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Equity Income
Flag Investors Real Estate Securities Fund
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Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
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Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
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P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
[Flag Investors Logo]
FLAG
INVESTORS
SHORT-
INTERMEDIATE
INCOME
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
(bullet) Your Fund's Class A Shares have recorded an average annual total return
of 6.9% since inception on May 13, 1991.
(bullet) During the past six months, we maintained the Fund's average maturity
at 4.4 years, which is close to the maximum 5 years. We also kept the
Fund's overall asset allocation evenly balanced among the bond market's
major sectors until the second quarter, when we trimmed certain
short-duration corporate credits in favor of longer duration U.S.
Treasuries.
(bullet) Although we are optimistic about the market's near-term course, we are
concerned inflationary forces, primarily from labor market pressures,
may reemerge in 1998. We are confident that your Fund's defensive
maturity structure is aptly suited for the late stage of an interest
rate cycle.
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the six and 12
months ended June 30, 1997.
Performance
In an environment of stable interest rates, the Fund's Class A Shares
produced total returns of 2.6% and 7.2% for the six- and 12-month periods ended
June 30, 1997, respectively. With a stable net asset value (NAV), the majority
of these returns have come from the Fund's dividend, which continues at a
monthly rate of $0.05. This performance helped to place the Fund in the top 13%
within its peer group in Lipper Analytical's Short-Intermediate Investment Grade
Debt Funds Category for both the one-year and five-year periods ended June 30,
1997.(1) Since inception on May 13, 1991, the Class A Shares have produced a
cumulative return of 50.7%, which translates into an average annual return of
6.9%. Money market instruments, as measured by 91-day U.S. Treasury Bills(2),
have produced a 4.75% average annual return for the same time period. Specific
total return comparisons are listed below.
Performance Comparisons(3)
<TABLE>
<CAPTION>
For the periods ended 6/30/97 Six Months One Year Avg. Maturity
- ---------------------------------------------------------------------------------------------------
<S> <C>
Flag Investors Short-Intermediate Income Fund--Class A 2.6% 7.2% 4.4 years
Lipper Short-Intermediate
Investment Grade Debt Funds Average 2.6% 6.6% 3-5 years
Lehman Brothers Intermediate
Gov't./Corp. Bond Index 2.8% 7.2% 4.2 years
Lehman Brothers Gov't./Corp. Bond Index 2.7% 7.7% 9.6 years
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Lipper rankings are based on performance for the periods ended June 30, 1997
relative to other funds in the category. This ranking indicates that the Fund's
performance ranked #11 out of 81 funds for the one-year period and #3 out of 22
funds for the five-year period. Performance figures used in these rankings
exclude the impact of any sales charge.
(2) U.S. Treasury Bills are backed by the full faith and credit of the U.S.
government.
(3) These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
were reflected, the quoted performance would be lower. Since investment return
and principal value will fluctuate, an investor's shares may be worth more or
less than their original cost when redeemed. The Lehman Brothers Intermediate
Government/Corporate Bond Index and the Lehman Brothers Government/Corporate
Bond Index are unmanaged indices that are widely recognized as indicators of
performance in the intermediate-term and the overall government and corporate
bond sectors, respectively. The Lipper Short-Intermediate Investment Grade Debt
Funds Average is an index of approximately 85 managed funds that have at least
65% of their assets in investment grade debt securities that are rated in the
top four grades and have dollar-weighted average maturities of one to five
years. Past performance is not an indicator of future results. Please review the
Additional Performance Information on page 6.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- --------------------------------------------------------------------------------
Investment Environment
The bond market has enjoyed a near-perfect environment for much of the past
12 months (see chart below). Although there were brief scares in early spring
that a tightening labor market and rising wage demands could ignite another
round of inflation, these fears were ultimately allayed by the steady flow of
data that gave evidence that the pace of economic activity was moderating and
inflationary pressures were imperceptible. This combination worked well to keep
Federal Reserve monetary policy on hold, thereby fostering investor confidence
and strong demand, especially from foreign buyers, for longer maturity
fixed-income securities. These same propitious ingredients have contributed
significantly to the surge in equity prices and the unprecedented duration of
the bull market for stocks. Although there was a rush to the market by smaller
companies to issue lower quality debt at very attractive levels, the supply side
of the equation among high-grade sectors was favorably influenced by a slowdown
in new Treasury and corporate bond issuance. Concurrently, the stock market's
remarkable climb and falling dividend yield have encouraged statistical asset
allocators and dividend-starved equity investors to shift funds to bonds.
U.S. Treasury Yields
(6/30/96-6/30/97)
[Graph appears here - plot points below]
5-Year 10-Year
6/96 6.46 6.71
6.82 7.01
6.65 6.86
6.57 6.79
6.63 6.85
6.27 6.51
6.22 6.48
6.3 6.55
6.51 6.75
6.72 6.94
6.7 6.92
6.47 6.72
6.62 6.84
9/96 6.43 6.68
6.21 6.48
6.28 6.55
6.25 6.5
6.26 6.54
6.11 6.38
6.03 6.25
5.96 6.18
5.93 6.14
5.83 6.04
5.99 6.24
6.05 6.31
6.14 6.36
6.08 6.29
12/96 6.26 6.5
6.38 6.61
6.31 6.54
6.39 6.62
6.25 6.49
6.15 6.4
6.06 6.26
6.16 6.37
6.39 6.55
6.37 6.54
6.51 6.69
6.62 6.75
6.78 6.91
3/97 6.76 6.91
6.84 6.97
6.71 6.82
6.84 6.94
6.51 6.64
6.52 6.67
6.55 6.72
6.58 6.74
6.5 6.66
6.37 6.49
6.29 6.43
6.27 6.37
6/97 6.33 6.45
2
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Considerations
Confident for much of the past six months that the fixed-income markets
would be fairly immune from near-term inflationary pressures and rates would
stay in a contained range of plus or minus 50 basis points (0.50%), we kept the
Fund's maturity structure at 4.4 years, close to its maximum maturity of 5
years. As yield spreads (e.g., the yield difference between a corporate bond and
a U.S. Treasury issue of similar maturity) continued to tighten in the face of
strong demand for higher yields, we kept the Fund's overall asset allocation
evenly balanced among the bond market's major sectors: Treasuries, agencies,
mortgages, corporates and asset-backed issues. As improving corporate balance
sheet fundamentals enabled corporate bond spreads to approach record levels, we
trimmed certain short-duration corporate credits in favor of longer duration
U.S. Treasuries during the second quarter. The sacrifice in yield from these
trades was negligible (see chart below).
Asset Allocations and Durations
Percent of Effective
As of 6/30/97 Net Assets Duration
- --------------------------------------------------------------------------------
Cash 5% --
Treasury 23% 3.8 years
Corporate 11% 3.5 years
Asset-Backed 15% 2.8 years
Agency & Mortgage-Backed 46% 2.6 years
--- ---
Total 100% 2.9 years
=== ===
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
Outlook
Our outlook for interest rates for the balance of 1997 hinges on the
outcome of several closely related factors: the pace of economic growth and
consumption, the rate of inflation and the appetite of foreign investors for
U.S. debt instruments. Foremost of these factors is the Fed's ultimate policy
response, which, to date, has been guardedly neutral. We would expect the Fed to
remain on the sidelines for as long as statistical evidence reflects a leveling
off in final consumer demand. Although we are optimistic about the market's
near-term course, we are concerned that the great bulk of benefits of this
protracted period of disinflation may be behind us and that inflationary forces,
primarily from labor market pressures, may reemerge in 1998. We are confident
that your Fund's defensive maturity structure is aptly suited for the late stage
of an interest rate cycle.
Dividend Policy
The Fund continues to distribute $0.05 per share monthly. Recognizing the
importance of improving shareholder wealth, we continue to emphasize strategies
that maximize total return (current income plus NAV appreciation).
We appreciate your continued support.
Sincerely,
/s/ M. Elliott Randolph, Jr. /s/ Paul D. Corbin
_____________________________ ___________________________
M. Elliott Randolph, Jr. Paul D. Corbin
President Executive Vice President
July 18, 1997
4
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Portfolio Composition
[Graphs appear here - plot points below]
December 31, 1996
Agency &
Mortgage-
Backed Corporate Asset-Backed Cash Treasury
33% 18% 18% 9% 22%
June 30, 1997
Agency &
Mortgage-
Backed Corporate Asset-Backed Cash Treasury
46% 11% 15% 5% 23%
Portfolio Statistics
Average Maturity 4.4 years
Average Duration 2.9 years
Average Quality AAA
Maturity Breakdown:
0-1 year 16%
1-3 years 21%
3-5 years 15%
5-10 years 48%
5
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 1.50% maximum sales charge for the Fund's Class A Shares.
Average Annual Total Return
For the periods ended 6/30/97 1 Year 5 Years Since Inception*
- -------------------------------------------------------------------------------
Class A Shares 5.57% 5.78% 6.65%
Institutional Shares 7.35% -- 5.46%
*Inception dates: Class A 5/13/91, Institutional 11/2/95.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets June 30, 1997
(Unaudited)
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS--10.6%
Banc One Columbus
7.375%, 12/1/02 AA- $1,000 $ 1,025,000
Ford Motor Credit
6.05%, 3/31/98 A+ 2,000 2,000,300
General Motors Acceptance Corporation
5.625%, 2/15/01 A- 1,000 967,500
Pacific Gas & Electric
6.25%, 3/1/04 A 2,000 1,942,500
Philip Morris Cos., Inc.
6.95%, 6/1/06 A 2,000 2,010,000
-----------
Total Corporate Bonds
(Cost $7,993,215) 7,945,300
-----------
U.S. GOVERNMENT AGENCY SECURITIES--40.2%
Federal Home Loan Banks Board - 11.9%
Debentures
6.000%, 12/17/99 (Callable 12/17/97) AAA 3,000 2,982,330
6.900%, 4/28/00 (Callable 4/28/98) AAA 3,000 3,015,000
7.151%, 9/13/05 (Callable 9/13/97) AAA 3,000 2,968,650
Federal National Mortgage Assoc. - 7.2%
Debentures
6.250%, Due 8/12/03 AAA 3,500 3,397,835
7.120%, Due 4/19/02 AAA 2,000 2,012,400
Mortgage-Backed Securities - 19.7%
Federal Home Loan Mortgage Corp.
Pool #G10049, 8.00%, 10/1/07 AAA 961 989,889
Pool #G10543, 6.00%, 6/1/11 AAA 2,784 2,687,681
Pool #M19094, 7.00%, 2/1/98 AAA 1,761 1,777,184
Federal National Mortgage Assoc.
Pass-through
Pool #326570, 7.00%, Due 2/1/08 AAA 3,204 3,200,420
Government National Mortgage Assoc.
Pass-throughs
Pool #194615, 8.00%, Due 3/15/17 AAA 154 157,297
Pool #204405, 8.00%, Due 4/15/17 AAA 146 149,185
Pool #371200, 8.00%, Due 12/15/23 AAA 1,525 1,560,258
Pool #371206, 8.00%, Due 12/15/23 AAA 1,626 1,663,764
Pool #780195, 8.00%, Due 7/15/25 AAA 2,553 2,622,301
7
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
(Unaudited)
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES (concluded)
Guaranteed Export Trust - 1.4%
8.187%, 12/15/04 AAA $ 988 $ 1,036,942
-----------
Total U.S. Government Agency Securities
(Cost $30,136,960) 30,221,136
-----------
U.S. TREASURY SECURITIES--23.4%
U.S. Treasury Notes
4.750%, 9/30/98 AAA 2,000 1,972,420
5.875%, 2/15/00 AAA 3,000 2,976,510
5.250%, 1/31/01 AAA 2,000 1,936,000
6.250%, 2/15/03 AAA 5,000 4,964,500
5.750%, 8/15/03 AAA 4,000 3,863,840
5.875%, 2/15/04 AAA 2,000 1,939,660
-----------
Total U.S. Treasury Securities
(Cost $17,663,105) 17,652,930
-----------
ASSET-BACKED SECURITIES--14.5%
Discover Credit Card Trust, 93-A-A
6.25%, 8/16/00 AAA 3,000 3,005,010
Green Tree Financial Corporation
8.25%, 1/15/20 -- 3,000 3,144,210
Metris Master Trust
6.87%, 10/20/05 AAA 3,000 3,016,523
Premier Auto Trust, 94-1-A3
4.75%, 2/2/00 AAA 206 205,422
Premier Auto Trust, 96-3-A4
6.75%, 11/6/00 AAA 1,500 1,511,190
-----------
Total Asset-Backed Securities
(Cost $10,882,022) 10,882,355
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--5.5%
Federal Home Loan Mortgage Corp. - 2.7%
Multi-Class Mortgage Certificates
Series 106-F, 8.50%, 12/15/20 AAA 2,024 2,060,837
8
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (concluded)
Federal National Mortgage Assoc. - 2.8%
Multi-Class Mortgage Certificates
Series 88-18-B, 9.40%, 7/25/03 AAA $ 149 $ 155,495
Series 149-D, 12.00%, 4/25/19 AAA 352 352,758
Series 91-11-G, 7.00%, 11/25/19 AAA 1,187 1,188,464
Series 95-W1-A2, 8.20%, 4/25/25 AAA 368 368,996
-----------
Total Collateralized Mortgage Obligations
(Cost $4,119,120) 4,126,550
-----------
REPURCHASE AGREEMENT--4.3%
Goldman Sachs & Co., 5.75%
Dated 6/30/97, to be repurchased on
7/1/97, collateralized by U.S. Treasury
Bonds with a market value of $3,307,570.
(Cost $3,242,000) -- 3,242 3,242,000
-----------
Total Investment in Securities--98.5%
(Cost $74,036,422)** 74,070,271
Other Assets in Excess of Liabilities, Net--1.5% 1,152,524
-----------
Net Assets--100.0% $75,222,795
===========
Net Asset Value and Redemption Price Per:
Class A Share
($54,936,677 / 5,339,688 shares outstanding) $10.29
======
Institutional Share
($20,286,118 / 1,950,576 shares outstanding) $10.40
======
Maximum Offering Price Per:
Class A Share ($10.29 / .985) $10.45
======
Institutional Share $10.40
======
- --------------
* The Standard & Poor's rating indicated is believed to be the most recent
rating available as of June 30, 1997. The U.S. Government Agency Securities
and U.S. Treasury Securities are assumed to have AAA ratings because they are
backed by the full faith and credit of the U.S. government.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1997(1)
Investment Income (Note 1):
Interest $2,486,897
----------
Expenses:
Investment advisory fee (Note 2) 130,030
Distribution fee (Note 2) 70,014
Accounting fee (Note 2) 29,092
Printing and postage 18,165
Transfer agent fees 15,962
Registration fees 15,680
Legal 15,307
Audit 13,018
Custodian fees 7,685
Miscellaneous 3,249
Pricing fee 2,810
Directors' fees 2,118
Insurance 1,254
----------
Total expenses 324,384
Less: Fees waived (Note 2) (87,189)
----------
Net expenses 237,195
----------
Net investment income 2,249,702
----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from securities transactions 27,400
Change in unrealized appreciation
or depreciation of investments (344,621)
----------
Net loss on investments (317,221)
----------
Net increase in net assets resulting from operations $1,932,481
==========
- --------------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Six
Months Ended For the Year
June 30, Ended Dec. 31,
- --------------------------------------------------------------------------------
1997(1) 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 2,249,702 $ 4,307,970
Net gain/(loss) from security transactions 27,400 (141,613)
Change in unrealized appreciation or
depreciation of investments (344,621) (1,267,527)
---------- ----------
Net increase in net assets resulting
from operations 1,932,481 2,898,830
---------- ----------
Dividends to Shareholders from:
Net investment income:
Class A Shares (1,373,967) (3,528,967)
Institutional Shares (464,231) (602,635)
---------- ----------
Total distributions (1,838,198) (4,131,602)
---------- ----------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 5,803,315 24,144,316
Value of shares issued in
reinvestment of dividends 1,066,579 2,641,312
Cost of shares repurchased (7,832,710) (18,763,222)
---------- ----------
Increase/(decrease) in net assets derived
from capital share transactions (962,816) 8,022,406
---------- ----------
Total increase/(decrease) in net assets (868,533) 6,789,634
Net Assets:
Beginning of period 76,091,328 69,301,694
---------- ----------
End of period $75,222,795 $ 76,091,328
========== ==========
- --------------
(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 10.28
-------
Income from Investment Operations:
Net investment income 0.36
Net realized and unrealized gain/(loss) on investments (0.05)
-------
Total from Investment Operations 0.31
Less Distributions:
Distributions from net investment income
and short-term gains (0.30)
Return of capital --
Distributions from net realized long-term gains --
-------
Total distributions (0.30)
-------
Net asset value at end of period $ 10.29
=======
Total Return(2) 2.57%
Ratios to Average Daily Net Assets:
Expenses(3) 0.70%(5)
Net investment income(4) 5.99%(5)
Supplemental Data:
Net assets at end of period (000) $54,937
Portfolio turnover rate 61%(5)
- --------------
(1) Unaudited.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.93% (annualized), 0.99%, 0.93%,
0.84%, 0.85% and 0.87% for the six months ended June 30, 1997 and the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 5.76% (annualized),
5.83%, 5.77%, 5.43%, 5.28% and 5.83% for the six months ended June 30, 1997
and the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(5) Annualized.
12
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54
------- ------ ------- ------- -------
Income from Investment Operations:
Net investment income 0.63 0.62 0.57 0.57 0.63
Net realized and unrealized gain/(loss) on investments (0.23) 0.84 (0.92) 0.34 (0.05)
------- ------ ------- ------- -------
Total from Investment Operations 0.40 1.46 (0.35) 0.91 0.58
Less Distributions:
Distributions from net investment income
and short-term gains (0.60) (0.60) (0.57) (0.69) (0.75)
Return of capital -- -- (0.03) -- --
Distributions from net realized long-term gains -- -- -- (0.02) --
------- ------ ------- ------- -------
Total distributions (0.60) (0.60) (0.60) (0.71) (0.75)
------- ------ ------- ------- -------
Net asset value at end of period $ 10.28 $ 10.48 $ 9.62 $ 10.57 $ 10.37
======= ====== ======= ======= =======
Total Return(2) 4.04% 15.43% (3.32)% 8.98% 5.68%
Ratios to Average Daily Net Assets:
Expenses(3) 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income(4) 6.11% 6.00% 5.57% 5.43% 6.01%
Supplemental Data:
Net assets at end of period (000) $58,584 $67,116 $78,789 $112,520 $78,706
Portfolio turnover rate 42% 46% 50% 86% 107%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights --Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six For the Year For the Period
Months Ended Ended Nov. 2, 1995(2)
June 30, Dec. 31, through Dec. 31,
- --------------------------------------------------------------------------------
1997(1) 1996 1995
<S> <C>
Per Share Operating Performance:
Net asset value at
beginning of period $ 10.38 $ 10.58 $10.42
------- ------- ------
Income from Investment Operations:
Net investment income 0.37 0.59 0.09
Net realized and unrealized
gain/(loss) on investments (0.04) (0.17) 0.12
------- ------- ------
Total from Investment Operations 0.33 0.42 0.21
Less Distributions:
Dividends from net investment
income and short-term gains (0.31) (0.62) (0.05)
------- ------- ------
Net asset value at end of period $ 10.40 $ 10.38 $10.58
======= ======= ======
Total Return 2.74% 4.20% 12.47%(5)
Ratios to Average Daily Net Assets:
Expenses(3) 0.45%(5) 0.45% 0.45%(5)
Net investment income(4) 6.25%(5) 6.35% 6.52%(5)
Supplemental Data:
Net assets at end of period (000) $20,286 $17,507 $2,186
Portfolio turnover rate 61%(5) 42% 46%(5)
</TABLE>
- --------------
(1) Unaudited.
(2) Commencement of operations.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.69% (annualized), 0.76% and 0.72%
(annualized) for the six months ended June 30, 1997, the year ended December
31, 1996 and the period ended December 31, 1995, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 6.01% (annualized), 6.04%
and 6.27% (annualized) for the six months ended June 30, 1997, the year
ended December 31, 1996 and the period ended December 31, 1995,
respectively.
(5) Annualized.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Short-Intermediate Income Fund, Inc. (the "Fund"), formerly
Flag Investors Intermediate-Term Income Fund, Inc., was organized as a Maryland
Corporation on April 16, 1990 and commenced operations May 13, 1991. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
Investment Management Company. It is designed to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure.
The Fund consists of two share classes: Class A Shares, which commenced May
13, 1991, and Institutional Shares, which commenced November 2, 1995.
The Class A Shares have a 1.50% maximum front-end sales charge and a 0.25%
distribution fee. The Institutional Shares have neither a front-end sales charge
nor a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a debt security based on quotations
provided by a pricing service, which uses transactions on bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities to determine
value. The Fund values a portfolio security that is primarily traded on
a national exchange by using the last sale price reported for the day.
If there are no sales, the Fund values the security at the average of
the last bid and asked prices in the over-the-counter market. When a
market quotation is unavailable, the Investment Advisor determines a
fair value using procedures that the Board of Directors establishes and
monitors. The Fund values short-term obligations with maturities of 60
days or less at amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
price. The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. Security Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated to
each class based on its respective average net assets. Class specific
expenses are charged directly to each class. Dividends from net
investment income are declared and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. Distributions in
excess of net investment income are due to different tax treatments of
dividends declared.
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fee, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor. As compensation for its
advisory services, the Fund pays ICC an annual fee. This fee is based on the
Fund's average daily net assets and is calculated daily and paid monthly at the
following annual rates: 0.35% of the first $1 billion, 0.30% of the next $500
million and 0.25% of the amount over $1.5 billion.
ICC has agreed to reduce its aggregate fees so that ordinary Fund expenses
for any fiscal year do not exceed 0.70% of the Class A Shares' average daily net
assets and 0.45% of the Institutional Shares' average daily net assets. For the
six months ended June 30, 1997, ICC waived fees of $87,189.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $29,092 for accounting services for the six months
ended June 30, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $15,962 for
transfer agent services for the six months ended June 30, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated an annual fee that is calculated daily and paid
monthly. This fee is paid at an annual rate equal to 0.25% of the Class A
Shares' average daily net assets. For the six months ended June 30, 1997,
distribution fees aggregated $70,014.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period
January 1, 1997 through June 30, 1997 was approximately $1,917, and the accrued
liability was approximately $10,516.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 60 million shares of $.001 par value
capital stock (45 million Class A, 2 million Class B, 5 million Institutional, 5
million Alex. Brown Capital Advisory &Trust and 3 million undesignated).
Transactions in shares of the Fund are listed on the following page.
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<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--concluded
Class A Shares
------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1997* Dec. 31, 1996
-------------- -------------
Shares sold 222,161 824,212
Shares issued to shareholders on
reinvestment of dividends 80,499 223,342
Shares redeemed (644,144) (1,752,832)
----------- ------------
Net decrease in shares outstanding (361,484) (705,278)
=========== ============
Proceeds from sale of shares $ 2,277,846 $ 8,509,093
Value of reinvested dividends 821,733 2,288,737
Cost of shares redeemed (6,791,935) (18,054,319)
----------- ------------
Net decrease from capital share transactions $(3,692,356) $ (7,256,489)
=========== ============
Institutional Shares
-----------------------------
For the Six For the
Months Ended Year Ended
June 30, 1997* Dec. 31, 1996
-------------- -------------
Shares sold 341,535 1,513,443
Shares issued to shareholders on
reinvestment of dividends 23,739 34,119
Shares redeemed (100,856) (67,989)
----------- -----------
Net increase in shares outstanding 264,418 1,479,573
=========== ===========
Proceeds from sale of shares $ 3,525,469 $15,635,223
Value of reinvested dividends 244,846 352,575
Cost of shares redeemed (1,040,775) (708,903)
----------- -----------
Net increase from capital share transactions $ 2,729,540 $15,278,895
=========== ===========
- --------------
*Unaudited.
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $23,022,482 and sales of investment securities aggregated $21,009,427
for the six months ended June 30, 1997.
On June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $459,611 and
aggregate
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 4--concluded
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value was $425,762.
NOTE 5--Net Assets
On June 30, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $58,211,576
Institutional Shares 20,165,311
Accumulated net realized loss from security transactions (3,547,228)
Unrealized appreciation of investments 33,849
Undistributed net investment income 359,287
-----------
$75,222,795
===========
NOTE 6--Federal Income Tax Information
Generally accepted accounting principles require that we reclassify certain
components of net assets to reflect permanent differences between financial
reporting and tax purposes. We have reclassified last fiscal year's permanent
book/tax difference of $81,463 to undistributed net investment income from
accumulated net realized loss from security transactions. This reclassification
has no effect on net assets or net asset values per share.
On December 31, 1996, there was a tax capital loss carryforward of
$3,529,873 of which $383,359 expires in 2002, $3,111,390 expires in 2003 and
$35,124 expires in 2004. This carryforward will be used to offset any future net
capital gains.
NOTE 7--Shareholder Meeting
On March 7, 1997, the Flag Investors Short-Intermediate Income Fund
held a special meeting of its shareholders. During the meeting, shareholders
elected the following Directors: Charles W. Cole, Jr., 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.
NOTE 8--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Directors and Officers
RICHARD T. HALE
Chairman
CHARLES W. COLE, JR. M. ELLIOTT RANDOLPH, JR.
Director President
JAMES J. CUNNANE PAUL D. CORBIN
Director Executive Vice President
JOHN F. KROEGER GARY V. FEARNOW
Director Vice President
LOUIS E. LEVY MONICA M. HAUSNER
Director Vice President
EUGENE J. MCDONALD EDWARD J. VEILLEUX
Director Vice President
REBECCA W. RIMEL SCOTT J. LIOTTA
Director Vice President and Secretary
TRUMAN T. SEMANS JOSEPH A. FINELLI
Director Treasurer
CARL W. VOGT, ESQ. LAURIE D. COLLIDGE
Director Assistant Secretary
Investment Objective
An open-end mutual fund designed to provide a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure.
20
<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
