<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998.
File No. 33-66870
File No. 811-7922
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 8 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 10 /X/
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
--------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (410) 727-1700
Edward J. Veilleux
One South Street
Baltimore, MD 21202
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pa 19103
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It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on August 1, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of Rule 485.
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Class A Shares)
Cross Reference Sheet
July 29, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------
<S> <C> <C>
Part A - Information Required in a Prospectus
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial Information................... Financial Highlights
Item 4. General Description of Registrant................. Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent and
Accounting Services
Item 5A. Management's Discussion of Fund Performance....... *
Item 6. Capital Stock and Other Securities................ Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered.............. How to Invest in the Fund;
Distributor; Telephone Transactions
Item 8. Redemption or Repurchase.......................... How to Redeem Shares;
Telephone Transactions
Item 9. Pending Legal Proceedings......................... **
Part B - Information Required in a Statement of Additional Information
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and History................... General Information and
History
</TABLE>
- ---------------------
* Information required by Item 5A is contained in Registrant's 1998 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
Item 14. Management of the Fund............................ Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities............................. Control Persons and Principal
Holders of Securities
Item 16. Investment Advisory and Other
Services.......................................... Investment Advisory and Other
Services; Custodian, Transfer
Agent and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
Reports
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered........................................... Valuation of Shares and
Redemption
Item 20. Tax Status........................................ Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters...................................... Distribution of Fund Shares
Item 22. Calculation of Performance
Data.............................................. Performance Information
Item 23. Financial Statements.............................. Financial Statements
</TABLE>
Part C - Other Information
Part C contains the information required by the items contained
therein under the items set forth in the form.
<PAGE>
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[GRAPHIC OMITTED]
FLAG INVESTORS
MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
(Class A Shares)
Prospectus and Application -- August 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") is designed to provide current income exempt from
federal income taxes and Maryland state and local income taxes consistent with
preservation of principal within an intermediate-term maturity structure. The
Fund will invest primarily in municipal obligations issued by the State of
Maryland and its political subdivisions, agencies or instrumentalities.
Class A Shares of the Fund ("Class A Shares") are available through your
securities dealer or the Fund's transfer agent (See "How to Invest in the
Fund.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated August 1, 1998 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fund Expenses ............... 1
Financial Highlights ......... 2
Investment Program ............ 3
Investment Restrictions ...... 5
How to Invest in the Fund ... 6
How to Redeem Shares ......... 8
Telephone Transactions ...... 9
Dividends and Taxes ......... 9
Management of the Fund ...... 11
Investment Advisor ............ 11
Distributor .................. 12
Custodian, Transfer Agent and
Accounting Services ...... 12
Performance Information ...... 13
General Information ......... 13
Application .................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ 1.50%*
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, whichever is lower) ............................................................ 0.50%*
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
Management Fees ........................................................................ 0.00%**
12b-1 Fees .............................................................................. 0.25%
Other Expenses (net of reimbursements) ................................................ 0.45%**
-------
Total Fund Operating Expenses (net of fee waivers and reimbursements) .................. 0.70%**
=======
</TABLE>
- ---------------
* Purchases of $1 million or more by persons not otherwise eligible for sales
load waivers are not subject to an initial sales charge; however, a
contingent deferred sales charge of 0.50% may be imposed on such purchases.
(See "How to Invest in the Fund -- Offering Price.")
** The Fund's investment advisor currently intends to waive its fee or to
reimburse the Fund on a voluntary basis to the extent required so that
Total Fund Operating Expenses do not exceed 0.70% of the Fund's average
daily net assets. Absent fee waivers and/or reimbursements, Management Fees
would be .35%, Other Expenses would be 0.78% and the Fund's Total Fund
Operating Expenses would be 1.38% of the Class A Shares' average daily net
assets.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- --------------------------------------------------------- ------- -------- -------- ---------
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* ............. $22 $37 $53 $101
</TABLE>
- -----------
* The Example is based on Total Fund Operating Expenses, net of fee waivers
and reimbursements. Absent such fee waivers and reimbursements, expenses
would be higher.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that Fund investors may pay directly and indirectly. A person who
purchases Class A Shares through a financial institution may be charged
separate fees by the financial institution.
The rules of the SEC require that the maximum sales charge (in the Fund's
case, 1.50% of the offering price) be reflected in the above table. However,
certain investors may qualify for reduced sales charges or no sales charge at
all. (See "How to Invest in the Fund -- Offering Price.") Due to the continuous
nature of Rule 12b-1 fees, long-term shareholders of the Fund may pay more than
the equivalent of the maximum front-end sales charges permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc.
1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table are a part of the Fund's
financial statements for the fiscal year ended March 31, 1998 and have been
audited by Deloitte & Touche LLP, independent auditors. The financial
statements and financial highlights for the fiscal year ended March 31, 1998
and the report thereon of Deloitte & Touche LLP are included in the Statement
of Additional Information. Additional performance information is contained in
the Fund's Annual Report for the fiscal year ended March 31, 1998, which can
be obtained at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Year Ended October 1, 1993(1)
March 31, through
-----------------------------------------------
1998 1997 1996 1995 March 31, 1994
--------- ------- -------- -------- --------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 9.78 $ 9.84 $ 9.52 $ 9.50 $ 10.00
--------- ------- -------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.42 0.44 0.39 0.40 0.14
Net realized and unrealized gain/(loss) on
investments ......................................... 0.33 (0.05) 0.38 0.05 (0.53)
--------- ------- -------- -------- --------
Total from Investment Operations ..................... 0.75 0.39 0.77 0.45 (0.39)
--------- ------- -------- -------- --------
Less Distributions:
Net investment income ................................ 0.45 (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) (0.45) (0.43) (0.11)
---------- -------- --------- --------- --------
Net asset value at end of period $ 10.08 $ 9.78 $ 9.84 $ 9.52 $ 9.50
========= ======= ======== ======== ========
Total Return .......................................... 7.83% 4.05% 8.20% 5.12% (4.06)%
Ratios to Average Daily Net Assets:
Expenses(2) .......................................... 0.70% 0.70% 0.70% 0.70% 0.29%(4)
Net investment income(3) ............................. 4.23% 4.29% 4.09% 4.44% 3.84%(4)
Supplemental Data:
Net assets at end of period (000) .................... $ 10,848 $ 11,538 $ 12,066 $ 12,919 $ 11,872
Portfolio turnover rate .............................. 14.26% 33.18% 8.79% 33.00% 8.51%
</TABLE>
- --------------------------------------------------------------------------------
1 Commencement of operations.
2 Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.38%, 1.34%,
1.69%, 1.85% and 2.46% (annualized) for the years ended March 31, 1998, 1997,
1996 and 1995 and the period ended March 31, 1994, respectively.
3 Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
3.20%, 3.66%, 3.13%, 3.29% and 1.68% (annualized) for the years ended
March 31, 1998, 1997, 1996 and 1995 and the period ended March 31, 1994,
respectively.
4 Annualized.
2
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<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, Policies and Risk
Considerations
The Fund seeks to provide current income exempt from federal income taxes
and Maryland state and local income taxes consistent with preservation of
principal within an intermediate-term maturity structure. There is no assurance
this objective will be met.
Under normal conditions, the Fund expects to be as fully invested as
practicable in obligations that, in the opinion of bond counsel to the issuers,
produce interest exempt from federal income tax and Maryland state and local
income tax and at least 65% of the Fund's total assets will be invested in
securities of Maryland issuers. These include municipal obligations issued by
the State of Maryland and its political subdivisions, agencies or
instrumentalities. The Fund may invest up to 35% of its assets in obligations
of other issuers of securities the interest on which is exempt from Maryland
state and local taxes. These issuers would include territories or possessions
of the United States. However, the Fund has no present intention to invest in
securities issued by such territories or possessions.
As a matter of fundamental policy, under normal conditions, the Fund will
invest at least 80% of its total assets in securities the interest on which is
exempt from federal and Maryland state and local income taxes and 80% of the
Fund's assets will be invested in municipal securities the income from which is
not subject to the alternative minimum tax. Income derived from securities
subject to the alternative minimum tax is not included when computing income
exempt from federal and Maryland state and local income taxes. Under normal
conditions, the Fund may invest up to 20% of its net assets in municipal
securities, the income from which is not exempt from Maryland state and local
income taxes. For temporary, defensive purposes when, in the opinion of the
Fund's investment advisor (the "Advisor"), securities exempt from Maryland
state and local income tax are not readily available or of sufficient quality,
the Fund can invest up to 100% of its assets in securities that pay interest
that is exempt only from federal income taxes or in taxable U.S. Treasury
securities.
The Fund is a non-diversified investment company, which means that more
than 5% of its assets may be invested in each of one or more issuers. Since a
relatively high percentage of assets of the Fund may be invested in the
obligations of a limited number of issuers, the value of shares of the Fund may
be more susceptible to any single economic, political or regulatory occurrence
than the shares of a diversified investment company would be. The Fund intends
to satisfy the diversification requirements necessary to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE>
The Fund currently contemplates that it will not invest more than 25% of
its total assets (at market value at the time of purchase) in municipal
securities, the interest on which is paid from revenues of projects with
similar characteristics. See also "Special Considerations Relating To Maryland
Municipal Securities."
Under normal circumstances the Fund's portfolio will have a dollar
weighted average maturity of between 3 and 10 years. The value of obligations
purchased by the Fund will change as interest rates change. Thus, a decrease in
interest rates generally will result in an increase in the value of shares of
the Fund. Conversely, an increase in interest rates will generally result in a
decrease in the value of the shares of the Fund. The magnitude of these
fluctuations will be greater as the average maturity of the Fund increases.
Municipal notes in which the Fund may invest will be limited to those
obligations (i) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. Municipal bonds in which the Fund may invest must be rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or, if
unrated by S&P or Moody's must be of comparable quality in the Advisor's
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that are rated at least A-1 by S&P or Prime-1 by Moody's at the
time of investment or, if unrated by S&P or Moody's, are of comparable quality
in the Advisor's judgment. These ratings may be based in part on credit support
provided by a bank or other entity. Accordingly, a decline in the
creditworthiness of the entity providing such support could affect the rating
of the security, as well as the payment of interest and principal. For a
description of the above ratings, see the Appendix to the Statement of
Additional Information.
The Fund may also enter into futures contracts and options on futures
contracts, although it has no present intention to do so. Gains recognized by
the Fund from such transactions would constitute taxable income to
shareholders.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The Fund may also purchase variable and floating rate demand notes and
bonds. The Advisor will invest in commitments to purchase securities on a
"when-issued" basis and reserves the right to engage in "put" transactions on a
daily, weekly or monthly basis.
Municipal Securities
Municipal securities that the Fund may purchase consist of (i) debt
obligations issued by or on behalf of public authorities to obtain funds to be
used for various public facilities, for refunding outstanding obligations, for
general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or improvement of privately
operated facilities. Municipal notes include general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes, construction loan notes and
participation interests therein. Municipal bonds include general obligation
bonds, revenue or special obligation bonds, private activity bonds, industrial
development bonds and participation interests therein. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, tolls from a toll bridge, or
lease payments, for example. The payment of principal and interest on private
activity and industrial development bonds generally is dependent solely on the
ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
The Fund may purchase municipal lease obligations, including certificates
of participation ("COPs") in municipal leases. The Fund may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. The Fund will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its net
assets unless the Advisor determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Board of Directors of the
Fund. Pursuant to these guidelines, the Advisor, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Fund expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with orderly disposition.
<PAGE>
Insured Obligations
The Fund may invest in obligations that are insured as to the scheduled
payment of all installments of principal and interest as they fall due. The
purpose of this insurance is to minimize credit risks to the Fund and its
shareholders associated with defaults in Maryland municipal obligations owned
by the Fund. This insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the Fund's investment
portfolio upon which the net asset value of the Fund's shares is based. The
market value will continue to fluctuate in response to fluctuations in interest
rates or the bond market. Similarly, this insurance does not cover or guarantee
the value of the shares of the Fund. The ratings of the insured obligations may
be based in part on insurance provided by an insurance company. Accordingly, a
decline in the creditworthiness of the insurance company providing the
insurance could affect the rating of the security, as well as the payment of
interest and principal.
Participation Interests
The Fund may invest in COPs representing participation interests in
municipal securities (such as AMT-Subject Bonds). A participation interest (i)
may pay a fixed, floating or variable rate of interest; (ii) gives the
purchaser an undivided interest in the municipal securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; and (iii) provides a demand repurchase feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank that meets the prescribed quality standards of the Fund. The Fund has the
right to sell the instrument back to the issuing bank or draw on the letter of
credit on demand for all or any part of the Fund's participation interest in
the municipal security, plus accrued interest. Banks will retain or receive a
service fee, letter of credit fee and a fee for issuing repurchase commitments
in an amount equal to the excess of the interest paid on the municipal
securities over the negotiated yield at which the instruments were purchased by
the Fund. Participation interests in the form to be purchased by the Fund are
new instruments, and no ruling of the Internal Revenue Service has been secured
relating to their tax-exempt status. The Fund intends to purchase participation
interests based upon opinions of counsel to the issuer to the effect that
income from the participation interests is tax-exempt to the Fund. For purposes
of complying with diversification requirements, the Fund will treat both the
trust, or
4
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<PAGE>
- --------------------------------------------------------------------------------
similar entity established to issue COPs, and the issuers of the underlying
municipal securities as issuers. Also, the Fund will limit its investments in
COPs to less than 25% of its total assets.
Repurchase Agreements
The Fund may agree to purchase U.S. Treasury securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Variable and Floating Rate Demand
Obligations
The Fund may purchase variable and floating rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess of
one year, but which permit the holder to demand payment of principal either at
any time or at specified intervals. The interest rates on these obligations
fluctuate from time to time in response to changes in the market interest
rates. Frequently, such obligations are secured by letters of credit or other
credit support arrangements provided by banks. Where these obligations are not
secured by letters of credit or other credit support arrangements, the Fund's
right to redeem will be dependent on the ability of the borrower to pay
principal and interest on demand. Each demand note and bond purchased by the
Fund will meet the quality criteria established for the purchase of other
municipal obligations. The Fund will not invest more than 10% of its net assets
in floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
When-Issued Securities
When-issued securities are securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Fund will generally not
pay for such securities or start earning interest on them until they are
received. When-issued commitments will not be used for speculative purposes and
will be entered into only with the intention of actually acquiring the
securities. The securities so purchased or sold are subject to market
fluctuation so, at the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will ordinarily invest
no more than 40% of its net assets at any time in municipal obligations
purchased on a when-issued basis.
Special Considerations Relating to Maryland
Municipal Securities
The Fund's concentration in securities issued by the State of Maryland
and its political subdivisions, agencies and instrumentalities involves greater
risk than a fund broadly invested across many states and municipalities. In
particular, changes in economic conditions and governmental policies of the
State of Maryland and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see "Risk Factors Associated with a Maryland Portfolio" in the Statement
of Additional Information.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not concentrate 25% or more
of its total assets in securities of issuers in any one industry, provided
that this limitation does not apply to investments in tax-exempt
securities issued by governments or political subdivisions of governments
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer). This restriction may not
be changed without shareholder approval.
2) Additionally, the Fund will not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements with maturities of
greater than seven days. This restriction may be changed by a vote of the
Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
5
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<PAGE>
- --------------------------------------------------------------------------------
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
[The Fund is No Longer Offering Shares]
Class A Shares may be purchased from the Fund's distributor (the
"Distributor"), through any securities dealer that is authorized to distribute
Shares ("Participating Dealers"), or through any financial institution that has
entered into a shareholder servicing agreement with the Fund ("Shareholder
Servicing Agents"). Class A Shares may also be purchased by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price (including any applicable front-end sales
charge), to the address shown on the Application Form.
The minimum initial investment is $2,000, except that the minimum initial
investment for shareholders of any other Flag Investors fund or class is $500
and the minimum initial investment for participants in the Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100,
except that the minimum subsequent investment under the Fund's Automatic
Investing Plan is $250 for quarterly investments and $100 for monthly
investments. (See "Purchases through Automatic Investing Plan" below.)
Orders for purchases of Shares are accepted on any day on which the New
York Stock Exchange is open for business (a "Business Day"). The Fund reserves
the right to suspend the sale of Shares at any time at the discretion of the
Distributor or the Advisor. Purchase orders for Class A Shares will be executed
at a per share purchase price equal to the net asset value next determined
after receipt of the purchase order plus any applicable front-end sales charge
(the "Offering Price") on the date such net asset value is determined (the
"Purchase Date"). Purchases made by mail must be accompanied by payment of the
Offering Price. Purchases made through the Distributor or a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such entity's
payment procedures. The Distributor may, in its sole discretion, refuse to
accept any purchase order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities are given their
market value where feasible. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Such procedures may include the use
of an independent pricing service, which uses prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Debt
obligations with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Fund's Board of Directors.
<PAGE>
Offering Price
Class A Shares may be purchased from the Distributor, Participating
Dealers or Shareholder Servicing Agents at the Offering Price, which includes a
sales charge that is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
Sales Charge
as % of Dealer
------------------------ Compensation
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- -------------------------- ---------- ------------ ---------------
Less than $100,000 ...... 1.50% 1.52% 1.25%
$100,000 - $499,999 ...... 1.25% 1.27% 1.00%
$500,000 - $999,999 ...... 1.00% 1.01% 0.75%
$1,000,000 and over ...... None* None* None*
- -----------
* Purchases of $1 million or more may be subject to a contingent deferred sales
charge. (See below.) The Distributor may make payments to dealers in the
amount of .50% of the Offering Price.
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Class A Shares and purchases of
shares of other Flag Investors funds with the same or a higher front-end sales
charge. The applicable sales charge will be determined based on the total of
(a) the shareholder's current purchase plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of all Flag Investors
shares described above and any Flag Investors Class D shares held by the
shareholder. To obtain the reduced sales charge through a right of
accumulation, the shareholder must provide the Distributor, either directly or
through a Participating Dealer or Shareholder Servicing Agent, as applicable,
with sufficient information to verify that the shareholder has such a right.
The Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated by a purchaser,
the purchaser's spouse and their children under the age of 21 years purchasing
Class A Shares for their own account.
6
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<PAGE>
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An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $100,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated in the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The minimum
initial investment under a Letter of Intent is 5% of the full amount. Class A
Shares purchased with the first 5% of the full amount will be held in escrow
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased if
the full amount indicated is not invested. Such escrowed Class A Shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrowed Shares will be
released. An investor who wishes to enter into a Letter of Intent in
conjunction with an investment in Class A Shares may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more. However, a contingent deferred sales charge may be imposed
on such investments in the event of a share redemption within 24 months
following the share purchase, at the rate of .50% on the lesser of the value of
the Class A Shares redeemed or the total cost of such shares. No contingent
deferred sales charge will be imposed on purchases of $3 million or more of
Class A Shares redeemed within 24 months of purchase if the Participating
Dealer and the Distributor have entered into an agreement under which the
Participating Dealer agrees to return any payments received on the sale of such
shares. In determining whether a contingent deferred sales charge is payable,
and, if so, the amount of the charge, it is assumed that Class A Shares not
subject to such charge are the first redeemed followed by other Class A Shares
held for the longest period of time.
The Fund may sell Class A Shares at net asset value (without sales
charge) to the following: (i) banks, bank trust departments, registered
investment advisory companies, financial planners and broker-dealers purchasing
Class A Shares on behalf of their fiduciary and advisory clients, provided such
clients have paid an account management fee for these services (investors may
be charged a fee if they effect transactions in Fund shares through a broker or
agent); (ii) qualified retirement plans; (iii) participants in a Flag Investors
fund payroll savings plan program; (iv) investors who have redeemed Shares, or
shares of any other mutual fund in the Flag Investors family of funds with the
same or a higher front-end sales charge, in an amount that is not more than the
total redemption proceeds, provided that the purchase is within 90 days after
the redemption; and (v) current or retired Directors of the Fund, and directors
and employees (and their immediate families) of the Advisor, the Distributor,
Participating Dealers and their respective affiliates.
<PAGE>
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact the
Distributor, a Participating Dealer or Shareholder Servicing Agent.
Purchases by Exchange
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of Class A shares of Flag Investors Short-Intermediate Income
Fund, Inc. and shareholders of other mutual funds in the Flag Investors family
of funds with a higher front-end sales charge, may exchange their shares of
those funds for an equal dollar amount of Class A Shares. Class A Shares issued
pursuant to this offer will not be subject to the sales charges described above
or any other charge. Shareholders of Flag Investors Cash Reserve Prime Class A
Shares may exchange into Class A Shares upon payment of the difference in sales
charges, as applicable.
When a shareholder acquires Class A Shares through an exchange from
another fund in the Flag Investors family of funds, the Fund will combine the
period for which the original shares were held prior to the exchange with the
holding period of the Class A Shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon a
redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day, provided
that the exchange request is received prior to 4:00 p.m. (Eastern Time), or the
close of the New York Stock Exchange, whichever is earlier. Exchange requests
received after 4:00 p.m. (Eastern Time) will be effected on the next Business
Day.
Shareholders of any mutual fund not affiliated with the Fund who have
paid a sales charge may exchange shares of such fund for an equal dollar amount
of Shares by submitting to the Distributor or a Participating Dealer the
proceeds of the redemption of such shares, together with evidence of the
payment of a sales charge and the source of such proceeds. Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
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In addition, shareholders may exchange their Class A Shares for an equal
dollar amount of shares of any other mutual fund in the Flag Investors family
of funds with a higher front-end sales charge. In connection with such
exchange, shareholders will be required to pay the difference between the sales
charge paid on Class A Shares and the sales charge applicable to the purchase
of the shares of such other fund, except that the exchange will be made at net
asset value (without payment of any sales charge) if the Class A Shares have
been held for more than 24 months following the purchase date.
The exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below). The Fund
may modify or terminate these offers of exchange at any time on 60 days' prior
written notice to shareholders and the exchange offers set forth herein are
expressly subject to modification or termination.
Purchases Through Automatic Investing Plan
Shareholders may purchase Class A Shares regularly by means of an
Automatic Investing Plan with a pre-authorized check drawn on their checking
accounts. Under this plan, the shareholder may elect to have a specified amount
invested monthly or quarterly in Class A Shares. The amount specified by the
shareholder will be withdrawn from the shareholder's checking account using the
pre-authorized check and will be invested in Class A Shares at the applicable
Offering Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by the
Fund or the shareholder upon 30 days' prior written notice to the other party.
A shareholder who wishes to enroll in the Automatic Investing Plan or who
wishes to obtain additional purchase information may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
Purchases Through Dividend Reinvestment
Unless the shareholder elects otherwise, all income dividends (consisting
of dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Class A Shares at net
asset value without a sales charge. However, shareholders may elect to
terminate automatic reinvestment by giving written notice to the Transfer Agent
at the address listed on the inside back cover of this Prospectus, either
directly or through their Participating Dealer or Shareholder Servicing Agent,
at least five days before the next date on which dividends or distributions
will be paid.
Alternatively, shareholders may have their distributions invested in
shares of other funds in the Flag Investors family of funds. Shareholders who
are interested in this option should call (800) 553-8080 for additional
information.
<PAGE>
HOW TO REDEEM SHARES
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Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent") at its address listed on the back
inside cover to this Prospectus. Shareholders may also redeem Shares by
telephone (in amounts up to $50,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per share (reduced by any
applicable contingent deferred sales charge) next determined after receipt of
the order (or, if stock certificates have been issued for the Class A Shares to
be redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. Payment for redeemed
Class A Shares will be made by check and will be mailed within seven days after
receipt of a duly authorized telephone redemption request or of a redemption
order fully completed and, as applicable, accompanied by the following
documents:
1) A letter of instructions, specifying the shareholder's account number with a
Participating Dealer, if applicable, and the number of Class A Shares or
dollar amount to be redeemed, signed by all owners of the Class A Shares
in the exact names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Class A Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for Class
A Shares to be redeemed; and
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4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of the redemption of Class A Shares will
be paid on the next dividend payable date. If all of the Class A Shares in a
shareholder's account have been redeemed on a dividend payable date, the
dividend will be remitted by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
Systematic Withdrawal Plan
Shareholders who hold Class A Shares having a value of $10,000 or more
may arrange to have a portion of their Shares redeemed monthly or quarterly
under the Fund's Systematic Withdrawal Plan. Such payments are drawn from
income dividends, and to the extent necessary, from Class A Share redemptions
(which would be a return of principal and, if reflecting a gain, would be
taxable). If redemptions continue, a shareholder's account may eventually be
exhausted. Because Class A Share purchases include a sales charge that will not
be recovered at the time of redemption, a shareholder should not have a
withdrawal plan in effect at the same time he is making recurring purchases of
Class A Shares. A shareholder who wishes to enroll in the Systematic Withdrawal
Plan may do so by completing the appropriate section of the Application Form
attached to this Prospectus.
TELEPHONE TRANSACTIONS
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Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Class A Shares in amounts up to $50,000, by
notifying the Transfer Agent by telephone on any Business Day between the hours
of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its
address listed on the back inside cover of this Prospectus. Telephone
transaction privileges are automatic. Shareholders may specifically request
that no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred sales
charge on redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide
additional telecopied instructions of such transaction requests. If these
procedures are employed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be genuine.
During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by regular or express mail. Class A Shares held in
certificate form may not be redeemed by telephone. (See "How to Invest in the
Fund -- Purchases by Exchange" and "How to Redeem Shares.")
DIVIDENDS AND TAXES
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Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any net
capital gains (net long-term capital gains less net short-term capital losses)
on an annual basis or, alternatively, may elect to retain net capital gains and
pay tax thereon.
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Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue to qualify as a "regulated investment
company" under the Code and to distribute to its investors all of its net
investment income (including its net tax-exempt income) and net short-term and
long-term capital gain income, if any, so that it is not required to pay
federal income taxes on amounts so distributed. In addition, the Fund expects
to make sufficient distributions prior to the end of each calendar year to
avoid liability for federal excise tax. Shareholders will be advised at least
annually as to the federal income tax consequences of distributions made during
the year.
Dividends derived from the Fund's net exempt-interest income and
designated by the Fund as exempt-interest dividends may be treated by the Fund's
shareholders as items of interest excludable from their gross income for federal
income tax purposes if the Fund qualifies as a regulated investment company and
if, at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets consists of securities the interest on which is
excluded from gross income. Although exempt-interest dividends are excludable
from a shareholder's gross income for regular income tax purposes, they may have
collateral federal income tax consequences, including alternative minimum tax
consequences. (See the Statement of Additional Information.)
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt-interest
dividends. All or a portion of the interest on indebtedness incurred or
continued by a shareholder to purchase or carry Class A Shares may not be
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisors before purchasing Class A Shares. (See
the Statement of Additional Information.)
<PAGE>
Under the Code, dividends attributable to interest on certain "private
activity bonds" issued after August 7, 1986, will be included in alternative
minimum taxable income for the purpose of determining liability (if any) for
the alternative minimum tax for individuals and for corporations. Additionally,
in the case of corporations, all tax-exempt interest dividends will be taken
into account in determining "adjusted current earnings" (as defined for federal
income tax purposes) for purposes of computing the alternative minimum tax
imposed on corporations.
To the extent, if any, that dividends paid to investors are derived from
taxable income, such dividends will be subject to federal income tax. If the
Fund purchases a municipal security at a market discount, any gain realized by
the Fund upon sale or redemption of the municipal obligation shall be treated
as taxable interest income to the extent such gain does not exceed the market
discount and any gain realized in excess of the market discount will be treated
as capital gain. Distributions of net investment income and/or the excess, if
any, of net short-term capital gains over net long-term capital losses are
taxable to investors as ordinary income, regardless of whether such
distributions are paid in cash or reinvested in additional Class A Shares.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) that are designated by the Fund as capital
gain dividends are taxable to investors as long-term capital gains, regardless
of the length of time the investor owned the Class A Shares. Since
substantially all of the net investment income of the Fund is expected to be
derived from earned interest, it is anticipated that no part of the Fund's
distributions will be eligible for the corporate dividends-received deduction.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared. The Fund intends to make sufficient distributions of its ordinary
income and capital gain net income prior to the end of each calendar year to
avoid liability for federal excise tax.
The sale, exchange or redemption of Class A Shares is a taxable event for
the shareholder.
Maryland Tax Disclosure
To the extent the Fund qualifies as a regulated investment company under
the Code, it will be subject
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to tax only on (1) that portion of its income on which tax is imposed for
federal income tax purposes under Section 852(b)(1) of the Code and (2) that
portion of its income that consists of federally tax-exempt interest on
obligations other than Maryland Exempt Obligations (hereinafter defined) to the
extent such interest is not paid to Fund shareholders in the form of exempt-
interest dividends. To the extent dividends paid by the Fund represent interest
excludable from gross income for federal income tax purposes, that portion of
exempt-interest dividends that represents interest received by the Fund on
obligations issued by the State of Maryland, its political subdivisions, Puerto
Rico, the U.S. Virgin Islands, or Guam and their respective authorities or
municipalities ("Maryland Exempt Obligations"), will be exempt from Maryland
state and local income taxes when allocated or distributed to a shareholder of
the Fund except in the case of a shareholder that is a financial institution.
Except as noted below, all other dividend distributions will be subject to
Maryland state and local income taxes.
Capital gains distributed by the Fund to a shareholder or any gains
realized by a shareholder from a redemption or sale of shares must be
recognized for Maryland state and local income tax purposes to the extent
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of shareholders for federal income
tax purposes are subtracted from capital gains income for Maryland income tax
purposes to the extent such distributions are derived from the disposition of
debt obligations issued by the State of Maryland, its political subdivisions
and authorities.
Dividends received by a shareholder from the Fund that are derived from
interest on U.S. government obligations will be exempt from Maryland state and
local incomes taxes. Entities subject to the financial institution franchise
tax will generally be subject to tax on distributions from the Fund.
In the case of individuals, Maryland presently imposes an income tax on
items of tax preference with reference to such items as defined in the Code for
purposes of calculating the federal alternative minimum tax. Interest paid on
certain private activity bonds of an issuer other than the State of Maryland,
its political subdivisions or authorities is a preference item taken into
account for this purpose. Accordingly, if the Fund holds such bonds, the excess
of 50% of that portion of exempt interest dividends that is attributable to
interest on such bonds over a threshold amount may be taxable by Maryland.
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder in order to purchase or carry shares of the Fund will not be
deductible for Maryland state and local income tax purposes. Individuals will
not be subject to personal property tax on their shares of the Fund. Shares of
the Fund held by a Maryland resident at death may be subject to Maryland
inheritance and estate taxes.
MANAGEMENT OF THE FUND
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The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributor, custodian and transfer
agent. A majority of the Directors of the Fund have no affiliation with the
Distributor or the Advisor.
<PAGE>
INVESTMENT ADVISOR
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Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Bankers Trust Corporation. ICC
is also the investment advisor to other mutual funds in the Flag Investors
family of funds and BT Alex. Brown Cash Reserve Fund, Inc., which funds had
approximately $7.4 billion of net assets as of May 31, 1998.
ICC is responsible for the general management of the Fund, as well as for
decisions to buy and sell securities for the Fund, for broker-dealer selection,
and for negotiation of commission rates. ICC currently intends to waive, on a
voluntary basis, its annual fee to the extent necessary so that the Fund's
annual expenses do not exceed 0.70% of the Fund's average daily net assets. For
the fiscal year ended March 31, 1998, ICC waived all advisory fees, amounting to
$97,673, and reimbursed expenses of $91,276.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting Services.")
11
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Portfolio Managers
Messrs. M. Elliott Randolph, Jr. and Paul D. Corbin have shared primary
responsibility for managing the Fund's assets since inception.
M. Elliott Randolph, Jr. has 24 years of investment experience and has
been a portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has over 20 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
DISTRIBUTOR
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ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor for each class of the Fund's shares since August 31,
1997. ICC Distributors is a registered broker-dealer that offers distribution
services to a variety of registered investment companies including the other
funds in the Flag Investors family of funds and BT Alex. Brown Cash Reserve
Fund, Inc. ICC Distributors is not affiliated with the Advisor.
The Fund has adopted a Distribution Agreement and related Plan of Distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act. As compensation for
providing distribution services for the Class A Shares for the period from
August 31, 1997 through March 31, 1998, ICC Distributors received an
annualized fee from the Fund equal to 0.25% of the Shares' average daily net
assets.
ICC Distributors expects to allocate most of its fee to Participating Dealers as
compensation for their ongoing shareholder services, including processing
purchase and sale requests and responding to shareholder inquiries.
In addition, the Fund may enter into agreements with certain financial
institutions, such as banks and BT Alex. Brown Incorporated, to provide
shareholder services pursuant to which ICC Distributors will allocate up to all
of its distribution fee as compensation for such services. Such financial
institutions may impose separate fees in connection with these services and
investors should review this Prospectus in conjunction with any such
institution's fee schedule.
Payments under the Plan are made as described above regardless of ICC
Distributors' actual cost of providing distribution services and may be used to
pay ICC Distributors' overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is less
than the payments received the unexpended portion may be retained by ICC
Distributors. ICC Distributors may from time to time and from its own
resources pay or allow additional discounts or promotional incentives in the
form of cash or other compensation (including merchandise or travel) to
securities dealers.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
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Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent. ICC also provides accounting services to the Fund. As
compensation for providing accounting services to the Fund for the fiscal year
ended March 31, 1998, ICC received a fee equal to 0.10% of the Fund's average
daily net assets. (See the Statement of Additional Information.) Bankers Trust
Company, a subsidiary of Bankers Trust Corporation and an affiliate of the
Advisor, acts as custodian of the Fund's assets.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30-day period by
the maximum offering price per Share on the last day of the period and
annualizing the result on a semi-annual basis. The Fund may also advertise a
"tax-equivalent yield," which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent of the Fund's yield, assuming certain tax brackets for a
shareholder. All advertisements of performance will show the average annual
total return net of the Fund's maximum sales charge, over one-, five- and
ten-year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding average annual compounded rates of return over such periods
that would equate an assumed initial investment of $1,000 to the ending
redeemable value, net of the maximum sales charge and other fees according to
the required standardized calculation. The standardized calculation is required
by the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield. For these purposes, the performance of the Fund, as well as the
performance of such investment companies or indices, may not reflect sales
charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national
financial and industry publications that monitor the performance of mutual
funds such as Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and market
conditions. Any fees charged by financial institutions with respect to customer
accounts through which Shares may be purchased, although not included in
calculations of performance, will reduce performance results.
GENERAL INFORMATION
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Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 million shares of capital stock, par value of $.001 per
share, all of which shares are designated common stock. Each share has one vote
and shall be entitled to dividends and distributions when and if declared by
the Fund. In the event of liquidation or dissolution of the Fund, each share
would be entitled to its pro rata portion of the Fund's assets after all debts
and expenses have been paid. The fiscal year-end of the Fund is March 31.
The Board of Directors may classify any authorized but unissued Shares
into classes and may establish certain distinctions between classes relating to
additional voting rights, payments of dividends, rights upon liquidation or
distribution of the assets of the Fund and any other restrictions permitted by
law and the Fund's charter.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio or securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors Maryland
Intermediate Tax-Free Income Fund Class A Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have two other classes of shares in addition to the shares offered hereby:
"Flag Investors Maryland Intermediate Tax-Free Income Fund Institutional
Shares" and "Alex. Brown
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Capital Advisory & Trust Maryland Intermediate Tax-Free Income Shares."
Additional information concerning the Fund's other classes may be obtained by
calling the Fund at (800) 767-FLAG. Different classes of the Fund may be
offered to certain investors and holders of such shares may be entitled to
certain exchange privileges not offered to Shares. All classes of the Fund
share a common investment objective, portfolio of investments and advisory fee,
but the classes may have different sales load structures, distribution fees or
other expenses and, accordingly, the net asset value per share of classes may
differ at times.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
Shareholders with inquiries concerning their Shares should contact the
Fund at (800)767-FLAG, the Transfer Agent at (800)553-8080 or any Participating
Dealer or Shareholder Servicing Agent, as appropriate.
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FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
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Make check payable to "Flag Investors Maryland Intermediate Tax-Free Income
Fund, Inc." and mail with this Application to:
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc
For assistance in completing this Application please call: 1-800-553-8080,
Monday-Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time)
To open an IRA account, call 1-800-767-3524 for an IRA information kit.
I enclose a check for $______ payable to "Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc." for the purchase of Class A Shares of the Fund. The
minimum initial purchase is $2,000, except that the minimum initial purchase
for shareholders of any other Flag Investors Fund or class is $500 and the
minimum initial purchase for participants in the Fund's Automatic Investing
Plan is $250. Each subsequent purchase requires a $100 minimum, except that the
minimum subsequent purchase under the Fund's Automatic Investing Plan is $250
for quarterly purchases and $100 for monthly purchases. The Fund reserves the
right not to accept checks for more than $50,000 that are not certified or bank
checks.
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Your Account Registration (Please Print)
Existing Account No., if any: ______________
Individual or Joint Tenant
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First Name Initial Last Name
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Social Security Number
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Joint Tenant Initial Last Name
Corporations, Trusts, Partnerships, etc.
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Name of Corporation, Trust or Partnership
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Tax ID Number Date of Trust
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Name of Trustees (If to be included in the Registration)
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For the Benefit of
<PAGE>
Gifts to Minors
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Custodian's Name (only one allowed by law)
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Minor's Name (only one)
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Social Security Number of Minor
under the ___________________ Uniform Gifts to Minors Act
State of Residence
Mailing Address
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Street
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City State Zip
( )
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Daytime Phone
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Letter of Intent (Optional)
[ ] I agree to the Letter of Intent and Escrow Arrangement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc. in an aggregate amount at least equal
to:
[ ] $100,000 [ ] $500,000 [ ] $1,000,000
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Right of Accumulation (Optional)
[ ] I already own shares of the Flag Investors Fund(s) set forth below to be
applied for a reduced sales charge. List the Account numbers of other Flag
Investors Funds (except Class B shares) that you or your immediate family
(spouse and children under 21) already own that qualify for reduced sales
charges.
Fund Name Account No. Owner's Name Relationship
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Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Class A Shares at no sales
charge.
Income Dividends Capital Gains
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[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
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A-1
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<PAGE>
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Automatic Investing Plan (Optional)
[ ] I authorize you, as Agent for the Automatic Investing Plan, to
automatically invest $_________ for me, on a monthly or quarterly basis, on
or about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment against
my checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
Please attach a voided check.
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
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Bank Name Depositor's Signature Date
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Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
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Systematic Withdrawal Plan (Optional)
|B) Beginning the month of ____ , 19_ please send me checks on a monthly or
quarterly basis, as indicated below, in the amount of $_____, from Class A
Shares that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April, July
and October)
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Telephone Transactions
You will automatically have telephone redemption privileges (for amounts up to
$50,000) and telephone exchange privileges (with respect to other Flag
Investors Funds) unless you mark one or both of the boxes below:
No, I/We do not want [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: _____________________ Bank Account No.: _______________________
Address: ___________________ Bank Account Name: ______________________
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<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may
request such form by calling the Transfer Agent at 800-553-8080).
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:__________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal Revenue
Service.
I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be effected
as described in the Fund's current prospectus (see "Telephone Transactions"). I
also acknowledge that I may bear the risk of loss in the event of fraudulent
use of such privileges. If I do not want telephone redemption or exchange
privileges, I have so indicated on this Application.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
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Signature Date Signature (if joint acct., both must sign) Date
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For Dealer Use Only
Dealer's Name: ____________________________ Dealer Code: ___________________
Dealer's Address: __________________________ Branch Code: ___________________
__________________________
Representative: __________________________ Rep. No.: ___________________
A-2
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<PAGE>
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FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Class A Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
INVESTMENT COMPANY CAPITAL CORP. ICC DISTRIBUTORS, INC.
One South Street P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
1-800-553-8080
Custodian Independent Auditors
BANKERS TRUST COMPANY DELOITTE & TOUCHE LLP
130 Liberty Street 117 Campus Drive
New York, New York 10006 Princeton, New Jersey 08540
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
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<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Cross Reference Sheet
July 29, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
Part A - Information Required in a Prospectus
<S> <C> <C>
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Fund Expenses
Item 3. Condensed Financial
Information...................................... Financial Highlights
Item 4. General Description of
Registrant....................................... Investment Program; General
Information
Item 5. Management of the Fund........................... Management of the Fund; Investment
Advisor; Distributor; Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund
Performance...................................... (1)
Item 6. Capital Stock and Other
Securities....................................... Cover Page; Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being
Offered.......................................... How to Invest in Institutional Shares;
Distributor; Telephone Transactions
Item 8. Redemption or Repurchase......................... How to Redeem Institutional Shares;
Telephone Transactions
Item 9. Pending Legal Proceedings........................ (2)
Part B - Information Required in a Statement of Additional Information
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. General Information and History
Item 13. Investment Objectives and
Policies......................................... Investment Objectives and Policies
Item 14. Management of the Fund........................... Management of the Fund
</TABLE>
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(1) Information required by Item 5A is contained in Registrant's 1998 Annual
Report to Shareholders.
(2) Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<S> <C> <C>
Item 15. Control Persons and Principal
Holders of Securities............................ Control Persons and Principal Holders of
Securities
Item 16. Investment Advisory and Other
Services......................................... Investment Advisory and Other
Services; Custodian, Transfer Agent and
Accounting Services; Independent
Accountants
Item 17. Brokerage Allocation............................. Brokerage
Item 18. Capital Stock and Other
Securities....................................... Capital Stock; Semi-Annual Reports
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered.......................................... Valuation of Shares and Redemption
Item 20. Tax Status....................................... Federal Tax Treatment of Dividends and
Distributions
Item 21. Underwriters..................................... Distribution of Fund Shares
Item 22. Calculation of Performance
Data............................................. Performance Information
Item 23. Financial Statements............................. Financial Statements
Part C - Other Information
Part C contains the information required by the items contained
therein under the items set forth in the form.
</TABLE>
<PAGE>
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[GRAPHIC OMITTED]
FLAG INVESTORS
MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Prospectus & Application -- August 1, 1998
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This mutual fund (the "Fund") is designed to provide current income exempt from
federal income taxes and Maryland state and local income taxes consistent with
preservation of principal within an intermediate-term maturity structure. The
Fund will invest primarily in municipal obligations issued by the State of
Maryland and its political subdivisions, agencies or instrumentalities.
Institutional Shares of the Fund ("Institutional Shares") are available through
your securities dealer or the Fund's transfer agent and may be purchased only
by eligible institutions or by clients of investment advisory affiliates of BT
Alex. Brown Incorporated. (See "How to Invest in Institutional Shares.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated August 1, 1998 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference. It is available upon request and without charge by calling the Fund
at (800) 767-FLAG.
TABLE OF CONTENTS
Fund Expenses .............................. 2
Financial Highlights ........................ 3
Investment Program ........................ 4
Investment Restrictions ..................... 6
How to Invest in Institutional Shares ...... 7
How to Redeem Institutional Shares ......... 7
Telephone Transactions ..................... 8
Dividends and Taxes ........................ 8
Management of the Fund ..................... 10
Investment Advisor ........................ 10
Distributor ................................. 10
Custodian, Transfer Agent and
Accounting Services ..................... 11
Performance Information ..................... 11
General Information ........................ 11
Application ................................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<PAGE>
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FUND EXPENSES
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Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases ................................................ None
Maximum Sales Charge Imposed on Reinvested Dividends...................................... None
Maximum Deferred Sales Charge............................................................. None
</TABLE>
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
<TABLE>
<S> <C>
Management Fees (net of fee waivers) ................................. 0.00%*
12b-1 Fees ......................................................... None
Other Expenses (net of reimbursements) .............................. 0.45%*
------
Total Fund Operating Expenses (net of fee waivers and reimbursements) 0.45%*
======
</TABLE>
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* The Fund's investment advisor currently intends to waive its fee or to
reimburse the Fund on a voluntary basis to the extent required so that Total
Fund Operating Expenses do not exceed 0.45% of the Institutional Shares'
average daily net assets. Absent fee waivers and/or reimbursements, Management
Fees would be 0.35%, Other Expenses would be 0.78% and Total Fund Operating
Expenses would be 1.13% of the Institutional Shares' average daily net assets.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- ------- -------- -------- ---------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:* ........................... $5 $14 $25 $57
</TABLE>
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* The example is based on Total Fund Operating Expenses, net of fee waivers and
reimbursements. Absent such fee waivers and reimbursements, expenses would be
higher.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that Fund investors may pay indirectly. A person who purchases
Institutional Shares through a financial institution may be charged separate
fees by that institution.
2
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<PAGE>
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FINANCIAL HIGHLIGHTS
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The financial highlights included in this table have been derived from
the Fund's financial statements for the periods indicated and have been
audited by Deloitte & Touche LLP, independent auditors. The financial
statements and related notes for the fiscal year ended March 31, 1998 and the
report thereon of Deloitte & Touche LLP are included in the Statement of
Additional Information. Additional performance information is contained in the
Fund's Annual Report for the fiscal year ended March 31, 1998, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
(For a Share outstanding throughout each period)
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<TABLE>
<CAPTION>
Institutional Shares
-------------------------------------------------
For the Period
For the Year For the Year November 2, 1995(1)
Ended March 31, Ended March 31, through
1998 1997 March 31, 1996
---------------- -------------- -------------------
<S> <C> <C> <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%(2)
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>
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(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.13%,
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 and reimbursement of expenses, the
ratio of net investment income to average daily 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.
3
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<PAGE>
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INVESTMENT PROGRAM
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Investment Objective, Policies and Risk
Considerations
The Fund seeks to provide current income exempt from federal income taxes
and Maryland state and local income taxes consistent with preservation of
principal within an intermediate-term maturity structure. There is no assurance
this objective will be met.
Under normal conditions, the Fund expects to be as fully invested as
practicable in obligations that, in the opinion of bond counsel to the issuers,
produce interest exempt from federal income tax and Maryland state and local
income tax and at least 65% of the Fund's total assets will be invested in
securities of Maryland issuers. These include municipal obligations issued by
the State of Maryland and its political subdivisions, agencies or
instrumentalities. The Fund may invest up to 35% of its assets in obligations
of other issuers of securities the interest on which is exempt from Maryland
state and local taxes. These issuers would include territories or possessions
of the United States. However, the Fund has no present intention to invest in
securities issued by such territories or possessions.
As a matter of fundamental policy, under normal conditions, the Fund will
invest at least 80% of its total assets in securities the interest on which is
exempt from federal and Maryland state and local income taxes and 80% of the
Fund's assets will be invested in municipal securities the income from which is
not subject to the alternative minimum tax. Income derived from securities
subject to the alternative minimum tax is not included when computing income
exempt from federal and Maryland state and local income taxes. Under normal
conditions, the Fund may invest up to 20% of its net assets in municipal
securities, the income from which is not exempt from Maryland state and local
income taxes. For temporary, defensive purposes when, in the opinion of the
Fund's investment advisor (the "Advisor"), securities exempt from Maryland
state and local income tax are not readily available or of sufficient quality,
the Fund can invest up to 100% of its assets in securities that pay interest
that is exempt only from federal income taxes or in taxable U.S. Treasury
securities.
The Fund is a non-diversified investment company, which means that more
than 5% of its assets may be invested in each of one or more issuers. Since a
relatively high percentage of assets of the Fund may be invested in the
obligations of a limited number of issuers, the value of shares of the Fund may
be more susceptible to any single economic, political or regulatory occurrence
than the shares of a diversified investment company would be. The Fund intends
to satisfy the diversification requirements necessary to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
The Fund currently contemplates that it will not invest more than 25% of
its total assets (at market value at the time of purchase) in municipal
securities, the interest on which is paid from revenues of projects with
similar characteristics. See also "Special Considerations Relating To Maryland
Municipal Securities."
Under normal circumstances the Fund's portfolio will have a dollar
weighted average maturity of between 3 and 10 years. The value of obligations
purchased by the Fund will change as interest rates change. Thus, a decrease in
interest rates generally will result in an increase in the value of shares of
the Fund. Conversely, an increase in interest rates will generally result in a
decrease in the value of the shares of the Fund. The magnitude of these
fluctuations will be greater as the average maturity of the Fund increases.
<PAGE>
Municipal notes in which the Fund may invest will be limited to those
obligations (i) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. Municipal bonds in which the Fund may invest must be rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or, if
unrated by S&P or Moody's must be of comparable quality in the Advisor's
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that are rated at least A-1 by S&P or Prime-1 by Moody's at the
time of investment or, if unrated by S&P or Moody's, are of comparable quality
in the Advisor's judgment. These ratings may be based in part on credit support
provided by a bank or other entity. Accordingly, a decline in the
creditworthiness of the entity providing such support could affect the rating
of the security, as well as the payment of interest and principal. For a
description of the above ratings, see the Appendix to the Statement of
Additional Information.
The Fund may also enter into futures contracts and options on futures
contracts, although it has no present intention to do so. Gains recognized by
the Fund from such transactions would constitute taxable income to
shareholders.
The Fund may also purchase variable and floating rate demand notes and
bonds. The Advisor will invest
4
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<PAGE>
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in commitments to purchase securities on a "when-issued" basis and reserves the
right to engage in "put" transactions on a daily, weekly or monthly basis.
Municipal Securities
Municipal securities that the Fund may purchase consist of (i) debt
obligations issued by or on behalf of public authorities to obtain funds to be
used for various public facilities, for refunding outstanding obligations, for
general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or improvement of privately
operated facilities. Municipal notes include general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes, construction loan notes and
participation interests therein. Municipal bonds include general obligation
bonds, revenue or special obligation bonds, private activity bonds, industrial
development bonds and participation interests therein. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, tolls from a toll bridge, or
lease payments, for example. The payment of principal and interest on private
activity and industrial development bonds generally is dependent solely on the
ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
The Fund may purchase municipal lease obligations, including certificates
of participation ("COPs") in municipal leases. The Fund may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. The Fund will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its net
assets unless the Advisor determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Board of Directors of the
Fund. Pursuant to these guidelines, the Advisor, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Fund expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with ordinary disposition.
Insured Obligations
The Fund may invest in obligations that are insured as to the scheduled
payment of all installments of principal and interest as they fall due. The
purpose of this insurance is to minimize credit risks to the Fund and its
shareholders associated with defaults in Maryland municipal obligations owned
by the Fund. This insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the Fund's investment
portfolio upon which the net asset value of the Fund's shares is based. The
market value will continue to fluctuate in response to fluctuations in interest
rates or the bond market. Similarly, this insurance does not cover or guarantee
the value of the shares of the Fund. The ratings of the insured obligations may
be based in part on insurance provided by an insurance company. Accordingly, a
decline in the creditworthiness of the insurance company providing the
insurance could affect the rating of the security, as well as the payment of
interest and principal.
Participation Interests
The Fund may invest in COPs representing participation interests in
municipal securities (such as AMT-Subject Bonds). A participation interest (i)
may pay a fixed, floating or variable rate of interest; (ii) gives the
purchaser an undivided interest in the municipal securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; and (iii) provides a demand repurchase feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank that meets the prescribed quality standards of the Fund. The Fund has the
right to sell the instrument back to the issuing bank or draw on the letter of
credit on demand for all or any part of the Fund's participation interest in
the municipal security, plus accrued interest. Banks will retain or receive a
service fee, letter of credit fee and a fee for issuing repurchase commitments
in an amount equal to the excess of the interest paid on the municipal
securities over the negotiated yield at which the instruments were purchased by
the Fund. Participation interests in the form to be purchased by the Fund are
new instruments, and no ruling of the Internal Revenue Service has been secured
relating to their tax-exempt status. The Fund intends to purchase participation
interests based upon opinions of counsel to the issuer to the effect that
5
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<PAGE>
- --------------------------------------------------------------------------------
income from the participation interests is tax-exempt to the Fund. For purposes
of complying with diversification requirements, the Fund will treat both the
trust, or similar entity established to issue COPs, and the issuers of the
underlying municipal securities as issuers. Also, the Fund will limit its
investments in COPs to less than 25% of its total assets.
Repurchase Agreements
The Fund may agree to purchase U.S. Treasury securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Variable and Floating Rate Demand
Obligations
The Fund may purchase variable and floating rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess of
one year, but which permit the holder to demand payment of principal either at
any time or at specified intervals. The interest rates on these obligations
fluctuate from time to time in response to changes in the market interest
rates. Frequently, such obligations are secured by letters of credit or other
credit support arrangements provided by banks. Where these obligations are not
secured by letters of credit or other credit support arrangements, the Fund's
right to redeem will be dependent on the ability of the borrower to pay
principal and interest on demand. Each demand note and bond purchased by the
Fund will meet the quality criteria established for the purchase of other
municipal obligations. The Fund will not invest more than 10% of its net assets
in floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
When-Issued Securities
When-issued securities are securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Fund will generally not
pay for such securities or start earning interest on them until they are
received. When-issued commitments will not be used for speculative purposes and
will be entered into only with the intention of actually acquiring the
securities. The securities so purchased or sold are subject to market
fluctuation so, at the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will ordinarily invest
no more than 40% of its net assets at any time in municipal obligations
purchased on a when-issued basis.
Special Considerations Relating to Maryland
Municipal Securities
The Fund's concentration in securities issued by the State of Maryland
and its political subdivisions, agencies and instrumentalities involves greater
risk than a fund broadly invested across many states and municipalities. In
particular, changes in economic conditions and governmental policies of the
State of Maryland and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see "Risk Factors Associated with a Maryland Portfolio" in the Statement
of Additional Information.
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not concentrate 25% or more
of its total assets in securities of issuers in any one industry, provided
that this limitation does not apply to investments in tax-exempt securities
issued by governments or political subdivisions of governments (for these
purposes the U.S. Government and its agencies and instrumentalities are not
considered an issuer). This restriction may not be changed without
shareholder approval;
2) Additionally, the Fund will not invest more than 10% of the Fund's net assets
in illiquid securities, including repurchase agreements with maturities of
greater than seven days. This restriction may be changed by a vote of the
Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
6
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<PAGE>
- --------------------------------------------------------------------------------
HOW TO INVEST IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
[The Fund is No Longer Offering Shares]
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counselors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of BT
Alex. Brown Incorporated ("BT Alex. Brown") may purchase Institutional Shares
through any securities dealer that is authorized to distribute Institutional
Shares ("Participating Dealers") or by completing the Application Form attached
to this Prospectus and returning it, together with payment of the purchase
price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $500,000,
except that the minimum initial investment is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of BT Alex. Brown or for subsequent investments. The Fund reserves
the right to suspend the sale of Institutional Shares at any time at the
discretion of the Distributor and the Advisor.
Orders for purchases of Institutional Shares are accepted on any day on
which the New York Stock Exchange is open for business (a "Business Day").
Purchase orders for Institutional Shares will be executed at the net asset
value per share next determined after receipt of the purchase order. Purchases
made through the Distributor or a Participating Dealer must be in accordance
with such entity's payment procedures. The Distributor may, at its sole
discretion, refuse to accept any purchase order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities are given their
market value where feasible. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Such procedures may include the use
of an independent pricing service, which uses prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Debt
obligations with maturities of 60 days or less will be valued at amortized
cost, which constitutes fair value as determined by the Fund's Board of
Directors.
Other Information
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued. All purchases of Institutional Shares are confirmed and
credited to the shareholder's account on the Fund's books maintained by the
Fund's transfer agent (the "Transfer Agent") or its agents. Shareholders will
have the same rights and ownership with respect to such shares as if
certificates had been issued.
<PAGE>
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through a Participating Dealer,
or by regular or express mail to the Transfer Agent at its address listed on the
inside back cover of this Prospectus. Shareholders may also redeem Institutional
Shares by telephone (in amounts up to $500,000). (See "Telephone Transactions"
below.) A redemption request is effected at the net asset value per share next
determined after receipt of the order in proper form. Redemption orders received
after 4:00 p.m. (Eastern Time), or the close of the New York Stock Exchange,
whichever is earlier, will be effected at the next net asset value next
determined on the following Business Day. Payment for redeemed Institutional
Shares will be made by wire transfer of funds to the shareholder's bank, or to a
Participating Dealer, as appropriate, upon receipt of a duly authorized
redemption request as promptly as feasible and, under most circumstances, within
three Business Days.
Dividends payable up to the date of the redemption of Institutional
Shares will be paid on the next dividend payment date. If all of the
Institutional Shares in an account have been redeemed on the dividend payment
date, the dividend will be remitted by wire to the shareholder's bank or to a
Participating Dealer, as appropriate.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 upon 60 days' written notice.
7
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<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Institutional Shares in amounts up to $500,000,
by notifying the Transfer Agent by telephone on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail
at its address listed on the inside back cover of this Prospectus. Telephone
transaction privileges are automatic. Shareholders may specifically request
that no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value as next determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide
additional telecopied instructions of such transaction requests. If these
procedures are employed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be genuine.
During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by express mail or facsimile. (See "How to Invest in
Institutional Shares -- Purchases by Exchange" and "How to Redeem Institutional
Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any net
capital gains (net long-term capital gains less net short-term capital losses)
on an annual basis or, alternatively, may elect to retain net capital gains and
pay tax thereon.
Unless the shareholder elects otherwise, all income dividends (consisting
of dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Institutional Shares at
net asset value. However, shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent (see "Custodian,
Transfer Agent and Accounting Services"), either directly or through the
Distributor or a Participating Dealer, at least five days before the next date
on which dividends or distributions will be paid.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue to qualify as a "regulated investment
company" under the Code and to distribute to its investors all of its net
investment income (including its net tax-exempt income) and net short-term and
long-term capital gain income, if any, so that it is not required to pay
federal income taxes on amounts so distributed. In addition, the Fund expects
to make sufficient distributions prior to the end of each calendar year to
avoid liability for federal excise tax. Shareholders will be advised at least
annually as to the federal income tax consequences of distributions made during
the year.
Dividends derived from the Fund's net exempt-interest income and designated by
the Fund as exempt-interest dividends may be treated by the Fund's shareholders
as items of interest excludable from their gross
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
income for federal income tax purposes if the Fund qualifies as a regulated
investment company and if, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets consists of securities the
interest on which is excluded from gross income. Although exempt-interest
dividends are excludable from a shareholder's gross income for regular income
tax purposes, they may have collateral federal income tax consequences,
including alternative minimum tax consequences. (See the Statement of
Additional Information.)
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt-interest
dividends. All or a portion of the interest on indebtedness incurred or
continued by a shareholder to purchase or carry Institutional Shares may not be
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisors before purchasing Institutional
Shares.
Under the Code, dividends attributable to interest on certain "private
activity bonds" issued after August 7, 1986, will be included in alternative
minimum taxable income for the purpose of determining liability (if any) for
the alternative minimum tax for individuals and for corporations. Additionally,
in the case of corporations, all tax-exempt interest dividends will be taken
into account in determining "adjusted current earnings" (as defined for federal
income tax purposes) for purposes of computing the alternative minimum tax
imposed on corporations.
To the extent, if any, that dividends paid to investors are derived from
taxable income, such dividends will be subject to federal income tax. In
addition, as substantially all of the Fund's income is expected to be derived
from earned interest, it is anticipated that no portion of the Fund's
distributions will be eligible for the corporate dividends-received deduction.
If the Fund purchases a municipal security at a market discount, any gain
realized by the Fund upon sale or redemption of the municipal obligation shall
be treated as taxable interest income to the extent such gain does not exceed
the market discount and any gain realized in excess of the market discount will
be treated as capital gain. Distributions of net investment income and/or the
excess, if any, of net short-term capital gains over net long-term capital
losses are taxable to investors as ordinary income, regardless of whether such
distributions are paid in cash or reinvested in additional Institutional
Shares. Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) that are designated by the Fund as
capital gain dividends are taxable to investors as long-term capital gains,
regardless of the length of time the investor owned the Institutional Shares.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Institutional Shares is a taxable
event to the shareholder.
<PAGE>
Maryland Tax Disclosure
To the extent the Fund qualifies as a regulated investment company under
the Code, it will be subject to tax only on (1) that portion of its income on
which tax is imposed for federal income tax purposes under Section 852(b)(1) of
the Code and (2) that portion of its income that consists of federally
tax-exempt interest on obligations other than Maryland Exempt Obligations
(hereinafter defined) to the extent such interest is not paid to Fund
shareholders in the form of exempt-interest dividends. To the extent dividends
paid by the Fund represent interest excludable from gross income for federal
income tax purposes, that portion of exempt-interest dividends that represents
interest received by the Fund on obligations issued by the State of Maryland,
its political subdivisions, Puerto Rico, the U.S. Virgin Islands, or Guam and
their respective authorities or municipalities ("Maryland Exempt Obligations"),
will be exempt from Maryland state and local income taxes when distributed to a
shareholder of the Fund. Except as noted below, all other dividend
distributions will be subject to Maryland state and local income taxes.
Capital gains distributed by the Fund to a shareholder or any gains
realized by a shareholder from a redemption or sale of shares must be
recognized for Maryland state and local income tax purposes to the extent
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of shareholders for federal income
tax purposes are subtracted from capital gains income for Maryland income tax
purposes to the extent such distributions are derived from the disposition of
debt obligations issued by the State of Maryland, its political subdivisions
and authorities.
9
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<PAGE>
- --------------------------------------------------------------------------------
Dividends received by a shareholder from the Fund that are derived from
interest on U.S. government obligations will be exempt from Maryland state and
local income taxes. Entities subject to the financial institution franchise tax
will generally be subject to tax on distributions from the Fund.
In the case of individuals, Maryland presently imposes an income tax on
items of tax preference with reference to such items as defined in the Code for
purposes of calculating the federal alternative minimum tax. Interest paid on
certain private activity bonds of an issuer other than the State of Maryland,
its political subdivisions, or authorities is a preference item taken into
account for this purpose. Accordingly, if the Fund holds such bonds, the excess
of 50% of that portion of exempt interest dividends that is attributable to
interest on such bonds over a threshold amount may be taxable by Maryland.
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder in order to purchase or carry shares of the Fund will not be
deductible for Maryland state and local income tax purposes. Individuals will
not be subject to personal property tax on their shares of the Fund. Shares of
the Fund held by a Maryland resident at death may be subject to Maryland
inheritance and estate taxes.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributor, custodian and transfer
agent. A majority of the Directors of the Fund have no affiliation with the
Advisor or the Distributor.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Bankers Trust Corporation.
ICC is also the investment advisor to other mutual funds in the Flag Investors
family of funds and BT Alex. Brown Cash Reserve Fund, Inc., which funds had
approximately $7.4 billion of net assets as of May 31, 1998.
ICC is responsible for the general management of the Fund, as well as for
decisions to buy and sell securities for the Fund, for broker-dealer selection,
and for negotiation of commission rates under standards established and
periodically reviewed by the Board of Directors. ICC currently intends to
waive, on a voluntary basis, its annual fee to the extent necessary so that
Total Fund Operating Expenses do not exceed 0.45% of the Institutional Shares'
average daily net assets. For the fiscal year ended March 31, 1998, ICC waived
all advisory fees, amounting to $97,673, and reimbursed expenses of $91,276.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
Portfolio Managers
Messrs. M. Elliott Randolph, Jr., and Paul D. Corbin, have shared primary
responsibility for managing the Fund's assets since inception.
M. Elliott Randolph, Jr. has 24 years of investment experience and has
been a portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has over 20 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
<PAGE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor for each class of the Fund's shares since August 31, 1998.
ICC Distributors is a registered broker-dealer that offers distribution services
to a variety of registered investment companies including the other funds in the
Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund, Inc. ICC
Distributors is not affiliated with the Advisor.
ICC Distributors receives no compensation for distributing the
Institutional Shares. ICC Distributors bears all expenses associated with
advertisements, promotional materials, sales literature and printing and
mailing prospectuses to individuals and entities other than Fund shareholders.
10
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<PAGE>
- --------------------------------------------------------------------------------
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent. ICC also provides accounting services to the Fund. As
compensation for providing accounting services to the Fund for the fiscal year
ended March 31, 1998, ICC received a fee equal to 0.10% of the Fund's average
daily net assets. Bankers Trust Company, a subsidiary of Bankers Trust
Corporation and an affiliate of the Fund, acts as custodian of the Fund's
assets. (See the Statement of Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30-day period by
the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis. The Fund may also advertise a
"tax-equivalent yield," which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent of the Fund's yield, assuming certain tax brackets for a
shareholder. All advertisements of performance will show the average annual
total return over one-, five- and ten-year periods or, if such periods have not
yet elapsed, shorter periods corresponding to the life of the Fund. Such total
return quotations will be computed by finding average annual compounded rates
of return over such periods that would equate an assumed initial investment of
$1,000 to the ending redeemable value according to the required standardized
calculation. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national,
financial and industry publications that monitor the performance of mutual
funds such as Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and market
conditions. Any fees charged by financial institutions with respect to customer
accounts through which Institutional Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 million shares of capital stock, par value of $.001 per
share, all of which shares are designated common stock. Each share has one vote
and shall be entitled to dividends and distributions when and if declared by
the Fund. In the event of liquidation or dissolution of the Fund, each share
would be entitled to its pro rata portion of the Fund's assets after all debts
and expenses have been paid. The fiscal year-end of the Fund is March 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the
11
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<PAGE>
- --------------------------------------------------------------------------------
Fund. The shares offered by this Prospectus have been designated "Flag
Investors Maryland Intermediate Tax-Free Income Fund Institutional Shares." The
Board has no present intention of establishing any additional series of the Fund
but the Fund does have two other classes of shares in addition to the shares
offered hereby: "Flag Investors Maryland Intermediate Tax-Free Income Fund Class
A Shares" and "Alex. Brown Capital Advisory & Trust Maryland Intermediate
Tax-Free Income Shares." Additional information concerning the Fund's other
classes may be obtained by calling the Fund at (800) 767-FLAG. Different classes
of the Fund may be offered to certain investors and holders of such shares may
be entitled to certain exchange privileges not offered to Institutional Shares.
All classes of the Fund share a common investment objective, portfolio of
investments and advisory fee, but the classes may have different distribution
fees or sales load structures and the net asset value per share of the classes
may differ at times.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
Shareholders with inquiries concerning their Institutional Shares should
contact the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080 or a
Participating Dealer, as appropriate.
12
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<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Send completed Application by overnight carrier to:
Flag Investors Funds
330 West 9th Street, First Floor
Kansas City, Missouri 64105
Attn: Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday-Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time)
If you are paying by check, make check payable to "Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc." and mail with this Application. If you
are paying by wire, see instructions below.
- --------------------------------------------------------------------------------
------------------------------------------------
Your Account Registration (Please Print)
--------------------------------------------------
Name on Account
- -----------------------------------------------
Name of Corporation, Trust or Partnership
- ---------------------------------
Tax ID Number
[ ] Corporation [ ] Partnership [ ] Trust
[ ] Non-Profit or Charitable Organization [ ] Other___________
Mailing Address
- ------------------------------------------------
Name of Individual to Receive Correspondence
- ------------------------------------------------
Street
- ------------------------------------------------
City State Zip
( )
- ------------------------------------------------
Daytime Phone
If a Trust, please provide the following:
- -----------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- --------------------------------------------------------------------------------
--------------------------------------------------
Initial Investment
--------------------------------------------------
The minimum initial purchase for the Institutional Shares of the Fund is
$500,000, except that the minimum initial purchase is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of BT Alex. Brown or for subsequent investments.
Indicate the amount to be invested and the method of payment:
__ A. By Mail: Enclosed is a check in the amount of $_________ payable to Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc.
__ B. By Wire: A bank wire in the amount of $_________ has been sent
from _____________________________________________ ____________________________
Name of Bank Wire Control Number
<PAGE>
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:
o Send completed Application by overnight carrier to BT Alex. Brown
Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors
Fiduciary Trust Company ("IFTC"), as follows:
IFTC
a/c BT Alex. Brown Incorporated/Flag Investors Funds
Acct. # 7528191
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc. --
Institutional Shares
o "For further credit to_________________________________."
(Investor's Fund Account Number)
- --------------------------------------------------------------------------------
--------------------------------------------------
Distribution Options
--------------------------------------------------
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- --------------------------------------------------------------------------------
--------------------------------------------------
Telephone Transactions
--------------------------------------------------
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank
account designated below.
- -------------------------------------------------------------------------------
--------------------------------------------------
Bank Account Designation
(This Section Must Be Completed)
--------------------------------------------------
Please attach a blank, voided check to provide account and bank routing
information.
- --------------------------------------------------------------------------------
Name of Bank Branch
- --------------------------------------------------------------------------------
Bank Address City/State/Zip
- --------------------------------------------------------------------------------
Name(s) on Account
- --------------------------------------------------------------------------------
Account Number A.B.A. Number
A-1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
--------------------------------------------------
Acknowledgment, Certificate and Signature
--------------------------------------------------
- --------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.
[ ] If no Tax ID Number has been provided above, I have applied, or
intend to apply, to the IRS for a Tax ID Number, and I understand that
if I do not provide such number to the Transfer Agent within 60 days of
the date of this Application or if I fail to furnish my correct Tax ID
Number, I may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide your Tax ID
Number on IRS Form W-9. You may request such form by calling the
Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax
purposes: _________________________________ Under penalties of perjury,
I certify that I am not a U.S. citizen or resident and I am an exempt
foreign person as defined by the Internal Revenue Service.
- -----------------------------------------------------------------------------
I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be
effected as described in the Fund's current prospectus (see "Telephone
Transactions"). I also acknowledge that I may bear the risk of loss in the
event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
- ------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- ------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
--------------------------------------------------
Person(s) Authorized to Conduct Transactions
--------------------------------------------------
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
________ * of the Authorized Person(s) is, by lawful and appropriate action of
the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------------- -------------------------------------
Name/Title Signature Date
- ------------------------------------- -------------------------------------
Name/Title Signature Date
- ------------------------------------- -------------------------------------
Name/Title Signature Date
- ------------------------------------- -------------------------------------
Name/Title Signature Date
<PAGE>
The signature appearing to the right of each Authorized Person is that person's
signature. Investment Company Capital Corp. ("ICC") may, without inquiry, act
upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.
- --------------------------------------------------------------------------------
--------------------------------------------------
Certificate of Authority
--------------------------------------------------
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I __________________ , Secretary of the above-named investor, do hereby certify
that at a meeting on ___________ , at which a quorum was present throughout, the
Board of Directors (Board of Trustees) of the investor duly adopted a
resolution which is in full force and effect and in accordance with the
investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do
so on behalf of the investor; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the investor on the terms
described above; (3) authorized the Secretary to certify, from time to time,
the names and titles of the officers of the investor and to notify ICC when
changes in officers occur; and (4) authorized the Secretary to certify that
such a resolution has been duly adopted and will remain in full force and
effect until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
This ___ day of __________, 199_ Secretary ___________________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- --------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).
- --------------------------------------------------------------------------------
Signature and title Date
- --------------------------------------------------------------------------------
Signature and title Date
A-2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
INVESTMENT COMPANY CAPITAL CORP. ICC DISTRIBUTORS, INC.
One South Street P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
1-800-553-8080
Custodian Independent Auditors
BANKERS TRUST COMPANY DELOITTE & TOUCHE LLP
130 Liberty Street 117 Campus Drive
New York, New York 10006 Princeton, New Jersey 08540
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
(ABCAT Shares)
Cross Reference Sheet
July 29, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------
Part A - Information Required in a Prospectus
<S> <C> <C>
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights
Item 4. General Description of
Registrant........................................ Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor; Distributor;
Custodian, Transfer Agent and
Accounting Services
Item 5A. Management's Discussion of Fund
Performance....................................... *
Item 6. Capital Stock and Other
Securities........................................ Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being
Offered........................................... How to Invest in ABCAT Shares;
Distribution
Item 8. Redemption or Repurchase.......................... How to Redeem ABCAT
Shares
Item 9. Pending Legal Proceedings......................... **
</TABLE>
- -------------------
* Information required by Item 5A will be contained in Registrant's
Annual Report to Shareholders containing results of operations of
the ABCAT Shares when available.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
<S> <C> <C>
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and
History........................................... General Information and
History
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
Item 14. Management of the Fund............................ Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities............................. Control Persons and Principal
Holders of Securities
Item 16. Investment Advisory and Other
Services.......................................... Investment Advisory and Other
Services; Custodian, Transfer
Agent and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
Reports
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered........................................... Valuation of Shares and
Redemption
Item 20. Tax Status........................................ Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters...................................... Distribution of Fund Shares
Item 22. Calculation of Performance
Data.............................................. Performance Information
Item 23. Financial Statements.............................. Financial Statements
</TABLE>
<PAGE>
[GRAPHIC OMITTED]
ALEX. BROWN CAPITAL ADVISORY & TRUST MARYLAND INTERMEDIATE
TAX-FREE INCOME SHARES
(A Class of Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.)
Prospectus -- August 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") is designed to provide current income exempt from
federal income taxes and Maryland state and local income taxes consistent with
preservation of principal within an intermediate-term maturity structure. The
Fund will invest primarily in municipal obligations issued by the State of
Maryland and its political subdivisions, agencies or instrumentalities.
Alex. Brown Capital Advisory & Trust Shares of the Fund ("ABCAT Shares") are
available solely for the discretionary accounts of Alex. Brown Capital Advisory
& Trust Company and its affiliates. (See "How to Invest in ABCAT Shares.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated August 1, 1998, has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-3524.
TABLE OF CONTENTS
Fund Expenses ..................... 2
Financial Highlights ............... 3
Investment Program .................. 4
Investment Restrictions ............ 6
How to Invest in ABCAT Shares ...... 7
How to Redeem ABCAT Shares ......... 7
Dividends and Taxes ............... 7
Management of the Fund ............ 9
Investment Advisor .................. 9
Distributor ........................ 10
Custodian, Transfer Agent and
Accounting Services ............ 10
Performance Information ............ 10
General Information ............... 11
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S>
<C>
Maximum Sales Charge Imposed on Purchases ................................................ None
Maximum Sales Charge Imposed on Reinvested Dividends...................................... None
Maximum Deferred Sales Charge............................................................. None
</TABLE>
Annual Fund Operating Expenses (net of fee waivers and reimbursements)
(as a percentage of average daily net assets):
<TABLE>
<S> <C>
Management Fees (net of fee waivers) ................................. 0.00%*
12b-1 Fees ......................................................... None
Other Expenses (net of reimbursements) .............................. 0.45%*
------
Total Fund Operating Expenses (net of fee waivers and reimbursements) 0.45%*
======
</TABLE>
- -----------
* Alex. Brown Capital Advisory & Trust Company intends, consistent with
applicable legal requirements, to reimburse its clients at the account level
in an amount such that the additional cost for client assets invested in
ABCAT Shares is 0.20%. Absent this arrangement, clients would be subject to
the expenses of the Fund shown above. In this regard, the Fund's investment
advisor currently intends to waive its fee or to reimburse the Fund on a
voluntary basis to the extent required so that Total Fund Operating Expenses
do not exceed 0.45% of the ABCAT Shares' average daily net assets. Absent
fee waivers and/or reimbursements, Management Fees would be 0.35%, Other
Expenses would be 0.78% and Total Fund Operating Expenses would be 1.13% of
the ABCAT Shares' average daily net assets.
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:* ......... $5 $14 $25 $57
</TABLE>
- -----------
* The Example is based on Total Fund Operating Expenses, net of fee waivers and
reimbursements. Absent such fee waivers and reimbursements, expenses would
be higher.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that a Fund investor may pay indirectly. (For more complete
descriptions of the various costs and expenses, see "How to Invest in ABCAT
Shares," "Investment Advisor" and "Distributor.")
2
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table have been derived from
the Fund's financial statements for the periods indicated and have been
audited by Deloitte & Touche LLP, independent auditors. The financial
statements and related notes for the fiscal year ended March 31, 1998 and the
report thereon of Deloitte & Touche LLP are included in the Statement of
Additional Information. Additional performance information is contained in the
Fund's Annual Report for the fiscal year ended March 31, 1998, which can be
obtained at no charge by calling the Fund at (800) 767-3524.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ABCAT Shares
----------------------
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 Daily 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 and reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.13% for the
period ended March 31, 1998.
(4) Without the waiver of advisory fees and reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
3.79% for the period ended March 31, 1998.
3
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, Policies and
Risk Considerations
The Fund seeks to provide current income exempt from federal income taxes
and Maryland state and local income taxes consistent with preservation of
principal within an intermediate-term maturity structure. There is no assurance
this objective will be met.
Under normal conditions, the Fund expects to be as fully invested as
practicable in obligations that, in the opinion of bond counsel to the issuers,
produce interest exempt from federal income tax and Maryland state and local
income tax and at least 65% of the Fund's total assets will be invested in
securities of Maryland issuers. These include municipal obligations issued by
the State of Maryland and its political subdivisions, agencies or
instrumentalities. The Fund may invest up to 35% of its assets in obligations
of other issuers of securities the interest on which is exempt from Maryland
state and local taxes. These issuers would include territories or possessions
of the United States. However, the Fund has no present intention to invest in
securities issued by such territories or possessions.
As a matter of fundamental policy, under normal conditions, the Fund will
invest at least 80% of its total assets in securities the interest on which is
exempt from federal and Maryland state and local income taxes and 80% of the
Fund's assets will be invested in municipal securities the income from which is
not subject to the alternative minimum tax. Income derived from securities
subject to the alternative minimum tax is not included when computing income
exempt from federal and Maryland state and local income taxes. Under normal
conditions, the Fund may invest up to 20% of its net assets in municipal
securities, the income from which is not exempt from Maryland state and local
income taxes. For temporary, defensive purposes when, in the opinion of the
Fund's investment advisor (the "Advisor"), securities exempt from Maryland
state and local income tax are not readily available or of sufficient quality,
the Fund can invest up to 100% of its assets in securities that pay interest
that is exempt only from federal income taxes or in taxable U.S. Treasury
securities.
The Fund is a non-diversified investment company, which means that more
than 5% of its assets may be invested in each of one or more issuers. Since a
relatively high percentage of assets of the Fund may be invested in the
obligations of a limited number of issuers, the value of shares of the Fund may
be more susceptible to any single economic, political or regulatory occurrence
than the shares of a diversified investment company would be. The Fund intends
to satisfy the diversification requirements necessary to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE>
The Fund currently contemplates that it will not invest more than 25% of
its total assets (at market value at the time of purchase) in municipal
securities, the interest on which is paid from revenues of projects with
similar characteristics. See also "Special Considerations Relating To Maryland
Municipal Securities."
Under normal circumstances the Fund's portfolio will have a dollar
weighted average maturity of between 3 and 10 years. The value of obligations
purchased by the Fund will change as interest rates change. Thus, a decrease in
interest rates generally will result in an increase in the value of shares of
the Fund. Conversely, an increase in interest rates will generally result in a
decrease in the value of the shares of the Fund. The magnitude of these
fluctuations will be greater as the average maturity of the Fund increases.
Municipal notes in which the Fund may invest will be limited to those
obligations (i) that are rated MIG-1 or VMIG-1 at the time of investment by
Moody's Investors Service, Inc. ("Moody's"), (ii) that are rated SP-1 at the
time of investment by Standard & Poor's Ratings Group ("S&P"), or (iii) that,
if not rated by S&P or Moody's, are of comparable quality in the Advisor's
judgment. Municipal bonds in which the Fund may invest must be rated BBB or
better by S&P or Baa or better by Moody's at the time of investment or, if
unrated by S&P or Moody's must be of comparable quality in the Advisor's
judgment. Securities rated Baa or BBB are deemed to have speculative
characteristics. Tax-exempt commercial paper will be limited to investments in
obligations that are rated at least A-1 by S&P or Prime-1 by Moody's at the
time of investment or, if unrated by S&P or Moody's, are of comparable quality
in the Advisor's judgment. These ratings may be based in part on credit support
provided by a bank or other entity. Accordingly, a decline in the
creditworthiness of the entity providing such support could affect the rating
of the security, as well as the payment of interest and principal. For a
description of the above ratings, see the Appendix to the Statement of
Additional Information.
The Fund may also enter into futures contracts and options on futures
contracts, although it has no present intention to do so. Gains recognized by
the Fund from such transactions would constitute taxable income to
shareholders.
4
<PAGE>
The Fund may also purchase variable and floating rate demand notes and
bonds. The Advisor will invest in commitments to purchase securities on a
"when-issued" basis and reserves the right to engage in "put" transactions on a
daily, weekly or monthly basis.
Municipal Securities
Municipal securities that the Fund may purchase consist of (i) debt
obligations issued by or on behalf of public authorities to obtain funds to be
used for various public facilities, for refunding outstanding obligations, for
general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or improvement of privately
operated facilities. Municipal notes include general obligation notes, tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
certificates of indebtedness, demand notes, construction loan notes and
participation interests therein. Municipal bonds include general obligation
bonds, revenue or special obligation bonds, private activity bonds, industrial
development bonds and participation interests therein. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility (tolls from a toll bridge, or
lease payments, for example). The payment of principal and interest on private
activity and industrial development bonds generally is dependent solely on the
ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
The Fund may purchase municipal lease obligations, including certificates
of participation ("COPs") in municipal leases. The Fund may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. The Fund will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its net
assets unless the Advisor determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Board of Directors of the
Fund. Pursuant to these guidelines, the Advisor, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Fund expects that it
will purchase only rated municipal lease obligations. In addition, the Fund may
purchase COPs representing interests in other municipal securities (such as
industrial development bonds). (See "Participation Interests.")
<PAGE>
Municipal obligations purchased by the Fund that fall below the above
rating criteria after the purchase by the Fund shall be sold as promptly as
possible consistent with orderly disposition.
Insured Obligations
The Fund may invest in obligations that are insured as to the scheduled
payment of all installments of principal and interest as they fall due. The
purpose of this insurance is to minimize credit risks to the Fund and its
shareholders associated with defaults in Maryland municipal obligations owned
by the Fund. This insurance does not insure against market risk and therefore
does not guarantee the market value of the obligations in the Fund's investment
portfolio upon which the net asset value of the Fund's shares is based. The
market value will continue to fluctuate in response to fluctuations in interest
rates or the bond market. Similarly, this insurance does not cover or guarantee
the value of the shares of the Fund. The ratings of the insured obligations may
be based in part on insurance provided by an insurance company. Accordingly, a
decline in the creditworthiness of the insurance company providing the
insurance could affect the rating of the security, as well as the payment of
interest and principal.
Participation Interests
The Fund may invest in COPs representing participation interests in
municipal securities (such as AMT-Subject Bonds). A participation interest (i)
may pay a fixed, floating or variable rate of interest; (ii) gives the
purchaser an undivided interest in the municipal securities in the proportion
that the Fund's participation interest bears to the total principal amount of
the municipal securities; and (iii) provides a demand repurchase feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank that meets the prescribed quality standards of the Fund. The Fund has the
right to sell the instrument back to the issuing bank or draw on the letter of
credit on demand for all or any part of the Fund's participation interest in
the municipal security, plus accrued interest. Banks will retain or receive a
service fee, letter of credit fee and a fee for issuing repurchase commitments
in an amount equal to the excess of the interest paid on the municipal
securities over the negotiated yield at which the instruments were purchased by
the Fund. Participation interests in the form to be purchased by the Fund are
new instruments, and no ruling of the Internal Revenue Service has been secured
relating to their tax-exempt status. The Fund intends to purchase participation
interests based upon opinions of counsel to the issuer to the effect that
income from the participation interests is tax-exempt to the Fund. For purposes
of complying with diversification requirements, the Fund will treat both the
trust, or similar entity established to issue
5
<PAGE>
COPs, and the issuers of the underlying municipal securities as issuers. Also,
the Fund will limit its investments in COPs to less than 25% of its total
assets.
Repurchase Agreements
The Fund may agree to purchase U.S. Treasury securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Variable and Floating Rate Demand
Obligations
The Fund may purchase variable and floating rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess of
one year, but which permit the holder to demand payment of principal either at
any time or at specified intervals. The interest rates on these obligations
fluctuate from time to time in response to changes in the market interest
rates. Frequently, such obligations are secured by letters of credit or other
credit support arrangements provided by banks. Where these obligations are not
secured by letters of credit or other credit support arrangements, the Fund's
right to redeem will be dependent on the ability of the borrower to pay
principal and interest on demand. Each demand note and bond purchased by the
Fund will meet the quality criteria established for the purchase of other
municipal obligations. The Fund will not invest more than 10% of its net assets
in floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
When-Issued Securities
When-issued securities are securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Fund will generally not
pay for such securities or start earning interest on them until they are
received. When-issued commitments will not be used for speculative purposes and
will be entered into only with the intention of actually acquiring the
securities. The securities so purchased or sold are subject to market
fluctuation so, at the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will ordinarily invest
no more than 40% of its net assets at any time in municipal obligations
purchased on a when-issued basis.
Special Considerations Relating to Maryland Municipal Securities
The Fund's concentration in securities issued by the State of Maryland
and its political subdivisions, agencies and instrumentalities involves greater
risk than a fund broadly invested across many states and municipalities. In
particular, changes in economic conditions and governmental policies of the
State of Maryland and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see "Risk Factors Associated with a Maryland Portfolio" in the Statement
of Additional Information.
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations.
1) As a matter of fundamental policy, the Fund will not concentrate 25% or more
of its total assets in securities of issuers in any one industry, provided
that this limitation does not apply to investments in tax-exempt securities
issued by governments or political subdivisions of governments (for these
purposes the U.S. Government and its agencies and instrumentalities are not
considered an issuer). This restriction may not be changed without
shareholder approval.
2) Additionally, the Fund will not invest more than 10% of the Fund's net assets
in illiquid securities, including repurchase agreements with maturities of
greater than seven days. This restriction may be changed by a vote of the
Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
6
<PAGE>
HOW TO INVEST IN ABCAT SHARES
- --------------------------------------------------------------------------------
[The Fund is No Longer Offering Shares]
Alex. Brown Capital Advisory & Trust Company and its affiliates may
acquire ABCAT Shares on behalf of their discretionary accounts by placing
orders with the Fund's distributor (the "Distributor"). Beneficial ownership of
ABCAT Shares will be reflected on books maintained by Alex. Brown Capital
Advisory & Trust Company or an affiliate. There is no minimum for initial or
subsequent investments in ABCAT Shares.
It is the responsibility of Alex. Brown Capital Advisory & Trust Company
and its affiliates to transmit orders for ABCAT Share purchases and to deliver
required funds to the Distributor. Orders for purchases of ABCAT Shares are
accepted on any day on which the New York Stock Exchange is open for business
(a "Business Day"). Purchase orders for ABCAT Shares will be executed at a per
share purchase price equal to the net asset value next determined after receipt
of the purchase order and immediately available funds. The Fund reserves the
right to suspend the sale of ABCAT Shares at any time or reject any order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities are given their
market value where feasible. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Such procedures may include the use
of an independent pricing service, which uses prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Debt
obligations with maturities of 60 days or less will be valued at amortized
cost, which constitutes fair value as determined by the Fund's Board of
Directors.
In the interest of economy and convenience and because of the operating
procedures for the ABCAT Shares, certificates representing such shares will not
be issued. Beneficial owners of ABCAT Shares ("Shareholders") will have the
same rights and ownership with respect to such shares as if certificates had
been issued.
<PAGE>
HOW TO REDEEM ABCAT SHARES
- --------------------------------------------------------------------------------
ABCAT Shares may be redeemed by, or at the direction of, Alex. Brown
Capital Advisory & Trust Company or an affiliate, as appropriate, on any
Business Day by transmission of a redemption order through the Distributor, or
by regular or express mail to the Fund's transfer agent (the "Transfer Agent")
at its address listed on the back cover of this Prospectus. A redemption is
effected at the net asset value per share next determined after receipt of the
order in proper form. Redemption orders received after 4:00 p.m. (Eastern Time),
or the close of the New York Stock Exchange, whichever is earlier, will be
effected at the net asset value next determined on the following Business Day.
Payment for redeemed ABCAT Shares will be made to, or at the direction of, Alex.
Brown Capital Advisory & Trust Company or an affiliate, as appropriate, for the
benefit of Shareholders. Payment will be made as promptly as feasible and, under
most circumstances, within three Business Days.
Dividends payable up to the date of the redemption of ABCAT Shares will
be paid on the next dividend payment date.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (including net short-term capital gains) in
the form of monthly dividends. The Fund may distribute to shareholders any net
capital gains (net long-term capital gains less net short-term capital losses)
on an annual basis or, alternatively, may elect to retain net capital gains and
pay tax thereon.
Unless other arrangements are made, all income dividends (consisting of
dividend and interest income and the excess, if any, of net short-term capital
gains over net long-term capital losses) and net capital gains distributions,
if any, will be reinvested in additional ABCAT Shares at net asset value.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and
7
<PAGE>
regulations, which may be changed by legislative, judicial or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local income tax treatment of the Fund or the Shareholders,
and the discussion here is not intended as a substitute for careful tax
planning. Accordingly, shareholders are advised to consult their tax advisors
regarding specific questions as to federal, state and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund intends to continue to qualify as a "regulated investment
company" under the Code and to distribute to its investors all of its net
investment income (including its net tax-exempt income) and net short-term and
long-term capital gain income, if any, so that it is not required to pay
federal income taxes on amounts so distributed. In addition, the Fund expects
to make sufficient distributions prior to the end of each calendar year to
avoid liability for federal excise tax. The Fund will provide advice annually
as to the federal income tax consequences of distributions made during the
year.
Dividends derived from the Fund's net exempt-interest income and designated by
the Fund as exempt-interest dividends may be treated by Shareholders as items
of interest excludable from their gross income for federal income tax purposes
if the Fund qualifies as a regulated investment company and if, at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets consists of securities the interest on which is excluded from gross
income. Although exempt-interest dividends are excludable from a Shareholder's
gross income for regular income tax purposes, they may have collateral federal
income tax consequences, including alternative minimum tax consequences. (See
the Statement of Additional Information.)
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt-interest
dividends. All or a portion of the interest on indebtedness incurred or
continued by a Shareholder to purchase or carry ABCAT Shares may not be
deductible for federal income tax purposes. Furthermore, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by "private activity bonds" or "industrial development
bonds" should consult their tax advisors before purchasing ABCAT Shares.
<PAGE>
Under the Code, dividends attributable to interest on certain "private
activity bonds" issued after August 7, 1986, will be included in alternative
minimum taxable income for the purpose of determining liability (if any) for
the alternative minimum tax for individuals and for corporations. Additionally,
in the case of corporations, all tax-exempt interest dividends will be taken
into account in determining "adjusted current earnings" (as defined for federal
income tax purposes) for purposes of computing the alternative minimum tax
imposed on corporations.
To the extent, if any, that dividends paid to investors are derived from
taxable income, such dividends will be subject to federal income tax. In
addition, as substantially all of the Fund's income is expected to be derived
from earned interest, it is anticipated that no portion of the Fund's
distributions will be eligible for the corporate dividends-received deduction.
If the Fund purchases a municipal security at a market discount, any gain
realized by the Fund upon sale or redemption of the municipal obligation shall
be treated as taxable interest income to the extent such gain does not exceed
the market discount and any gain realized in excess of the market discount will
be treated as capital gain. Distributions of net investment income and/or the
excess, if any, of net short-term capital gains over net long-term capital
losses are taxable to investors as ordinary income, regardless of whether such
distributions are paid in cash or reinvested in additional ABCAT Shares.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) that are designated by the Fund as capital
gain dividends are taxable to investors as long-term capital gains, regardless
of the length of time the investor owned the ABCAT Shares.
Ordinarily, Shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
Shareholders and paid by the Fund in the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal exise tax.
The sale, exchange or redemption of ABCAT Shares is a taxable event to
the Shareholder.
Maryland Tax Disclosure
To the extent the Fund qualifies as a regulated investment company under
the Code, it will be subject to tax only on (1) that portion of its income on
which tax is imposed for federal income tax purposes under Section 852(b)(1) of
the Code and (2) that portion of its
8
<PAGE>
income that consists of federally tax-exempt interest on obligations other than
Maryland Exempt Obligations (hereinafter defined) to the extent such interest
is not paid to Shareholders in the form of exempt-interest dividends. To the
extent dividends paid by the Fund represent interest excludable from gross
income for federal income tax purposes, that portion of exempt-interest
dividends that represents interest received by the Fund on obligations issued
by the State of Maryland, its political subdivisions, Puerto Rico, the U.S.
Virgin Islands, or Guam and their respective authorities or municipalities
("Maryland Exempt Obligations"), will be exempt from Maryland state and local
income taxes when distributed to a Shareholder. Except as noted below, all
other dividend distributions will be subject to Maryland state and local income
taxes.
Capital gains distributed by the Fund to a Shareholder or any gains
realized by a Shareholder from a redemption or sale of shares must be
recognized for Maryland state and local income tax purposes to the extent
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of Shareholders for federal income
tax purposes are subtracted from capital gains income for Maryland income tax
purposes to the extent such distributions are derived from the disposition of
debt obli-gations issued by the State of Maryland, its political subdivisions
and authorities.
Dividends received by a Shareholder from the Fund that are derived from
interest on U.S. government obligations will be exempt from Maryland state and
local income taxes. Entities subject to the financial institution franchise tax
will generally be subject to tax on distributions from the Fund.
In the case of individuals, Maryland presently imposes an income tax on
items of tax preference with reference to such items as defined in the Code for
purposes of calculating the federal alternative minimum tax. Interest paid on
certain private activity bonds of an issuer other than the State of Maryland,
its political subdivisions, or authorities is a preference item taken into
account for this purpose. Accordingly, if the Fund holds such bonds, the excess
of 50% of that portion of exempt interest dividends that is attributable to
interest on such bonds over a threshold amount may be taxable by Maryland.
Interest on indebtedness incurred or continued (directly or indirectly) by a
Shareholder in order to purchase or carry shares of the Fund will not be
deductible for Maryland state and local income tax purposes. Individuals will
not be subject to personal property tax on their shares of the Fund. Shares of
the Fund held by a Maryland resident at death may be subject to Maryland
inheritance and estate taxes.
<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, includ-ing the Fund's
agreements with its investment advisor, distributor, custodian and transfer
agent. A majority of the Directors of the Fund have no affiliation with the
Distributor or the Advisor.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), the Fund's
investment advisor, is an indirect subsidiary of Bankers Trust Corporation and
an affiliate of Alex. Brown Capital Advisory & Trust Company. ICC is also the
investment advisor to other mutual funds in the Flag Investors family of funds
and BT Alex. Brown Cash Reserve Fund, Inc., which funds had approximately $7.4
billion of net assets as of May 31, 1998.
ICC is responsible for the general management of the Fund, as well as
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates. ICC currently intends to
waive, on a voluntary basis, its annual fee to the extent necessary so that
Total Fund Operating Expenses do not exceed 0.45% of the ABCAT Shares' average
daily net assets. For the fiscal year ended March 31, 1998, ICC waived all
advisory fees, amounting to $97,673, and reimbursed expenses of $91,276.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
Portfolio Managers
Messrs. M. Elliott Randolph, Jr. and Paul D. Corbin have shared primary
responsibility for managing the Fund's assets since inception.
9
<PAGE>
M. Elliott Randolph, Jr. has 24 years of investment experience and has
been a portfolio manager with the Advisor since 1991. From 1988-1991 he was a
Principal with Monument Capital Management, Inc.
Paul D. Corbin has over 20 years of investment experience and has been a
portfolio manager with the Advisor since 1991. From 1984-1991 he served as the
Senior Vice President in charge of Fixed Income Portfolio Management at First
National Bank of Maryland.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor for each class of the Fund's shares since August 31,
1997. ICC Distributors is a registered broker-dealer that offers distribution
services to a variety of registered investment companies including the other
funds in the Flag Investors family of funds and BT Alex. Brown Cash Reserve
Fund, Inc. ICC Distributors is not affiliated with the Advisor.
ICC Distributors receives no compensation for distributing the ABCAT
Shares. ICC Distributors bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to individuals and entities other than Fund shareholders.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
ICC is the Fund's transfer and dividend disbursing agent and provides
accounting services to the Fund. As compensation for providing accounting
services for the fiscal year ended March 31, 1998, ICC received from the Fund a
fee equal to 0.10% of the Fund's average daily net assets. Bankers Trust
Company, a subsidiary of Bankers Trust Corporation and an affiliate of the Fund,
acts as custodian of the Fund's assets. (See the Statement of Additional
Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30-day period by
the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis. The Fund may also advertise a
"tax-equivalent yield," which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent of the Fund's yield, assuming certain tax brackets for a
Shareholder. All advertisements of performance will show the average annual
total return over one-, five- and ten-year periods or, if such periods have not
yet elapsed, shorter periods corresponding to the life of the Fund. Such total
return quotations will be computed by finding average annual compounded rates
of return over such periods that would equate an assumed initial investment of
$1,000 to the ending redeemable value according to the required standardized
calculation. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national,
financial and industry publications that monitor the performance of mutual
funds such as Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
10
<PAGE>
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the
Fund, operating expenses and market conditions.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end, non-diversified management investment company
organized under the laws of the State of Maryland on July 23, 1993 and is
authorized to issue 40 million shares of capital stock, par value of $.001 per
share, all of which shares are designated common stock. Each share has one vote
and shall be entitled to dividends and distributions when and if declared by
the Fund. In the event of liquidation or dissolution of the Fund, each share
would be entitled to its pro rata portion of the Fund's assets after all debts
and expenses have been paid. The fiscal year-end of the Fund is March 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Alex. Brown Capital
Advisory & Trust Maryland Intermediate Tax-Free Income Shares." The Board has
no present intention of establishing any additional series of the Fund but the
Fund does have two other classes of shares in addition to the shares offered
hereby: "Flag Investors Maryland Intermediate Tax-Free Income Fund Class A
Shares," and "Flag Investors Maryland Intermediate Tax-Free Income Fund
Institutional Shares." Additional information concerning the Fund's other
classes of shares may be obtained by calling the Fund at (800) 767-3524.
Different classes of the Fund may be offered to certain investors and holders
of such shares may be entitled to certain exchange privileges not offered to
ABCAT Shares. All classes of the Fund share a common investment objective,
portfolio of investments and advisory fee, but the classes may have different
distribution fees or sales load structures and the net asset value per share of
the classes may differ at times.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
Reports
The Fund furnishes semi-annual reports containing information about the
Fund and its operations, including a list of investments held in the Fund's
portfolio and financial statements. The annual financial statements are audited
by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
Shareholders with inquiries concerning their ABCAT Shares should contact
their account manager at Alex. Brown Capital Advisory & Trust Company.
11
<PAGE>
- --------------------------------------------------------------------------------
ALEX. BROWN CAPITAL ADVISORY & TRUST
MARYLAND INTERMEDIATE TAX-FREE INCOME SHARES
(ABCAT Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent Distributor
NVESTMENT COMPANY CAPITAL CORP. ICC DISTRIBUTORS, INC.
One South Street P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
1-800-553-8080
Custodian Independent Auditors
BANKERS TRUST COMPANY DELOITTE & TOUCHE LLP
130 Liberty Street 117 Campus Drive
New York, New York 10006 Princeton, New Jersey 08540
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
12
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
One South Street
Baltimore, Maryland 21202
-------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION
WITH A PROSPECTUS, WHICH MAY BE OBTAINED FROM
YOUR SECURITIES DEALER OR SHAREHOLDER SERVICING
AGENT OR BY WRITING THE FUND, ONE SOUTH STREET,
BALTIMORE, MARYLAND 21202, OR BY CALLING (800) 767-
FLAG.
Statement of Additional Information Dated: August 1, 1998
relating to Prospectuses Dated: August 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
1. General Information and History....................................................................... 1
2. Investment Objectives and Policies.................................................................... 1
3. Valuation of Shares and Redemption................................................................... 10
4. Federal Tax Treatment of Dividends and
Distributions..................................................................................... 11
5. Management of the Fund............................................................................... 14
6. Investment Advisory and Other Services............................................................. 18
7. Distribution of Fund Shares....................................................................... 19
8. Brokerage........................................................................................... 22
9. Capital Stock...................................................................................... 24
10. Semi-Annual Reports................................................................................. 25
11. Custodian, Transfer Agent and Accounting Services ................................................ 25
12. Independent Auditors ............................................................................. 26
13. Legal Matters ................................................................................... 26
14. Performance Information............................................................................ 26
15. Control Persons and Principal Holders of
Securities....................................................................................... 29
16. Financial Statements................................................................................ 29
</TABLE>
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the
"Fund") is an open-end management investment company. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), all mutual
funds are required to furnish prospective investors with certain information
concerning the activities of the company being considered for investment. The
Fund currently offers three classes of shares: Flag Investors Maryland
Intermediate Tax-Free Income Fund Class A Shares (the "Flag Investors Class A
Shares"), Flag Investors Maryland Intermediate Tax-Free Income Fund
Institutional Shares (the "Institutional Shares") and Alex. Brown Capital
Advisory & Trust Maryland Intermediate Tax-Free Income Shares (the "ABCAT
Shares") (collectively, the "Shares"). As used herein, the "Fund" refers to Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc., and specific
references to any class of the Fund's Shares will be made using the name of such
class. The Flag Investors Class A Shares were formerly known as the Flag
Investors Shares.
There are three separate prospectuses for the Fund's Shares: one for the
Flag Investors Class A Shares, one for the Institutional Shares and one for the
ABCAT Shares. Each prospectus contains important information concerning the
class of Shares offered thereby and the Fund and may be obtained without charge
from the Fund's Distributor (the "Distributor") or, with respect to the Flag
Investors Class A Shares from Participating Dealers that offer shares to
prospective investors. Prospectuses for the Flag Investors Class A Shares may
also be obtained from Shareholder Servicing Agents. As used herein, the term
"Prospectus" describes information common to the prospectuses of the three
classes of the Fund's shares, unless the term "Prospectus" is modified by the
appropriate class designation. As used herein, the "Fund" refers to Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. and specific
references to any class of the Fund's Shares will be made using the name of such
class. Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectuses. To avoid
unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement respecting the Fund and its Shares filed
with the SEC. Copies of the Registration Statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
July 23, 1993. The Fund filed a registration statement with the SEC registering
itself as an open-end, non-diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
its Shares under the Securities Act of 1933, as amended. The Fund commenced
offering the Flag Investors Class A Shares on October 1, 1993, the Institutional
Shares on November 2, 1995 and the ABCAT Shares on January 10, 1997.
Under a license agreement dated October 1, 1993 between the Fund and
Alex. Brown & Sons Incorporated (now BT Alex. Brown Incorporated), Alex. Brown &
Sons Incorporated licenses to the Fund the "Flag Investors" name and logo but
retains the rights to the name and logo, including the right to permit other
investment companies to use them.
2. INVESTMENT OBJECTIVES AND POLICIES
The Fund is designed to provide current income exempt from federal
income taxes and Maryland state and local income taxes consistent with
preservation of principal within an intermediate-term maturity structure. As
described in the Prospectus, the Fund will attempt to achieve its objective by
investing
-1-
<PAGE>
primarily in municipal obligations issued by the State of Maryland and its
political subdivisions, agencies or instrumentalities. There can be no assurance
that the Fund's investment objective will be achieved.
Municipal Obligations
Municipal obligations include debt securities issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from federal income tax. For a discussion of
quality, maturity and other criteria the Fund applies in investing in municipal
obligations, see "Investment Objectives, Policies and Risk Considerations" in
the Prospectus.
Municipal obligations can be classified into three principal categories:
"general obligation bonds," "revenue bonds" and "notes." General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source,
but not from the general taxing power of the issuer. Revenue bonds include "tax
exempt industrial development bonds," i.e., bonds issued by or on behalf of
public authorities to obtain funds for privately-operated facilities. Tax-exempt
industrial development bonds do not generally carry the pledge of the credit of
the issuing municipality, but are generally guaranteed by the corporate entity
on whose behalf they are issued. Notes are short-term instruments used to
provide for short-term capital or operating needs. They are obligations of the
issuing municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues.
Other Tax-Exempt Instruments
Other tax-exempt instruments which are permissible investments include
floating rate notes. Investments in such floating rate instruments will normally
involve industrial development or revenue bonds which provide that the rate of
interest is set as a specific percentage of a designated base rate (such as the
prime rate) at a major commercial bank, and that the Fund can demand payment of
the obligation at all times or at stipulated dates on short notice (not to
exceed 30 days) at par plus accrued interest. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must, in the opinion of the Fund's investment advisor (the "Advisor") be
comparable to the long-term bond or commercial paper ratings stated in the
Prospectus. The Advisor will monitor the earning power, cash flow and liquidity
ratios of the issuers of such instruments and the ability of an issuer of a
demand instrument to pay principal and interest on demand.
The Fund may also invest in municipal lease obligations or participation
certificates issued by government authorities or entities to finance the
acquisition or construction of a project or equipment. The certificates
represent participations in a lease or installment purchase contract relating to
such project or equipment. Although such municipal lease obligations do not
constitute general obligations of the issuer to which the issuer's unlimited
taxing power is pledged, lease obligations are frequently backed by the issuer's
covenant to budget for, appropriate and make the payments due under the lease
obligation; however, certain lease obligations contain "non-appropriation"
clauses which provide that the issuer has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities are a type of financing that
has not yet developed the depth of marketability associated with more
conventional securities and may be illiquid. The Fund will not purchase such
lease obligations
-2-
<PAGE>
to the extent that it holds municipal lease obligations or illiquid securities
in an amount exceeding 10% of its net assets, except that, if the Advisor
determines that any municipal lease obligations are liquid pursuant to
guidelines adopted by the Board of Directors, such municipal lease obligations
shall not be included for purposes of calculating the foregoing limit. The
Advisor, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect of its future marketability and whether such obligations are rated.
The Fund expects that it will purchase only rated municipal lease obligations.
Money Market Securities
From time to time the Fund may purchase taxable short-term securities.
These securities include direct obligations of the U.S. Government which consist
of bills, notes and bonds issued by the U.S. Treasury. Obligations issued by
agencies of the U.S. Government, while not direct obligations of the U.S.
Government, are either backed by the full faith and credit of the U.S. or are
guaranteed by the U.S. Treasury or supported by the issuing agencies' right to
borrow from the U.S. Treasury.
The obligations of U.S. commercial banks include certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
negotiable interest-bearing instruments with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market, prior
to maturity. Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Time deposits earn a specified rate of
interest over a definite period of time; however time deposits cannot be traded
in the secondary market. Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods and furnish dollar
exchanges. Maturities are generally six months or less.
The commercial paper which may be purchased includes variable amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. Such notes provide that the interest rate on the amount outstanding
varies on a daily, weekly or monthly basis depending upon a stated short-term
interest rate index. Both the lender and the borrower have the right to reduce
the amount of outstanding indebtedness at any time. There is no secondary market
for the notes. It is not generally contemplated that such instruments will be
traded. Variable or floating rate instruments bear interest at a rate which
varies with changes in market rates. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity. A
variable amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The quality of the underlying
credit must, in the opinion of the Advisor, be equivalent to the ratings
applicable to permitted investments for the Fund. The Advisor will monitor on an
ongoing basis the earning power, cash flow, and liquidity ratios of the issuers
of such instruments and will similarly monitor the ability of an issuer of a
demand instrument to pay principal and interest on demand.
Puts
The Fund may engage in put transactions. The Advisor has the authority
to purchase securities at a price which would result in a yield to maturity
lower than that generally offered by the seller at the time of purchase when the
Fund can simultaneously acquire the right to sell the securities back to the
seller, the issuer, or a third party (the "writer") at an agreed-upon price at
any time during a stated period or on a certain date. Such a right is generally
denoted as a "standby commitment" or a "put." The purpose of
-3-
<PAGE>
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Fund to meet redemptions and remain as fully invested as possible
in municipal securities. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is exercised. The Fund
would limit its put transactions to institutions which the Advisor believes
present minimum credit risks, and the Advisor would use its best efforts
initially to determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however, be difficult to
monitor the financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, the Fund would be a general creditor (i.e.,
on a parity with all other unsecured creditors) of the writer. Furthermore,
particular provisions of the contract between the Fund and the writer may excuse
the writer from repurchasing the securities; for example, a change in the
published rating of the underlying securities or any similar event that has an
adverse effect on the issuer's credit or a provision in the contract that the
put will not be exercised except in certain special cases, for example, to
maintain portfolio liquidity. The Fund could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put, may be sold to third persons
at any time, even though the put is outstanding, but the put itself, unless it
is an integral part of the security as originally issued, may not be marketable
or otherwise assignable. Therefore, the put would have value only to the Fund.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the security. The
maturity of the underlying security will generally be different from that of the
put. There will be no limit to the percentage of portfolio securities that the
Fund may purchase subject to a put but the amount paid directly or indirectly
for premiums on all puts outstanding will not exceed 2% of the value of the
total assets of the Fund calculated immediately after any such put is acquired.
For the purpose of determining the "maturity" of securities purchased subject to
an option to put, and for the purpose of determining the dollar-weighted average
maturity of the Fund including such securities the Fund will consider "maturity"
to be the first date on which it has the right to demand payment from the writer
of the put although the final maturity of the security is later than such date.
Futures Contracts and Options on Futures Contracts
The Fund may invest in futures contracts and related options including
futures contracts on fixed income securities and contracts based on municipal
bond or other financial indices.
The Fund may buy or sell financial futures contracts or purchase options
on such futures as a hedge against anticipated interest rate changes. A futures
contract sale creates an obligation by the Fund, as seller, to deliver the
specified type of financial instrument called for in the contract at a specified
future time for a specified price or, in "cash settlement" futures contracts, to
pay to (or receive from) the buyer in cash the difference between the price in
the futures contract and the market price of the instrument on the specified
date, if the market price is higher (or lower, as the case may be). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right for the premium paid to assume
a position in a futures contract (a long position if the option is a call and a
short position if the option is a put).
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") with which
the Fund must comply in order not to be deemed a commodity pool
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operator within the meaning and intent of the Commodity Exchange Act and the
regulations promulgated thereunder.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. An investment in options involves payment of a premium for the
option without any further obligation on the part of the Fund.
Under rules adopted by the Commodities Futures Trading Commission, the
Fund may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In addition, futures and futures option markets may not be
liquid in all circumstances. As a result, in volatile markets, the Fund may not
be able to close out a transaction without incurring losses substantially
greater than the initial deposit. Although the contemplated use of these
contracts should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The ability
of the Fund to hedge successfully will depend on the Advisor's ability to
forecast pertinent market movements, which cannot be assured. Finally, the daily
deposit requirements in futures contracts create an ongoing greater potential
financial risk than do options purchased by the Fund, where the exposure is
limited to the cost of the initial premium. Losses due to hedging transactions
will reduce net asset value. Income earned by the Fund from its hedging
activities generally will be treated as capital gains.
Other Investment Practices
In addition, the Fund may enter into repurchase agreements and make
purchases of when-issued securities as described below.
Repurchase Agreements. The Fund may enter into repurchase agreements
with financial institutions, such as banks and broker-dealers, deemed to be
creditworthy by the Fund's Board of Directors under criteria established with
the guidance of the Advisor. A repurchase agreement is a short-term investment
in which the purchaser (i.e., the Fund) acquires ownership of a debt security
and the seller agrees to repurchase the obligation at a future time and set
price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. The value of
underlying securities will at least be equal at all times to the total amount of
the repurchase obligation, including the interest factor. The Fund makes payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of a custodian or bank acting as agent. The underlying
securities, which in the case of the Fund are securities of the U.S. Treasury
only, may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible subnormal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
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When-Issued Securities. The Fund may purchase debt obligations on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Fund will make commitments
to purchase obligations on a when-issued basis only with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues to the purchaser during this period. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself. In that case there could be an
unrealized loss at the time of delivery.
The Fund will establish segregated accounts with its custodian and will
maintain liquid assets in an amount at least equal in value to its commitments
to purchase when-issued securities. If the value of these assets declines, the
Fund will place additional liquid assets in the account on a daily basis so that
the value of the assets in the account is equal to the amount of such
commitments.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. Accordingly, the Fund will not:
1. Borrow money except as a temporary measure to facilitate settlements
and for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at the
time of such borrowing, provided that, while borrowings by the Fund equaling 5%
or more of the Fund's total assets are outstanding, the Fund will not purchase
securities;
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts, except that
the Fund may invest in financial futures and options thereon;
4. Act as an underwriter of securities within the meaning of the U.S.
federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
5. Issue senior securities;
6. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies and may
make loans through the use of repurchase agreements;
7. Effect short sales of securities;
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions); or
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9. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs.
The following investment restriction may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law.
Risk Factors Associated With a Maryland Portfolio
The Fund's concentration in the debt obligations of one state carries a
higher risk than a portfolio that is geographically diversified. In addition to
the State of Maryland and its agencies, there are 23 counties plus the
independent City of Baltimore, which functions as a County, as well as numerous
incorporated municipalities. Many of these political subdivisions have
outstanding debt. As described below, a number of Maryland public authorities
also issue debt.
Economy. The economy of the State of Maryland continues to demonstrate
relatively strong performance, with personal income well above the national
average. Total State employment was 2.27 million in April 1998 with the majority
of jobs in trade, service, and government sectors. The national recession caused
a loss of jobs in Maryland after employment levels peaked in mid-1990 but
employment levels began to recover in mid-1992. Unemployment was 4.4% in April
1998, compared to a national average of 4.3%. The State's population in 1997 was
approximately 5.09 million with 87% concentrated in the Baltimore-Washington
corridor.
Debt. The State of Maryland and its political subdivisions issue four
basic types of debt having varying degrees of credit risk: general obligation
bonds backed by the unlimited taxing power of the issuer, revenue bonds secured
by specific pledged taxes or revenue streams, conduit revenue bonds payable from
the repayment of certain loans to entities such as hospitals and universities
and tax-exempt lease obligations (including certificates of participation in the
same), the payments under which are subject to annual appropriation. In 1997,
$2.9 billion in state and local debt was issued in Maryland, with approximately
41% representing general obligation debt and 59% revenue bonds or lease-backed
debt.
Total combined tax supported debt outstanding of the State, Baltimore
City and all of the counties, municipalities and special districts within
Maryland totaled $13.8 billion as of June 30, 1996. The State of Maryland had
$3.37 billion in general obligation bonds outstanding as of March 1, 1998. As of
April, 1998 general obligation debt of the State of Maryland is rated Aaa by
Moody's, AAA by Standard & Poor's Ratings Group and AAA by Fitch; there can be
no assurance that these ratings will continue. There is no general limit on
state general obligation bonds imposed by the State Constitution or laws; state
general obligation bonds are payable from ad valorem taxes and, under the State
Constitution, may not be issued unless the debt is authorized by a law levying
an annual tax or taxes sufficient to pay the debt service within 15 years and
prohibiting the repeal of the tax or taxes or their use for another purpose
until the debt has been paid. State and local general obligation debt on a per
capita basis and as a percentage of property values have increased by 18.9% and
6.0%, respectively, between fiscal years 1993 and 1996. Although the State may
borrow up to $100 million in short-term notes in anticipation of taxes and
revenues, the State has not made use of this authority.
Many agencies and instrumentalities of the State government are
authorized to borrow money under legislation which expressly provides that the
obligations shall not be deemed to constitute a debt or a pledge of the faith
and credit of the State. The Department of Transportation issues limited,
special
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obligations payable primarily from fixed-rate excise taxes and other revenues
related mainly to highway use, the amount of which is limited by the General
Assembly to $1.074 billion for fiscal year 1998 (ending June 30, 1998); the
principal amount of such bonds outstanding as of December 31, 1997 was $868.0
million. The Maryland Transportation Authority, the Community Development
Administration of the Department of Housing and Community Development, the
Maryland Stadium Authority, the Maryland Environmental Service, the public
educational institutions (which include the University System of Maryland,
Morgan State University and St. Mary's College of Maryland, the Maryland Food
Center Authority and the Maryland Water Quality Financing Administration also
have issued and have outstanding bonds, the principal of and interest on which
are payable solely from specified sources, principally fees or loan payments
generated from use of the facilities, enterprises financed by the bonds, or
other dedicated fees. None of these bonds constitute debts or pledges of the
faith and credit of the State. The issuers of these obligations are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from that of the State's general
obligation bonds. Total outstanding revenue and enterprise debt of these State
units at December 31, 1997 was approximately $3.5 billion.
Certain State agencies also execute capital lease or conditional
purchase agreements to finance certain facilities; all of the payments under
these arrangements are subject to annual appropriation by the State. In the
event that appropriations are not made, the State and its agencies may not be
held contractually liable for the lease payments. As of December 31, 1997, $93
million of lease and conditional purchase financings were outstanding.
In addition, the Maryland Health and Higher Educational Facilities
Authority, the Maryland Industrial Development Financing Authority, the
Northeast Maryland Waste Disposal Authority, the Maryland Energy Financing
Administration and the Maryland Economic Development Corporation issue conduit
revenue bonds, the proceeds of which are lent to borrowers eligible under
relevant State and federal law. These bonds are payable solely from the loan
payments made by the borrowers, and their credit quality vary with the financial
strengths of the respective borrowers.
Financial. To a large degree, the risk of the portfolio is dependent
upon the financial strength of the State of Maryland, its political subdivisions
and the obligors on conduit revenue bonds. The following discussion focuses only
on the recent budgets of the State of Maryland. The soundness of the State's
budget, however, may have little or no correlation to the financial strength (or
weakness) of a particular political subdivision or a particular obligor on
conduit revenue bonds.
During the fiscal years 1991 through 1993, the national recession and
weakened economy caused shortfalls in the State's budgeted revenues and
increases in demand for State services. During that period the State was forced
both to cut local aid and other State expenditures and to raise taxes. Showing
improvement from prior years, the State ended its fiscal years 1994, 1995 and
1996 with surpluses.
In April, 1997 the General Assembly approved a $15.4 billion 1998 fiscal
year budget. This budget (i) included funds sufficient to meet all specific
statutory funding requirements; (ii) incorporates the first partial year of a
five-year phase-in of a 10% reduction in personal income taxes (estimated to
reduce revenues by $38.5 million in fiscal year 1998 and $450 million when fully
phased in) and certain reductions in sales taxes on certain manufacturing
equipment (estimated to reduce revenues by $38.6 million when the reductions are
fully phased in, in fiscal year 2001); and (iii) includes the first year's $30
million funding under an agreement to provide additional funds totaling $230
million over a five-year period to schools in the City of Baltimore and related
grants to other subdivisions totaling $32 million. When this budget was enacted,
the State estimated the General Fund surplus on a budgetary basis would be $27.9
million, in addition to which the State projected that there would be a balance
of $554 million in the Revenue
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Stabilization Account of the State Reserve Fund. The State currently projects a
General Fund balance on a budgetary basis of $318.1 million, in addition to
which there is projected to be $617.7 million in the Revenue Stabilization
Account of the State Reserve Fund.
In April 1998, the General Assembly approved a $16.6 billion 1999 fiscal
year budget. This budget includes, among other things, (i) amounts required
under the State's school funding agreement with the City of Baltimore; (ii) a
full year of the five-year phase-in of the 10% reduction of the personal income
tax, accelerated by legislation enacted by the 1998 General Assembly (estimated
to reduce revenues in fiscal year 1999 by approximately $300 million); (iii)
General Fund deficiency appropriations of $75.5 million for fiscal year 1998
which include $25 million for computer programming modifications to address the
"year 2000" problem; (iv) $3.3 billion in direct aid to local governments (a
$169.1 million increase over the prior fiscal year); (v) $163.2 to the Revenue
Stabilization Account of the State Reserve Fund (together with certain 1998
fiscal year deficiency appropriations); (vi) $76 million to provide medical
coverage to low income children and pregnant women currently without coverage;
and (vi) $61.5 million to provide funding for a Statewide public education
proposal targeted primarily to at-risk students. When this budget was enacted,
the State estimated that the General Fund surplus on a budgetary basis at June
30, 1999 would be approximately $20 million, in addition to which the State
projected that there would be $633.9 million in the Revenue Stabilization
Account of the State Reserve Fund (reflecting a $185.2 million transfer to the
General Fund).
Other Maryland Issuers
Many local Maryland governments have also suffered from fiscal stress
and general declines in financial performance. Recessionary impacts have
resulted in downturns in real estate related receipts, declines in the growth of
income tax revenues, lower cash positions and reduced interest income. To
compensate for reductions in State aid to local governments, local governments
closed this gap by increasing property and other taxes, program cuts, and
curtailing pay raises. Certain counties in Maryland are subject to voter
approval limitations on property tax levy increases or on increases in
governmental spending which limits their flexibility in responding to external
changes. Various tax initiatives to reform existing tax structures in certain
counties have been adopted. Future initiatives, if proposed and adopted, could
create pressure on the counties and other local governments and their ability to
raise revenues. The Fund cannot predict the impact of any such future tax
limitations on debt quality.
Many Maryland counties have established agencies with bond issuing
authority, such as housing authorities. Maryland municipalities also have the
power to issue conduit revenue bonds. Maryland local governments and their
authorities are subject to various risks and uncertainties, and the credit
quality of the bonds issued by them may vary considerably from that of State
general obligation bonds.
Sectors. Certain areas of potential investment concentration present
unique risks. In recent years, up to 26% of the principal amount of tax-exempt
debt issued in Maryland has been for public or non-profit health care
institutions. A significant portion of the Fund's assets may be invested in
health care issues. Since 1983, the hospital industry has been under significant
pressure to reduce expenses and limit length of stay, a phenomenon which has
negatively affected the financial health of many hospitals. While each issue is
separately secured by the individual hospital's revenues, third party
reimbursement mechanisms for patient care are common to the group. At the
present time Maryland hospitals operate under a system which reimburses
hospitals according to a State administered set of rates and charges rather than
the Medicare Prospective Payment System for Medicare payments. Since 1983,
Maryland hospitals have operated below the national average in terms of Medicare
cost increases, allowing them to continue operating under a Medicare waiver.
However, under the terms of the Medicare waiver, a retroactive adjustment could
occur if certain performance standards are not attained, and any loss of this
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waiver in the future may have an adverse impact upon the credit quality of
Maryland hospitals. Additionally, national focus on health care reform and any
resulting legislation may further impact the financial condition of hospitals in
Maryland and other states.
The Fund may from time to time invest in solid waste revenue bonds which
have exposure to environmental, technological and market risks which could
affect the security and value of the bonds. Such risks include construction
delay or shortfalls in construction funds due to increased regulation, and
market disruption and revenue variability due to recent court decisions and
legislative proposals.
Investments in Puerto Rico
Although the Fund has no present intention to do so, from time to time,
the Fund may invest in obligations of the Commonwealth of Puerto Rico and its
public corporations exempt from federal and Maryland state and local income
taxes. These investments will not be considered Maryland municipal securities
for purposes of the Fund's policy to invest, under normal market conditions, 65%
of its assets in Maryland municipal securities. The majority of the
Commonwealth's debt is issued by ten public agencies that are responsible for
many of the island's public functions, such as water, wastewater, highways,
telecommunications, education, and public construction. As of May 31, 1995,
outstanding public sector debt issued by the Commonwealth and its public
corporations totaled $15.9 billion.
Investment in Puerto Rico obligations requires a careful assessment of
certain risk factors. These include reliance on substantial federal assistance
and favorable tax programs, above average levels of unemployment and low wealth
levels, and an economy vulnerable to adverse shifts in energy prices and U.S.
foreign trade/monetary policies. These risks are countered by strong security
provisions, a long history of timely debt repayment, and improved financial
practices.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Fund reserves the right to suspend the
sale of Shares at any time.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Flag Investors Class A
Shares by check, Institutional Shares by wire and ABCAT Shares by transfer of
funds by, or at the direction of, Alex. Brown Capital Advisory & Trust Company
or an affiliate, as described in the Prospectus relating to each class of
Shares. However, if the Board of Directors determines that it would be in the
best interests of the
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remaining shareholders to make payment of the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Fund in
lieu of cash, in conformity with applicable rules of the SEC, the Fund will make
such distributions in kind. If Shares are redeemed in kind, the redeeming
shareholder will incur brokerage costs in later converting the assets into cash.
The method of valuing portfolio securities is described under "Valuation of
Shares" and such valuation will be made as of the same time the redemption price
is determined. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act pursuant to which the Fund is obligated to redeem Shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders and the discussion here and in the
Fund's Prospectus is not intended as a substitute for careful tax planning.
The following discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The Fund expects to qualify as a regulated investment company under
Subchapter M of the Code. However, to qualify as a regulated investment company
for any taxable year, the Fund must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies
and other income (including, but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement").
In addition, at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Fund has not invested more than 5%
of the value of its total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses (the "Asset
Diversification Test"). Generally, the Fund will not lose its status as a
regulated investment company if it fails to meet the Asset Diversification Test
solely as a result of a fluctuation in value of portfolio assets not
attributable to a purchase.
Under Subchapter M, the Fund is exempt from federal income tax on its
taxable net investment income and net capital gains which it distributes to
shareholders, provided generally that it distributes at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital loss) for the year (the
"Distribution Requirement") and complies with the other requirements of the Code
described above. The Distribution Requirement for any year may be waived if a
regulated investment company establishes to the satisfaction of the Internal
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Revenue Service that it is unable to satisfy the Distribution Requirement by
reason of distributions previously made for the purpose of avoiding liability
for federal excise tax (discussed below).
As noted in the Prospectus, exempt-interest dividends are excludable
from a shareholder's gross income for regular federal income tax purposes.
Exempt-interest dividends may nevertheless be subject to the alternative minimum
tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code or the
environmental tax (the "Environmental Tax") imposed by Section 59A of the Code.
The Alternative Minimum Tax is imposed at rates up to 28% in the case of
non-corporate taxpayers and at the rate of 20% in the case of corporate
taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The
Environmental Tax is imposed at the rate of 0.12% and applies only to corporate
taxpayers. The Alternative Minimum Tax and the Environmental Tax may be imposed
in two circumstances. First, exempt-interest dividends derived from certain
"private activity bonds" issued after August 7, 1986, will generally be an item
of tax preference for both corporate and non-corporate taxpayers. Second,
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the Alternative Minimum Tax and the
Environmental Tax.
For purposes of the Distribution Requirement (as well as for other
purposes), the Fund will be required to treat as interest income any recognized
market discount on debt obligations which it holds. Generally, market discount
is the amount by which the stated redemption price of a bond exceeds the amount
paid by a purchaser of the bond (most common where the value of a bond decreases
after original issue as a result of a decline in the creditworthiness of the
issuer or an increase in prevailing interest rates). Generally, upon the
disposition of a bond bearing market discount or receipt of any principal
payment with respect to such a bond, market discount is recognized by treating a
portion of the proceeds as interest income. The application of these rules (and
the rules regarding original issue discount) to debt obligations held by the
Fund could affect (i) the amount and timing of distributions to shareholders and
(ii) the ability of the Fund to satisfy the Distribution Requirement.
If capital gain distributions have been made with respect to Shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Any gain or loss recognized on a sale or redemption of Shares of
the Fund by a shareholder who is not a dealer in securities will generally be
treated as a long-term capital gain or loss if the Shares have been held for
more than eighteen months, mid-term capital gain or loss if the shares are held
for more than twelve months, but not more than eighteen months and otherwise
will be generally treated as a short-term capital gain or loss. Any loss
recognized by a shareholder upon the sale or redemption of Shares of the Fund
held for six months or less, however, will be disallowed to the extent of any
exempt-interest dividends received by the shareholder with respect to such
Shares. If Shares on which a net capital gain distribution has been received are
subsequently sold or redeemed and such Shares have been held for six months or
less, any loss recognized will be treated as a long-term capital loss to the
extent of the long-term capital gain distribution.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. Individuals whose "modified
income" exceeds a base amount will be subject to federal income tax in a portion
of their social security or railroad retirement benefits. Modified income
currently includes adjusted gross income,
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one-half of social security or railroad retirement benefits and tax-exempt
interest, including exempt-interest dividends paid by the Fund. Individuals
whose modified income exceeds certain base amounts are required to include in
gross income up to 85% of their social security or railroad retirement benefits.
Further, the Fund may not be an appropriate investment for persons who are
"substantial users" of facilities financed by industrial development bonds or
are "related persons" to such users. A "substantial user" is defined generally
to include certain persons who regularly use a facility in their trade or
business. Such persons should consult their tax advisor before investing in the
Fund.
Issuers of bonds purchased by the Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Shareholders should be aware
that exempt-interest dividends may become subject to federal income taxation
retroactively to the date of issuance of the bonds to which such dividends are
attributable if such representations are determined to have been inaccurate or
if the issuers (or the beneficiary) of the bonds fail to comply with certain
covenants made at that time.
If for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will generally be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits. However, in the case
of corporate shareholders, such distributions will generally be eligible for the
70% dividends received deduction for "qualifying dividends."
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of distributions payable to any shareholder who (1)
has provided the Fund either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to properly report payments of interest or dividends, or (3) who has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year.
The Code imposes a nondeductible 4% excise tax on regulated investment
companies that do not distribute in each calendar year an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gains net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, an investment company is treated as having distributed
any amount on which it is subject to income tax for any taxable year ending in
such calendar year.
The Fund intends to make sufficient distributions of its ordinary income
and capital gains net income prior to the end of each calendar year to avoid
liability for excise tax. However, the Fund may in certain circumstances be
required to liquidate portfolio investments in order to make sufficient
distributions to avoid excise tax liability.
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisors as to the consequences of these and other state and local tax
rules affecting an investment in the Fund and also as to the application of the
rules set forth above to a shareholder's particular circumstances.
-13-
<PAGE>
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective dates
of birth and their principal occupations during the last five years are set
forth below. Unless otherwise indicated, the address of each Director and
executive officer is One South Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. (registered
investment advisor) and Chartered Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/26)
Managing Director Emeritus, BT Alex. Brown Incorporated; Vice
Chairman, Alex. Brown Capital Advisory & Trust Company and
Director, Investment Company Capital Corp. (registered
investment advisor) and Director, Virginia Hot Springs, Inc.;
Formerly, Vice Chairman, Alex. Brown & Sons Incorporated
(now BT Alex. Brown Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice-President and Chief Financial Officer,
General Dynamics Corporation (defense), 1989-1993 and Director,
The Arch Fund (registered investment companies).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Formerly,
Director/Trustee, AIM Funds (registered investment companies);
Consultant, Wendell & Stockel Associates, Inc. (consulting firm)
and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (banking and finance); Chairman of the
Quality Control Inquiry Committee, American Institute of
Certified Public Accountants; Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993, Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992 and Partner,
KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West
Main Street, Durham, North Carolina 27705. President, Duke
Management Company (investments); Executive Vice President, Duke
University (education, research and health care); Director,
Central Carolina Bank & Trust (banking), Key Funds (registered
investment companies), and DP Mann Holdings (insurance);
Formerly, Director, AMBAC Treasurers Trust (registered
investment companies).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market
Street, Suite 1700, Philadelphia, Pennsylvania 19103. President
and Chief Executive Officer, The Pew Charitable Trusts; Director
and Executive Vice President, The Glenmede Trust Company;
Formerly, Executive Director, The Pew Charitable Trusts.
-14-
<PAGE>
CARL W. VOGT, Esq., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2604. Senior Partner, Fulbright &
Jaworski L.L.P. (law); Director, Yellow Corporation (trucking)
and American Science & Engineering (x-ray detection equipment);
Formerly, Chairman and Member, National Transportation Safety
Board; Director, National Railroad Passenger Corporation
(Amtrak) and Member, Aviation System Capacity Advisory Committee
(Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced
Study; Director, ATL and Spacelabs Medical Corp. (medical
equipment) and Family Health International (non-profit research
and education); Director, Research America (non-profit medical
research); Formerly, Director, Flag Investors/ISI/BT Alex. Brown
Family of funds. Trustee, Reed College (education); Trustee,
Rockefeller Foundation; and Director, Merrill Lynch Cluster C
Funds (registered investment companies).
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment
advisor), September 1995-Present; Formerly, Vice President and
Treasurer, The Delaware Group of Funds (mutual funds) and Vice
President, Delaware Management Company, Inc. (investments),
1980-August 1995.
AMY M. OLMERT, Secretary (5/14/63))
Vice President, BT Alex. Brown Incorporated, June, 1997-Present.
Formerly, Senior Manager, Coopers & Lybrand L.L.P., September,
1988-June, 1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist,
Putnam Investments Inc. (registered investment companies), April
1994-July 1996; Supervisor, Brown Brothers Harriman & Co.
(domestic and global custody), August 1991-April 1994.
* Messrs. Hale and Semans are Directors who are "interested persons," as
defined in the Investment Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or
advised by BT Alex. Brown Incorporated ("BT Alex. Brown") or its
affiliates. There are currently 13 funds in the Flag Investors/ISI
Funds and BT Alex. Brown Cash Reserve Fund, Inc. fund complex (the
"Fund Complex"). Mr. Semans serves as Chairman of five funds and as a
Director of six other funds in the Fund Complex. Mr. Hale serves as
Chairman of four funds and as Director of eight other funds in the
Fund Complex. Messrs. Cunnane, Kroeger, Levy, and McDonald serve as
Directors of each fund in the Fund Complex. Mr. Woolf serves as
President of seven Funds in the Fund Complex. Ms. Rimel and Mr. Vogt
serve as Director of eleven funds in the Fund Complex. Ms. Olmert
serves as Secretary, Mr. Finelli serves as Treasurer and Mr. Liotta
serves as Assistant Secretary, respectively, of each fund in the Fund
Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, BT Alex. Brown in the ordinary course of business.
All such transactions were made on substantially
-15-
<PAGE>
the same terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in the
future.
With the exception of the Fund's President, officers of the Fund receive
no direct remuneration in such capacity from the Fund. Officers and Directors of
the Fund who are officers or directors of BT Alex. Brown or the Advisor may be
considered to have received remuneration indirectly. As compensation for his or
her services as Director, each Director who is not an "interested person" of the
Fund (as defined in the Investment Company Act) (an "Independent Director"), and
Mr. Woolf receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
Board and committee meetings) from all Flag Investors/ISI Funds and BT Alex.
Brown Cash Reserve Fund, Inc. for which he or she serves. In addition, the
Chairman of the Fund Complex's Audit Committee receives an aggregate annual fee
from the Fund Complex. Payment of such fees and expenses are allocated among all
such funds described above in direct proportion to their relative net assets.
For the fiscal year ended March 31, 1998, Independent Directors' fees
attributable to the assets of the Fund totaled approximately $1,003.
The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
March 31, 1998.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Name of Person, Aggregate Compensation From Pension or Retirement Total Compensation from the Fund and
Position the Fund Payable to Directors Benefits Accrued as Fund Complex Payable to Directors
for the Fiscal Year Ended Part of Fund Expenses for the Fiscal Year Ended March 31, 1998
March 31, 1998
- ---------------------------- ------------------------------ --------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Richard T. Hale(1) $0 $0 $0
Chairman and Director
Truman T. Semans(1) $0 $0 $0
Director
James J. Cunnane $158(3) (4) $39,000 for service on 13
Director Boards in the Fund Complex
John F. Kroeger $199(3) (4) $49,000 for service on 13
Director Boards in the Fund Complex
Louis E. Levy $158(3) (4) $39,000 for service on 13
Director Boards in the Fund Complex
Eugene J. McDonald $158(3) (4) $39,000 for service on 13
Director Boards in the Fund Complex
Rebecca W. Rimel $161(3) (4) $39,000 for service on 11
Director Boards in the Fund Complex(5)
Carl W. Vogt, Esq.(2) $161(3) (4) $39,000 for service on 11
Boards in the Fund Complex(5)
</TABLE>
- -----------------------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Mr. Vogt was elected to the Board on August 14, 1997.
(3) [None of this amount has been deferred pursuant to a deferred
compensation plan.]
(4) The Fund Complex has adopted a retirement plan for eligible Directors,
as described below. The actuarially computed pension expense for the
year ended March 31, 1998 was approximately $1,780.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve as a Director.
-16-
<PAGE>
The Fund Complex has adopted a retirement plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by such Participant in his or
her last year of service. Upon retirement, each Participant will receive
annually 10% of such fee for each year that he or she served after completion of
the first five years, up to a maximum annual benefit of 50% of the fee earned by
such participant in his or her last year of service. The fee will be paid
quarterly, for life, by each Fund for which he or she serves. The Retirement
Plan is unfunded and unvested. Mr. Kroeger has qualified but has not received
benefits. The Fund has two Participants, a Director who retired effective
December 31, 1994 and Mr. Woolf who retired effective December 31, 1996, who
have qualified for the Retirement Plan by serving thirteen and fourteen years,
respectively, as Directors in the Fund Complex, and each of whom will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Such fees
are allocated to each fund in the Fund Complex based upon the relative net
assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1998 are as follows: for Mr. Cunnane, 3 years; for Mr. Kroeger, 15
years; for Mr. Levy, 3 years; for Mr. McDonald, 5 years; for Mr. Vogt, 2 years
and for Ms. Rimel, 2 years, respectively.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms.
Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select from among various Flag Investors and BT Alex.
Brown Cash Reserve Funds and BT International Equity Fund in which all or part
of their deferral account shall be deemed to be invested. Distributions from the
deferring Directors' deferral accounts will be paid in cash, in generally equal
quarterly installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisor and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisor's investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
-17-
<PAGE>
The Code of Ethics requires that any officer, director, or employee of
the Fund or the Advisor preclear personal securities investments (with certain
exceptions, such as non-volitional purchases or purchases which are part of an
automatic dividend reinvestment plan). The foregoing would apply to any officer,
director, or employee of the Distributor that is an access person. The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and preclearance of the
acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security. Trading by investment personnel and certain other employees
of the Advisor would be exempt from this "blackout period" provided that (1) the
market capitalization of a particular security exceeds $2 billion; and (2)
orders of the Advisor (including trades of both clients and covered persons) do
not exceed ten percent of the daily average trading volume of the security for
the prior 15 days. Officers, directors and employees of the Advisor and the
Distributor may comply with codes of ethics instituted by those entities so long
as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On August 14, 1997, the shareholders of the Fund approved an Investment
Advisory Agreement between the Fund and Investment Company Capital Corp. ("ICC"
or the "Advisor"). ICC is an indirect subsidiary of Bankers Trust Corporation.
ICC is also the investment advisor to other funds in the Flag Investors family
of funds and BT Alex. Brown Cash Reserve Fund, Inc.
Under the Investment Advisory Agreement, ICC is responsible for
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment policies for the Fund. Any investment program
undertaken by ICC will at all times be subject to policies and control of the
Fund's Board of Directors. ICC will provide the Fund with office space for
managing its affairs, with the services of required executive personnel, subject
to applicable banking regulations, and with certain clerical and bookkeeping
services and facilities. These services are provided by ICC without
reimbursement by the Fund for any costs. ICC shall not be liable to the Fund or
its shareholders for any act or omission by ICC or any losses sustained by the
Fund or its shareholders, except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty. As compensation for its
services, ICC receives an annual fee from the Fund, payable monthly, at the
annual rate of 0.35% of the Fund's average daily net assets. ICC has voluntarily
agreed to reduce its annual fee, if necessary, or to make payments to the Fund
to the extent required so that the Fund's annual expenses do not exceed 0.70% of
the Flag Investors Class A Shares' average daily net assets and 0.45% of the
Institutional Shares and ABCAT Shares' respective average daily net assets. The
services of ICC to the Fund are not exclusive and ICC is free to render similar
services to others.
The Investment Advisory Agreement has an initial term of two years and
will continue in effect from year to year thereafter if such continuance is
specifically approved at least annually by the Fund's Board of Directors,
including a majority of the Independent Directors who have no direct or indirect
financial interest in such agreement, by votes cast in person at a meeting
called for such purpose, or by a vote of a majority of the outstanding Shares
(as defined under "Capital Stock"). The Investment Advisory Agreement was most
recently approved in the foregoing manner by the Fund's Board of Directors on
September 16, 1997. The Fund or ICC may terminate the Investment Advisory
Agreement on sixty days' written notice without penalty. The Investment Advisory
Agreement will terminate automatically in the event of assignment (as defined in
the Investment Company Act).
-18-
<PAGE>
For the Fiscal Year Ended March 31
-----------------------------------------------
1998 1997 1996
Advisory Fee $0(1) $0(2) $0(3)
(1) Net of fee waivers of $97,673 and including reimbursements of $91,276.
(2) Net of fee waivers of $79,698 and including reimbursements of $64,880.
(3) Net of fee waivers of $51,908 and including reimbursements of $87,047.
In addition to its services as investment advisor, ICC also provides
accounting services to the Fund and serves as the Fund's transfer and dividend
disbursing agent. An affiliate of ICC provides custody services to the Fund.
(See "Custodian, Transfer Agent and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the distributor of each class of the Fund's Shares pursuant to a Distribution
Agreement dated August 31, 1997 ("Distribution Agreement"). Prior to August 31,
1997, Alex. Brown & Sons Incorporated ("Alex. Brown") was distributor of the
Fund's Shares for the same rate of compensation and on substantially the same
terms and conditions as ICC Distributors.
The Distribution Agreement provides that ICC Distributors shall; (i)
use reasonable efforts to sell Shares upon the terms and conditions contained in
the Distribution Agreement and the Fund's then current Prospectus; (ii) use its
best efforts to conform with the requirements of all federal and state laws
relating to the sale of the Shares; (iii) adopt and follow procedures as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. and any other applicable self-regulatory organization;
(iv) perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of its duties or obligations under the
Distribution Agreement or by reason of its reckless disregard of its duties and
obligations under the Distribution Agreement. The Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of
-19-
<PAGE>
distribution is approved at least annually by the Independent Directors in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement, including the form of Sub-Distribution Agreement, was
initially approved by the Board of Directors, including a majority of the
Independent Directors, on August 4, 1997 and most recently on March 27, 1998.
ICC Distributors and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such Participating
Dealers have agreed to process investor purchase and redemption orders and
respond to inquiries from shareholders concerning the status of their accounts
and the operations of the Fund. It is not currently anticipated that ICC
Distributors will enter into Sub-Distribution Agreements for the ABCAT Shares.
Any Sub-Distribution Agreement may be terminated in the same manner as the
Distribution Agreement and shall automatically terminate in the event of
assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which ICC Distributors will allocate a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor, the Distributor, or their respective
affiliates, will provide compensation out of their own resources for ongoing
shareholder services. Although banking laws and regulations prohibit banks from
distributing shares of open-end investment companies such as the Fund, according
to interpretations by various bank regulatory authorities, financial
institutions are not prohibited from acting in other capacities for investment
companies, such as the shareholder servicing capacities described above. Should
future legislative, judicial or administrative action prohibit or restrict the
activities of the Shareholder Servicing Agents in connection with the
Shareholder Servicing Agreements, the Fund may be required to alter materially
or discontinue its arrangements with the Shareholder Servicing Agents.
As compensation for providing distribution services for the Flag
Investors Class A Shares as described above, ICC Distributors receives an annual
fee, paid monthly, equal to 0.25% of the average daily net assets of the Flag
Investors Class A Shares. ICC Distributors expects to allocate most of its
annual fee to Participating Dealers and Shareholder Servicing Agents. ICC
Distributors receives no compensation for distributing the Institutional Shares
or the ABCAT Shares.
As compensation for providing distribution and shareholder services
Flag Investors Class A Shares for the last three fiscal years, the Fund's
distributor received fees in the following amounts.
Fiscal Year Ended March 31,
---------------------------
Fee 1998 1997 1996
Class A 12b-1 Fee $28,661(1) $29,887(2) $32,318(2)
- ------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to
August 31, 1997, received $12,004 and ICC Distributors, the
Fund's distributor effective August 31, 1997, received $16,657.
(2) Fees received by Alex. Brown, the Fund's distributor for the fiscal
years ended March 31, 1997 and March 31, 1996.
In return for the distribution fees, the Distributor paid the
distribution-related expenses of the Fund including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sales personnel; and
interest, carrying or other financing charges.
-20-
<PAGE>
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted a Plan of Distribution
for the Flag Investors Class A Shares ("Flag Investors Class A Distribution
Plan"). Under the Flag Investors Class A Distribution Plan, the Fund pays a fee
to ICC Distributors for distribution and other shareholder servicing assistance
as set forth in the Distribution Agreement, and ICC Distributors is authorized
to make payments out of its fee to participating broker-dealers. The Flag
Investors Class A Distribution Plan was most recently approved by the Fund's
Board of Directors, including a majority of the Independent Directors, on
September 16, 1997.
In approving the Flag Investors Class A Distribution Plan, the
Directors concluded, in the exercise of reasonable business judgment, that there
was a reasonable likelihood that the Flag Investors Class A Distribution Plan
would benefit the Fund and its shareholders. The Flag Investors Class A
Distribution Plan will be renewed only if the Directors make a similar
determination in each subsequent year. The Flag Investors Class A Distribution
Plan may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreement without the approval of the shareholders of the Fund.
The Flag Investors Class A Distribution Plan may be terminated at any time by
the vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the outstanding Flag Investors Class A Shares (as defined under
"Capital Stock").
During the continuance of the Flag Investors Class A Distribution Plan,
the Fund's Board of Directors will be provided for their review, at least
quarterly, a written report concerning the payments made under the Flag
Investors Class A Distribution Plan to ICC Distributors pursuant to the
Distribution Agreement and to broker-dealers pursuant to Sub-Distribution
Agreements. Such reports will be made by the persons authorized to make such
payments. In addition, during the continuance of the Flag Investors Class A
Distribution Plan, the selection and nomination of the Fund's Independent
Directors will be committed to the discretion of the Independent Directors then
in office.
Under the Flag Investors Class A Distribution Plan, amounts allocated
to Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to ICC Distributors under the Flag Investors Class A Distribution Plan.
Payments under the Flag Investors Class A Distribution Plan are made as
described above regardless of ICC Distributors' actual cost of providing
distribution services and may be used to pay ICC Distributors' overhead
expenses. If the cost of providing distribution services to the Fund in
connection with the sale of the Flag Investors Class A Shares is less than 0.25%
of the Fund's average daily net assets for any period, the unexpended portion of
the distribution fee may be retained by ICC Distributors. The Flag Investors
Class A Distribution Plan does not provide for any charges to the Fund for
excess amounts expended by ICC Distributors and, if the Flag Investors Class A
Distribution Plan is terminated in accordance with its terms, the obligation of
the Fund to make payments to ICC Distributors pursuant to the Flag Investors
Class A Distribution Plan will cease and the Fund will not be required to make
any payments past the date the Distribution Agreement terminates.
The Fund's distributor received commissions on the sale of Class A
Shares (of which only a portion was retained) in the following amounts:
-21-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------
Class 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Received Retained Received Retained Received Retained
Class A $11,182(1) $6,892(2) $29,625.13(3) $28,655.62(3) $32,331.22(3) $31,261.61(3)
Commissions
</TABLE>
- -------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to
August 31, 1997, received $2,812 and ICC Distributors, the
Fund's distributor effective August 31, 1997 received $8,370.
(2) Of commissions received, Alex. Brown retained $6,882 and ICC Distributors
retained $0, respectively.
(3) By Alex. Brown, the Fund's distributor for the fiscal years ended March
31, 1997 and March 31, 1996.
General Information
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the Independent
Directors, and of independent auditors, in connection with any matter relating
to the Fund; a portion of membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
assumed by ICC or the Distributor.
8. BROKERAGE
ICC is responsible for decisions to buy and sell securities for the
Fund, for the broker-dealer selection and for negotiation of commission rates.
Purchases and sales of securities on a securities exchange are effected through
broker-dealers who charge a commission for their services. ICC may
-22-
<PAGE>
direct purchase and sale orders to any broker-dealer, including, to the extent
and in the manner permitted by applicable law, its affiliates and ICC
Distributors.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with
affiliates of the Advisor in any transaction in which affiliates of the Advisor
act as a principal; that is, an order will not be placed with such affiliates if
execution of the trade involves such affiliates serving as a principal with
respect to any part of the Fund's order, nor will the Fund buy or sell
over-the-counter securities with affiliates of the Advisor acting as market
maker.
If affiliates of the Advisor are participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with rules of the SEC. The Fund believes that the limitation will
not affect its ability to carry out its present investment objective.
ICC's primary consideration in effecting securities transactions is to
obtain best price and execution of orders on an overall basis. As described
below, however, ICC may, in its discretion, effect brokerage transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by ICC to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ICC with clients other than the Fund. Similarly, any research services received
by ICC through placement of portfolio transactions of other clients may be of
value to ICC in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to ICC
by a broker-dealer. ICC is of the opinion that because the material must be
analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ICC's research and analysis.
Therefore, it may tend to benefit the Fund by improving ICC's investment advice.
ICC's policy is to pay a broker-dealer higher commissions for particular
transactions than might be charged if a different broker-dealer had been chosen
when, in ICC's opinion, this policy furthers the overall objective of obtaining
best price and execution. Subject to periodic review by the Fund's Board of
Directors, ICC is also authorized to pay broker-dealers other than affiliates of
the Advisor higher commissions than another broker might have charged on
brokerage transactions for the Fund for brokerage or research services. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board of Directors.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through affiliates of the Advisor. At the time of such authorization certain
policies and procedures incorporating the standards of Rule 17e-1 under the
Investment Company Act which requires that the commissions paid affiliates of
the Advisor must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." Rule 17e-1 also contains requirements for the review of such
transactions by the Board of Directors and requires ICC to furnish reports and
to maintain records in connection with such reviews.
For the period from September 1, 1997 through March 31, 1998, the Fund
did not pay brokerage commissions to BT Alex. Brown or its affiliates. For the
period from March 31, 1997 through August 31, 1997 and for the fiscal year ended
March 31, 1996, the Fund did not pay brokerage commissions to Alex. Brown.
-23-
<PAGE>
ICC manages other investment accounts. It is possible that, at times,
identical securities will be acceptable for the Fund and one or more of such
other accounts; however, the position of each account in the securities of the
same issuer may vary and the length of time that each account may choose to hold
its investment in such securities may likewise vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
During the fiscal year ended March 31, 1998, ICC directed no
transactions to broker-dealers and paid no related commissions to broker dealers
because of research services provided.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the Investment Company Act) which the
Fund has acquired during its most recent fiscal year. As of March 31, 1998, the
Fund held a 5.75% repurchase agreement issued by Goldman Sachs & Co. which was
valued at $930,000. Goldman Sachs & Co. is a "regular broker or dealer" of the
Fund.
9. CAPITAL STOCK
The Fund is authorized to issue 40 million Shares of common stock, par
value $.001 per share. The Board of Directors may increase or decrease the
number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated four classes of shares: Flag Investors Maryland Intermediate Tax-
Free Income Fund Class A Shares, Flag Investors Maryland Intermediate Tax-Free
Income Fund Class B Shares, Flag Investors Maryland Intermediate Tax-Free Income
Fund Institutional Shares and Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax-Free Income Shares. The ABCAT Shares are offered only to
clients of Alex. Brown Capital Advisory & Trust Company and its affiliates.
Shares of the Fund, regardless of series or class would have equal rights with
respect to voting, except that with respect to any matter affecting the rights
of the holders of a particular series or class, the holders of each series or
class would vote separately. In general, each series would be managed separately
and shareholders of each series would have an undivided interest in the net
assets of that series. For tax purposes, the series would be treated as separate
entities. Generally, each class of Shares would be identical to every other
class in a particular series and expenses of the Fund (other than 12b-1 and any
applicable service fees) would be prorated between all classes of a series based
upon the relative net assets of each class. Any matters affecting any class
exclusively will be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all the members of the Board of Directors of
the Fund. In such event, the remaining holders cannot elect any members of the
Board of Directors of the Fund. There are no preemptive, conversion or exchange
rights applicable to any
-24-
<PAGE>
of the Shares. The issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of shares if there is more than one series) after all debts
and expenses have been paid.
As used in this Statement of Additional Information the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust") serves as custodian of the
Fund's investments. Bankers Trust receives such compensation from the Fund for
its services as custodian as may be agreed to from time to time by Bankers Trust
and the Fund. For the period from September 22, 1997 to March 31, 1998, Bankers
Trust was paid $4,830 as compensation for providing custody services to the
Fund. Investment Company Capital Corp., One South Street, Baltimore, Maryland
21202, serves as transfer and dividend disbursing agent and provides certain
accounting services to the Fund under a Master Services Agreement between the
Fund and ICC. As compensation for providing dividend and transfer agency
services, the Fund pays ICC up to [$12.83] per account per year, plus
reimbursement for out-of-pocket expenses incurred in connection therewith. ICC,
as the Fund's Transfer Agent, has received fees for the fiscal year ended March
31, 1998 which totaled $17,912.
ICC also provides certain accounting services to the Fund. As
compensation for providing accounting services, ICC receives an annual fee,
calculated daily and paid monthly, as shown below.
<TABLE>
<CAPTION>
Average Daily Net Assets Incremental Annual Accounting Fees
------------------------ ----------------------------------
<S> <C> <C>
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,001 - $ 20,000,000 0.100%
$ 20,000,001 - $ 30,000,000 0.080%
$ 30,000,001 - $ 40,000,000 0.060%
$ 40,000,001 - $ 50,000,000 0.050%
$ 50,000,001 - $ 60,000,000 0.040%
$ 60,000,001 - $ 70,000,000 0.030%
$ 70,000,001 - $ 100,000,000 0.020%
$100,000,001 - $ 500,000,000 0.015%
$500,000,001 - $1,000,000,000 0.005%
over $1,000,000,000 0.001%
</TABLE>
-25-
<PAGE>
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with provision of ICC's accounting
services under the Master Services Agreement: express delivery service,
independent pricing and storage.
For the fiscal year ended March 31, 1998, ICC received accounting fees
of $29,232.
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
14. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end non-diversified management investment companies and to
stock or other relevant indices or averages in advertisements or in certain
reports to shareholders, performance will generally be stated both in terms of
total return and in terms of yield. However, the Fund may also from time to time
state the performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1-, 5- or 10-)
ERV = ending redeemable value at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover one-,
five-, and ten-year periods or a shorter period dating from the effectiveness of
the Fund's registration statement (or the later commencement of operations of a
Series or class). During its first year of operations, the Fund may, in lieu of
annualizing its total return, use an aggregate total return calculated in the
same manner. In calculating the ending redeemable value, the
-26-
<PAGE>
maximum sales load (1.50% for the Flag Investors Class A Shares) is deducted
from the initial $1,000 payment and all dividends and distributions by the Fund
are assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. "T" in the formula above
is calculated by finding the average annual compounded rate of return over the
period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 payment for the period
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended Since Inception
March 31, 1998
------------------------------------------ --------------------------------------------
Ending Average Ending Average
Redeemable Annual Total Redeemable Annual Total
Class Value Return Value Return
- --------------------------- ------------------ ---------------------- ---------------------- --------------------
<S> <C> <C>
Class A $1,062.13 6.21% $1,205.95 4.25%
October 1, 1993*
- --------------------------- ------------------ ---------------------- ---------------------- --------------------
ABCAT
January 10, 1997* $ N/A $8.13% $1072.56 $7.26%
- --------------------------- ------------------ ---------------------- ---------------------- --------------------
Institutional
November 2, 1995 $1,081.21 $8.12% $1,140.47 $5.61%
- --------------------------- ------------------ ---------------------- ---------------------- --------------------
</TABLE>
- -----------
* Inception Date
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or Morningstar Inc., the Fund calculates its aggregate and average annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. For this alternative computation,
the Fund assumes that the $10,000 invested in Shares is net of all sales charges
(as distinguished from the computation required by the SEC where the $1,000
payment is reduced by sales charges before being invested in Shares). The Fund
will, however, disclose the maximum sales charges and will also disclose that
the performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules, and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
-27-
<PAGE>
Yield Calculations
The Fund's yield for the 30-day period ended March 31, 1998 was 3.87%
for the Flag Investors Class A Shares, 4.18% for the Institutional Shares and
4.18% for the ABCAT Shares and was computed in the manner discussed below. The
yield of the Fund is calculated by dividing the net investment income per Share
earned by the Fund during a 30-day (or one month) period by the maximum offering
price per share on the last day of the period and annualizing the result on a
semiannual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Fund's yield calculations assume a maximum sales charge of 1.50% for the Flag
Investors Class A Shares and no sales charge for the ABCAT Shares. The Fund's
net investment income per Share earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements.
The Fund may also advertise a "tax-equivalent yield", which is
calculated by determining the rate of the return that would have to be achieved
on a fully taxable investment to produce the after-tax equivalent of the Fund's
yield, assuming certain tax brackets for a shareholder. The Fund's tax-
equivalent yield for the 30-day period ended March 31, 1998, for a shareholder
in the 31% bracket, was 5.61% for the Flag Investors Class A Shares, 6.06% for
the Institutional Shares and 6.06% for the ABCAT Shares.
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. For the fiscal years
ended March 31, 1998 and March 31, 1997, the Fund's portfolio turnover rate was
14.26% and 33.18%, respectively. A high level of portfolio turnover may generate
relatively high transaction costs and may increase the amount of taxes payable
by the Fund's shareholders.
-28-
<PAGE>
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 8, 1998, the following persons owned of record or
beneficially 5% or more of the Fund's total outstanding Shares:
BT Alex. Brown Incorporated* 65.51%
FBO 250-10788-16
P.O. Box 1346
Baltimore, MD 21203-1346
As of July 8, 1998, to Fund management's knowledge, Directors and
officers as a group owned less than 1% of the Fund's total outstanding Shares.
- --------
* As of July 8, 1998, to Fund management's knowledge, BT Alex Brown
owned beneficially less than 1% of such Shares.
16. FINANCIAL STATEMENTS
See next page.
-29-
<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>
30
<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>
31
<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>
32
<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>
33
<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>
34
<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.
35
<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.
36
<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.
37
<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.
38
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
October 1, 1993(1)
through
For the Year Ended March 31, March 31,
- ---------------------------------------------------------------------------------------------------------------------------------
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.
39
<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.
40
<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.
41
<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.
42
<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.
43
<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)
========== ==========
44
<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.
45
<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.
46
<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
47
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Moody's Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P-2 or P-3.
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, and CC and C -- Regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least
A-1
<PAGE>
degree of speculation and C the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
D -- In default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or the
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE>
Part C - Other Information
Part C contains the information required by the items contained
therein under the items set forth in the form.
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits.
---------------------------------
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
- Statement of Net Assets at March 31, 1998
- Statement of Changes in Net Assets for the fiscal years
ended March 31, 1998, March 31, 1997 and March 31,
1996
- Statement of Operations for the fiscal year ended
March 31, 1998
- Financial Highlights for Flag
Investors Class A Shares for the
fiscal years ended March 31, 1998,
March 31, 1997, March 31, 1996 and
March 31, 1995 and for the period
from October 1, 1993 (commencement
of operations) through March 31,
1994
- Financial Highlights for ABCAT Shares for the period
from May 8, 1997 (commencement of operations)
through March 31, 1998
- Notes to Financial Statements
- Report of Independent Accountants
(2) All required financial statements are
included in Parts A and B hereof. All other
financial statements and schedules are
inapplicable.
C-1
<PAGE>
(b) Exhibits
(1)(a) Articles of Incorporation.(1)
(1)(b) Articles Supplementary, dated October 6, 1995.(2)
(1)(c) Articles Supplementary, dated April 24, 1996.(2)
(1)(d) Articles Supplementary with respect to creation of
ABCAT Shares Class, dated November 1, 1996.(3)
(2) By-Laws, as amended through December 18, 1996.(3)
(3) Not Applicable.
(4) Specimen Security.(4)
(5) Investment Advisory Agreement between Registrant
and Investment Company Capital Corp., filed
herewith.
(6)(a) Distribution Agreement between Registrant and ICC
Distributors, Inc., filed herewith.
(6)(b) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers, filed
herewith.
(6)(c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents, filed
herewith.
(7) Not Applicable.
C-2
<PAGE>
(8) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed
herewith.
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp.(2)
(10) Opinion of Counsel.(1)
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15)(a) Distribution Plan with respect to Class A Shares.(1)
(15)(b) Amended Distribution Plan, filed herewith.
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
(18)(a) Registrant's 18f-3 Plan.(4)
(b) Registrant's Amended 18f-3 Plan.(3)
(c) Registrant's 18f-3 Plan, as amended through August
4, 1997, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
- ---------------------------------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 26, 1995.
C-3
<PAGE>
(2) Incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 29, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 29, 1997.
(4) Incorporated by reference to Exhibit 1 (Articles of
Incorporation), as amended to date, to Post-Effective Amendments
Nos. 3 and 5 to Registrant's Registration Statement on Form N-1A
(File No. 33-66870), filed with the Securities and Exchange
Commission via EDGAR on July 26, 1995 and July 29, 1996,
respectively, and Exhibit 2 (By-Laws) as amended to date, to
Post-Effective Amendment No. 3 to such Registration Statement
filed with the Securities and Exchange Commission via EDGAR on
July 26, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on October 18, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of July 8, 1998:
Title of Class Number of Record Holders
-------------- ------------------------
Flag Investors Class A Shares 364
ABCAT Shares 19
Institutional Shares 0
Item 27. Indemnification.
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
C-4
<PAGE>
Section 1, 2, 3 and 4 of Article VIII of Registrant's Articles
of Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the
Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies
to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which
liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses
to its currently acting and its former directors to the fullest
extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall
indemnify and advance expenses to its officers to the same
extent as to its directors and to such further extent as is
consistent with law. The Board of Directors of the Corporation
may make further provision for indemnification of directors,
officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article VIII shall be effective
to protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time
amended. No further amendment to the Charter of the Corporation
shall decrease, but may expand, any right of any person under
this Article VIII based on any event, omission or proceeding
prior to such amendment.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1940 Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1940 Act
and will be governed by the final adjudication of such issue. In the absence of
a determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested directors of the Fund,
or an independent legal counsel in a written opinion, based on review of readily
available facts.
C-5
<PAGE>
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment
of a substantial nature in which the investment advisor of the Registrant, and
each director, officer or partner of any such investment advisor, is or has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee.
During the last two fiscal years, no director or officer of
Investment Company Capital Corp., the Registrant's investment advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment management and,
through affiliates, investment banking.
Item 29. Principal Underwriters.
Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor or
investment advisor:
(a) ICC Distributors, Inc. acts as distributor for BT
Alex. Brown Cash Reserve Fund, Inc., Flag Investors
Communications Fund, Inc. (formerly Flag Investors
Telephone Income Fund, Inc.), Flag Investors
International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Total Return U.S.
Treasury Fund Shares of Total Return U.S. Treasury
Fund, Inc., Flag Investors Managed Municipal Fund
Shares of Managed Municipal Fund, Inc., Flag Investors
Short- Intermediate Income Fund, Inc. (formerly Flag
Investors Intermediate- Term Income Fund, Inc.), Flag
Investors Value Builder Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc. and Flag Investors
Equity Partners Fund, Inc., all registered open-end
management investment companies.
Furnish information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 21 of Part B
(Underwriters):
(b)
Position and
Name and Principal Offices with Principal Position and Officers with
Business Address* Underwriter Registrant
- ------------------------ ----------------------- --------------------------
John Y. Keffer President None
Sara M. Morris Treasurer None
C-6
<PAGE>
(b)
Position and
Name and Principal Offices with Principal Position and Officers with
Business Address* Underwriter Registrant
- ------------------------ ----------------------- --------------------------
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
- ------------------------
* Two Portland Square
Portland, ME 04101
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
ICC Distributors, Inc. (Registrant's distributor) and Investment
Company Capital Corp. (Registrant's investment advisor, transfer agent,
dividend disbursing agent, and accounting services provider), One South
Street, Baltimore, Maryland 21202, will maintain physical possession of
each such account, book or other document of the Registrant, except for
those accounts, books and documents pursuant to Rule 31a-1(b)(1)
maintained by the Registrant's custodian, Bankers Trust Company, 130
Liberty Street, New York, New York 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), [ISI] and [ICC] each maintains physical possession of all
journals containing itemized daily records of all purchases and sales of
securities, including sales and redemptions of Fund securities, and
Bankers Trust Company maintains physical possession of all receipts and
deliveries of securities (including certificate numbers if such detail is
not recorded by the
C-7
<PAGE>
custodian or transfer-agent), all receipts and disbursements of cash, and
all other debts and credits.
Item 31. Management Services.
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.
Not Applicable.
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:
(a) Registrant hereby undertakes to furnish each prospective person
to whom a prospectus will be delivered with a copy of the
Registrant's latest annual report to shareholders containing
information called for by Item 5A of Form N-1A, upon request and
without charge by contacting Registrant at (800) 767-3524.
C-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 8 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 29th day of July, 1998.
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
By: /s/ Harry Woolf
-----------------------
Harry Woolf
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
* Chairman and July 29, 1998
- ---------------------------- Director -----------------
Richard T. Hale Date
* Director July 29, 1998
- ---------------------------- -----------------
James J. Cunnane Date
* Director July 29, 1998
- ---------------------------- -----------------
John F. Kroeger Date
* Director July 29, 1998
- ---------------------------- -----------------
Louis E. Levy Date
* Director July 29, 1998
- ---------------------------- -----------------
Eugene J. McDonald Date
* Director July 29, 1998
- ---------------------------- -----------------
Rebecca W. Rimel Date
* Director July 29, 1998
- ---------------------------- -----------------
Truman T. Semans Date
* Director July 29, 1998
- ---------------------------- -----------------
Carl W. Vogt Date
/s/ Harry Woolf President July 29, 1998
- ---------------------------- -----------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial July 29, 1998
- ---------------------------- and Accounting -----------------
Joseph A. Finelli Officer Date
*By: /s/Amy M. Olmert
- ----------------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR Exhibit
Number Exhibits Documents
- ----------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
(1)(a) Articles of Incorporation.(1)
(1)(b) Articles Supplementary, dated October 6, 1995.(2)
(1)(c) Articles Supplementary, dated April 24, 1996.(2)
(1)(d) Articles Supplementary with respect to creation of
ABCAT Shares Class, dated November 1, 1996.(3)
(2) By-Laws, as amended through December 18, 1996.(3)
(3) Not Applicable.
(4) Specimen Security.(4)
EX-99.B (5) Investment Advisory Agreement between Registrant
and Investment Company Capital Corp., filed
herewith.
EX-99.B (6)(a) Distribution Agreement between Registrant and ICC
Distributors, Inc., filed herewith.
EX-99.B (6)(b) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers, filed
herewith.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR Exhibit
Number Exhibits Documents
- ----------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
EX-99.B (6)(c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents, filed
herewith.
(7) Not Applicable.
EX-99.B (8) Custodian Agreement dated June 5, 1998 between Registrant
and Bankers Trust Company, filed herewith.
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp.(2)
(10) Opinion of Counsel.(1)
EX-99.B (11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15)(a) Distribution Plan with respect to Class A Shares.(1)
EX-99.B (15)(b) Amended Distribution Plan, filed herewith.
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
(18)(a) Registrant's 18f-3 Plan.(4)
(b) Registrant's Amended 18f-3 Plan.(3)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR Exhibit
Number Exhibits Documents
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
EX-99.B (c) Registrant's 18f-3 Plan, as amended through
August 4, 1997, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 (27) Financial Data Schedule, filed herewith.
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 26, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 29, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on July 29, 1997.
(4) Incorporated by reference to Exhibit 1 (Articles of
Incorporation), as amended to date, to Post-Effective Amendments
Nos. 3 and 5 to Registrant's Registration Statement on Form N-1A
(File No. 33-66870), filed with the Securities and Exchange
Commission via EDGAR on July 26, 1995 and July 29, 1996,
respectively, and Exhibit 2 (By-Laws) as amended to date, to
Post-Effective Amendment No. 3 to such Registration Statement
filed with the Securities and Exchange Commission via EDGAR on
July 26, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No.
33-66870), filed with the Securities and Exchange Commission via
EDGAR on October 18, 1996.
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day
of September, 1997 by and between FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE
INCOME FUND, INC., a Maryland corporation (the "Fund"), and INVESTMENT COMPANY
CAPITAL CORP., a Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor
under the Investment Advisors Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an
agreement to provide investment advisory and administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors. The Advisor shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
State of Maryland on July 23, 1993 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to time be
amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed with
the Securities and Exchange Commission (the "SEC") on August 2, 1993;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act"), (File No. 33-66870) and
under the 1940 Act as filed with the SEC on July 28, 1993 relating to the shares
of the Fund, and all amendments thereto; and
-1-
<PAGE>
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Investment Advisor. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
(c) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund, and
whether concerning the individual issuers whose securities are included in the
Fund's portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio;
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(g) take all actions necessary to carry into effect the
Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer and
dividend disbursing agent;
(i) provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records, as are deemed
advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filings with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor
is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage
-2-
<PAGE>
commission rates, the Advisor's primary consideration in effecting securities
transactions will be to obtain the best price and execution on an overall basis.
In performing this function the Advisor shall comply with applicable policies
established by the Board of Directors and shall provide the Board of Directors
with such reports as the Board of Directors may require in order to monitor the
Fund's portfolio transaction activities. In certain instances the Advisor may
make purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker-dealer to execute each particular transaction, the Advisor
will take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. Accordingly, the price to the Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers other than Alex. Brown & Sons Incorporated ("Alex. Brown")
who also provide research or statistical material or other services to the Fund
or the Advisor. Such allocation shall be in such amounts and proportions as the
Advisor shall determine and the Advisor will report on said allocation regularly
to the Board of Directors of the Fund, indicating the broker-dealers to whom
such allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other accounts of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Brown and the Advisor may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement,
as well as any other activities undertaken by the
-3-
<PAGE>
Advisor on behalf of the Fund pursuant thereto, shall at all times be subject to
any applicable directives of the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without cost to the
Fund, the services of and one or more officers of the Fund, to the extent that
such officers may be required by the Fund, for the proper conduct of its
affairs.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution, the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions, chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to Federal, State or
other governmental agencies; the costs and the expenses of engraving or printing
of certificates representing shares of the Fund; all costs and expenses in
connection with registration and maintenance of registration of the Fund and its
shares with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of Fund's shares; charges
and expenses of legal counsel, including counsel to the Directors of the Fund
who are not "interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor
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shall continue to supervise the performance of any such sub-advisor and shall
report regularly thereon to the Fund's Board of Directors, but shall not be
responsible for the sub-advisor's performance under the sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Fund which are not required by this Agreement
upon the request of the Fund's Board of Directors. Such services will be
performed on behalf of the Fund and the Advisor's charge in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Advisor of any Fund
expense that the Advisor is not required to pay or assume under this Agreement
shall not relieve the Advisor of any of its obligations to the Fund nor obligate
the Advisor to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual rate of .35% of the Fund's average daily net assets.
Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, trustees or directors of any other firm, trust or corporation,
including other investment companies.
11. Term and Renewal. This Agreement shall become effective as
of the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act); and
(b) by the affirmative vote of a majority of the Directors
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
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<PAGE>
12. Termination. This Agreement may be terminated without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
13. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits to ensure
the accuracy of all services performed under this Agreement, but the Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.
15. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective offices as of the day
and year first above written.
[SEAL] FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
Attest: /s/ Amy M. Olmert By: /s/ Harry Woolf
----------------- -------------------
Amy M. Olmert Name: Harry Woolf
Title: President
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Amy M. Olmert By: /s/ Edward J. Veilleux
----------------- ----------------------
Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
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<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc., with its principal
office and place of business at One South Street, Baltimore, Maryland 21202 (the
"Fund"), and ICC Distributors, Inc., a Delaware corporation with its principal
office and place of business at Two Portland Square, Portland, Maine 04101 (the
"Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company, may
issue its shares of common stock (the "Shares") in separate series and classes
and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange Act of
1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the business
of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in Appendix
A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16, being herein referred to as a "Series," and collectively as the
"Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Fund and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Organic Documents"), the Fund's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, the
Fund's Registration Statement and all amendments thereto filed with the SEC
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the 1940 Act (the "Registration Statement") and its current Prospectuses and
Statements of Additional Information (collectively, as
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<PAGE>
currently in effect and as amended or supplemented, the "Prospectus") and shall
promptly furnish the Distributor with all amendments of or supplements to the
foregoing, each properly certified or authenticated. In addition, the Fund shall
furnish the Distributor with properly certified or authenticated copies of all
documents, notices and reports filed with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Fund hereby appoints the Distributor as its principal underwriter
and distributor to sell its Shares to the public and hereby agrees during the
term of this Agreement to sell its Shares to the Distributor upon the terms and
conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
its principal underwriter and distributor except that the rights given under
this Agreement to the Distributor shall not apply to Shares issued in connection
with the merger, consolidation or reorganization of any other investment company
with the Fund; the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company; or the
reinvestment in Shares by the Fund's shareholders of dividends or other
distributions or any other offering by the Fund of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the Shares
needed to fill unconditional orders for unsold Shares of the Fund as shall then
be effectively registered under the Securities Act placed with the Distributor
by investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, the Distributor may act as the Fund's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Fund as shall then be
effectively registered under the Securities Act. The Distributor will promptly
forward all orders and subscriptions for Shares of the Fund. The price which the
Distributor shall pay for Shares purchased by it from the Fund shall be the net
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<PAGE>
asset value, determined as set forth in Section 3(c) hereof, used in determining
the public offering price on which the orders are based. The price at which the
Distributor shall offer and sell Shares to investors shall be the public
offering price, as set forth in Section 3(b) hereof. The Distributor may sell
Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to investors
through subscriptions received by the Fund, but no such direct sales shall
affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the price
per Share at which the Distributor or selected dealers or selected agents (each
as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the Fund's Prospectus,
shall be the public offering price determined in accordance with the then
currently effective Prospectus of the Fund or Class thereof under the Securities
Act, relating to such Shares, but not to exceed the net asset value at which the
Distributor, when acting as principal, is to purchase such Shares, plus, in the
case of Shares for which an initial sales charge is assessed, an initial charge
equal to a specified percentage or percentages of the public offering price of
the Shares as set forth in the current Prospectus relating to the Shares. In the
case of Shares for which an initial sales charge may be assessed, Shares may be
sold to certain classes of persons at reduced sales charges or without any sales
charge as from time to time set forth in the current Prospectus relating to the
Shares. The Fund will advise the Distributor of the net asset value per Share at
each time as the net asset value per Share shall have been determined by the
Fund.
(c) The net asset value per Share of each Series or Class thereof shall be
determined by the Fund, or an agent of the Fund, as of the close of the New York
Stock Exchange or such other time as set forth in the applicable Prospectus on
the Fund business day in accordance with the method set forth in the Prospectus
and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of any
Class at any time in the absolute discretion of the Board, and upon notice of
such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Fund for
acceptance and shall not be binding until accepted by the Fund. Any order or
subscription may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or confirm orders
or subscriptions for the purchase of Shares. The Fund (or its agent) will
confirm orders and subscriptions upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment thereof, will
issue such Shares in certificated or uncertificated form pursuant to the
instructions of the Distributor. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
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<PAGE>
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of time may be redeemed without payment of a deferred sales
charge as from time to time set forth in the Prospectus relating to those
Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of the
redemption price consisting of the redemption price less any applicable deferred
sales charge to the redeeming shareholder or its agent and (ii) except as may be
otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times when
the New York Stock Exchange is closed for any reason other than its customary
weekend or holiday closings, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by the Fund is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the Fund
upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
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<PAGE>
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the Shares. None of the
Distributor, any selected dealer, any selected agent or any other person is
authorized by the Fund to give any information or to make any representations
other than as is contained in the Fund's Prospectus or any advertising materials
or sales literature specifically approved in writing by the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers or selected agents, the collection of
amounts payable by investors and selected dealers or selected agents on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the supervision
of and in accordance with the directives of the Board. The Distributor will
perform its duties hereunder in accordance with the Fund's Organic Documents and
Prospectuses and with the instructions and directions of the Board and will
conform to and comply with the requirements of the 1940 Act, the Securities Act
and other applicable laws.
(e) The Distributor shall provide the Board with a written report of the
amounts expended in connection with this Agreement as requested by the Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware and it is duly
qualified to carry on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles
of Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(v) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Distributor,
enforceable against the Distributor in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of
creditors and secured parties;
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<PAGE>
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the NASD, it will
abide by the rules and regulations of the NASD, and it will notify the
Fund if its membership in the NASD is terminated or suspended; and
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(g) Notwithstanding anything in this Agreement, including the Appendices,
to the contrary, the Distributor makes no warranty or representation as to the
number of selected dealers or selected agents with which it has entered into
agreements in accordance with Section 11 hereof, as to the availability of any
Shares to be sold through any selected dealer, selected agent or other
intermediary or as to any other matter not specifically set forth herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other papers
or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Fund shall make available to the
Distributor the number of copies of its Prospectuses as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, subject to the approval of its
Board and any required approval of its shareholders, all action necessary to fix
the number of authorized Shares (if such number is not limited) and to register
the Shares under the Securities Act, to the end that there will be available for
sale the number of Shares as reasonably may be expected to be sold pursuant to
this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such registration or qualification.
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<PAGE>
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its Organic
Documents to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have
been taken to authorize it to enter into and perform its duties under
this Agreement;
(iv) It is registered as an open-end management investment
company with the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully
paid and non-assessable;
(vi) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Fund,
enforceable against the Fund in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties;
(vii) The performance by the Fund of its obligations hereunder
does not and will not contravene any provision of its Articles of
Incorporation.
(viii) The Fund's Registration Statement is currently
effective and will remain effective with respect to all Shares of the
Fund's Series and Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its
Registration Statement and Prospectuses have been or will be, as the
case may be, carefully prepared in conformity with the requirements of
the Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its
Registration Statement and Prospectuses contain or will contain all
statements required to be stated therein in accordance with the
Securities Act and the rules and regulations thereunder, (B) all
statements of fact contained or to be contained in the Registration
Statement or Prospectuses are or will be true and correct at the time
indicated or on the effective date as the case may be and (C) neither
the Registration Statement nor any Prospectus, when they shall become
effective or be authorized for use, will include an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares;
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<PAGE>
(xi) It will from time to time file such amendment or
amendments to its Registration Statement and Prospectuses as, in the
light of then-current and then-prospective developments, shall, in the
opinion of its counsel, be necessary in order to have the Registration
Statement and Prospectuses at all times contain all material facts
required to be stated therein or necessary to make any statements
therein not misleading to a purchaser of Shares ("Required
Amendments");
(xii) It shall not file any amendment to its Registration
Statement or Prospectuses without giving the Distributor reasonable
advance notice thereof (which shall be at least three Fund business
days); provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such
amendments to its Registration Statement or Prospectuses, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional; and
(xiii) It will use its best efforts to ensure that (A) any
amendment to its Registration Statement or Prospectuses hereafter filed
will, when it becomes effective, contain all statements required to be
stated therein in accordance with the 1940 Act and the rules and
regulations thereunder, (B) all statements of fact contained in the
Registration Statement or Prospectuses will, when it becomes effective,
be true and correct at the time indicated or on the effective date as
the case may be and (C) no such amendment, when it becomes effective,
will include an untrue statement of a material fact or will omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the
Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in rendering
services to the Fund under this Agreement but shall be under no duty to take any
action except as specifically set forth herein or as may be specifically agreed
to by the Distributor in writing. The Distributor shall not be liable to the
Fund or any of the Fund's shareholders for any error of judgment or mistake of
law, for any loss arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful misfeasance or gross
negligence in the performance of the Distributor's duties or obligations under
this Agreement or by reason of the Distributor's reckless disregard of its
duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action taken or
failure to act in good faith reliance upon:
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<PAGE>
(i) the advice of the Fund or of counsel, who may be counsel
to the Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and
which it reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral instruction
(the Distributor shall have no duty or obligation to make any inquiry
or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any
resolution of the Board, and the Distributor may rely upon the
genuineness of any such document or copy thereof reasonably believed in
good faith by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order, or other document reasonably believed
in good faith by the Distributor to be genuine and to have been signed
or presented by the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Distributor's employees), fire, mechanical breakdowns, flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply. In addition, to the extent the Distributor's
obligations hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the performance
of the Distributor's duties caused, directly or indirectly, by the failure or
delay of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
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SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Fund in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Fund shall indemnify and hold each Distributor Indemnitee free and
harmless from and against any Distributor Claim; provided, that the term
Distributor Claim for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested amendment to the
Fund's Registration Statement and for which the Fund has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Fund by or on behalf of the
Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
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(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees
and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained
in the Fund's Registration Statement or Prospectus or any alleged
omission of a material fact required to be stated or necessary to make
the statements therein not misleading, if such statement or omission
was made in reliance upon, and in conformity with, information
furnished to the Fund in writing in connection with the preparation of
the Registration Statement or Prospectus by or on behalf of the
Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to enforce
any Fund Claim and may retain counsel of good standing chosen by the Distributor
and approved by the Fund, which approval shall not be withheld unreasonably. The
Distributor shall advise the Fund that it will assume the defense of the suit
and retain counsel within ten (10) days of receipt of the notice of the claim.
If the Distributor assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Distributor does not assume the defense of any such suit, or if
the Fund does not approve of counsel chosen by the Distributor or has been
advised that it may have available defenses or claims that are not available to
or conflict with those available to the Distributor, the Distributor will
reimburse any Fund Indemnitee named as defendant in such suit for the reasonable
fees and expenses of any counsel that person retains. A Fund Indemnitee shall
not settle or confess any claim without the prior written consent of the
Distributor, which consent shall not be unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Fund or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Fund
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to any Distributor
Indemnitee or Fund Indemnitee except to the extent that the ability of the party
-11-
<PAGE>
entitled to such notice to defend such action has been materially adversely
affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Fund Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Fund of the commencement
of any litigation or proceeding of which it becomes aware arising out of or in
any way connected with the issuance or sale of Shares. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceeding of
which it becomes aware arising out of or in any way connected with the issuance
or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Fund nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement, except if required by any applicable statute
or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Fund or the security holders of the
Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
-12-
<PAGE>
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request by
the SEC for amendments to the Fund's Registration Statement or Prospectus or for
additional information; (ii) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the Fund's Registration Statement or any
Prospectus or the initiation of any proceedings for that purpose; (iii) of the
happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with the
distribution of Shares of the Fund and each Class thereof, the Distributor shall
receive: (i) any applicable sales charge assessed upon investors in connection
with the purchase of Shares; (ii) from the Fund, any applicable contingent
deferred sales charge ("CDSC") assessed upon investors in connection with the
redemption of Shares; (iii) from the Fund, the distribution service fees with
respect to the Shares of those Classes as designated in Appendix A for which a
plan under Rule 12b-1 under the 1940 Act (a "Plan") is effective (the
"Distribution Fee"); and (iv) from the Fund, the shareholder service fees with
respect to the Shares of those Classes as designated in Appendix A (the "Service
Fee"). The Distribution Fee and Service Fee shall be accrued daily by each
applicable Fund or Class thereof and shall be paid monthly as promptly as
possible after the last day of each calendar month but in any event on or before
the fifth (5th) Fund business day after month-end, at the rate or in the amounts
set forth in Appendix A and, as applicable, the Plan(s). The Fund grants and
transfers to the Distributor a general unperfected lien and security interest in
any and all securities and other assets of the Fund now or hereafter maintained
in an account at the Fund's custodian on behalf of the Fund to secure any
Distribution Fees and Service Fees owed the Distributor by the Fund under this
Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor shall be
entitled to no compensation or reimbursement of expenses for the services
provided by the Distributor pursuant to this Agreement. The Distributor may
receive compensation from the Fund's investment advisors, other service
providers or their respective affiliates (collectively, the "Advisor") for its
services hereunder or for additional services all as may be agreed to between
the Advisor and the Distributor. Notwithstanding anything in this Agreement to
the contrary, to the extent the Distributor receives compensation from the
-13-
<PAGE>
Advisor that is disclosed to the Board, the Fund will indemnify, defend and hold
each Distributor Indemnitees free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for payment of
all its expenses, including fees and disbursements of its counsel and auditors,
in connection with the preparation and filing of the Registration Statement and
Prospectuses (including but not limited to the expense of setting in type the
Registration Statement and Prospectuses and printing sufficient quantities for
internal compliance, regulatory purposes and for distribution to current
shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration of
its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto. Shares of each Series or Class
thereof shall be resold by selected dealers or selected agents only at the
public offering price(s) set forth in the Prospectus relating to the Shares. The
Distributor shall offer and sell Shares of the Fund only to such selected
dealers as are members in good standing of the NASD. The Distributor shall have
the right to enter into shareholder servicing agreements with financial
intermediaries of its choice; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix C hereto.
(b) The Distributor will supervise the Fund's relationship with selected
dealers and agents and may make payments to those selected dealers and agents in
such amounts as the Distributor may determine from time to time in its sole
discretion. The amount of payments to selected dealers and agents by the
-14-
<PAGE>
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information related
to the Fund as proprietary information of the Fund and, on behalf of itself and
its employees, to keep confidential all such information, except that the
Distributor may:
(i) prepare or assist in the preparation of periodic reports
to shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment
company industry to companies that track or report price, performance
or other information regarding investment companies; and
(iii) release such other information as approved in writing by
the Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or criminal legal proceedings for failure to
comply, when requested to release any information by duly constituted
authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series or
class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the date
on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series Fund
for a period of one year from its effectiveness and thereafter shall continue in
effect with respect to the Series until terminated; provided, that continuance
is specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Directors of the Fund (I) who are not parties to this Agreement or
interested persons of any such party (other than as Directors of the Fund) and
(II) with respect to each Class of a Series for which there is an effective
Plan, who do not have any direct or indirect financial interest in any such Plan
applicable to the Class or in any agreements related to the Plan, cast in person
at a meeting called for the purpose of voting on such approval.
-15-
<PAGE>
(c) This Agreement may be terminated at any time with respect to a Series,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Series or, with respect to each
Class for which there is an effective Plan, a majority of Directors of the Fund
who do not have any direct or indirect financial interest in any such Plan or in
any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment and
upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive any
termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Fund or the Fund to the Distributor shall be deemed sufficiently given if
personally delivered or sent by telegram, facsimile or registered, certified or
overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
giving such notice, and unless and until changed pursuant to the foregoing
provisions hereof each such notice shall be addressed to the Fund or the
Distributor, as the case may be, at their respective principal places of
business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, trust, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or one
or more classes of Shares after the effectiveness of this Agreement, such series
of Shares or classes of Shares, as the case may be, shall become Series and
Classes under this Agreement upon approval of this Agreement by the Fund with
respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
-16-
<PAGE>
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall not
be liable to the Distributor for consequential damages under any provision of
this Agreement except that Distributor Claims, as that term is used in Section
8(a), shall include consequential damages related to, arising out of or based
upon any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the Distributor
and the Fund and supersedes any prior agreement with respect to the subject
matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number of
counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to those
Series and Classes of the Fund and the Distributor shall look solely to the Fund
to satisfy any liability of a Series or Class thereof to the Distributor.
-17-
<PAGE>
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
FLAG INVESTORS MARYLAND
INTERMEDIATE TAX-FREE INCOME
FUND, INC.
By: /s/ Amy M. Olmert
-----------------
Amy M. Olmert
Secretary
ICC DISTRIBUTORS, INC.
By: /s/ John Y. Keffer
------------------
John Y. Keffer
President
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of August 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Distribution Service
Series Class Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc. Class A 0.25% ----
Class B(1) 0.75% 0.25%
Institutional Class ---- ----
Alex Brown Advisory Capital
and Trust Class ---- ----
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not currently offered.
- A1 -
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
- B1 -
<PAGE>
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
-B2-
<PAGE>
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
- B3 -
<PAGE>
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
-------------------
Vice President
-B4-
<PAGE>
Confirmed and accepted:
Firm Name: _______________________
By: ______________________________
Signature
______________________________
Printed Name and Title
Date: ____________________________
Address: _________________________
Clears Through: __________________
Phone No.: _______________________
- B5 -
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
__________
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (v) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
- C1 -
<PAGE>
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
- C2 -
<PAGE>
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
- C3 -
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name: _____________________
By: ____________________________
Name: __________________________
Address: _______________________
Date: ________________
- C4 -
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
Form of Sub-Distribution Agreement
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
<PAGE>
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
<PAGE>
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
<PAGE>
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE INCOME FUND, INC.
Form of Shareholder Services Agreement
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (v) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any
<PAGE>
personnel employed by you) as may be reasonably necessary or beneficial in order
to provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
<PAGE>
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE FUND, INC. (the
"Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. Without limitation, such Property shall
include stocks and other equity interests of every type, evidences of
indebtedness, other instruments representing same or rights or obligations to
receive, purchase, deliver or sell same and other non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property at Custodian and Subcustodian Locations.
Pursuant to Instructions, the Customer shall direct the Custodian to (a) settle
Securities transactions and maintain cash in the country or other jurisdiction
in which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are acquired
and (b) maintain Cash and Cash equivalents in such countries in amounts
reasonably necessary to effect the Customer's transactions in such Securities.
Instructions to settle Securities transactions in any country shall be deemed to
authorize the holding of such Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. The Custodian may deliver securities of the same class in place of
those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the
- 1 -
<PAGE>
Property shall be executed or settled solely in accordance with Instructions,
except that until the Custodian receives Instructions to the contrary, the
Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
the Account, endeavor to receive Instructions, provided that
if such Instructions are not received in time for the
Custodian to take timely action, no action shall be taken with
respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in the Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
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<PAGE>
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(a) one of its U.S. branches or another U.S. bank or trust company or branch
thereof located in the U.S. which is itself qualified under the Investment
Company Act of 1940, as amended ("1940 Act"), to act as custodian (individually,
a "U.S. Subcustodian"), or a U.S. securities depository or clearing agency or
system in which the Custodian or a U.S. Subcustodian participates (individually,
a "U.S. Securities System") or (b) one of its non-U.S. branches or
majority-owned non-U.S. subsidiaries, a non-U.S. branch or majority-owned
subsidiary of a U.S. bank or a non-U.S. bank or trust company, acting as
custodian (individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and
non-U.S. Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository
or clearing agency or system in which the Custodian or any Subcustodian
participates (individually, a "non-U.S. Securities System"; U.S. Securities
System and non-U.S. Securities System, collectively, "Securities System"),
provided that in each case in which a U.S. Subcustodian or U.S. Securities
System is employed, each such Subcustodian or Securities System shall have been
approved by Instructions; provided further that in each case in which a non-U.S.
Subcustodian or non-U.S. Securities System is employed, (a) such Subcustodian or
Securities System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5
under the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within
the meaning of Rule 17f-5 or such Subcustodian or Securities System is the
subject of an order granted by the U.S. Securities and Exchange Commission
("SEC") exempting such agent or the subcustody arrangements thereto from all or
part of the provisions of Rule 17f-5 and (b) the agreement between the Custodian
and such non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or responsibility for
determining whether the approval of any Subcustodian or Securities System has
been proper under the 1940 Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
-3-
<PAGE>
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the so maintained
Securities will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment in
accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial
ownership of such Securities will be freely transferable
without the payment of money or value other than for safe
custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the
Property maintained pursuant to such agreement as belonging to
the Custodian, on behalf of its customers and (v) to the
extent permitted by applicable law, officers of or auditors
employed by, or other representatives of or designated by, the
Custodian, including the independent public accountants of or
designated by, the Customer be given access to the books and
records of such Subcustodian relating to its actions under its
agreement pertaining to any Property held by it thereunder or
confirmation of or pertinent information contained in such
books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by
its agreement with the Custodian to, identify on its books
such Property as being maintained for the account of the
Custodian or Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the
account of the Custodian or a Subcustodian will be subject
only to the instructions of the Custodian or such
Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for
- 4 -
<PAGE>
safeguarding securities deposited in the Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the Account. All accounts, books and
records of the Custodian relating thereto shall be open to inspection and audit
at all reasonable times during normal business hours by any person designated by
the Customer. All such accounts shall be maintained and preserved in the form
reasonably requested by the Customer. The Custodian will supply to the Customer
from time to time, as mutually agreed upon, a statement in respect to any
Property in the Account maintained by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Property,
including Property deposited and/or maintained in a securities system or with a
Subcustodian. Such report shall be of sufficient scope and in sufficient detail
as may reasonably be required by the Customer and as may reasonably be obtained
by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy
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or completeness of any such information furnished or obtained by or through such
service and (ii) shall be without liability in selecting and utilizing such
service or furnishing any information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through a Subcustodian or
which are eligible for deposit in a Securities System as provided above may be
maintained with the Subcustodian or the Securities System in an account for the
Custodian's or Subcustodian's customers, unless prohibited by law, rule, or
regulation. The Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in the Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the event that any
Securities in the name of the Custodian or its nominee or held by a Subcustodian
and registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of Security in
any manner the Custodian deems to be fair and equitable. Securities maintained
with a Securities System shall be maintained subject to the rules of that
Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (iii) as may otherwise be agreed upon between the
Custodian and the Customer. The liability and responsibility of the Custodian in
connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which the
Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for the Account and delivery of Securities
out of the Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be
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modified or supplemented in accordance with the standard operating procedures of
the Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable
jurisdiction or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the Account in the event that the transaction does not
settle, or the income is not received in a timely manner, and the Customer
agrees to hold the Custodian harmless from any losses which may result
therefrom.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any Instructions to settle the
purchase of any securities for the Account, unless there are sufficient
immediately available funds in the relevant currency in the Account, provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have been made
final entries as set forth in (c) below, the amount of immediately available
funds in the relevant currency in such Account is at least equal to the
aggregate purchase price of all Securities for which the Custodian has received
Instructions to settle on that date ("Settlement Date"), the Custodian, upon
settlement, shall credit the Securities to the Account by making a final entry
on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit (as
defined below) applicable to the Account or the amount of immediately available
funds in a given currency in such Account are less than the aggregate purchase
price in such currency of all securities for which the Custodian has received
Instructions to settle on the Settlement Date, the Custodian, upon settlement,
may provisionally credit the Securities to the Account by making a conditional
entry on its books and records ("Conditional Credit"), pending receipt of
sufficient immediately available funds in the relevant currency in the Account.
(c) If, within a reasonable time after the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account, the
Custodian shall make the Conditional Credit a final entry on its books and
records. In such case, the Customer shall be liable to the Custodian only for
late charges at a rate which the Custodian customarily charges for similar
extensions of credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account,
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or (ii) any Proceeding shall occur, the Custodian may sell such of the
Securities subject to the Conditional Credit as it selects in its sole
discretion and shall apply the net proceeds of such sale to cover such Debit,
including related late charges, and any remaining proceeds shall be credited to
the Account. If such proceeds are insufficient to satisfy such debt in full, the
Customer shall continue to be liable to the Custodian for any shortfall. The
Custodian shall make the Conditional Credit a final entry on its books as to the
Securities not required to be sold to satisfy such Debit. Pending payment in
full by the Customer of the purchase price for Securities subject to a
Conditional Credit, and the Custodian's making a Conditional Credit a final
entry on its books, and unless consented to by the Custodian, the Customer shall
have no right to give further Instructions in respect of Securities subject to a
Conditional Credit. The Custodian shall have the sole discretion to determine
which Securities shall be deemed to have been paid for by the Customer out of
funds available in the Account. Any such Conditional Credit may be reversed (and
any corresponding Debit shall be canceled) by the Custodian unless and until the
Custodian makes a final entry on its books crediting such Securities to the
Account. The term "Proceeding" shall mean any insolvency, bankruptcy,
receivership, reorganization or similar proceeding relating to the Customer,
whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally use the Account
to facilitate the purchase of securities without sufficient funds in the Account
(which funds shall not include the expected proceeds of the sale of the
purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
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(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Portfolio's investment advisor and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission or of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 21.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian in accordance with Section 22 below (i) in writing
(including, without limitation, facsimile transmission) or by tested telex
signed or given by such one or more person or persons as the Customer shall have
from time to time authorized in writing to give the particular class of
Instructions in question and whose name and (if applicable) signature and office
address have been filed with the Custodian, or (ii) which have been transmitted
electronically through an electronic on-line service and communications system
offered by the Custodian or other electronic instruction system acceptable to
the Custodian, or (iii) a telephonic or oral communication by one or more
persons as the Customer shall have from time to time authorized to give the
particular class of Instructions in question and whose name has been filed with
the Custodian; or (iv) upon receipt of such other form of instructions as the
Customer may from time to time authorize in writing and which the Custodian has
agreed in writing to accept. Instructions in the form of oral communications
shall be confirmed by the Customer by tested telex or writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral instructions
prior to the Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions, and may be in
the form of standing instructions.
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The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in the Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting
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from, or caused by, or resulting from acts of governmental authorities (whether
de jure or de facto), including, without limitation, nationalization,
expropriation, and the imposition of currency restrictions; devaluations of or
fluctuations in the value of currencies; changes in laws and regulations
applicable to the banking or securities industry; market conditions that prevent
the orderly execution of securities transactions or affect the value of
Property; acts of war, terrorism, insurrection or revolution; strikes or work
stoppages; the inability of a local clearing and settlement system to settle
transactions for reasons beyond the control of the Custodian or hurricane,
cyclone, earthquake, volcanic eruption, nuclear fusion, fission or
radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer pursuant to any contract or any law or regulation.
The provisions of this Section shall survive termination of this Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. The
Customer hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the Account for any
amount payable to the Custodian under this Agreement, including but not limited
to amounts payable pursuant to Section 13 and pursuant to indemnities granted by
the Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
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20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall, within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names of the persons to
whom the Custodian shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid. In either case, the Custodian will deliver
such Property to the persons so specified, after deducting therefrom any amounts
which the Custodian determines to be owed to it hereunder. In addition, the
Custodian may in its discretion withhold from such delivery such Property as may
be necessary to settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of setoff against the Account
and all Property held therein from time to time in the full amount of the
foregoing obligations. If within ninety (90) days following the giving of a
notice of termination by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing business in the
State of New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that the Custodian's
obligations shall be limited to safekeeping.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to take such other actions or
exercise such other options, powers and rights as the Custodian now or hereafter
has as a secured creditor under the New York UCC or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
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(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
(ii) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms;
(iii) it will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who are not parties hereto that refer
in any way to the Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in writing within
ten (10) business days of receipt thereof (or such other time as may be mutually
agreed) after receipt thereof. The provisions of this Section shall survive the
termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
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28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Section shall survive the termination of this Agreement.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement together with any Exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
33. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
-14-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
FLAG INVESTORS MARYLAND
INTERMEDIATE TAX-FREE FUND, INC.
By:/s/Amy M. Olmert
-----------------------------
Name: Amy M. Olmert
-----------------------------
Title: Secretary
-----------------------------
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
-----------------------------
Name: Richard Fogarty
-----------------------------
Title: Vice President
-----------------------------
- 15 -
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Maryland Intermediate Tax-Free Fund, Inc..
PROXY SERVICE
-------------
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the applicable Service Standards.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely
<PAGE>
receipt of voting instructions, the Custodian will promptly forward such
instructions to the applicable Subcustodian. If voting instructions are not
timely received, the Custodian shall have no liability or obligation to take any
action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless other
arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
- 2 -
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Maryland Intermediate Tax-Free Fund, Inc.
================================================================================
BANKERS TRUST CUSTODY FEE SCHEDULE
For
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
================================================================================
Effective October 1, 1997
CUSTODY FEES
------------
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. DOMESTIC TRANSACTION FEES
================================================================================
TRANSACTION TYPE $USD
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
PHYSICAL AUTOMATED 15.00
PHYSICAL MANUAL 20.00
P&I PAYMENTS 5.00
REDEMPTIONS 10.00
REORGANIZATIONS Included in safekeeping charge
================================================================================
<PAGE>
3. GLOBAL SAFEKEEPING AND ASSET FEES
================================================================================
Annual Receive and
Country Asset Fee Deliver
Transactions
================================================================================
Argentina 35 Basis $100
Points
- --------------------------------------------------------------------------------
Australia 3 Basis Points $50
- --------------------------------------------------------------------------------
Austria 5 Basis Points $75
- --------------------------------------------------------------------------------
Bangladesh 40 Basis $150
Points
- --------------------------------------------------------------------------------
Belgium 4 Basis Points $60
- --------------------------------------------------------------------------------
Botswana 50 Basis $150
Points
- --------------------------------------------------------------------------------
Brazil 30 Basis $70
Points
- --------------------------------------------------------------------------------
Canada 2 Basis Points $20
- --------------------------------------------------------------------------------
Cedel/Euroclear 3 Basis Points $20
- --------------------------------------------------------------------------------
Chile 30 Basis $80
Points
- --------------------------------------------------------------------------------
China 30 Basis $75
Points
- --------------------------------------------------------------------------------
Columbia 35 Basis $100
Points
- --------------------------------------------------------------------------------
Czech Republic 20 Basis $70
Points
- --------------------------------------------------------------------------------
Denmark 4 Basis Points $50
- --------------------------------------------------------------------------------
Ecuador 45 Basis $100
Points
- --------------------------------------------------------------------------------
Egypt 45 Basis $80
Points
- --------------------------------------------------------------------------------
Finland 10 Basis $75
Points
- --------------------------------------------------------------------------------
France 5 Basis Points $50
- --------------------------------------------------------------------------------
Germany 3 Basis Points $30
- --------------------------------------------------------------------------------
Ghana 50 Basis $150
Points
- --------------------------------------------------------------------------------
Greece 35 Basis $120
Points
- --------------------------------------------------------------------------------
Hong Kong 5 Basis Points $30
================================================================================
<PAGE>
Hungary 45 Basis $150
Points
- --------------------------------------------------------------------------------
India (Physical) 60 Basis $200
Points
- --------------------------------------------------------------------------------
India (Dematerialized) 25 Basis $140
Points
- --------------------------------------------------------------------------------
Indonesia 8 Basis Points $35
- --------------------------------------------------------------------------------
Ireland 5 Basis Points $50
- --------------------------------------------------------------------------------
Israel 40 Basis $50
Points
- --------------------------------------------------------------------------------
Italy 3 Basis Points $50
- --------------------------------------------------------------------------------
Japan 3 Basis Points $35
- --------------------------------------------------------------------------------
Jordan 30 Basis $100
Points
- --------------------------------------------------------------------------------
Kenya 50 Basis $150
Points
- --------------------------------------------------------------------------------
Luxembourg 4 Basis Points $60
- --------------------------------------------------------------------------------
Malaysia 7 Basis Points $50
- --------------------------------------------------------------------------------
Mauritius 50 Basis $140
Points
- --------------------------------------------------------------------------------
Mexico 5 Basis Points $30
- --------------------------------------------------------------------------------
Morocco 30 Basis $130
Points
- --------------------------------------------------------------------------------
Netherlands 4 Basis Points $45
- --------------------------------------------------------------------------------
New Zealand 4 Basis Points $50
- --------------------------------------------------------------------------------
Norway 5 Basis Points $50
- --------------------------------------------------------------------------------
Pakistan 30 Basis $150
Points
- --------------------------------------------------------------------------------
Peru 50 Basis $100
Points
- --------------------------------------------------------------------------------
Philippines 8 Basis Points $30
- --------------------------------------------------------------------------------
Poland 45 Basis $100
Points
- --------------------------------------------------------------------------------
Portugal 4 Basis Points $75
- --------------------------------------------------------------------------------
Russia 50 Basis $300
Points
- --------------------------------------------------------------------------------
Singapore 7 Basis Points $50
- --------------------------------------------------------------------------------
Slovakia 25 Basis $100
Points
- --------------------------------------------------------------------------------
South Africa 5 Basis Points $30
- --------------------------------------------------------------------------------
South Korea 15 Basis $50
Points
- --------------------------------------------------------------------------------
Spain 6 Basis Points $50
- --------------------------------------------------------------------------------
-3-
<PAGE>
Sri Lanka 12 Basis $60
Points
- --------------------------------------------------------------------------------
Sweden 4 Basis Points $50
- --------------------------------------------------------------------------------
Switzerland 3 Basis Points $50
- --------------------------------------------------------------------------------
Taiwan 15 Basis $100
Points
- --------------------------------------------------------------------------------
Thailand 7 Basis Points $100
- --------------------------------------------------------------------------------
Tunisia 45 Basis $50
Points
- --------------------------------------------------------------------------------
Turkey 15 Basis $50
Points
- --------------------------------------------------------------------------------
United Kingdom 2 Basis Points $15
- --------------------------------------------------------------------------------
Venezuela 35 Basis $100
Points
- --------------------------------------------------------------------------------
Zambia 50 Basis $150
Points
- --------------------------------------------------------------------------------
Zimbabwe 50 Basis $150
Points
- --------------------------------------------------------------------------------
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at
month-end to determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in
writing, i.e. facsimile
-4-
<PAGE>
o The standard Global Custody Service includes: asset safekeeping,
trade settlement, income collection, corporate action processing
including proxy voting and tax reclaims where appropriate.
o Third party FX transactions and other cash movements with no
associated security transaction (e.g. free payments/receipts) are
charged at $10 per U.S. wire and $25 per non-U.S. wire. No fee is
levied for FX transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
- 5 -
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Maryland Intermediate Tax-Free Fund, Inc.
TAX RECLAIMS
------------
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account in
the countries specified in the applicable Service Standards. Terms used herein
as defined terms shall unless otherwise defined have the meanings ascribed to
them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
- 1 -
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
----------------------------
I, [Name of Secretary], hereby certify that I am the Secretary
of [Name of Entity], a ______________________[type of entity] organized under
the laws of ________________________[jurisdiction] (the "Customer"), and as such
I am duly authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of _____________________[jurisdiction], the Customer continues to be
in existence and is in good standing, and no action has been taken to repeal
such organizational documents, the same being in full force and effect on the
date hereof.
2. Organizational Documents. The Customer's [name of
organizational documents -i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, which resolutions (i) have not in any way been revoked or
rescinded, (ii) have been in full force and effect since their adoption, to and
including the date hereof, and are now in full force and effect, and (iii) are
the only corporate proceedings of the Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the signatures
set forth opposite the respective names and titles of said officers are their
true, authentic signatures:
Name Title Signature
- -------------------- -------------------- --------------------
- -------------------- -------------------- --------------------
- 2 -
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of _______________[Date], 1997.
By: __________________________________
Name: __________________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By:_________________________________
Name:_______________________________
Title:________________________________
- 3 -
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the contrary,
the Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By:/s/ Richard Fogarty
-----------------------------------
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX-FREE FUND, INC.
By:/s/ Amy M. Olmert
-----------------------------------
- 4 -
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is based
on a specific market benchmark (such as Effective Fed Funds) and
is calculated by taking an average of the benchmark rate and
subtracting a spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S. Dollar.
Over time we will be considering additional currencies to include
in this category.
o Operationally, most balances in Benchmark Rate Currencies are
swept overnight into deposits at the London branch of Bankers
Trust Company. Where you have selected a short-term investment
fund, your U.S. Dollar balances in the U.S. will be swept
overnight in accordance with your instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is based
on the rate paid by the London branch or the local subcustodian
on overnight deposits in the currency. In either case, interest
is calculated by using the overnight rate (which will be the
actual overnight, a weekly average, or monthly average rate,
depending on the currency) and subtracting a spread. (See
Schedule A)
o Currencies that are part of the sweep program will earn interest
based on the base rate, which will be the higher of the rate
offered by the London branch of Bankers Trust Company or the
local subcustodian.
o Currencies that are not part of the sweep program will generally
earn interest based on the rate paid by the local subcustodian.
We may at times be able to sweep certain currency balances into
deposits of Bankers Trust Company's London branch in order to be
able to earn a higher rate for you. On those days, any such
currency will be treated as part of the sweep program, and you
will earn interest on all of your balances in that currency at
the higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are
included in our sweep program to the London branch.
<PAGE>
o Operationally, most balances in Base Rate Currencies that are
part of our sweep program are swept overnight into deposits at
the London branch, while balances in Base Rate Currencies that
are not part of our sweep program remain with the local
subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in spreads
and updates to the cash management program. These program updates
also will be available through Global Custody Flash Notices.
o You earn interest at the calculated rate on your entire
contractual balance without any action on your part and without
any minimum balance requirements. This is the case regardless of
whether we are able to invest your balances at or near the
applicable benchmark or base rate and regardless of whether your
contractual balance may exceed your actual balance.
o Our program generally requires that overnight balances in each
currency remain with (or are swept to) a subcustodian we
designate for that currency. Nevertheless, we pay our stated rate
of interest on any balances that, because of transactions in your
account, are held overnight with an alternate subcustodian if we
receive interest on that currency from that subcustodian. If the
alternate subcustodian does not pay interest, however, these
balances are excluded from our program.
o The minimum rate paid is 0.50%, except for the Japanese Yen (for
which it is 0.05%) and the Singapore Dollar (for which it is
0.25%). Please note that this is also subject to change as
appropriate for any currency.
o You will have continuous access through GlobeView, BTWorld, or
GlobeLink or other agreed electronic on-line system to the
interest rate earned during the previous "rate averaging period".
Because we may use weekly or monthly average rates to calculate
the interest you earn, we do not know the actual interest rate
until the weekly or monthly period is completed.
o For swept currencies, from time to time we may not be able to
sweep the full amount of your balances to the London branch
because of operational constraints or because your balance on a
contractual basis temporarily exceeds your actual balance. You
will, however, always receive credit for interest based on your
entire contractual balance. To the extent you would have earned a
lower rate on balances not swept, we will make up the difference.
To the extent that actual balances are higher than contractually
posted balances due to purchase fails or otherwise, we will
retain the interest earned as compensation.
o The effective rate we pay on overnight balances will generally
differ from the effective rate we receive (whether from the
London branch or the local subcustodian). Any difference between
the effective rate we receive and the effective rate we pay
(which may be positive or negative, but is generally positive) is
kept by us and covers our fee for
- 2 -
<PAGE>
running the cash management program and the related costs we
absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to ERISA will be deemed to have engaged in the transaction
under the authority of the class exemptions available to qualified professional
asset managers and in-house investment managers. To the extent that the
overdraft is less than the U.S. dollar equivalent of $50,000, Bankers Trust's
foreign exchange desk will bundle the transaction with other small amounts for
other clients.
- 3 -
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
- 4 -
<PAGE>
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100 (1)
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
(1) Not applicable if U.S. Dollars are swept to a short-term investment fund.
- 5 -
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 8 to the Registration
Statement of Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
(Registration No. 33-66870) of our report dated April 17, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the references to us under the caption "Financial Highlights"
appearing in the Prospectuses, which also are a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 27, 1998
<PAGE>
Amended
August 4, 1997
FLAG INVESTORS MARYLAND INTERMEDIATE TAX-FREE INCOME FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class A Shares (the "Shares"
of) Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the
"Fund"). Other capitalized terms herein have the meaning given to them in the
Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement which is an annual fee, calculated
on an average daily net basis and paid monthly, equal to .25% of the average
daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's Advisor and the Distributor; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
<PAGE>
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel); the costs
and expenses of printing, including typesetting, and distributing prospectuses
and statements of additional information of the Fund supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote of a
majority of the Directors who are not interested persons (as defined in the 1940
Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the
amount of payments to be made without approval by a vote of the holders of at
least a majority of the Fund's outstanding voting securities (as defined in the
1940 Act) and all amendments must be approved by the Board of Directors in the
manner set forth under (a) above.
<PAGE>
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B,
and
Alex. Brown Capital Advisory & Trust Shares Classes
Adopted December 13, 1995
Amended through March 26, 1997
With Exhibits through March 27, 1998
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. (the "Fund"), including a majority of
the Directors of the Fund who are not "interested persons" of the Fund (the
"Independent Directors") pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "1940 Act").
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC- 14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for its classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B, and Alex.
Brown Capital Advisory & Trust) and future classes of Fund shares. The Flag
Investors Class A Shares have been offered since the Fund's inception on October
1, 1993. The Flag Investors Class B Shares are not currently being offered. The
Alex. Brown Capital Advisory & Trust Share have been offered since January 10,
1997.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors. Before any material
<PAGE>
amendment of the Plan, the Fund is required to obtain a finding by a majority of
the Board, and a majority of the Independent Directors, that the Plan as
proposed to be amended, including the expense allocations, is in the best
interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
- ------------------------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a) to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-66870), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116- 95-000313) on July 26,
1995 is incorporated herein by reference.
2. Articles Supplementary filed as Exhibits (1)(b) and (1)(c) to
Post-Effective Amendment No. 5 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-66870), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000950116-96-000685) on
July 29, 1996 are incorporated herein by reference.
3. Articles Supplementary establishing the ABCAT Shares is filed as
Exhibit (1)(d) to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-66870), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-001356) on July 29, 1997 is incorporated herein by reference.
4. By-Laws, as amended through December 18, 1996 are filed as Exhibit (2)
to Post-Effective Amendment No.7 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-66870), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-97-001356) on July
29, 1997 are incorporated herein by reference.
5. Distribution Agreement between Registrant and ICC Distributors, Inc.
with respect to Maryland Intermediate Tax Free Income Fund Flag
Investors Shares filed as Exhibit (6)(a) to this Post-Effective
Amendment No. 8 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-66870), and is incorporated herein by reference.
6. Form of Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Broker-Dealers is filed as Exhibit (6)(b) to this
Post-Effective Amendment No. 8 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-66870) and is incorporated herein by
reference.
7. Registrant's Amended Distribution Plan with respect to Class A Shares
filed as Exhibit (15)(b) to this Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-66870), and is incorporated herein by reference.
8. Prospectus relating to Maryland Intermediate Tax Free Income Fund Class
A Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-66870) and , as amended from time to time, is
incorporated herein by reference.
9. Prospectus relating to Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax Free Income Shares is filed as part of this
Registration Statement on Form N-1A (Registration No. 33-66870) and, as
amended from time to time, is incorporated herein by reference.
<PAGE>
BOARD APPROVALS
Date Approved: September 23, 1994
Resolutions of Board Creating Flag Investors Shares
---------------------------------------------------
FURTHER RESOLVED, that the previously undesignated shares of
common stock, par value $.001 per share, of Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. be, and they hereby are, designated as the "Flag
Investors Shares";
FURTHER RESOLVED, that the proper officers of the foregoing
Fund be, and each of them hereby is, authorized and directed to file articles
supplementary to the Fund's Articles of Incorporation and to take such other
action as may be necessary to designate and reclassify shares in the foregoing
matter.
Date Approved: April 1, 1996
Resolutions of Board Renaming Flag Investors Shares
---------------------------------------------------
RESOLVED, that the Fund's twenty-five million (25,000,000)
shares of common stock, par value $.001 per share, previously designated and
classified as the "Flag Investors Shares" be, and hereby are, renamed the "Flag
Investors Class A Shares";
FURTHER RESOLVED, that the Articles Supplementary to the
Fund's Articles of Incorporation be, and they hereby are, approved and adopted;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the fund
to take any other action that the officer so acting may deem necessary or
appropriate to effectuate the renaming of the Flag Investors Shares and the
filing and recording of the Articles Supplementary in the appropriate offices in
the State of Maryland.
<PAGE>
Date Approved: September 23, 1994
Resolutions of Board Creating Class B Shares
--------------------------------------------
FURTHER RESOLVED, that an additional class of shares of the
Flag Investors Maryland Intermediate Tax Free Income Fund be, and hereby is,
classified and designated as the "Flag Investors Class B Shares" (the "Class B
Shares") and that unissued shares of common stock, par value $.001 per share of
the Fund be, and the same hereby are, reclassified as follows:
Total # of Shares Class A Class B Unclassified
- ----------------- ------- ------- ------------
30,000,000 25,000,000 2,000,000 3,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and
each of them hereby is, authorized and directed to file articles supplementary
to the Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and
Alex. Brown & Sons Incorporated for the Class B Shares of the Fund be, and the
same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class
B Shares of the Fund is determined to be reasonably likely to benefit the Fund
and its shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is,
approved.
<PAGE>
Approved October 1, 1996
Resolutions of Board Approving
Alex. Brown Capital Advisory & Trust Shares
-------------------------------------------
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Maryland Intermediate Tax-Free Income
Fund, Inc. is authorized to issue is hereby increased from thirty-five million
(35,000,000) to forty million (40,000,000) and that from such amount, five
million (5,000,000) authorized and unissued shares be, and hereby are,
designated and classified as the "Alex. Brown Capital Advisory & Trust Maryland
Intermediate Tax-Free Income Shares";
FURTHER RESOLVED, that the proper officers of Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. be, and each of them hereby is,
authorized and directed to file Articles Supplementary to the respective Fund's
Articles of Incorporation to effectuate the increase in authorized shares and to
designate and classify the new class;
FURTHER RESOLVED, that any filings previously made and any
actions previously taken by the appropriate officers of each Fund in connection
with the establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
Approved: October 1, 1996
Approval of Distribution Agreements
for New Alex. Brown Capital Advisory & Trust Shares
---------------------------------------------------
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. and Alex. Brown &
Sons Incorporated for the Alex. Brown Capital Advisory & Trust Shares of said
Fund be, and the same hereby is, approved in substantially the form presented to
this meeting; and
FURTHER RESOLVED, that the proper officers of Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. be, and they hereby are,
authorized and directed to enter into and execute the appropriate Distribution
Agreement on behalf of the Fund, and to take all other actions that such officer
deems necessary or appropriate in connection with the execution of such
agreement, the taking of any action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund.
<PAGE>
Date Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
-----------------------------------
RESOLVED, based upon information presented to the Board of Directors of
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc. (the "Fund"),
that the Directors, including a majority of the Directors who are not
"interested persons" of the Fund, have determined that the Fund's amended Rule
18f-3 Plan, including the expense allocations described therein, is in the best
interests of the fund and each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 Plan for the Fund be, and
hereby is, approved, in substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to take any and all actions necessary or
appropriate to cause the amended Rule 18f-3 Plan to be filed with the Securities
and Exchange Commission.
Approved: August 4, 1997
Approval of Distribution Agreements for
All Classes of Maryland Intermediate Tax-Free Income Fund, Inc.
---------------------------------------------------------------
RESOLVED, that ICC Distributors, Inc. ("ICC ") be, and it hereby is,
appointed distributor for all classes of Alex. Brown Cash Reserve Fund, Inc.,
Flag Investors Telephone Income Fund, Inc., Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc. and Flag Investors Equity Partners Fund, Inc.,
and for the Flag Investors classes of each of Managed Municipal Fund, Inc. and
Total Return U.S. Treasury Fund, Inc., such appointment to be effective upon the
consummation of the merger of Alex. Brown Incorporated with and into a
subsidiary of Bankers Trust New York Corporation (the "Merger"), or at such
other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors Shares be, and the same hereby
is, approved in substantially the form presented to this meeting and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or
<PAGE>
appropriate or as may be required to conform with the requirements of any
applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury Fund, Inc. (for Flag Investors
Shares), Managed Municipal Fund, Inc. (for the Flag Investors Shares), Flag
Investors Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc., and Flag Investors Equity
Partner Fund, Inc., and ICC Distributors, Inc. be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
appropriate officers of the Funds be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
Approved: August 4, 1997
Approval of Plans of Distribution for
Flag Investors Class A and Flag Investors Class B Shares
--------------------------------------------------------
RESOLVED, that the Plan of Distribution for the Flag Investors
Class A Shares of Flag Investors Emerging Growth Fund, Inc. be, and hereby is,
amended to reflect the change in distributor effected at this meeting, such
amendment to be effective upon the consummation of the Merger, or such other
time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably
<PAGE>
available to the Directors, expenditures contemplated by such Plan are
comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
Approved: March 27, 1998
Approval of Restated Distribution Agreement and
Forms of Sub-Distribution and Shareholder Servicing Agreements
--------------------------------------------------------------
RESOLVED, that the proposed Distribution Agreement between Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc. and ICC Distributors, Inc. for
each class of the Fund's shares, be, and the same hereby is, approved in
substantially the form presented to this meeting and that the appropriate
officers of the Fund be, and they hereby are, authorized and directed to enter
into and execute such Distribution Agreement with such modifications as said
officers shall deem necessary or appropriate or as may be required to conform
with the requirements of any applicable statute, regulation or regulatory body.
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------
Truman T. Semans
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as Chairman
and a director of the Fund such Registration Statement and any and all such pre-
and post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
-------------------
Richard T. Hale
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
-------------------
John F. Kroeger
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
----------------------
Eugene J. McDonald
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
-----------------
Louis E. Levy
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
--------------------
James J. Cunnane
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, her true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in her name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
--------------------
Rebecca W. Rimel
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
----------------
Carl W. Vogt
Date: July 29, 1998
<PAGE>
FLAG INVESTORS MARYLAND INTERMEDIATE
TAX FREE INCOME FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
---------------
Harry Woolf
Date: July 29, 1998
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