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FLAG INVESTORS
[PHOTO APPEARS HERE]
FLAG
INVESTORS
MARYLAND
INTERMEDIATE
TAX-FREE INCOME
FUND
ANNUAL REPORT
MARCH 31, 1998
<PAGE>
REPORT HIGHLIGHTS
- -------------------------------------------------------------------------------
o Strong U.S. financial markets have helped your Fund achieve returns of 2.9%
for the six months and 7.8% for the twelve months ended March 31, 1998.
o We have continued to keep the Fund's weighted average maturity at 6.3 years,
with its quality comfortably in the AAA to AA range.
o Even though the Federal Reserve continues to take a wait-and-see stance,
regarding interest rates, we cannot ignore their primary intentions which are
to arrest inflationary pressures before they develop.
o Relative to their taxable counterparts (e.g. U.S. Treasury bonds) after-tax
municipal bond yields are at very attractive levels.
<PAGE>
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the year ended
March 31, 1998.
For much of the past six months the U.S. financial markets have enjoyed the
unusual combination of benign inflationary pressures and strong economic growth.
Although this environment was more conducive to extraordinary equity
performance, domestic fixed income securities, including municipal bonds, gained
considerable investor attention in the turbulent aftermath of the Asian
financial crisis. Concerned that fallout from Asia would sharply curb domestic
growth and push the rate of inflation even lower, investors rushed to lock in
yields and reduce portfolio volatility. This favorable interest rate environment
also prompted a deluge of new money financings by municipalities at levels not
seen since 1993.
Your Fund, with its conservative, intermediate-term maturity range,
recorded a total return of 2.9% for the six months and 7.8% for the twelve
months ended March 31, 1998. Coupon interest generated half of these returns;
modest share price appreciation provided the balance. Although returns from
Maryland municipal bonds were comfortably in the positive column, their returns
were less than those of many other states. Much of the recent rally in municipal
bonds centered on longer-dated and lower-quality municipal bonds, two sectors
which are in limited supply within the Maryland high-grade market. For example,
even though nationwide municipal bond issuance rose 43% during the past six
months, new issuance in Maryland increased only 14%.
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- -------------------------------------------------------------------------------
Specific total return comparisons are detailed below. These figures assume
the reinvestment of dividends and capital gains, but exclude the impact of any
sales charge.
TOTAL RETURN COMPARISONS(1)
Six Twelve Average
Periods Ended March 31, 1998 Months Months Maturity
- ------------------------------------------------------------------------------
Flag Investors Maryland Intermediate
- ------------------------------------------------------------------------------
Tax-Free Income Fund-- Class A Shares 2.9% 7.8% 6.3 years
- ------------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal Bond Index 2.9% 7.6% 4.8 years
- ------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index 3.4% 9.0% 6.9 years
- ------------------------------------------------------------------------------
Lipper Other States Intermediate-Term
- ------------------------------------------------------------------------------
Municipal Debt Funds Average 2.2% 7.9% 7.5 years
- ------------------------------------------------------------------------------
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS AND EXCLUDE THE IMPACT OF ANY SALES CHARGE. IF THE SALES
CHARGE WERE REFLECTED, 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 5-YEAR MUNICIPAL BOND INDEX AND THE LEHMAN BROTHERS 7-YEAR
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. PAST PERFORMANCE IS
NOT AN INDICATOR OF FUTURE RESULTS. PLEASE REVIEW THE ADDITIONAL
PERFORMANCE INFORMATION ON PAGE 6.
PORTFOLIO CONSIDERATIONS
In empathy with the general downward trend in long-term financing rates,
intermediate-term tax-exempt rates moved erratically lower during the past
twelve months (SEE CHART ON PAGE 3). Concerned that interest rates were nearing
a secular trough, we kept the Fund's weighted average maturity fairly constant
at 6.3 years and its overall quality bias comfortably in the AAA to AA range. We
also held on to all of the Fund's high-coupon, premium-priced bonds as they
helped us maintain a relatively high dividend rate in an environment of
declining rates. While this conservative approach may have penalized recent
relative performance (premium-priced bonds are less price sensitive to interest
rate changes than current-coupon bonds), we believe this defensive structure is
appropriate at this stage of the interest rate cycle.
2
<PAGE>
7-Year AAA General Obligation
Municipal Yields
(3/31/97 - 3/31/98)
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
3/97 5.03%
4.84
4.82
4.82
4.92
4.81
4.78
4.74
4.73
4.72
4.65
4.51
4.49
6/97 4.52
4.48
4.42
4.36
4.3
4.35
4.43
4.45
4.5
4.51
4.47
4.44
4.36
9/97 4.36
4.34
4.42
4.46
4.41
4.33
4.33
4.32
4.33
4.35
4.29
4.22
4.19
12/97 4.19
4.17
4.11
4.07
4.17
4.16
4.17
4.13
4.13
4.19
4.27
4.26
4.21
3/98 4.24
MARKET OUTLOOK
Although signs of global deflationary pressures stemming from the problems
in Asia encourage us to be constructive on the bond market's long-term
prospects, we are concerned by the growing presence within our domestic economy
of rising employment and wage gains, strong consumer confidence, and surging
equity prices. While recent testimony from the Federal Reserve chairman suggests
a wait-and-see stance until the outcome of Asia's problems can be fully
assessed, we cannot ignore the central theme of Fed policy intentions: to arrest
inflationary pressures before they develop. Should Asia's difficulties prove to
be a non-event and our domestic economy continues to expand, some restrictive
policy measure would be inevitable possibly late this year or early in 1999. The
Fed acknowledges the risk that letting growth surge ahead unchecked could
jeopardize the hard-won gains against inflation thus far in the 1990's.
Regardless of the magnitude of policy decisions, we believe any rise in rates
would be modest and would pale in comparison with the long-run potential for a
decline.
The recent surge in municipal bond issuance during the past quarter has put
pressure on tax-exempt bond prices. As unsold dealer inventory has swelled, the
yield ratio between taxable and tax-exempt yields has risen to its highest level
in two years (SEE CHART ON PAGE 4). While we admit to occasional "sticker shock"
at the prevailing nominal rate levels, we are impressed by the "real" rates of
returns currently available (nominal rate less inflation rate). We continue to
see value within the Maryland municipal bond market, especially at a ratio of
79% to 80% of comparable ten-year U.S. Treasury yields. Although
3
<PAGE>
LETTER TO SHAREHOLDERS (concluded)
- -------------------------------------------------------------------------------
the equity markets have attracted much investor attention, municipal bonds are
still attractive for the high tax bracket Maryland investor.
AAA-RATED MUNICIPAL YIELDS AS A PERCENTAGE OF U.S. TREASURY YIELDS
Maturity of
AAA-Rated
Municipals 3/31/96 3/31/97 3/31/98
------------------------------------------------------------------
10-Year 77% 73% 80%
------------------------------------------------------------------
20-Year 81% 79% 83%
------------------------------------------------------------------
Source: Bloomberg Financial Services
The market for Maryland municipal bonds, by virtue of the state's strong
underlying economy, high wealth levels, favorable demographics, and government
commitment to pro-active fiscal management, continues to enjoy broad
institutional and retail support. We have been able, since the Fund's inception,
to diversify its bond holdings among the state's best credits. The collective
credit quality of the portfolio falls comfortably between AAA and AA.
DIVIDEND POLICY
The Class A Shares' monthly dividend remains at $0.0375, a rate
commensurate with the Fund's maturity range and quality orientation. 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
April 14, 1998
4
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
[PIE CHARTS APPEAR HERE-SEE PLOT POINTS BELOW]
SECTOR*
-------
Hospital and Education 23%
Short-term Investments 3%
General Obligation-Local 37%
Housing 3%
General Obligation-State 17%
Other Revenue 8%
Prerefunded 9%
QUALITY*
--------
AA 27%
A 6%
BBB 12%
AAA 55%
PORTFOLIO STATISTICS
Net Asset Value Per:
-------------------------------------------------------------------
Class A Share $10.08
-------------------------------------------------------------------
Institutional Share $10.18
-------------------------------------------------------------------
Total Net Assets $32,089,643
-------------------------------------------------------------------
Average Maturity 6.3 years
-------------------------------------------------------------------
Average Duration 5.1 years
-------------------------------------------------------------------
Maturity Breakdown*:
-------------------------------------------------------------------
0-1 year 3%
-------------------------------------------------------------------
1-5 years 28%
-------------------------------------------------------------------
5-10 years 44%
-------------------------------------------------------------------
10-15 years 17%
-------------------------------------------------------------------
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. 9). These ratings are believed to be the most recent ratings available as of
March 31, 1998.
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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on October
1, 1993 through the most recent fiscal year-end and must reflect the impact of
the Fund's total expenses and the currently effective 1.50% maximum sales charge
for the Fund's Class A Shares.
Since the Lehman Brothers Municipal Bond Index is unmanaged and does not
reflect management styles, investment policies or certain fees and expenses
similar to the Fund's, we will begin to compare the Fund's performance to an
additional benchmark, the Lipper Other States Intermediate Municipal Debt Funds
Average. The average is a composite of the performance of similar tax-exempt
managed funds, so the funds' management styles, investment policies and
management, distribution and operating expenses are reflected in the average's
results.
While the following charts are required by SEC rules, such comparisons are
of limited utility since the Lehman Brothers Municipal Bond Index and the Lehman
Brothers 7-Year Municipal Bond Index are not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of these two indices would
have had to own the securities that they represent. Acquiring these securities
would require a considerable amount of money and would incur expenses that are
not reflected in the index results. While the Lipper Other States Intermediate
Municipal Debt Funds Average is unmanaged, it is a composite of the performance
of managed funds that do reflect ongoing management, distribution and operating
expenses similar to those applicable to the Fund. The average, however, does not
reflect the funds' sales charges. An investor who wished to replicate the total
return of this average would have had to own the funds that it represents.
The SEC also requires that we report 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 maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES*
OCTOBER 1, 1993--MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Flag Investors Lipper Other
Maryland Intermediate Lehman Brothers Lehman Brothers States Intermediate
Tax-Free Municipal Bond 7-Year Municipal Municipal Debt Funds
Income Fund Index Bond Index Average
-------------------- --------------- ---------------- -------------------
<S><C>
10/93 $ 9,850 $10,000 $10,000 $10,000
12/93 9,924 10,121 10,093 10,097
3/94 9,450 9,565 9,714 9,683
9/94 9,541 9,737 9,912 9,814
3/95 9,933 10,276 10,330 10,201
9/95 10,508 10,826 10,926 10,673
3/96 10,748 11,137 11,162 10,878
9/96 10,977 11,479 11,411 11,094
3/97 11,184 11,744 11,678 11,307
9/97 11,722 12,514 12,321 11,860
3/98 12,059 13,002 12,734 12,197
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
-----------------------------------------------------------------------
Class A Shares 6.21% -- 4.25%
-----------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**October 1, 1993.
7
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN INSTITUTIONAL SHARES*
NOVEMBER 2, 1995--MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Flag Investors Lipper Other
Maryland Intermediate Lehman Brothers Lehman Brothers States Intermediate
Tax-Free Municipal Bond 7-Year Municipal Municipal Debt Funds
Income Fund Index Bond Index Average
-------------------- --------------- ---------------- -------------------
<S><C>
11/95 $10,000 $10,000 $10,000 $10,000
12/95 10,151 10,096 10,053 10,063
3/96 10,116 9,975 10,018 9,988
6/96 10,157 10,051 10,062 10,018
9/96 10,342 10,281 10,242 10,187
12/96 10,572 10,543 10,494 10,400
3/97 10,548 10,519 10,482 10,382
6/97 10,794 10,882 10,771 10,651
9/97 11,065 11,210 11,059 10,890
12/97 11,306 11,514 11,300 11,114
3/98 11,405 11,646 11,429 11,198
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
-----------------------------------------------------------------------
Institutional Shares 8.12% -- 5.61%
-----------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**November 2, 1995.
8
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN ABCAT SHARES*
MAY 8, 1997--MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Flag Investors Lipper Other
Maryland Intermediate Lehman Brothers Lehman Brothers States Intermediate
Tax-Free Municipal Bond 7-Year Municipal Municipal Debt Funds
Income Fund Index Bond Index Average
-------------------- --------------- ---------------- -------------------
<S><C>
5/97 $10,000 $10,000 $10,000 $10,000
6/97 10,172 10,107 10,096 10,089
9/97 10,416 10,411 10,366 10,315
12/97 10,633 10,693 10,592 10,527
3/98 10,726 10,816 10,713 10,607
</TABLE>
Average Annual Total Return*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
-----------------------------------------------------------------------
ABCAT Shares -- -- 7.26%
-----------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**May 8, 1997.
9
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1998
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS -- 95.5%
General Obligations--58.3%
$1,000 Anne Arundel County, MD,
Water Quality Funding
6.00%, 9/1/06 Aa/AA+ $ 1,112,230 3.5%
400 Baltimore County, MD, Refunding--
Pension Funding
5.50%, 8/1/05 Aaa/AAA 430,412 1.3
1,000 Baltimore County, MD, Consolidated
Public Improvement
5.50%, 6/1/04 Aaa/AAA 1,070,480 3.3
250 Cecil County, MD (FGIC Insured),
Refunding Consolidated Public
Improvement Project,
Callable 12/1/03 @ $102
5.00%,12/1/06 Aaa/AAA 259,327 0.8
500 Charles County, MD, Refunding
Consolidated Public Improvement
6.25%, 6/1/02 Aa3/AA- 540,270 1.7
500 Charles County, MD, Refunding
Consolidated Public Improvement
6.00%, 6/1/99 Aa3/AA- 512,985 1.6
400 Frederick County, MD, Retirement
Community Revenue,
Buckinghams Choice Inc. Facility-A
5.55%, 1/1/08 NR*/NR* 405,676 1.3
500 Frederick, MD, Refunding and
Improvement (FGIC Insured)
5.80%,12/1/02 Aaa/AAA 535,080 1.7
1,000 Harford County, MD
5.00%,12/1/13 Aaa/AA+ 1,002,560 3.1
1,000 Howard County, MD, Refunding
Consolidated Public Improvement
Project, Series "A"
5.75%, 2/15/01 Aaa/AA+ 1,046,160 3.3
500 Howard County, MD, Refunding
Consolidated Public Improvement
Series A
4.30%, 2/15/08 Aaa/AA+ 493,490 1.5
</TABLE>
10
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
$ 500 Howard County, MD, Metropolitan
Distribution Refunding--Series B
6.00%, 8/15/19 Aaa/AA+ $ 524,790 1.6%
375 Laurel, MD, Refunding Series "A"
Project Prefunded 7/1/01 @ $102
6.60%, 7/1/03 #AAA/AAA 410,040 1.3
500 Maryland Natl Capital Park & Planning,
Prince George's County, MD,
Park Acquisition & Development,
Callable 7/1/05 @$101
5.00%, 7/1/08 Aa2/AA 519,480 1.6
500 Maryland State Local Facilities Loan,
First series,
4.00%, 2/15/03 Aaa/AAA 497,575 1.6
1,000 Maryland State Local Facilities Loan,
First series,
4.50%, 2/15/08 Aaa/AAA 1,005,040 3.1
Maryland State Local Facilities Loan,
Second series,
1,000 5.25%, 6/15/05 Aaa/AAA 1,059,530 3.3
1,250 5.25%, 6/15/09 Aaa/AAA 1,319,675 4.1
1,000 Maryland State Local Facilities Loan,
Third series,
5.00%, 10/15/06 Aaa/AAA 1,047,380 3.3
500 Maryland State Capital Improvement
5.00%, 4/15/04 Aaa/AAA 518,215 1.6
1,000 Montgomery County, MD,
Consolidated Public Improvement
Series A
5.75%, 10/1/07 Aaa/AAA 1,091,860 3.4
500 Montgomery County, MD,
Consolidated Public Improvement
5.40%, 7/1/16 Aaa/AAA 515,645 1.6
500 Ocean City, MD, Refunding
(MBIA Insured)
5.00%, 3/15/03 Aaa/AAA 517,720 1.6
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 266,610 0.8
</TABLE>
11
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
$ 250 St. Mary's County, MD, Metropolitan
Commission
5.65%, 11/1/07 A1/A+ $ 268,330 0.8%
250 Washington Suburban Sanitary
District, MD,
Prerefunded 11/1/01 @ 102
6.40%, 11/1/04 #AAA/AAA 273,470 0.9
360 Washington Suburban Sanitary
District, MD
8.00%, 1/1/02 Aa1/AA 407,772 1.3
1,000 Washington Suburban Sanitary
District, MD, Callable 6/1/03
5.00%, 6/1/06 Aa1/AA 1,036,480 3.3
----------- ----
18,688,282 58.3
----------- ----
Other Revenue--37.1%
350 Baltimore County, MD Mortgage
Revenue, Callable 11/1/03 @$102
6.60%, 11/1/14 NR*/AAA 373,443 1.2
1,000 Baltimore MD, CTFS Participation,
Emergency Telecommunication
Facility, Series A, (AMBAC Insured)
4.70%, 10/1/06 Aaa/AAA 1,017,530 3.2
700 Kent County, MD, College Proj &
Ref-Washington College PJ
Prerefunded Callable 7/1/99 @$102
7.70%, 7/1/18 Baa2/NR* 743,911 2.2
250 Maryland State Health and Higher
Education Authority, Revenue for
Johns Hopkins University
6.00%, 7/1/07 Aa2/AA- 277,300 0.9
600 Maryland State Health and Higher
Education Authority, Revenue for
Kennedy Krieger Institute
5.30%, 7/1/12 BAA-1/NR 604,200 1.9
685 Maryland State Health and Higher
Education Authority, Revenue for
Harford Memorial and
Fallston General Hospitals
Callable 10/29/97 @ $102
8.50%, 7/1/14 Baa1/NR* 700,679 2.1
</TABLE>
12
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
$ 400 Maryland State Health and Higher
Education Authority, Revenue for
Bon Secours Heartland Issue-A,
Prerefunded 7/1/00 @$102
7.375%, 9/1/17 NR*/A+ $ 432,536 1.3%
1,000 Maryland State Health and Higher
Education Authority, Revenue for
Greater Baltimore Medical Center,
Prerefunded 7/1/01 @$102
6.75%, 7/1/19 #AAA/AAA 1,097,960 3.4
500 Maryland State Health and Higher
Education Authority, Revenue for
Good Samaritan Hospital
Escrowed to maturity
5.40%, 7/1/04 A1/A 531,520 1.7
1,000 Maryland State Health and Higher
Education Authority, Revenue for
University of Maryland Medical
Systems, Callable 7/1/03 @$102
(FGIC Insured)
5.40%, 7/1/08 Aaa/AAA 1,052,550 3.3
300 Maryland Health and Higher
Education Facilities Authority
Revenue for Suburban Hospital
4.75%, 7/1/03 A1/A+ 304,995 1.0
300 Maryland Health and Higher
Education Facilities Authority
Revenue for Peninsula Regional
Medical, Callable 7/1/03 @ $102
5.00%, 7/1/06 A2/A 309,357 1.0
500 Maryland Health and Higher
Education Facilities Authority,
Revenue, Pickersgill
5.50%, 1/1/21 NR*/A- 509,950 1.6
500 Maryland Health and Higher
Education Facilities Authority,
Revenue, Stellas Maris
4.75%, 7/1/21 NR*/A 508,145 1.6
400 Maryland Health and Higher
Education Facilities Authority,
Broadmead
5.10%, 7/1/06 NR/A- 409,708 1.3
</TABLE>
13
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
$ 400 Maryland State Industrial
Development Authority, Revenue for
American Center Physics Headquarters
5.80%, 1/1/01 NR*/BBB $ 411,016 1.3%
1,000 Maryland Water Quality Finding,
Revolving Loan FD Revenue
Series A
5.00%, 9/1/06 Aa2/AA 1,036,940 3.2
500 University of Maryland Systems
Auxiliary Facilities & Tuition
Revenue, Series B,
Prerefunded 10/1/02 @ $102
6.40%, 4/1/06 Aa3/AAA 554,495 1.7
1,000 University of Maryland Systems
Auxiliary Facilities & Tuition
Revenue, Series A,
5.00%, 4/1/09 Aa3/AA+ 1,035,100 3.2
----------- ----
11,911,355 37.1
----------- ----
Total Municipal Bonds
(Cost $29,778,657) $30,599,617 95.4%
----------- ----
</TABLE>
14
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par Ratings*** of Net
(000) (Moody's/S&P) Value Assets
- --------------------------------------------------------------------------------------
<S><C>
REPURCHASE AGREEMENT -- 2.9%
$ 930 Goldman Sachs & Co., 5.75%
Dated 3/31/98 to be repurchased on 4/1/98,
collateralized by U.S. Treasury Notes with
a market value of $930,149.
(Cost $930,000) $ 930,000 2.9%
----------- -----
Total Investment in Securities--98.4%
(Cost $30,708,657)** 31,529,617 98.3
Other Assets in Excess of Other Liabilities--1.6% 560,026 1.7
----------- -----
Net Assets--100.00% $32,089,643 100.0%
=========== =====
Net Asset Value Per:
Class A Share
($10,897,573 / 1,081,567 shares outstanding) $10.08
======
Institutional Share
($622,800 / 61,188 shares outstanding) $10.18
======
ABCAT Share
($20,569,270 / 2,020,771 shares outstanding) $10.18
======
Maximum Offering Price Per:
Class A Share
($10.08 / 0.985) $10.23
======
Institutional Share $10.18
======
ABCAT Share $10.18
======
</TABLE>
- ---------
* Not Rated
** Also aggregate cost of federal tax purposes.
*** These ratings have not been audited by Deloitte & Touche L.L.P.
See accompanying Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------------
1998
<S><C>
Investment Income:
Interest $1,377,018
----------
Expenses:
Investment advisory fee 97,673
Legal 55,220
Printing and postage 48,876
Accounting fee 29,232
Distribution fee 28,661
Audit 22,205
Transfer agent fees 17,912
Miscellaneous 11,509
Registration fees 11,094
Organization expense 10,224
Custodian fee 9,589
Directors' fees 1,003
----------
Total expenses 343,198
Less: Fees waived (188,949)
----------
Net Expenses 154,249
----------
Net investment income 1,222,769
----------
Net realized and unrealized gain on investments:
Net realized gain from security transactions 29,377
Change in unrealized appreciation of investments 807,694
----------
Net realized and unrealized gain on investments 837,071
----------
Net increase in net assets resulting from operations $2,059,840
==========
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended March 31,
- --------------------------------------------------------------------------------------
1998 1997
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 1,222,769 $ 1,005,489
Net realized gain/(loss) from
security transactions 29,377 (85,513)
Change in unrealized appreciation
of investments 807,694 27,235
----------- -----------
Net increase in net assets resulting
from operations 2,059,840 947,211
----------- -----------
Distributions to Shareholders from:
Net investment income:
Flag Investors Class A Shares (518,864) (513,444)
Flag Investors Institutional Shares (180,998) (509,983)
ABCAT Shares (575,496) --
Distributions in excess of income:
(Flag Investors Class A Shares) -- (32,984)
----------- -----------
Total distributions (1,275,358) (1,056,411)
Capital Share Transactions:
Proceeds from sale of shares 27,019,130 7,978,261
Value of shares issued in reinvestment
of dividends 363,027 455,395
Cost of shares repurchased (19,585,780) (3,949,236)
----------- -----------
Total increase in net assets derived
from capital share transactions 7,796,377 4,484,420
----------- -----------
Total increase in net assets 8,580,859 4,375,220
Net Assets:
Beginning of period 23,508,784 19,133,564
----------- -----------
End of period $32,089,643 $23,508,784
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
For the Year Ended
March 31,
- --------------------------------------------------------------------------------------
1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.78
-------
Income from Investment Operations:
Net investment income 0.42
Net realized and unrealized gain/(loss)
on investments 0.33
-------
Total from Investment Operations 0.75
Less Distributions:
Net investment income (0.45)
Distributions in excess of net investment income --
-------
Total distributions (0.45)
-------
Net asset value at end of period $ 10.08
=======
Total Return 7.83%
Ratios to Average Net Assets:
Expenses(3) 0.70%
Net investment income(4) 4.23%
Supplemental Data:
Net assets at end of period (000) $10,898
Portfolio turnover rate 14.26%
</TABLE>
- ---------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of expenses to average net assets would have been 1.38%, 1.34%,
1.69%, 1.85% and 2.46% for the years ended March 31, 1998, 1997, 1996, 1995
and the period ended March 31, 1994, respectively.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of net investment income to average net assets would have been
3.20%, 3.66%, 3.13%, 3.29% and 1.68% for the years ended March 31, 1998,
1997, 1996, 1995 and the period ended March 31, 1994, respectively.
18
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
October 1, 1993(1)
through
For the Year Ended March 31, March 31,
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.44 0.39 0.40 0.14
Net realized and unrealized gain/(loss)
on investments 0.05 0.38 0.05 (0.53)
------- ------- ------- -------
Total from Investment Operations 0.39 0.77 0.45 (0.39)
Less Distributions:
Net investment income (0.44) (0.39) (0.40) (0.11)
Distributions in excess of net investment income (0.01) (0.06) (0.03) --
------- ------- ------- -------
Total distributions (0.45) (0.45) (0.43) (0.11)
------- ------- ------- -------
Net asset value at end of period $ 9.78 $ 9.84 $ 9.52 $ 9.50
======= ======= ======= =======
Total Return 4.05% 8.20% 5.12% (4.06)%
Ratios to Average Net Assets:
Expenses(3) 0.70% 0.70% 0.70% 0.29%(2)
Net investment income(4) 4.29% 4.09% 4.44% 3.84%(2)
Supplemental Data:
Net assets at end of period (000) $11,538 $12,066 $12,919 $11,872
Portfolio turnover rate 33.18% 8.79% 33.00% 8.51%
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
For the Period
For the Year For the Year Nov. 2, 1995(1)
Ended Ended through
March 31, March 31, March 31,
- -----------------------------------------------------------------------------------------
1998 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 0.03 0.48 0.15
Net realized and unrealized gain/(loss)
on investments 0.75 (0.07) (0.03)
------- ------- ------
Total from Investment Operations 0.78 0.41 0.12
Less Distributions:
Net investment income (0.47) (0.47) (0.12)
------- ------- ------
Net asset value at end of period $ 10.18 $ 9.87 $ 9.93
======= ======= ======
Total Return 8.12% 4.27% 2.83%
Ratios to Average Net Assets:
Expenses(3) 0.45% 0.45% 0.45%(2)
Net investment income(4) 4.53% 4.55% 4.45%(2)
Supplemental Data:
Net assets at end of period (000) $ 623 $11,971 $7,068
Portfolio turnover rate 14.26% 33.18% 8.79%
</TABLE>
- ---------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 1.13%, 1.08% and 1.30% for the years
ended March 31, 1998, 1997, and the period ended March 31, 1996,
respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 3.85%, 3.92% and 3.67% for the
years ended March 31, 1998, 1997, and the period ended March 31, 1996,
respectively.
See accompanying Notes to Financial Statements.
20
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights -- ABCAT Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
For the Period
May 8, 1997(1)
through
March 31,
- --------------------------------------------------------------------------------------
1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.94
-------
Income from Investment Operations:
Net investment income 0.40
Net realized and unrealized gain
on investments 0.24
-------
Total from Investment Operations 0.64
Less Distributions:
Net investment income 0.40
-------
Net asset value at end of period $ 10.18
=======
Total Return 7.26%
Ratios to Average Net Assets:
Expenses(3) 0.45%(2)
Net investment income(4) 4.47%(2)
Supplemental Data:
Net assets at end of period (000) $20,569
Portfolio turnover rate 14.26%
</TABLE>
- ---------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 1.13% for the period ended March 31,
1998.
(4) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 3.79% for the period ended
March 31, 1998.
See accompanying Notes to Financial Statements.
21
<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") was organized as a Maryland Corporation on July 23, 1993 and commenced
operations October 1, 1993, consisting of Class A Shares, which are subject to a
maximum front-end sales charge of 1.50% and a 0.25% distribution fee. On
November 2, 1995 and May 8, 1997 the Fund began offering Institutional shares
and ABCAT shares, respectively, which are not subject to a front-end sales
charge or a distribution fee. The fund is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management investment company
designed to provide current income exempt from Federal income taxes and Maryland
state and local income taxes consistent with preservation of principal within an
intermediate-term maturity structure. The Fund invests primarily in municipal
obligations issued by the State of Maryland and its political subdivisions,
agencies or instrumentalities. The Fund's concentration in securities involves
more risk than a Fund that invests broadly.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund.
A. Security Valuation--Municipal obligations for which quotations are
readily available are valued at the most recent quote price provided by
investment dealers. Municipal obligations may be valued on the basis of
prices provided by an independent pricing service when such prices are
determined by the Investment Advisor to reflect the fair market value of
such obligations. Securities for which market quotations are not readily
available are valued at fair market as determined in good faith by the
Investment Advisor under procedures established and monitored by the
Board of Directors. Short-term obligations with maturities of 60 days or
less are valued at amortized cost which approximates market.
B. Repurchase Agreements--The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement,
will be required on a daily basis to maintain the value of the
securities subject to the agreement at no less than the repurchase
price. The agreement is conditional upon the collateral being deposited
under the Federal Reserve book-entry system.
22
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
C. Federal Income Tax--No provision is made for federal income taxes as it
is the Fund's intention to continue to qualify as a regulated investment
company under Sub-chapter M of the Internal Revenue Code and to make
requisite distributions to the shareholders that will be sufficient to
relieve it from all or substantially all federal income and excise
taxes. The Fund's policy is to distribute to shareholders substantially
all of its long-term taxable net investment income on a monthly basis
and net realized capital gains annually, if any.
D. Other--Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the
specific identification method for both financial reporting and income
tax purposes. Interest income and expenses are recorded on an accrual
basis. Costs incurred by the Fund in connection with its organization,
registration, and the initial public offering of shares have been
deferred and are being amortized on the straight-line method over a
five-year period beginning on the date on which the Fund commenced its
investment activities.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC") a subsidiary of Bankers Trust
Corporation, serves as the Fund's investment advisor. As compensation for its
advisory services, ICC receives from the Fund an annual fee, calculated daily
and paid monthly, at the annual rate of 0.35% of the first $1 billion of the
Fund's average daily net assets; 0.30% of the next $500 million of the Fund's
average daily net assets and 0.25% of the Fund's average daily net assets in
excess of $1.5 billion.
ICC has voluntarily agreed to waive its fees and reimburse expenses to the
extent required to maintain expenses at no more than 0.70% of the average daily
net assets for Class A Shares and 0.45% for Institutional and ABCAT Shares. For
the year ended March 31,1998, ICC waived fees of $97,673 and reimbursed expenses
of $91,276.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily net
assets. ICC received $29,232 for accounting services for the year ended March
31, 1998.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC received $17,912 for
transfer agent services for the year ended March 31,1998.
23
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNC Bank served as the Fund's custodian.
From September 22, 1997 to March 31, 1998, the Fund paid $4,830 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors") , which is not related to ICC, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to .25% of the Class AShares' average daily net assets. For the year
ended March 31, 1998, distribution fees aggregated $28,661. Prior to September
1, 1997, Alex. Brown & Sons Incorporated served as the Fund's distributor for
the same rate of compensation and on substantially the same terms as ICC
Distributors and earned $12,004. Alex. Brown received no commissions from the
Fund for the year ended March 31, 1998.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated to
the Fund for the year ended March 31, 1998 was $1,780, and the accrued liability
was approximately $2,510.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 40 million shares of $.001 par value
common stock (25 million Class A, 2 million Class B, 5 million Institutional, 5
million ABCAT, and 3 million undesignated). Transactions in share of the Fund
were as follows:
Class A Shares
-----------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
Shares sold 118,474 77,427
Shares issued to shareholders on
reinvestment of dividends 30,779 33,825
Shares redeemed (247,421) (157,261)
---------- ----------
Net decrease in shares outstanding (98,168) (46,009)
========== ==========
Proceeds from sale of shares $1,185,886 $ 750,704
Value of reinvested dividends 305,838 331,270
Cost of shares redeemed (2,475,432) (1,538,466)
---------- ----------
Net decrease from capital share
transactions $ (983,708) $ (456,492)
========== ==========
24
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
NOTE 3--concluded
Institutional Shares
-----------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
Shares sold 467,085 731,797
Shares issued to shareholders on
reinvestment of dividends 5,722 12,570
Shares redeemed (1,624,343) (243,131)
------------ -----------
Net increase/(decrease) in shares outstanding (1,151,536) 501,236
============ ===========
Proceeds from sale of shares $ 4,683,000 $ 7,227,557
Value of reinvested dividends 57,340 124,125
Cost of shares redeemed (16,185,543) (2,410,770)
------------ -----------
Net increase/(decrease) from capital share
transactions $(11,445,203) $ 4,940,912
============ ===========
ABCAT Shares
--------------------
For the period
May 8, 1997* through
March 31, 1998
--------------------
Shares sold 2,111,921
Shares issued to shareholders on
reinvestment of dividends (15)
Shares redeemed (91,135)
-----------
Net Increase in Shares Outstanding 2,020,771
===========
Proceeds from sale of shares $21,150,244
Value of reinvested dividends (151)
Cost of shares redeemed (924,805)
-----------
Net increase from capital share transactions $20,225,288
===========
- ----------------
*Commencement of operations.
NOTE 4--Investment Transactions
Purchase and sales of investment securities, other than short-term
obligations, aggregated $10,984,365 and $3,872,175 respectively, for the year
ended March 31, 1998.
At March 31, 1998 aggregate gross unrealized appreciation for all
securities in which there is an excess of value of tax cost was $841,265 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $20,305.
25
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 5--Net Assets
On March 31, 1998, net assets consisted of:
Paid-in capital:
Class A Shares $10,636,472
Institutional Shares 616,848
ABCAT Shares 20,191,520
Accumulated net realized loss from security transactions (176,157)
Unrealized appreciation of investments 820,960
-----------
$32,089,643
===========
NOTE 6--Distributions
Of the net investment income distributions paid monthly by the Fund during
the taxable year ended March 31, 1998 97.35% 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 Carry Forward
The Fund has a capital loss carry forward of $176,157 that may be carried
forward to offset capital gains if necessary. These capital loss carry forwards
begin to expire as follows; $36,982 by 3/31/2003, $83,039 by 3/31/2004, $44,582
by 3/31/2005, and $11,554 by 3/31/2006.
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 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
of 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.
26
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.:
We have audited the accompanying statement of net assets of the Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. as of March 31, 1998,
and the related statements of operations for the year then ended and changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the respective periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. as of March 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 17, 1998
27
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------
Directors and Officers
RICHARD T. HALE
Chairman
JAMES J. CUNNANE CARL W. VOGT, ESQ.
Director Director
JOHN F. KROEGER HARRY WOOLF
Director President
LOUIS E. LEVY AMY M. OLMERT
Director Secretary
EUGENE J. MCDONALD JOSEPH A. FINELLI
Director Treasurer
REBECCA W. RIMEL SCOTT J. LIOTTA
Director Assistant Secretary
TRUMAN T. SEMANS
Director
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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
28
<PAGE>
[LOGO]
FLAG INVESTORS
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
EQUITY INCOME
Flag Investors Real Estate Securities Fund
Flag Investors Communications Fund
(formerly 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.
