AAA and lower
quality A issues), we have found few reasons to lower the Fund's quality bias
just to increase its yield. We believe the nominal increase in incremental yield
offered by these securities is insufficient to warrant the added risk. While
this conservative approach may have penalized recent relative performance, we
are confident in the rationale of our strategies at this stage of the interest
rate cycle.
AAA General Obligation
Municipal Yields
(9/30/96 - 9/30/97)
[Graph appears here--See plot points below]
5-Year 10-Year
4.45 4.95
4.40 4.90
4.48 4.98
4.49 4.99
4.48 4.98
4.41 4.91
4.35 4.85
4.30 4.80
4.25 4.75
4.18 4.68
4.26 4.76
4.28 4.78
4.28 4.78
4.24 4.74
4.30 4.80
4.41 4.91
4.43 4.93
4.44 4.94
4.41 4.91
4.35 4.85
4.23 4.73
4.29 4.79
4.34 4.84
4.37 4.87
4.40 4.90
4.47 4.97
4.58 5.03
4.66 5.10
4.64 5.08
4.66 5.06
4.75 5.13
4.67 5.02
4.64 4.99
4.60 4.95
4.61 4.91
4.60 4.90
4.53 4.83
4.37 4.72
4.35 4.70
4.36 4.76
4.32 4.72
4.26 4.66
4.20 4.60
4.14 4.54
4.18 4.56
4.26 4.64
4.28 4.66
4.33 4.71
4.34 4.72
4.30 4.68
4.27 4.65
4.19 4.57
4.19 4.57
Source: Bloomberg Financial Services
2
<PAGE>
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Market Outlook
As with other capital market instruments, investor expectations coupled
with traditional supply and demand factors will continue to influence investment
returns from municipal bonds and other fixed-income securities. Although signs
of global deflationary pressures encourage us to be optimistic about the bond
market's long-term prospects, we cannot ignore, in the near-term, the watchful
eye of the Federal Reserve Board and its chairman's intimations that interest
rate decisions will be directed at arresting inflationary pressures before they
develop. The Fed's immediate concerns --rapidly rising employment and wage
gains, strong consumer confidence and surging stock prices -- indicate that some
restrictive measures may be in the cards, possibly late this year or early in
1998. The Fed acknowledges the risk that letting growth surge ahead unchecked
could jeopardize the hard-won gains against inflation thus far in the 1990s.
Regardless of the magnitude of policy decisions, we believe any rise in rates
would be modest and would pale in comparisons with the long-run potential for a
decline.
Favorable supply and demand characteristics within the municipal bond
market continue to bode well for its strong performance relative to Treasuries
and other fixed-income securities. Although the yield ratio between taxable and
tax-exempt yields has declined over the last two years and would indicate a
moderately expensive market, we expect the demand-side trends of the past
quarter to continue as retail and institutional investors (primarily property
and casualty insurers) grow more comfortable with the long-term inflation
outlook and shift their portfolio bias toward asset allocations favoring bonds
over stocks. Likewise, the supply-side of the equation continues to be
influenced by a general contraction in the overall forward supply of municipal
underwritings. In an expanding economy, higher tax receipts have greatly
strengthened Maryland's statewide fiscal well-being to levels where budget
surpluses are now commonplace among many municipalities. Hence, municipal
underwritings, down by 3% year-to-date, are indicative of the lessening
dependency among many of the state's premier credits on debt financing as a
means to meet budgetary shortfalls. While we admit to occasional "sticker shock"
at the prevailing rate levels, we continue to see value within the Maryland
municipal bond market, especially at a ratio of 73% to 80% of comparable 10-year
U.S. Treasury yields. Although the equity markets have attracted much investor
attention, municipal bonds are still attractive for the high tax bracket
Maryland investor (see chart on page 4).
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
After-Tax Yield Comparison for Maximum Tax Bracket
AAA-Rated General Obligation vs. U.S. Treasury
(As of 9/30/97)
[Graph appears here--See plot points below]
G.O. Treasury
3.66 3.28
3.86 3.48
4.00 3.53
4.11 3.58
4.21 3.61
4.21 3.61
4.38 3.67
4.38 3.67
4.38 3.67
4.59 3.68
4.59 3.68
4.59 3.68
4.59 3.68
4.59 3.68
4.97 3.79
4.97 3.79
4.97 3.79
4.97 3.79
4.97 3.79
5.12 3.90
5.12 3.90
5.12 3.90
5.12 3.90
5.12 3.90
5.15 3.88
5.15 3.88
5.15 3.88
5.15 3.88
5.15 3.88
5.17 3.86
Source: Bloomberg Financial Services
Dividend Policy
The Class A Shares' monthly dividend remains at $0.0375. In view of its
inherently defensive bias, the Fund has broad appeal for Maryland investors
whose portfolio objectives require a high level of tax-exempt current yield and
moderate principal volatility. We appreciate the confidence you have placed in
us.
Sincerely,
/s/ M. Elliott Randolph, Jr. /s/ Paul D. Corbin
- ---------------------------- ------------------
M. Elliott Randolph, Jr. Paul D. Corbin
Portfolio Manager Portfolio Manager
October 17, 1997
4
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Portfolio Composition (As of 9/30/97)
[Pie Chart Appears Here -- See Plot Points Below]
SECTOR*
General General
Obligation Obligation Hospital and Short-term
Local Prerefunded Revenue State Housing Education Investments
28% 10% 11% 22% 4% 22% 3%
QUALITY*
AAA BBB A AA
57% 9% 10% 24%
Portfolio Statistics (As of 9/30/97)
Net Asset Value Per:
--------------------------------------------------------------------------
Class A Share $10.02
--------------------------------------------------------------------------
Institutional Share $10.11
--------------------------------------------------------------------------
ABCAT Share $10.12
--------------------------------------------------------------------------
Total Net Assets $26,934,925
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Average Maturity 6.4 years
--------------------------------------------------------------------------
Average Duration 4.9 years
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Maturity Breakdown*:
--------------------------------------------------------------------------
0-1 year 1%
--------------------------------------------------------------------------
1-5 years 24%
--------------------------------------------------------------------------
5-10 years 47%
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10-15 years 20%
--------------------------------------------------------------------------
15+ years 8%
--------------------------------------------------------------------------
- ------
* Calculated as a percentage of net assets. The Quality Breakdown listed above
is calculated using Standard & Poor's ratings. The BBB classification includes
holdings that are not rated by Standard & Poor's, but are rated by Moody's
(see p. 7). These ratings are believed to be the most recent ratings available
as of September 30, 1997.
5
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 1.50% maximum sales charge for the Fund's Class A Shares.
Average Annual Total Return
Periods Ended 9/30/97 1 Year Since Inception*
- --------------------------------------------------------------------------------
Class A Shares 5.19% 4.06%
- --------------------------------------------------------------------------------
Institutional Shares 6.99% 5.44%
- --------------------------------------------------------------------------------
ABCAT Shares --- 4.16%
- --------------------------------------------------------------------------------
*Inception dates: Class A 10/1/93, Institutional 11/2/95, ABCAT 5/8/97.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS -- 96.7%
General Obligation -- 52.9%
$ 1,000 Baltimore County, MD, Consolidated
Public Improvement
5.50%, 6/1/04 Aaa/AAA $1,065,300 4.0%
250 Cecil County, MD (FGIC Insured),
Refunding Consolidated Public
Improvement Project, Callable
12/1/03 @ $102
5.00%, 12/1/06 Aaa/AAA 257,590 1.0
Charles County, MD, Refunding
Consolidated Public Improvement
500 6.00%, 6/1/99 Aa3/AA- 516,455 1.9
500 6.25%, 6/1/02 Aa3/AA- 542,135 2.0
500 Frederick, MD, Refunding and
Improvement (FGIC Insured)
5.80%, 12/1/02 Aaa/AAA 535,355 2.0
1,000 Howard County, MD, Refunding
Consolidated Public Improvement
Project, Series "A"
5.75%, 2/15/01 Aaa/AA+ 1,049,110 3.9
375 Laurel, MD, Refunding, Series "A"
Project, Prerefunded 7/1/01 @ $102
6.60%, 7/1/03 #AAA(dagger)/AAA 412,470 1.5
500 Maryland National Capital Park & Planning,
Prince George's County, MD, Park
Acquisition & Development, Callable
7/1/05 @ $101
5.00%, 7/1/08 Aa2/AA 513,165 1.9
100 Maryland State Capital Improvement
and Refunding, First Series,
Callable 5/15/02 @ $102
6.00%, 5/15/07 Aaa/AAA 107,779 0.4
500 Maryland State Capital Improvement
and Refunding, Callable 4/15/03 @ $100
5.00%, 4/15/04 Aaa/AAA 515,595 1.9
500 Maryland State and Local Facilities Loan,
First Series
4.00%, 2/15/03 Aaa/AAA 493,085 1.8
</TABLE>
7
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED) SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS (continued)
General Obligation (concluded)
$ 1,000 Maryland State and Local Facilities Loan,
First Series
4.50%, 2/15/08 AAA/AAA $ 990,150 3.7%
Maryland State and Local Facilities Loan,
Second Series
1,000 5.25%, 6/15/05 Aaa/AAA 1,054,320 3.9
1,250 5.25%, 6/15/09 Aaa/AAA 1,302,962 4.8
1,000 Maryland State and Local Facilities Loan,
Third Series
5.00%, 10/15/06 Aaa/AAA 1,039,800 3.9
1,000 Montgomery County, MD, Consolidated
Public Improvement Project, Series "A,"
Callable 10/1/04 @ $102
5.75%, 10/1/07 Aaa/AAA 1,088,390 4.0
500 Ocean City, MD, Refunding (MBIA
Insured)
5.00%, 3/15/03 Aaa/AAA 515,875 1.9
250 Prince George's County, MD,
Refunding Consolidated Public
Improvement Project, Callable
3/15/03 @ $102 (AMBAC Insured)
5.50%, 3/15/05 Aaa/AAA 265,848 1.0
250 St. Mary's County, MD, Metropolitan
Commission
5.65%, 11/1/07 A1/A+ 267,200 1.0
250 Washington Suburban Sanitary
District, MD, Prerefunded 11/1/01 @ $102
6.40%, 11/1/04 #AAA(dagger)/AAA 274,760 1.0
360 Washington Suburban Sanitary
District, MD
8.00%, 1/1/02 Aa1/AA 411,379 1.5
1,000 Washington Suburban Sanitary
District, MD, Callable 6/1/03 @ $102
5.00%, 6/1/06 Aa1/AA 1,030,100 3.9
----------- ----
14,248,823 52.9
----------- ----
Other Revenue -- 43.8%
350 Baltimore County, MD, Mortgage
Revenue, Callable 11/1/03 @ $102
6.60%, 11/1/14 NR**/AAA 371,557 1.4
</TABLE>
8
<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>
MUNICIPAL BONDS (continued)
Other Revenue (continued)
$ 100 Baltimore, MD, Convention Center,
Callable 9/1/04 @ $100
5.60%, 9/1/06 Aaa/AAA $ 106,108 0.4%
1,000 Baltimore, MD, Certificates of Participation,
Emergency Telecommunication
Facility, Series A, (AMBAC Insured)
4.70%, 10/1/06 Aaa/AAA 1,007,600 3.8
215 Charles County, MD, Housing
Mortgage Revenue, Townhouse
FHA-A (MBIA Insured)
5.37%, 7/1/09 Aaa/AAA 218,489 0.8
100 Frederick County, MD, College
Revenue for Hood College,
Callable 7/1/00 @ $102
6.95%, 7/1/02 Baa1/NR** 108,352 0.4
700 Kent County, MD, College, Project &
Refunding-Washington College Project,
Callable 7/1/99 @ $102
7.70%, 7/1/18 Baa2/NR** 752,199 2.8
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+ 436,860 1.6
500 Maryland State Health and Higher
Education Facilities Authority, Revenue
for Good Samaritan Hospital
5.40%, 7/1/04 A1/A 521,185 1.9
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(dagger)/AAA 1,105,080 4.1
685 Maryland State Health and Higher
Education Facilities Authority, Revenue
for Harford Memorial and Fallston
General Hospitals, Callable
12/3/97 @ $102
8.50%, 7/1/14 Baa1/NR** 700,467 2.6
</TABLE>
9
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Percent
Par Ratings Value of Net
(000) (Moody's/S&P)* (Note 1) Assets
- ------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS (continued)
Other Revenue (continued)
$ 250 Maryland State Health and Higher
Education Facilities Authority, Revenue
for Johns Hopkins University
6.00%, 7/1/07 Aa2/AA- $ 274,555 1.0%
300 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Peninsula Regional
Medical, Callable 7/1/03 @ $102
5.00%, 7/1/06 A2/A 306,159 1.1
500 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Pickersgill
5.50%, 1/1/21 NR**/A- 509,045 1.9
500 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Stellas Maris
4.75%, 7/1/21 NR**/A 508,020 1.9
300 Maryland State Health and Higher
Education Facilities Authority,
Revenue for Suburban Hospital
4.75%, 7/1/03 A1/A+ 301,929 1.1
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 1,042,460 3.9
400 Maryland State Industrial
Development Authority, Revenue for
American Center Physics Headquarters
5.80%, 1/1/01 NR**/BBB 409,680 1.5
1,000 Maryland Water Quality Funding,
Revolving Loan Fund Revenue, Series A
5.00%, 9/1/06 Aa2/AA 1,030,280 3.8
500 Montgomery County, MD, Maryland
Housing Opportunities Commission,
Single Family Mortgage Revenue,
Callable 7/1/06 @ $102
5.40%, 7/1/16 Aa2/NR** 511,050 1.9
</TABLE>
10
<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>
MUNICIPAL BONDS (concluded)
Other Revenue (concluded)
$ 500 University of Maryland Systems Auxiliary
Facilities & Tuition Revenue, Series B,
Prerefunded 10/1/02 @ $102
6.40%, 4/1/06 AA3/AAA $ 555,615 2.1%
1,000 University of Maryland Systems Auxiliary
Facilities & Tuition Revenue, Series A
5.00%, 4/1/09 Aa3/AA+ 1,019,290 3.8
----------- ----
11,795,980 43.8
----------- ----
TOTAL MUNICIPAL BONDS
(Cost $24,415,647) 26,044,803 96.7
----------- ----
REPURCHASE AGREEMENT -- 1.9%
521 Goldman Sachs & Co., 6.05%
Dated 9/30/97, to be repurchased
on 10/1/97, collateralized by U.S. Treasury
Notes with a market value of $531,997.
(Cost $521,000) 521,000 1.9
----------- ----
Total Investment in Securities
(Cost $24,936,647)(dagger dagger) 26,565,803 98.6
Other Assets in Excess of Liabilities, Net 369,122 1.4
----------- ----
Net Assets $26,934,925 100.0%
=========== =====
Net Asset Value Per:
Class A Share
($11,417,025 / 1,139,102 shares outstanding) $10.02
======
Institutional Share
($1,425,215 / 140,982 shares outstanding) $10.11
======
ABCAT Share
($14,092,685 / 1,392,245 shares outstanding) $10.12
======
Maximum Offering Price Per:
Class A Share
($10.02 / 0.985) $10.17
======
Institutional Share $10.11
======
ABCAT Share $10.12
======
</TABLE>
- -------
*The Moody's and Standard and Poor's ratings are believed to be the most recent
ratings available as of September 30, 1997.
**Not rated.
(dagger)Moody's #AAA rating indicates advance refunded issues secured by
escrowed funds held in cash, held in trust or invested in direct non-callable
U.S. government obligations or non-callable obligations unconditionally
guaranteed by the U.S. government.
(dagger dagger)Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Investment Income (Note 1):
Interest $ 628,183
----------
Expenses:
Investment advisory fee (Note 2) 44,265
Legal 18,502
Printing and postage 16,664
Distribution fee (Note 2) 14,365
Accounting fee (Note 2) 13,628
Audit 11,148
Transfer agent fee (Note 2) 7,820
Registration fees 5,676
Organizational expense (Note 1) 5,126
Custodian fee 4,986
Pricing fee 3,781
Miscellaneous 1,550
Directors' fees 571
Insurance 360
----------
Total expenses 148,442
Less: Fees waived and expenses reimbursed (Note 2) (77,158)
----------
Net expenses 71,284
----------
Net investment income 556,899
----------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 17,183
Change in unrealized appreciation or depreciation
of investments 615,889
----------
Net realized and unrealized gain on investments 633,072
----------
Net increase in net assets resulting from operations $1,189,971
==========
- --------
(1) Unaudited.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six For the Year
Months Ended Ended
September 30, March 31,
- --------------------------------------------------------------------------------
1997(1) 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 556,899 $ 1,005,489
Net gain/(loss) from security transactions 17,183 (85,513)
Change in unrealized appreciation or
depreciation of investments 615,889 27,235
----------- -----------
Net increase in net assets resulting
from operations 1,189,971 947,211
----------- -----------
Distributions to Shareholders from:
Net investment income:
Class A Shares (261,230) (513,444)
Institutional Shares (147,220) (509,983)
ABCATShares (176,490) --
Distributions in excess of income
(Class A Shares) -- (32,984)
----------- -----------
Total distributions (584,940) (1,056,411)
Capital Share Transactions (Note 3):
Proceeds from sale of shares 18,590,073 7,978,261
Value of shares issued in reinvestment
of dividends 184,589 455,395
Cost of shares repurchased (15,953,552) (3,949,236)
----------- -----------
Total increase in net assets derived
from capital share transactions 2,821,110 4,484,420
----------- -----------
Total increase in net assets 3,426,141 4,375,220
Net Assets:
Beginning of period 23,508,784 19,133,564
----------- -----------
End of period $26,934,925 $23,508,784
=========== ===========
- -------
(1) Unaudited.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(For a share outstanding throughout each period)
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 9.78
-------
Income from Investment Operations:
Net investment income 0.21
Net realized and unrealized gain/(loss) on investments 0.26
-------
Total from Investment Operations 0.47
Less Distributions:
Distributions from net investment income (0.23)
Distributions in excess of income --
-------
Total distributions (0.23)
-------
Net asset value at end of period $ 10.02
=======
Total Return(3) 4.82%
Ratios to Average Daily Net Assets:
Expenses(4) 0.70%(6)
Net investment income(5) 4.27%(6)
Supplemental Data:
Net assets at end of period (000) $11,417
Portfolio turnover rate 27.41%(6)
- -------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average daily net assets would have been 1.32%,
1.34%, 1.69%, 1.85% and 2.46% for the six months ended September 30, 1997,
the years ended March 31, 1997, 1996, 1995 and the period ended March 31,
1994, respectively.
(5) 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 2.94%, 3.66%, 3.13%, 3.29% and 1.68% for the six months ended September
30, 1997, the years ended March 31, 1997, 1996, 1995 and the period ended
March 31, 1994, respectively.
(6) Annualized.
14
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
October 1, 1993(2)
For the Year Ended March 31, through March 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.84 $ 9.52 $ 9.50 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.35 0.39 0.40 0.14
Net realized and unrealized gain/(loss) on investments 0.04 0.38 0.05 (0.53)
------- ------- ------- -------
Total from Investment Operations 0.39 0.77 0.45 (0.39)
Less Distributions:
Distributions from net investment income (0.35) (0.39) (0.40) (0.11)
Distributions in excess of income (0.10) (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(3) 4.10% 8.20% 5.12% (4.06)%
Ratios to Average Daily Net Assets:
Expenses(4) 0.70% 0.70% 0.70% 0.29%(6)
Net investment income(5) 4.29% 4.09% 4.44% 3.84%(6)
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%(6)
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six For the Year Nov. 2, 1995(2)
Months Ended Ended through
September 30, March 31, March 31,
- -------------------------------------------------------------------------------------
1997(1) 1997 1996
<S><C>
Per Share Operating Performance:
Net asset value at beginning
of period $ 9.87 $ 9.93 $ 9.93
------ ------- ------
Income from Investment Operations:
Net investment income 0.07 0.48 0.15
Net realized and unrealized
gain/(loss) on investments 0.41 (0.07) (0.03)
------ ------- ------
Total from Investment Operations 0.48 0.41 0.12
Less Distributions:
Distributions from net investment
income and short-term gains (0.24) (0.47) (0.12)
------ ------- ------
Net asset value at end of period $10.11 $ 9.87 $ 9.93
====== ======= =======
Total Return 4.90% 4.30% 2.83%(5)
Ratios to Average Daily Net Assets:
Expenses(3) 0.45%(5) 0.45% 0.45%(5)
Net investment income(4) 4.56%(5) 4.55% 4.45%(5)
Supplemental Data:
Net assets at end of period (000) $1,425 $11,971 $7,068
Portfolio turnover rate 27.41%(5) 33.18% 8.79%(5)
</TABLE>
- -------
(1) Unaudited.
(2) Commencement of operations.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.12%, 1.08% and 1.30% for the six
months ended September 30, 1997, 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 3.89%, 3.92% and 3.67%
for the six months ended September 30, 1997, the year ended March 31, 1997
and the period ended March 31, 1996, respectively.
(5) Annualized.
See Notes to Financial Statements.
16
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- ABCAT SHARES
(For a share outstanding throughout each period)
For the Period
May 8, 1997(1)
through
September 30,
- --------------------------------------------------------------------------------
1997(2)
Per Share Operating Performance:
Net asset value at beginning of period $ 9.94
-------
Income from Investment Operations:
Net investment income 0.17
Net realized and unrealized gain on investments 0.17
-------
Total from Investment Operations 0.34
Less Distributions:
Distributions from net investment income
and short-term gains (0.16)
-------
Net asset value at end of period $ 10.12
=======
Total Return 4.16%
Ratios to Average Daily Net Assets:
Expenses(3) 0.45%(5)
Net investment income(4) 4.49%(5)
Supplemental Data:
Net assets at end of period (000) $14,092
Portfolio turnover rate 27.41%(5)
- ------
(1) Commencement of operations.
(2) Unaudited.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.02% for the period ended
September 30, 1997.
(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% for the six months
ended September 30, 1997.
(5) Annualized.
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL 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 Investment
Management 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 three share classes: Class A Shares, which commenced
October 1, 1993; Institutional Shares, which commenced November 2, 1995; and
Alex. Brown Capital Advisory & Trust Shares (ABCAT Shares), which commenced May
8, 1997.
The Class A Shares have a 1.50% maximum front-end sales charge and a 0.25%
distribution fee. The Institutional Shares and ABCAT 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
18
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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. 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.
19
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust New York Corporation, is the Fund's investment advisor. As compensation
for its advisory services, the Fund pays ICC an annual fee based on the Fund's
average daily net assets. This fee is calculated daily and paid monthly at the
following annual rates: 0.35% of the first $1 billion, 0.30% of the next $500
million 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 and ABCAT Shares' average daily net assets. For the six months
ended September 30, 1997, ICC waived fees of $44,265 and reimbursed expenses of
$32,893.
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 $13,628 for accounting services for the six months
ended September 30, 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 $7,820 for
transfer agent services for the six months ended September 30, 1997.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors") 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 six months ended September 30, 1997,
distribution fees aggregated $14,365. The Fund did not pay ICC Distributors any
commissions for the six months ended September 30, 1997. Prior to September 1,
1997, Alex. Brown & Sons Incorporated served as the Fund's distributor for the
same compensation and on substantially the same terms and conditions as ICC
Distributors.
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, 1997 through September 30, 1997 was approximately $939, and the accrued
liability was approximately $2,358.
20
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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 below.
Class A Shares
------------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1996
------------------- --------------
Shares sold 36,141 77,427
Shares issued to shareholders on
reinvestment of dividends 15,712 33,825
Shares redeemed (92,486) (157,261)
--------- -----------
Net decrease in shares outstanding (40,633) (46,009)
========= ===========
Proceeds from sale of shares $ 358,772 $ 750,704
Value of reinvested dividends 154,723 331,270
Cost of shares redeemed (913,308) (1,538,466)
--------- -----------
Net decrease from capital share transactions $(399,813) $ (456,492)
========= ===========
Institutional Shares
------------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1996
------------------- --------------
Shares sold 417,581 731,797
Shares issued to shareholders on
reinvestment of dividends 3,009 12,570
Shares redeemed (1,492,332)** (243,131)
------------ -----------
Net increase/(decrease) in shares outstanding (1,071,742) 501,236
============ ===========
Proceeds from sale of shares $ 4,183,000 $ 7,227,557
Value of reinvested dividends 29,866 124,125
Cost of shares redeemed (14,848,078)** (2,410,770)
------------ -----------
Net increase/(decrease) from capital
share transactions $(10,635,212) $ 4,940,912
============ ===========
- -------
*Unaudited.
**The number of shares redeemed and cost of shares redeemed for the six months
ended September 30, 1997 include the exchange from Institutional Shares into
ABCAT Shares.
21
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 3 -- concluded
ABCAT Shares
--------------------
For the Period
May 8, 1997* through
September 30, 1997**
--------------------
Shares sold 1,411,396***
Shares issued to shareholders on
reinvestment of dividends --
Shares redeemed (19,151)
-----------
NET INCREASE IN SHARES OUTSTANDING 1,392,245
===========
Proceeds from sale of shares $14,048,301***
Value of reinvested dividends --
Cost of shares redeemed (192,166)
-----------
Net increase from capital share transactions $13,856,135
===========
- -------
*Commencement of operations.
**Unaudited.
***The number of shares sold and proceeds from sale of shares for the period
ended September 30, 1997 include the exchange from Institutional Shares into
ABCAT Shares.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $3,331,813 and sales of investment securities aggregated $6,041,928
for the six months ended September 30, 1997.
On September 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $636,651 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $7,495.
NOTE 5 -- Net Assets
On September 30, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $11,238,155
Institutional Shares 1,427,871
ABCAT Shares 13,856,135
Accumulated net realized loss from security transactions (216,391)
Unrealized appreciation of investments 629,155
-----------
$26,934,925
===========
22
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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
On 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 -- Shareholder Meeting
Alex. Brown Incorporated, which was the parent corporation of the Fund's
investment advisor, merged into a subsidiary of Bankers Trust New York
Corporation on September 1, 1997. Due to the change in control of Alex. Brown
Incorporated, the Flag Investors Maryland Intermediate Tax-Free Income Fund
held a special meeting for its shareholders on August 14, 1997. During the
meeting, shareholders approved a new Investment Advisory Agreement
between the Fund and ICC. The new agreement is substantially the same as the
former agreement. In addition, shareholders elected the following Directors:
James J. Cunnane, Richard T. Hale, John F. Kroeger, Louis E. Levy, Eugene J.
McDonald, Rebecca W. Rimel, Truman T. Semans and Carl W. Vogt.
23
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Directors and Officers
RICHARD T. HALE
Chairman
JAMES J. CUNNANE
Director
JOHN F. KROEGER
Director
LOUIS E. LEVY
Director
EUGENE J. MCDONALD
Director
REBECCA W. RIMEL
Director
TRUMAN T. SEMANS
Director
CARL W. VOGT, ESQ.
Director
HARRY WOOLF
President
AMY M. OLMERT
Secretary
JOSEPH A. FINELLI
Treasurer
LAURIE D. COLLIDGE
Assistant Secretary
Investment Objective
An open-end mutual fund designed to provide current income exempt from federal
income taxes and Maryland state and local income taxes consistent with
preservation of principal within an intermediate-term maturity structure.
24
<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
