<PAGE>
As Filed With the Securities and Exchange Commission on April 28, 1997
Registration No. 33-34275
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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. 9 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 11 [X]
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
----------------------------------------
(Address of Principal Executive Offices)
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)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that the filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on May 1, 1997 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a) of Rule 485
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------------------------------------------------
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of
Common Stock 1,820,821 shares $10.14 $0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Registrant has calculated the maximum aggregate offering price pursuant to
Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act") for
its fiscal year ended December 31, 1996. Registrant had actual aggregate
redemptions of 1,820,821 shares for its fiscal year ended December 31,
1996, has used 0 of available redemptions for reductions pursuant to Rule
24f-2(c) under the 1940 Act and has previously used no available
redemptions for reductions pursuant to Rule 24e-2(a) of the 1940 Act during
the current year. Registrant elects to use redemptions in the aggregate
amount of 1,820,821 shares for reductions in its current amendment.
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Registrant has elected to maintain an indefinite number of shares of Common
Stock pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for its fiscal year ended December 31, 1996 was
filed with the Commission on February 19, 1997.
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<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(Class A Shares)
Cross Reference Sheet
April 28, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- --------------------------- --------
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 the Fund; Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Shares
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
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and Policies
</TABLE>
- ----------
* Information required by Item 5A is contained in the 1996 Annual Report to
Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 Auditors
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>
________________________________________________________________________________
LOGO
FLAG INVESTORS
SHORT-INTERMEDIATE INCOME FUND, INC.
(CLASS A SHARES)
PROSPECTUS & APPLICATION -- MAY 1, 1997
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THIS MUTUAL FUND (THE "FUND") IS DESIGNED TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL WITHIN AN INTERMEDIATE-TERM
MATURITY STRUCTURE.
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 May 1, 1997 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 .................. 5
How to Redeem Shares ....................... 8
Telephone Transactions ..................... 9
Dividends and Taxes ........................ 9
Management of the Fund ..................... 10
Investment Advisor ......................... 10
Distributor ................................ 10
Custodian, Transfer Agent and Accounting
Services .................................. 11
Performance Information .................... 11
General Information ........................ 12
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
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SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
<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%*
</TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets):
<TABLE>
<CAPTION>
<S> <C>
Management Fees (net of fee waivers) ............. 0.07%**
12b-1 Fees ....................................... 0.25%
Other Expenses ................................... 0.38%
--------
Total Fund Operating Expenses (net of fee waivers) 0.70%**
========
</TABLE>
- ------
* Purchases of $1 million or more of Class A Shares by persons not otherwise
eligible for sales load waivers are not subject to an initial sales
charge; however, a contingent deferred sales charge of .50% may be imposed
upon redemption. (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 .70% of the Class A Shares'
average daily net assets. Absent fee waivers, Management Fees would be
.35% and Total Fund Operating Expenses would be .98% of the Class A
Shares' average daily net assets.
<TABLE>
<CAPTION>
<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>
- ------
* Absent fee waivers, expenses would be higher.
THE 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, either directly or indirectly. A person
who purchases Class A Shares through a financial institution may be charged
separate fees by that institution.
The rules of the SEC require that the maximum sales charge (in the Class A
Shares' 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. The
foregoing table has not been audited by Deloitte & Touche LLP, the Fund's
independent auditors.
1
<PAGE>
FINANCIAL HIGHLIGHTS
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The Fund was organized as a corporation under the laws of the State of
Maryland on April 16, 1990 and commenced operations on May 13, 1991. 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 December 31, 1996 and the independent
auditors' 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 December 31,
1996 which can be obtained at no charge by calling the Fund at (800)
767-FLAG.
(FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Year Ended December 31, May 13, 1991(1)
----------------------------------------------------------- through
1996 1995 1994 1993 1992 December 31, 1991
--------- --------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value at beginning of
period ................... $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54 $ 10.00
--------- --------- --------- ---------- --------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 0.63 0.62 0.57 0.57 0.63 0.32
Net realized and unrealized
gain/(loss) on investments . (0.23) 0.84 (0.92) 0.34 (0.05) 0.64
--------- --------- --------- ---------- --------- --------------
Total from Investment Operations 0.40 1.46 (0.35) 0.91 0.58 0.96
--------- --------- --------- ---------- --------- --------------
LESS DISTRIBUTIONS:
Dividends from net investment
income and short-term gains (0.60) (0.60) (0.57) (0.69) (0.75) (0.42)
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) (0.42)
--------- --------- --------- ---------- --------- --------------
Net asset value at end of period $ 10.28 $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54
========= ========= ========= ========== ========= ==============
TOTAL RETURN(2) ............... 4.04% 15.43% (3.32)% 8.98% 5.68% 9.79%
RATIO TO AVERAGE DAILY NET ASSETS:
Expenses(3) ................. 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%(4)
Net Investment Income(5) .... 6.11% 6.00% 5.57% 5.43% 6.01% 5.97%(4)
SUPPLEMENTAL DATA:
Net assets at end of period (000) $ 58,584 $ 67,116 $ 78,789 $ 112,520 $ 78,706 $ 64,327
Portfolio turnover rate ..... 42% 46% 50% 86% 107% 46%
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales loads.
(3) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 0.99%, 0.93%, 0.84%, 0.85%, 0.87% and
1.73% (annualized) for the years ended December 31, 1996, 1995, 1994,
1993 and 1992 and for the period ended December 31, 1991, respectively.
(4) Annualized.
(5) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 5.83%, 5.77%, 5.43%, 5.28%,
5.83% and 4.94% (annualized) for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 and for the period ended December 31, 1991,
respectively.
2
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISK
CONSIDERATIONS
The Fund's investment objective is to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. This investment objective is a fundamental policy and may
not be changed without shareholder approval.
In seeking this objective the Fund will, under normal circumstances,
invest at least 65% of its total assets in U.S. Government Securities
(including certain mortgage-backed securities) and in collateralized mortgage
obligations ("CMOs") and corporate debt securities. The Fund may also invest
in other asset-backed securities and (subject to an overall 20% limit) non-U.S.
dollar-denominated securities. Quality criteria applicable to certain of the
Fund's investments are as follows:
TYPE OF PERMITTED MINIMUM RATING(1)
INVESTMENT S&P(2) MOODY'S(3)
----------------- ------ ----------
U.S. Government and Agency Securities N/A N/A
CMO's ........................... AAA(4) Aaa(4)
Corporate Debt .................. A or better(4) A or better(4)
Other Asset-Backed Securities ... AAA(4) Aaa(4)
Securities of Non-U.S. Governmental
Issuers ........................ AAA(4) Aaa(4)
Securities of Designated
International Organizations .... AAA(4) Aaa(4)
Non-Dollar U.S. Government
Securities ..................... AAA(4) Aaa(4)
Securities of Foreign
Corporations ................... AAA(4) Aaa(4)
- ------
(1) In the event any security owned by the Fund is downgraded, the Fund's
investment advisor (the "Advisor") will review the situation and take
appropriate action, but will not be automatically required to sell any
such security. For a discussion of the above ratings, see the Appendix to
the Statement of Additional Information.
(2) Standard & Poor's Ratings Group.
(3) Moody's Investors Service, Inc.
(4) Or, if unrated, determined to be of comparable quality by the Fund's
investment advisor.
Under normal circumstances the Fund's portfolio will have a dollar
weighted expected average maturity of approximately three to five years and a
maximum dollar weighted average duration of four years. For purposes of
determining the dollar weighted expected average maturity of the Fund's
portfolio, the maturity of a mortgage-backed security will be deemed to be
equal to its assumed life, in recognition of the fact that such securities
are subject to prepayment.
<PAGE>
To meet its short-term liquidity needs, the Fund may invest in repurchase
agreements with respect to U.S. Treasury securities, in variable amount
master demand notes and in commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or if not rated, determined to be of comparable quality by the Fund's
investment advisor (the "Advisor"). For temporary, defensive purposes, the Fund
may invest up to 100% of its assets in such instruments.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include obligations
issued and backed by the full faith and credit of the United States Treasury,
as well as obligations issued by agencies or instrumentalities of the U.S.
Government (including securities of the Government National Mortgage
Association ("GNMA")). These obligations may or may not be backed by the full
faith and credit of the U.S. Government. Certain agencies or
instrumentalities of the U.S. Government (such as the United States Postal
Service) have the right to borrow from the United States Treasury to meet
their obligations, but in other instances the obligations of the issuing
agency or instrumentality (such as the Federal Farm Credit System and the
Federal National Mortgage Association ("FNMA")) are supported only by the
credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are obligations
backed by mortgage loans made by lenders, such as commercial banks and
savings and loan institutions, and then assembled into pools for sale to
investors. One type of mortgage-backed security in which the Fund may invest
is a pass-through certificate that provides monthly payments to the
certificate holders, consisting of both interest and principal payments,
which in effect "pass-through" the monthly interest and principal payments
made on the underlying mortgage loans. These certificates are backed as to
the timely payment of principal and interest by GNMA, FNMA and the Federal
Home Loan Mortgage Corporation. (See "U.S. Government Securities" above.)
Mortgage-backed securities may also take the form of a CMO, a bond or
similar obligation backed by pools of mortgages. A CMO is not insured or
guaranteed by the agency or instrumentality of the U.S. Government which
issues the mortgage-backed securities that collateralize the CMO. Payment of
principal and interest on the underlying mortgages, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs. If there
is a default in the payment of principal and interest, there can be no
assurance that the underlying collateral will be sufficient to effect full
repayment. CMOs may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans.
3
<PAGE>
ASSET-BACKED SECURITIES. The Fund may also invest in securities backed by
assets other than mortgages, including company receivables, truck and auto
loans, leases, and credit card receivables, subject to certain quality
requirements. Through the use of trusts and special purpose corporations,
these types of assets are being securitized in pass-through structures
similar to the mortgage pass-through structure or in pay-through structures
similar to the CMO structure, both as described above. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans and is less likely to experience substantial prepayments.
However, asset-backed securities do not generally have the benefit of the
same security interest in the related collateral as either mortgage-backed
securities or CMOs, and may therefore present certain risks not associated
with other such securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit investment of fluctuating amounts of
money at variable rates of interest pursuant to arrangements with issuers who
meet the foregoing quality criteria discussed above. All variable amount
master demand notes acquired by the Fund will be payable within a prescribed
notice period not to exceed seven days.
NON-U.S. DOLLAR-DENOMINATED SECURITIES. Non-U.S. dollar-denominated
securities include debt obligations denominated in foreign or composite
currencies (such as the European Currency Unit) issued by (i) foreign
national, provincial, state or municipal governments or their political
subdivisions; (ii) international organizations designated or supported by
governmental entities (e.g., the World Bank and the European Steel and Coal
Community); (iii) the U.S. Government (non-dollar securities only); and (iv)
foreign corporations.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund is authorized to
use forward foreign currency exchange contracts to protect against
uncertainty in the level of future foreign exchange rates. A forward foreign
currency exchange contract is an obligation to purchase or sell a specific
currency at a future date at a price set at the time the contract is entered
into. The Fund may use such forward contracts only under two circumstances.
First, if the Advisor believes the Fund should fix the U.S. dollar price of
the foreign security when the Fund enters into a contract for the purchase or
sale, at a future date, of a security denominated in a foreign currency, the
Fund may enter into forward contracts. Second, if the Advisor believes the
Fund should hedge against risk of loss in the value of those portfolio
securities denominated in foreign currencies, the Fund may enter into a
forward contract to sell or purchase an amount of the foreign currency
approximating the value of some or all of those securities.
RULE 144A SECURITIES. Subject to the Fund's overall investment limitations
on investing in illiquid securities and restricted securities, the Fund may
purchase Rule 144A Securities. Rule 144A Securities are restricted securities
in that they have not been registered under the Securities Act of 1933, but
they may be traded between certain qualified institutional investors,
including investment companies. The presence or absence of a secondary market
in these securities may affect their value. The Fund's Board of Directors has
established guidelines and procedures to be utilized to determine the
liquidity of such securities.
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.
PURCHASE OF WHEN-ISSUED SECURITIES. From time to time, in the ordinary
course of business, the Fund may purchase securities, at the current market
value of the securities, on a forward commitment or "when-issued" basis. A
segregated account of the Fund, consisting of cash or other liquid securities
equal at all times to the amount of the when-issued commitments will be
established and maintained by the Fund at the Fund's custodian. While the
Fund will purchase securities on a forward commitment or "when-issued" basis
only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable. The value of
securities so purchased or sold is subject to market fluctuation and no
interest accrues to the purchaser during this period.
RISK CONSIDERATIONS. The market value of the Fund's debt securities will
change in response to interest rate changes and other factors. During periods
of falling interest rates, the value of outstanding debt securities generally
rises. Conversely, during periods of rising interest rates, the value of such
securities generally declines. Prices of longer term securities generally
increase or decrease more sharply in response to interest rate changes than
those of shorter term securities. Mortgage-backed securities are subject to
special risks because some or conceivably all of the underlying mortgages may
be prepaid, especially during periods of declining interest rates. These
prepayments are passed through to holders of mortgage-backed securities who
may then have to reinvest at lower interest rates. Moreover, the possibility
of prepayment makes it difficult to assess the actual maturity and duration
of mortgage-
4
<PAGE>
backed securities, which, in turn, makes it difficult to predict both the
direction and magnitude of changes in the value of mortgage-backed securities
in response to changes in interest rates.
Purchasing foreign securities may subject the Fund to additional risks
associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of
foreign assets, the possible establishment of exchange controls or the
adoption of other foreign government restrictions that might adversely affect
the payment of principal or interest on foreign securities held by the Fund.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal and state regulatory
limitations. The following investment restrictions numbered 1 and 2 are
matters of fundamental policy and may not be changed without shareholder
approval. Investment restriction number 3 may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer);
2) Invest more than 5% of its total assets in the securities of any single
issuer or acquire more than 10% of the voting securities of any issuer
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer); and
3) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
Class A Shares may be purchased from the Fund's distributor (the
"Distributor"), through any securities dealer that is authorized to
distribute Class A Shares ("Participating Dealers"), or through any financial
institution that is authorized to service shareholder accounts ("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, 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
Investment Plan is $250 for quarterly investments and $100 for monthly
investments. (See "Purchases through Automatic Investing Plan" below.) There
is no minimum investment requirement for qualified retirement plans (i.e.,
401(k) plans or pension and profit sharing plans). IRA accounts are, however,
subject to the $2,000 minimum initial investment requirement. There is no
minimum investment requirement for spousal IRA accounts.
The Fund reserves the right to suspend the sale of Class A Shares at any time
at the discretion of the Distributor and the Advisor. Orders for purchases of
Class A Shares are accepted on any day on which the New York Stock Exchange is
open for business (a "Business Day"). 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. Portfolio securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices
5
<PAGE>
provided by principal market makers. If a portfolio security is traded
primarily on a national exchange on the valuation date, the last quoted sale
price is generally used. 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.
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 which is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
Sales Charge
as Percentage of Dealer
------------------------------ Compensation
Offering Net Amount as Percentage 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 Class A 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 Class A shares of other Flag Investors funds with a
higher front-end sales charge and purchases of Class A shares of Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. 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 Class A 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.
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 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
6
<PAGE>
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 Class A Shares or Class A shares of any other mutual fund in the
Flag Investors family of funds with a higher front-end sales charge, or Class
A shares of Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
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 Distributor and Participating Dealers, and their
respective affiliates.
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 Maryland Intermediate
Tax-Free Income Fund, Inc. and shareholders of Class A shares of other
mutual funds in the Flag Investors family of funds with a higher front-end
sales charge, may exchange their Class A 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
Class A 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. Shares issued
pursuant to this offer will not be subject to the sales charges described
above or any other charge.
In addition, shareholders may exchange their Class A Shares for an equal
dollar amount of Class A 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. Shareholders should receive and read the applicable
prospectus prior to tendering Class A Shares for exchange.
This 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.
Participating 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
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Class A Shares.
Unless the shareholder elects otherwise, all income dividends and net capital
gains distributions, if any, will be reinvested in additional Class A Shares at
net asset value (without a sales charge).
7
<PAGE>
Shareholders may elect to terminate automatic reinvestment by giving
written notice to the Funds transfer agent (the "Transfer Agent") (at the
address listed on page 13 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 the Transfer Agent for additional
information.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
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
Transfer Agent. Shareholders may also redeem Class A 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
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 upon 60 days' written notice.
Class A Shares will not be redeemed involuntarily as a result of a decline in
account value due to a decline in net asset value alone.
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 Class A 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 share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). If redemptions continue, a shareholders' account may
eventually be exhausted. Because Class A Share purchases include a sales
charge that will not be recovered at the time or 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.
8
<PAGE>
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
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 page 13 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 even, requests should be made by
regular or express mail. Class A Shares held in certificate form may not be
exchanged or redeemed by telephone. (See "How to Invest in the Fund--Purchases
by Exchange" and "How to Redeem 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.
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 urged 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 regarding taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. Generally, as long as the Fund qualifies for this tax treatment,
it will be relieved of U.S. federal income tax on amounts distributed to
shareholders, but U.S. shareholders, unless otherwise exempt, will pay income
or capital gains tax on the amounts so distributed, regardless of whether
such distributions are paid in cash or reinvested in additional Class A
Shares.
Distributions from the Fund out of net capital gains (the excess of
long-term capital gains over short-term capital losses), if any, are treated
by shareholders as long-term capital gains regardless of the length of time
the shareholder has held the Class A Shares. All other income distributions
are taxed to shareholders as ordinary income. Distributions from the Fund
generally will not qualify for the corporate dividends received deduction.
Ordinarily, shareholders will include all dividends declared by the Fund
in 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 to have been received by the shareholders and
paid by the Fund in the year in which the dividends were declared.
9
<PAGE>
Investors purchasing Class A Shares just prior to a distribution will be
taxable on the entire amount of the distribution received, even though the
net asset value per share on the date of such purchase may have reflected the
amount of such forthcoming distribution.
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.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year.
The sale, exchange or redemption of Class A Shares is a taxable event for
the shareholder.
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 are not affiliated with the Advisor or the
Distributor.
The Fund's Directors and officers are as follows:
Richard T. Hale Chairman M. Elliott Randolph, Jr. President
Charles W. Cole, Jr. Director Paul D. Corbin Executive Vice President
James J. Cunnane Director Edward J. Veilleux Vice President
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Scott J. Liotta Vice President and
Rebecca W. Rimel Director Secretary
Truman T. Semans Director Joseph A. Finelli Treasurer
Carl W. Vogt Director Laurie D. Collidge Assistant
Secretary
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), an indirect
subsidiary of Alex. Brown Incorporated, is the Fund's investment advisor. ICC
is also the investment advisor to other mutual funds in the Flag Investors
family of funds and Alex. Brown Cash Reserve Fund, Inc., which funds had
approximately $5.7 billion of net assets as of December 31, 1996.
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.
As compensation for its services for the fiscal year ended December 31,
1996, ICC received a fee (net of fee waivers) equal to .07% of the Fund's
average daily net assets. 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 .70% of the Class A Shares' average daily net assets.
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., the Fund's President, and Paul D.
Corbin, the Fund's Executive Vice President, have shared primary
responsibility for managing the Fund's assets since inception.
M. Elliott Randolph has nearly 23 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 19 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
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") acts
as distributor of the Fund's shares. Alex. Brown is an investment banking
firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan.
10
<PAGE>
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 fiscal year ended December 31, 1996, Alex. Brown received a fee from the
Fund that represented .25% of the Class A Shares' average daily net assets.
Alex. Brown expects to allocate on a proportional basis most of its annual
distribution fee to its investment representatives or up to all 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, to provide shareholder services, pursuant to
which Alex. Brown 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 Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's 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 as
profit by Alex. Brown. Alex. Brown will 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
Participating Dealers.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As
compensation for providing accounting services to the Fund for the fiscal
year ended December 31, 1996, ICC received a fee equal to .06% of the Fund's
average daily net assets. (See the Statement of Additional Information.) PNC
Bank, National Association, a national banking association, acts as custodian
of the Fund's assets.
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. 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 corre- sponding 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
performance of the Fund may also be compared to the Lehman Brothers
Intermediate Aggregate Bond Index, the Merrill Lynch 1-3 year Treasury Index
and the Lehman Brothers Government Corporate Intermediate-Term Bond Index.
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.
Performance is generally a function of the type and quality of
11
<PAGE>
instruments held by the Fund, operating expenses and market conditions. Any
fees charged by banks with respect to customer accounts through which Class A
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 diversified management investment company
incorporated under the laws of the State of Maryland on April 16, 1990 and is
authorized to issue 60 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 December 31. Prior to February 14, 1997, the Fund was known as Flag
Investors Intermediate-Term Income Fund, Inc.
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 shares offered by this Prospectus have been designated "Flag Investors
Short-Intermediate Income Fund Class A Shares." The Fund has two other
classes of shares in addition to the shares offered hereby: "Flag Investors
Short-Intermediate Income Fund Institutional Shares" and "Alex. Brown Capital
Advisory & Trust Short-Intermediate Income Shares." Additional information
concerning the Fund's other classes may be obtained by calling the
Distributor 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 Class A Shares. All classes of the Fund
share a common investment objective, portfolio of investments and advisory
fee, but to the extent the classes have different sales load structures,
distribution fees or other expenses, 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 Class A Shares should contact
the Transfer Agent at (800) 553-8080, the Fund at (800) 767-FLAG, or any
Participating Dealer or Shareholder Servicing Agent, as appropriate.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------------------------------------------------------------
Make check payable to "Flag Investors Short-Intermediate FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
Income Fund, Inc." and mail with this Application to: MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663 TO OPEN AN IRA ACCOUNT, PLEASE CALL 1-800-767-3524 FOR AN IRA INFORMATION
Kansas City, MO 64141-6663 KIT.
Attn: Flag Investors Short-Intermediate Income Fund, Inc.
I enclose a check for $_______ payable to "Flag Investors Short-Intermediate 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.
The Fund reserves the right not to accept checks for more than $50,000 that are not certified or bank checks.
----------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
----------------------------------------
Existing Account No., if any: _______________
INDIVIDUAL OR JOINT TENANT GIFTS TO MINORS
- ------------------------------------------------------------------------ ---------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- ------------------------------------------------------------------------ ---------------------------------------------------------
Social Security Number Minor's Name (only one)
- ------------------------------------------------------------------------ ---------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
under the __________________ Uniform Gifts to Minors Act
State of Residence
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- ------------------------------------------------------------------------ MAILING ADDRESS
Name of Corporation, Trust or Partnership
- ------------------- ------------------- ---------------------------------------------------------
Tax ID Number Date of Trust Street
- ------------------------------------------------------------------------ ---------------------------------------------------------
Name of Trustees (If to be included in the Registration) City State Zip
( )
- ------------------------------------------------------------------------ ---------------------------------------------------------
For the Benefit of Daytime Phone
----------------------------------------
LETTER OF INTENT (OPTIONAL)
----------------------------------------
[ ] I agree to the Letter of Intent and Escrow Agreement 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 Short-Intermediate Income Fund, Inc. in an
aggregate amount at least equal to:
[ ] $100,000 [ ] $500,000 [ ] $1,000,000
----------------------------------------
RIGHT OF ACCUMULATION (OPTIONAL)
----------------------------------------
List the Account numbers of other Flag Investors Funds (except Class B shares) that you or your immediate family already own that
qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
----------------------------------------
DISTRIBUTION OPTIONS
----------------------------------------
Please check the 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
[ ] 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.
A-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------
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): [ ] Monthly ($100 MINIMUM) [ ] Quarterly ($250 MINIMUM) PLEASE ATTACH A VOIDED CHECK.
----------------------------
- -------------------------------------------------- ---------------------------------------------------------------------------
Bank Name Depositor's Signature Date
- -------------------------------------------------- ---------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Depositor's Signature Date
(if joint acct., both must sign)
-------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
-------------------------------------
[ ] Beginning the month of _______ , 19___ please send me checks on a ________________________________________________ monthly or
quarterly basis, as indicated below, in the amount of $_______, Bank Name 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)
----------------------
TELEPHONE TRANSACTIONS
----------------------
I UNDERSTAND THAT I WILL AUTOMATICALLY HAVE TELEPHONE REDEMPTION PRIVILEGES (FOR AMOUNTS UP TO $50,000) AND TELEPHONE EXCHANGE
PRIVILEGES (WITH RESPECT TO OTHER FLAG INVESTORS FUNDS) UNLESS I MARK ONE OR BOTH OF THE BOXES BELOW:
NO, I/WE DO NOT WANT: [ ] Telephone exchange privileges [ ] Telephone redemption 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:
--------------------------------------------- -------------------------------------------------------
------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
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 OF 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.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus dated May 1, 1997. I acknowledge that the telephone redemption and exchange
privileges are automatic and will be effective 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED
TO AVOID BACKUP WITHHOLDING.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ---------------------------------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------------
FOR DEALER USE ONLY
- --------------------
Dealer's Name: _________________________________________________ Dealer Code:_________________________________________________
Dealer's Address:_________________________________________________ Branch Code:_________________________________________________
_________________________________________________
Representative: _________________________________________________ Rep. No.:____________________________________________________
A-2
</TABLE>
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(Class A Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Independent Auditors
ALEX. BROWN & SONS INCORPORATED DELOITTE & TOUCHE LLP
One South Street 117 Campus Drive
Baltimore, Maryland 21202 Princeton, New Jersey 08540
1-800-767-FLAG
Custodian Fund Counsel
PNC BANK, NATIONAL ASSOCIATION MORGAN, LEWIS & BOCKIUS LLP
Airport Business Park 2000 One Logan Square
200 Stevens Drive Philadelphia, Pennsylvania 19103
Lester, Pennsylvania 19113
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(Institutional Shares)
Cross Reference Sheet
April 28, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- --------------------------- --------
<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 Institutional Shares;
Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Institutional Shares
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
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and Policies
- ----------
* Information required by Item 5A is contained in the 1996 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
Item 14. Management of the Fund............................ Management of the Fund
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<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>
- -----------------------------------------------------------------------------
LOGO
FLAG INVESTORS
SHORT-INTERMEDIATE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
PROSPECTUS & APPLICATION -- MAY 1, 1997
- -----------------------------------------------------------------------------
THIS MUTUAL FUND (THE "FUND") IS DESIGNED TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL WITHIN AN INTERMEDIATE-TERM
MATURITY STRUCTURE.
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 Alex. Brown & Sons 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 May 1, 1997, 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 Institutional Shares ..... 5
How to Redeem Institutional Shares ........ 6
Telephone Transactions .................... 6
Dividends and Taxes ....................... 7
Management of the Fund .................... 7
Investment Advisor ........................ 8
Distributor ............................... 8
Custodian, Transfer Agent and Accounting
Services ................................. 8
Performance Information ................... 9
General Information ....................... 9
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
- -----------------------------------------------------------------------------
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>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) .................... None
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) .............................................................................. None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets):
Management Fees (net of fee waivers) .............................................................. 0.07%*
12b-1 Fees ........................................................................................ None
Other Expenses .................................................................................... 0.38%
-------
Total Fund Operating Expenses (net of fee waivers) ................................................ 0.45%*
=======
</TABLE>
- ------
* The Fund's investment advisor currently intends to waive its fee or
reimburse the Fund on a voluntary basis, to the extent required so that
Total Fund Operating Expenses do not exceed .45% of the Institutional
Shares' average daily net assets. Absent fee waivers, Management Fees would
be .35% and Total Fund Operating Expenses would be .73% of the
Institutional Shares' average daily net assets.
<TABLE>
<CAPTION>
<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:* ................................... $5 $14 $25 $57
</TABLE>
- ------
* Absent fee waivers, expenses would be higher.
THE 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 an investor in the Fund will bear directly and indirectly. A
person who purchases Institutional Shares through a financial institution may
be charged separate fees by the financial institution.
1
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------
The Fund has offered the Institutional Shares since November 2, 1995.
However, the Fund has offered another class of shares since 1991. Historical
financial information about the Fund is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares will incur. (See "Fund Expenses.")
Nevertheless, historical information about the Fund may be useful to
investors if they take into account the differences in expenses. Accordingly,
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 December 31, 1996 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 December 31, 1996 which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional
Shares Class A Shares
--------------------------------- -----------------------------------------------------------
For the Year For the Period For the Period
Ended November 2, 1995(1) For the Year Ended December 31, May 13, 1991(1)
December 31, through ---------------------------------------- through
1996 December 31, 1995 1995 1994 1993 1992 December 31, 1991
-------------- ----------------- --------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of
period ......................... $ 10.58 $ 10.42 $ 9.62 $ 10.57 $ 10.37 $ 10.54 $ 10.00
---------- --------- -------- -------- --------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........... 0.59 0.09 0.62 0.57 0.57 0.63 0.32
Net realized and unrealized
gain/(loss) on investments ..... (0.17) 0.12 0.84 (0.92) 0.34 (0.05) 0.64
---------- --------- -------- -------- --------- -------- ----------
Total from Investment Operations . 0.42 0.21 1.46 (0.35) 0.91 0.58 0.96
---------- --------- -------- -------- --------- -------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income
and short-term gains ........... 0.62 (0.05) (0.60) (0.57) (0.69) (0.75) (0.42)
Return of capital ............... -- -- -- (0.03) -- -- --
Distributions from net
realized long-term gains ....... -- -- -- -- (0.02) -- --
---------- --------- -------- -------- --------- -------- ----------
Total distributions ............. (0.62) (0.05) (0.60) (0.60) (0.71) (0.75) (0.42)
---------- --------- -------- -------- --------- -------- ----------
Net asset value at end of period . $ 10.38 $ 10.58 $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54
========== ========= ======== ======== ========= ======== ==========
TOTAL RETURN(2) ................. 4.20% 12.47%(3) 15.43% (3.32)% 8.98% 5.68% 9.79%(3)
RATIOS TO AVERAGE DAILY NET ASSETS:
EXPENSES(4) ..................... 0.45% 0.45%(3) 0.70% 0.70% 0.70% 0.70% 0.70%(3)
Net investment income(5) ........ 6.35% 6.52%(3) 6.00% 5.57% 5.43% 6.01% 5.97%(3)
SUPPLEMENTAL DATA:
Net assets at end of period (000) . $ 17,507 $ 2,186 $ 67,116 $ 78,789 $ 112,520 $ 78,706 $ 64,327
Portfolio turnover rate ......... 42% 46% 46% 50% 86% 107% 46%
</TABLE>
- -------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 0.93%, 0.84%, 0.85%, 0.87% and 1.73%
(annualized) for the Class A Shares for the years ended December 31, 1995,
1994, 1993 and 1992, and for the period ended December 31, 1991,
respectively and 0.76% and 0.72% (annualized) for the Institutional Shares
for the year ended December 31, 1996 and the period ended December 31,
1995, respectively.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 5.77%, 5.43%, 5.28%, 5.83% and
4.94% (annualized) for the Class A Shares for the years ended December 31,
1995, 1994, 1993 and 1992 and for the period ended December 31, 1991,
respectively and 6.04% and 6.27% (annualized) for the Institutional Shares
for the year ended December 31, 1996 and the period ended December 31,
1995, respectively.
2
<PAGE>
INVESTMENT PROGRAM
- -----------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISK
CONSIDERATIONS
The Fund's investment objective is to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. This investment objective is a fundamental policy and may
not be changed without shareholder approval.
In seeking this objective the Fund will, under normal circumstances,
invest at least 65% of its total assets in U.S. Government Securities
(including certain mortgage-backed securities) and in collateralized mortgage
obligations ("CMOs") and corporate debt securities. The Fund may also invest
in other asset-backed securities and (subject to an overall 20% limit) non-U.S.
dollar-denominated securities. Quality criteria applicable to certian of the
Fund's investments are as follows:
Type of Permitted Investment Minimum Rating(1)
S&P(2) Moody's(3)
U.S. Government and Agency
Securities ............................. N/A N/A
CMO's ................................... AAA(4) Aaa(4)
Corporate Debt .......................... A or better(4) A or better(4)
Other Asset-Backed Securities ........... AAA(4) Aaa(4)
Securities of Non-U.S. Governmental
Issuers ................................ AAA(4) Aaa(4)
Securities of Designated International
Organizations .......................... AAA(4) Aaa(4)
Non-Dollar U.S. Government
Securities ............................. AAA(4) Aaa(4)
Securities of Foreign Corporations ...... AAA(4) Aaa(4)
- ------
1 In the event any security owned by the Fund is downgraded, the Fund's
investment advisor (the "Advisor") will review the situation and take
appropriate action, but will not be automatically required to sell any such
security. For a discussion of the above ratings, see the Appendix to the
Statement of Additional Information.
2 Standard & Poor's Ratings Group.
3 Moody's Investors Service, Inc.
4 Or, if unrated, determined to be of comparable quality by the Fund's
investment advisor.
Under normal circumstances the Fund's portfolio will have a dollar
weighted expected average maturity of approximately three to five years and a
maximum dollar weighted average duration of four years. For purposes of
determining the dollar weighted expected average maturity of the Fund's
portfolio, the maturity of a mortgage-backed security will be deemed to be
equal to its assumed life, in recognition of the fact that such securities
are subject to prepayment.
To meet its short-term liquidity needs, the Fund may invest in repurchase
agreements with respect to U.S. Treasury securities, in variable amount
master demand notes and in commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or if not rated, determined
<PAGE>
to be of comparable quality by the Fund's investment advisor (the "Advisor").
For temporary, defensive purposes, the Fund may invest up to 100% of its assets
in such instruments.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include obligations
issued and backed by the full faith and credit of the United States Treasury,
as well as obligations issued by agencies or instrumentalities of the U.S.
Government (including securities of the Government National Mortgage
Association ("GNMA")). These obligations may or may not be backed by the full
faith and credit of the U.S. Government. Certain agencies or
instrumentalities of the U.S. Government (such as the United States Postal
Service) have the right to borrow from the United States Treasury to meet
their obligations, but in other instances the obligations of the issuing
agency or instrumentality (such as the Federal Farm Credit System and FNMA)
are supported only by the credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are obligations
backed by mortgage loans made by lenders, such as commercial banks and
savings and loan institutions, and then assembled into pools for sale to
investors. One type of mortgage-backed security in which the Fund may invest
is a pass-through certificate that provides monthly payments to the
certificate holders, consisting of both interest and principal payments,
which in effect "pass-through" the monthly interest and principal payments
made on the underlying mortgage loans. These certificates are backed as to
the timely payment of principal and interest by GNMA, FNMA and the Federal
Home Loan Mortgage Corporation. See "U.S. Government Securities" above.
Mortgage-backed securities may also take the form of a CMO, a bond or
similar obligation backed by pools of mortgages. A CMO is not insured or
guaranteed by the agency or instrumentality of the U.S. Government which
issues the mortgage-backed securities that collateralize the CMO. Payment of
principal and interest on the underlying mortgages, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs. If there
is a default in the payment of principal and interest there can be no
assurance that the underlying collateral will be sufficient to effect full
repayment. CMOs may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans.
ASSET-BACKED SECURITIES. The Fund may also invest in securities backed by
assets other than mortgages, including company receivables, truck and auto
loans, leases, and credit card receivables, subject to certain quality
requirements. Through the use of trusts
3
<PAGE>
and special purpose corporations, these types of assets are being securitized
in pass-through structures similar to the mortgage pass-through structure or
in pay-through structures similar to the CMO structure, both as described
above. In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. However, asset-backed securities do not generally
have the benefit of the same security interest in the related collateral as
either mortgage-backed securities or CMOs, and may therefore present certain
risks not associated with other such securities.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit investment of fluctuating amounts of
money at variable rates of interest pursuant to arrangements with issuers who
meet the foregoing quality criteria discussed above. All variable amount
master demand notes acquired by the Fund will be payable within a prescribed
notice period not to exceed seven days.
NON-U.S. DOLLAR-DENOMINATED SECURITIES. Non-U.S. dollar-denominated
securities include debt obligations denominated in foreign or composite
currencies (such as the European Currency Unit) issued by (i) foreign
national, provincial, state or municipal governments or their political
subdivisions; (ii) international organizations designated or supported by
governmental entities (e.g., the World Bank and the European Steel and Coal
Community); (iii) the U.S. Government (non-dollar securities only); and (iv)
foreign corporations.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund is authorized to
use forward foreign currency exchange contracts to protect against
uncertainty in the level of future foreign exchange rates. A forward foreign
currency exchange contract is an obligation to purchase or sell a specific
currency at a future date at a price set at the time the contract is entered
into. The Fund may use such forward contracts only under two circumstances.
First, if the Advisor believes the Fund should fix the U.S. dollar price of
the foreign security when the Fund enters into a contract for the purchase or
sale, at a future date, of a security denominated in a foreign currency, the
Fund may enter into forward contracts. Second, if the Advisor believes the
Fund should hedge against risk of loss in the value of those portfolio
securities denominated in foreign currencies, the Fund may enter into a
forward contract to sell or purchase an amount of the foreign currency
approximating the value of some or all of those securities.
RULE 144A SECURITIES. Subject to the Fund's overall investment limitations
on investing in illiquid
<PAGE>
securities and restricted securities, the Fund may purchase Rule 144A
Securities. Rule 144A Securities are restricted securities in that they have not
been registered under the Securities Act of 1933, but they may be traded between
certain qualified institutional investors, including investment companies. The
presence or absence of a secondary market in these securities may affect their
value. The Fund's Board of Directors has established guidelines and procedures
to be utilized to determine the liquidity of such securities.
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.
PURCHASE OF WHEN-ISSUED SECURITIES. From time to time, in the ordinary
course of business, the Fund may purchase securities, at the current market
value of the securities, on a forward commitment or "when-issued" basis. A
segregated account of the Fund, consisting of cash or other liquid securities
equal at all times to the amount of the when-issued commitments will be
established and maintained by the Fund at the Fund's custodian. While the
Fund will purchase securities on a forward commitment or "when-issued" basis
only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable. The value of
securities so purchased or sold is subject to market fluctuation and no
interest accrues to the purchaser during this period.
RISK CONSIDERATIONS. The market value of the Fund's debt securities will
change in response to interest rate changes and other factors. During periods
of falling interest rates, the value of outstanding debt securities generally
rises. Conversely, during periods of rising interest rates, the value of such
securities generally declines. Prices of longer term securities generally
increase or decrease more sharply in response to interest rate changes than
those of shorter term securities. Mortgage-backed securities are subject to
special risks because some or conceivably all of the underlying mortgages may
be prepaid, especially during periods of declining interest rates. These
prepayments are passed through to holders of mortgage-backed securities who
may then have to reinvest at lower interest rates. Moreover, the possibility
of prepayment makes it difficult to assess the actual maturity and duration
of mortgage-backed securities, which, in turn, makes it difficult to predict
both the direction and magnitude of changes in the value of mortgage-backed
securities in response to changes in interest rates.
4
<PAGE>
Purchasing foreign securities may subject the Fund to additional risks
associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of
foreign assets, the possible establishment of exchange controls or the
adoption of other foreign government restrictions which might adversely
affect the payment of principal or interest on foreign securities held by the
Fund.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal and state regulatory
limitations. The following investment restrictions numbered 1 and 2 are
matters of fundamental policy and may not be changed without shareholder
approval. Investment restriction number 3 may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer);
2) Invest more than 5% of its total assets in the securities of any single
issuer or acquire more than 10% of the voting securities of any issuer
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer); and
3) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
HOW TO INVEST IN INSTITUTIONAL SHARES
- -------------------------------------------------------------------------------
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") may
purchase Institutional Shares through Alex. Brown, 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
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
Alex. Brown and the Advisor.
<PAGE>
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 Alex. Brown or a Participating Dealer must be in
accordance with such entity's payment procedures. Alex. Brown may, in its
sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once 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 it shares 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. Portfolio securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price is generally used.
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 that 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.
5
<PAGE>
PURCHASES BY EXCHANGE
Shareholders of other Flag Investors funds that offer Institutional shares
may exchange their Institutional shares of those funds for an equal dollar
amount of Institutional 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.
The exchange privilege may be exercised by notifying the Fund's transfer
agent (the "Transfer Agent") by telephone on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) (see "Telephone Transactions"
below) or by regular or express mail at its address listed on the inside back
cover of this Prospectus.
The Fund may modify or terminate this offer of exchange at any time on 60
days' prior written notice to shareholders.
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 Transfer Agent or its agents. Shareholders will have the
same rights and ownership with respect to such shares as if certificates had
been issued.
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 the Distributor or 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 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.
<PAGE>
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. Shares will not be redeemed involuntarily as a result of a decline in
net asset value alone.
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
6
<PAGE>
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 and net
capital gains distributions, if any, will be reinvested in additional
Institutional Shares at net asset value. Shareholders may elect to terminate
automatic reinvestment by giving written instructions to the Transfer Agent,
either directly or through their 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 urged to
consult their tax advisors regarding specific questions as to federal, state
and local taxes. The Statement of Additional Information sets forth further
information regarding taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. Generally, as long as the Fund qualifies for this tax treatment,
it will be relieved of U.S. federal income tax on amounts distributed to
shareholders, but U.S. shareholders, unless otherwise exempt, will pay income
or capital gains tax on the amounts so distributed, regardless of whether
such distributions are paid in cash or reinvested in additional Institutional
Shares.
Distributions from the Fund out of net capital gains (the excess of
long-term capital gains over short-term capital losses), if any, are treated
by shareholders as long-term capital gains regardless of the length of time
the shareholder has held the Institutional Shares. All other income
distributions are taxed to shareholders as ordinary income. Distributions
from the Fund generally will not qualify for the corporate dividends received
deduction.
<PAGE>
Ordinarily, shareholders will include all dividends declared by the Fund
in 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 to have been received by the shareholders and
paid by the Fund in the year in which the dividends were declared.
Investors purchasing Institutional Shares just prior to a distribution
will be taxable on the entire amount of the distribution received, even
though the net asset value per share on the date of such purchase may have
reflected the amount of such forthcoming distribution.
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.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year.
The sale, exchange or redemption of Institutional Shares is a taxable
event for the shareholder.
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 are not affiliated with the Distributor or
the Advisor.
7
<PAGE>
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Richard T. Hale Chairman M. Elliott Randolph, Jr. President
Charles W. Cole, Jr. Director Paul D. Corbin Executive Vice President
James J. Cunnane Director Edward J. Veilleux Vice President
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Scott J. Liotta Vice President and Secretary
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Truman T. Semans Director Laurie D. Collidge Assistant Secretary
Carl W. Vogt Director
</TABLE>
INVESTMENT ADVISOR
- -------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor"), an indirect
subsidiary of Alex. Brown Incorporated, is the Fund's investment advisor. ICC
is also the investment advisor to other mutual funds in the Flag Investors
family of funds and Alex. Brown Cash Reserve Fund, Inc., which funds had
approximately $5.7 billion of net assets as of December 31, 1996.
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.
As compensation for its services for the fiscal year ended December 31,
1996, ICC received a fee (net of fee waivers) equal to .07% of the Fund's
average daily net assets. 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 .45% of the Institutional Shares' average daily net
assets.
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., the Fund's President, and Paul D.
Corbin, the Fund's Executive Vice President, have shared primary
responsibility for managing the Fund's assets since inception.
M. Elliott Randolph has nearly 23 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 19 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
- -------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor"), acts
as distributor of the Fund's shares. Alex. Brown is an investment banking
firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the Institutional Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other
than Fund shareholders.
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 December 31, 1996, ICC received a fee equal to .06% of the Fund's
average daily net assets. (See the Statement of Additional Information.) PNC
Bank, National Association, a national banking association, acts as custodian
of the Fund's assets.
8
<PAGE>
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. 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.
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 which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers
Intermediate Aggregate Bond Index, the Merrill Lynch 1-3 year Treasury Index
and the Lehman Brothers Government Corporate Intermediate-Term Bond Index.
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 banks with respect to customer
accounts through which Institutional Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
<PAGE>
GENERAL INFORMATION
- -------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Fund is an open-end diversified management investment company
incorporated under the laws of the State of Maryland on April 16, 1990 and is
authorized to issue 60 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 December 31. Prior to February 14, 1997, the Fund was known as Flag
Investors Intermediate-Term Income Fund, Inc.
The shares offered by this Prospectus have been designated "Flag Investors
Short-Intermediate 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 Short-Intermediate Income Fund Class A Shares" and
"Alex. Brown Capital Advisory & Trust Short-Intermediate Income Shares".
Additional information concerning the Fund's other classes may be obtained by
calling the Distributor 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 to the extent the classes have different distribution fees
or sales load structures, 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.
9
<PAGE>
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.
10
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SEND COMPLETED APPLICATION BY OVERNIGHT CARRIER TO: FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
Alex. Brown & Sons Incorporated/Flag Investors Funds MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Short-Intermediate Income Fund, Inc.
IF YOU ARE PAYING BY CHECK, MAKE CHECK PAYABLE TO "FLAG INVESTORS SHORT-INTERMEDIATE 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 MAILING ADDRESS
- --------------------------------------------------------- ---------------------------------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- -------------------------------------- ---------------------------------------------------------------------
Tax ID Number Street
[ ] Corporation [ ] Partnership [ ] Trust ---------------------------------------------------------------------
City State Zip
[ ] Non-Profit or Charitable Organization [ ] Other______ ( )
---------------------------------------------------------------------
If a Trust, please provide the following: Daytime Phone
- -----------------------------------------------------------------------------------------------------------------------------------
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 ALEX. BROWN.
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 Short-Intermediate Income Fund, Inc.
______ B. By Wire: A bank wire in the amount of $______has been sent from ________________ ______________________________________
Name of Bank Wire Control Number
WIRE INSTRUCTIONS
Follow the instructions below to arrange for a wire transfer for initial investment:
o Send completed Application by overnight carrier to Alex. Brown & Sons 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 Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7528175
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Short-Intermediate Income Fund, Inc. -- Institutional Shares
o "For further credit to ____________________________________________."
(Investor's Fund Account Number)
<PAGE>
--------------------
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------
ACKNOWLEDGMENT, CERTIFICATE AND SIGNATURE
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
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.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus dated May 1, 1997. 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 FOLLOWING TEXT APPEARS IN A BOX]
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED
TO AVOID BACKUP WITHHOLDING.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
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
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.
<PAGE>
------------------------
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
</TABLE>
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(Institutional Shares)
Investment Advisor Distributor
INVESTMENT COMPANY CAPITAL CORP. ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-767-FLAG
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street 117 Campus Drive
Baltimore, Maryland 21202 Princeton, New Jersey 08540
1-800-553-8080
Custodian Fund Counsel
PNC BANK, NATIONAL ASSOCIATION MORGAN, LEWIS & BOCKIUS LLP
Airport Business Park 2000 One Logan Square
200 Stevens Drive Philadelphia, Pennsylvania 19103-6993
Lester, Pennsylvania 19113
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(Alex. Brown Capital Advisory & Trust Shares)
Cross Reference Sheet
April 28, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- --------------------------- --------
<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 (with respect to Flag
Investors Class A Shares and Flag Investors
Institutional Shares)
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 Alex. Brown Capital
Advisory & Trust Shares; Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Alex. Brown Capital
Advisory & Trust Shares
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
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and Policies
</TABLE>
- ----------
* Information required by Item 5A will be contained in the Registrant's first
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>
<S> <C> <C>
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 (relating to the Fund's
other classes of shares)
</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>
LOGO
ALEX. BROWN
CAPITAL ADVISORY
& TRUST
SHORT-INTERMEDIATE INCOME SHARES
(A CLASS OF FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.)
This mutual fund (the "Fund") is designed to provide a high level of
current income consistent with preservation of principal within an
intermediate-term maturity structure. The Fund will invest exclusively in
high quality debt securities, primarily U.S. Government securities (including
agency securities), corporate bonds, collateralized mortgage obligations and
other asset-backed securities. Under normal circumstances, the dollar
weighted expected average maturity of the portfolio will be approximately
three to five years and the maximum dollar weighted average duration will be
four years. (See "Investment Program.")
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 May 1, 1997 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.
- -----------------------------------------------------------------------------
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.
The date of this Prospectus is May 1, 1997
<PAGE>
ALEX. BROWN
CAPITAL ADVISORY
& TRUST
SHORT-INTERMEDIATE
INCOME SHARES
(A CLASS OF FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.)
One South Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fund Expenses ..................................... 2
2. Financial Highlights .............................. 3
3. Investment Program ................................ 5
4. Investment Restrictions ........................... 9
5. How to Invest in ABCAT Shares ..................... 10
6. How to Redeem ABCAT Shares ........................ 11
7. Dividends and Taxes ............................... 11
8. Management of the Fund ............................ 13
9. Investment Advisor ................................ 13
10. Distributor ....................................... 14
11. Custodian, Transfer Agent and Accounting Services .. 15
12. Performance Information ........................... 15
13. General Information ............................... 16
</TABLE>
1
<PAGE>
=============================================================================
1. FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
- -----------------------------------------------------------------------------
<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:
(as a percentage of average daily net assets)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Management Fees (net of fee waivers) ................. 0.07%*
12b-1 Fees ........................................... None
Other Expenses ....................................... 0.38%
------
Total Fund Operating Expenses (net of fee waivers) ... 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 .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 .45% of the ABCAT Shares' average daily net assets.
Absent fee waivers, Management Fees would be .35% and Total Fund Operating
Expenses would be .68% of the ABCAT Shares' average daily net assets.
EXAMPLE:
<TABLE>
<CAPTION>
<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:* 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------
$5 $14 $25 $57
</TABLE>
- -----------------------------------------------------------------------------
*Absent fee waivers, expenses would be higher.
THE 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 an investor in the Fund will bear directly and indirectly. (For
more complete descriptions of the various costs and expenses, see "How to
Invest in ABCAT Shares," "Investment Advisor" and "Distributor.") The ABCAT
Shares have not been offered prior to the date of this Prospectus.
Accordingly, the Expenses and Example appearing in the table above are based
on the Fund's expenses (net of fee waivers) for the Flag Investors Class A
Shares, another class of shares offered by the Fund, for the fiscal year
ended December 31, 1996, less 12b-1 fees of .25%.
2
<PAGE>
=============================================================================
2. Financial Highlights
.............................................................................
The Fund has not offered the ABCAT Shares prior to the date of this
Prospectus. However, the Fund has offered Flag Investors Institutional Shares
since November 2, 1995 and Flag Investors Class A Shares since May 13, 1991.
Historical financial information about the Fund is not fully applicable to
the ABCAT Shares because the expenses paid by the Fund in the past differ
from those the ABCAT Shares will incur. (See "Fund Expenses.") Nevertheless,
historical information about the Fund may be useful to investors if they take
into account the differences in expenses. Accordingly, the financial
highlights included in this table have been derived from the Fund's financial
statements for its other classes of shares 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 December 31, 1996 and
the report thereon of Deloitte & Touche LLP are included in the Statement of
Additional Information. Additional performance information for the Fund's
other classes is contained in the Fund's Annual Report for the fiscal year
ended December 31, 1996 which can be obtained at no charge by calling the
Fund at (800) 767-3524.
3
<PAGE>
(For a share outstanding throughout each period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLAG INVESTORS
INSTITUTIONAL
SHARES FLAG INVESTORS CLASS A SHARES
---------------------------- -------------------------------------------------------------------
FOR THE FOR THE PERIOD FOR THE PERIOD
YEAR ENDED NOV. 2, 1995* FOR THE YEAR ENDED DECEMBER 31, MAY 13, 1991*
DECEMBER THROUGH --------------------------------------------------- THROUGH
31, 1996 DEC. 31, 1995 1996 1995 1994 1993 1992 DEC. 31, 1991
----------- --------------- --------- --------- --------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value at
beginning of period .. $ 10.58 $ 10.42 $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54 $ 10.00
--------- --------- --------- ------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income ............... 0.59 0.09 0.63 0.62 0.57 0.57 0.63 0.32
Net realized and
unrealized gain/(loss)
on
investments .......... (0.17) 0.12 (0.23) 0.84 (0.92) 0.34 (0.05) 0.64
--------- --------- --------- ------- -------- -------- -------- --------
Total from Investment
Operations ........... 0.42 0.21 0.40 1.46 (0.35) 0.91 0.58 0.96
--------- --------- --------- ------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income and
short-term
gains ................ (0.62) (0.05) (0.60) (0.60) (0.57) (0.69) (0.75) (0.42)
Return of capital ..... -- -- -- -- (0.03) -- -- --
Distributions from net
realized long-term
gains ................ -- -- -- -- -- (0.02) -- --
--------- --------- --------- ------- -------- -------- -------- --------
Total distributions ... (0.62) (0.05) (0.60) (0.60) (0.60) (0.71) (0.75) (0.42)
--------- --------- --------- ------- -------- -------- -------- --------
Net asset value at end
of period ............ $ 10.38 $ 10.58 $ 10.28 $ 10.48 $ 9.62 $ 10.57 $ 10.37 $ 10.54
========= ========= ========= ======= ======== ======== ======== ========
TOTAL RETURN(1) ....... 4.20% 12.47%** 4.04% 15.43% (3.32)% 8.98% 5.68% 9.79%**
RATIOS TO AVERAGE
DAILY NET
ASSETS:
Expenses(2) ........... 0.45%** 0.45%** 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%**
Net investment
income(3) ........... 6.35%** 6.52%** 6.11% 6.00% 5.57% 5.43% 6.01% 5.97%**
SUPPLEMENTAL DATA:
Net assets at end of
period (000) ........ $17,507 $ 2,186 $58,584 $67,116 $78,789 $112,520 $78,706 $64,327
Portfolio turnover rate . 42% 46% 42% 46% 50% 86% 107% 46%
</TABLE>
- ------
* Commencement of operations.
** Annualized.
(1) Total return excludes the effect of sales charge.
(2) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 0.99%, 0.93%, 0.84%, 0.85%, 0.87% and
1.73% (annualized) for the Flag Investors Class A Shares for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, and for the period
ended December 31, 1991, respectively and 0.76% and 0.72% (annualized)
for the Flag Investors Institutional Shares for the year ended December
31, 1996 and the period ended December 31, 1995, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 5.83%, 5.77%, 5.43%, 5.28%,
5.83% and 4.94% (annualized) for the Flag Investors Class A Shares for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 and for the
period ended December 31, 1991, respectively and 6.04% and 6.27%
(annualized) for the Flag Investors Institutional Shares for the year
ended December 31, 1996 and the period ended December 31, 1995,
respectively.
4
<PAGE>
=============================================================================
3. INVESTMENT PROGRAM
.............................................................................
INVESTMENT OBJECTIVE, POLICIES AND RISK
CONSIDERATIONS
The Fund's investment objective is to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure. This investment objective is a fundamental policy and may
not be changed without shareholder approval.
In seeking this objective the Fund will, under normal circumstances,
invest at least 65% of its total assets in U.S. Government Securities
(including certain mortgage-backed securities) and in collateralized mortgage
obligations ("CMOs") and corporate debt securities. The Fund may also invest
in other asset-backed securities and (subject to an overall 20% limit) non-U.S.
dollar-denominated securities. Quality criteria applicable to certain of the
Fund's investments are as follows:
<TABLE>
<CAPTION>
Type of Permitted Investment Minimum Rating(1)
S&P(2) MOODY'S(3)
<S> <C> <C>
U.S. Government and Agency Securities ......... N/A N/A
CMOs .......................................... AAA(4) Aaa(4)
Corporate Debt ................................ A or better(4) A or better(4)
Other Asset-Backed Securities ................. AAA(4) Aaa(4)
Securities of Non-U.S. Governmental Issuers ... AAA(4) Aaa(4)
Securities of Designated International
Organizations ................................ AAA(4) Aaa(4)
Non-Dollar U.S. Government Securities ......... AAA(4) Aaa(4)
Securities of Foreign Corporations ............ AAA(4) Aaa(4)
</TABLE>
- ------
(1) In the event any security owned by the Fund is downgraded, the Fund's
investment advisor (the "Advisor") will review the situation and take
appropriate action, but will not be automatically required to sell any
such security. For a discussion of the above ratings, see the Appendix to
the Statement of Additional Information.
(2) Standard & Poor's Ratings Group.
(3) Moody's Investors Service, Inc.
(4) Or, if unrated, determined to be of comparable quality by the Fund's
investment advisor.
Under normal circumstances the Fund's portfolio will have a dollar
weighted expected average maturity of approximately three to five years and a
maximum dollar weighted average duration of four years. For purposes of
determining the dollar weighted expected average maturity of the Fund's
portfolio, the maturity of a mortgage-backed security will be deemed to be
equal to its assumed life, in recognition of the fact that such securities
are subject to prepayment.
To meet its short-term liquidity needs, the Fund may invest in repurchase
agreements with respect to U.S. Treasury securities, in variable amount master
demand notes and in commercial paper rated A-1 by S&P or Prime-1 by Moody's, or
if not rated, determined to be of comparable quality by the Fund's investment
advisor (the "Advisor"). For temporary, defensive purposes, the Fund may invest
up to 100% of its assets in such instruments.
5
<PAGE>
..............................................................................
U.S. GOVERNMENT SECURITIES
U.S. Government securities include obligations issued and backed by the
full faith and credit of the United States Treasury, as well as obligations
issued by agencies or instrumentalities of the U.S. Government (including
securities of the Government National Mortgage Association ("GNMA"). These
obligations may or may not be backed by the full faith and credit of the U.S.
Government. Certain agencies or instrumentalities of the U.S. Government
(such as the United States Postal Service) have the right to borrow from the
United States Treasury to meet their obligations, but in other instances the
obligations of the issuing agency or instrumentality (such as the Federal
Farm Credit System and the Federal National Mortgage Association ("FNMA"))
are supported only by the credit of the agency or instrumentality.
..............................................................................
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are obligations backed by mortgage loans made
by lenders, such as commercial banks and savings and loan institutions, and
then assembled into pools for sale to investors. One type of mortgage-backed
security in which the Fund may invest is a pass-through certificate that
provides monthly payments to the certificate holders, consisting of both
interest and principal payments, which in effect "pass-through" the monthly
interest and principal payments made on the underlying mortgage loans. These
certificates are backed as to the timely payment of principal and interest by
GNMA, FNMA and the Federal Home Loan Mortgage Corporation. See "U.S. Government
Securities" above.
Mortgage-backed securities may also take the form of a CMO, a bond or
similar obligation backed by pools of mortgages. A CMO is not insured or
guaranteed by the agency or instrumentality of the U.S. Government which
issues the mortgage-backed securities that collateralize the CMO. Payment of
principal and interest on the underlying mortgages, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs. If there
is a default in the payment of principal and interest there can be no
assurance that the underlying collateral will be sufficient to effect full
repayment. CMOs may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans.
6
<PAGE>
..............................................................................
ASSET-BACKED SECURITIES
The Fund may also invest in securities backed by assets other than
mortgages, including company receivables, truck and auto loans, leases, and
credit card receivables, subject to certain quality requirements. Through the
use of trusts and special purpose corporations, these types of assets are
being securitized in pass-through structures similar to the mortgage
pass-through structure or in pay-through structures similar to the CMO
structure, both as described above. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments. However, asset-backed
securities do not generally have the benefit of the same security interest in
the related collateral as either mortgage-backed securities or CMOs, and may
therefore present certain risks not associated with other such securities.
..............................................................................
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes are unsecured demand notes that permit
investment of fluctuating amounts of money at variable rates of interest
pursuant to arrangements with issuers who meet the foregoing quality criteria
discussed above. All variable amount master demand notes acquired by the Fund
will be payable within a prescribed notice period not to exceed seven days.
...............................................................................
NON-U.S. DOLLAR-DENOMINATED SECURITIES
Non-U.S. dollar-denominated securities include debt obligations
denominated in foreign or composite currencies (such as the European Currency
Unit) issued by (i) foreign national, provincial, state or municipal
governments or their political subdivisions; (ii) international organizations
designated or supported by governmental entities (e.g., the World Bank and
the European Steel and Coal Community); (iii) the U.S. Government (non-dollar
securities only); and (iv) foreign corporations.
...............................................................................
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund is authorized to use forward foreign currency exchange contracts
to protect against uncertainty in the level of future foreign exchange rates.
A forward foreign currency exchange contract is an obligation to purchase or
sell a specific currency at a future date at a price set at the time the
contract is entered into. The Fund may use such forward contracts only under
two circumstances. First, if the Advisor believes the Fund should fix the
U.S. dollar price of the foreign security when the Fund enters into a
7
<PAGE>
contract for the purchase or sale, at a future date, of a security
denominated in a foreign currency, the Fund may enter into forward contracts.
Second, if the Advisor believes the Fund should hedge against risk of loss in
the value of those portfolio securities denominated in foreign currencies,
the Fund may enter into a forward contract to sell or purchase an amount of
the foreign currency approximating the value of some or all of those
securities.
..............................................................................
RULE 144A SECURITIES
Subject to the Fund's overall investment limitations on investing in
illiquid securities and restricted securities, the Fund may purchase Rule
144A Securities. Rule 144A Securities are restricted securities in that they
have not been registered under the Securities Act of 1933, but they may be
traded between certain qualified institutional investors, including
investment companies. The presence or absence of a secondary market in these
securities may affect their value. The Fund's Board of Directors has
established guidelines and procedures to be utilized to determine the
liquidity of such securities.
..............................................................................
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.
..............................................................................
PURCHASE OF WHEN-ISSUED SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase securities, at the current market value of the securities, on a
forward commitment or "when-issued" basis. A segregated account of the Fund,
consisting of cash or other liquid securities equal at all times to the
amount of the when-issued commitments will be established and maintained by
the Fund at the Fund's custodian. While the Fund will purchase securities on
a forward commitment or "when-issued" basis only with the intention of
acquiring the securities, the Fund may sell the securities before the
settlement date if it is deemed advisable. The value of securities so
purchased or sold is subject to market fluctuation and no interest accrues to
the purchaser during this period.
8
<PAGE>
..............................................................................
RISK CONSIDERATIONS
The market value of the Fund's debt securities will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding debt securities generally rises. Conversely,
during periods of rising interest rates, the value of such securities
generally declines. Prices of longer term securities generally increase or
decrease more sharply in response to interest rate changes than those of
shorter term securities. Mortgage-backed securities are subject to special
risks because some or conceivably all of the underlying mortgages may be
prepaid, especially during periods of declining interest rates. These
prepayments are passed through to holders of mortgage-backed securities who
may then have to reinvest at lower interest rates. Moreover, the possibility
of prepayment makes it difficult to assess the actual maturity and duration
of mortgage-backed securities, which, in turn, makes it difficult to predict
both the direction and magnitude of changes in the value of mortgage-backed
securities in response to changes in interest rates.
Purchasing foreign securities may subject the Fund to additional risks
associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of
foreign assets, the possible establishment of exchange controls or the
adoption of other foreign government restrictions that might adversely affect
the payment of principal or interest on foreign securities held by the Fund.
==============================================================================
4. INVESTMENT RESTRICTIONS
..............................................................................
The Fund's investment program is subject to a number of restrictions that
reflect both self imposed standards and federal and state regulatory
limitations. The following investment restrictions numbered 1 and 2 are
matters of fundamental policy and may not be changed without shareholder
approval. Investment restriction number 3 may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer); and
2) Invest more than 5% of its total assets in the securities of any single
issuer or acquire more than 10% of the voting securities of any issuer
(for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer); and
9
<PAGE>
3) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
==============================================================================
5. HOW TO INVEST IN ABCAT 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, an affiliate, or another financial institution.
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 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 the
net asset value per share 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 all assets held by the Fund, deducting all liabilities, including
liabilities attributable to that specific 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.
Portfolio securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Advisor to be over-the-counter, are valued at the quoted bid prices provided
by principal market makers. If a portfolio security is traded primarily on a
national exchange on the valuation date, the last quoted sale price is
generally used. 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
10
<PAGE>
service that 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.
==============================================================================
6. 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 inside 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.
==============================================================================
7. 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.
11
<PAGE>
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 the
net asset value per share on the payment date.
..............................................................................
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 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 urged to consult their tax advisors
regarding specific questions as to federal, state and local taxes. The
Statement of Additional Information sets forth further information regarding
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. Generally, as long as the Fund qualifies for this tax treatment,
it will be relieved of U.S. federal income tax on amounts distributed to
Shareholders, but U.S. Shareholders, unless otherwise exempt, will pay income
or capital gains tax on the amounts so distributed, regardless of whether
such distributions are paid in cash or reinvested in additional ABCAT Shares.
Distributions from the Fund out of net capital gains (the excess of
long-term capital gains over short-term capital losses), if any, are treated
by Shareholders as long-term capital gains regardless of the length of time
the Shareholder has held the ABCAT Shares. All other income distributions are
taxed to Shareholders as ordinary income. Distributions from the Fund
generally will not qualify for the corporate dividends received deduction.
Ordinarily, Shareholders will include all dividends declared by the Fund
in 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 to have been received by the Shareholders and
paid by the Fund in the year in which the dividends were declared.
Investors purchasing ABCAT Shares just prior to a distribution will be
taxable on the entire amount of the distribution received, even though the
net asset value per share on the date of such purchase may have reflected the
amount of such forthcoming distribution.
12
<PAGE>
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 Fund will provide advice annually as to the federal income tax
consequences of distributions made during the year.
The sale, exchange or redemption of ABCAT Shares is a taxable event for
the Shareholder.
==============================================================================
8. 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 are not affiliated with the Distributor or
the Advisor.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Richard T. Hale Chairman M. Elliott Randolph, Jr. President
Charles W. Cole, Jr. Director Paul D. Corbin Executive Vice President
James J. Cunnane Director Edward J. Veilleux Vice President
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Monica M. Hausner Vice President
Eugene J. McDonald Director Scott J. Liotta Vice President and Secretary
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Truman T. Semans Director Laurie D. Collidge Assistant Secretary
Carl W. Vogt Director
</TABLE>
===============================================================================
9. INVESTMENT ADVISOR
...............................................................................
Investment Company Capital Corp. ("ICC" or the "Advisor"), an indirect
subsidiary of Alex. Brown Incorporated and an affiliate of Alex. Brown
Capital Advisory & Trust Company, is the Fund's investment advisor. ICC is
also the investment advisor to, and the Distributor acts as distributor for,
other mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $5.7 billion of net assets
as of December 31, 1996.
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.
13
<PAGE>
As compensation for its services for the fiscal year ended December 31,
1996, ICC received a fee (net of fee waivers) equal to .07% of the Fund's
average daily net assets. 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 .45% of the ABCAT Shares' average daily net assets.
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., the Fund's President, and Paul D.
Corbin, the Fund's Executive Vice President, have shared primary
responsibility for managing the Fund's assets since inception.
M. Elliott Randolph has nearly 23 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 19 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.
==============================================================================
10. DISTRIBUTOR
..............................................................................
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor"), acts
as distributor of the Fund's shares. Alex. Brown is an investment banking
firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the ABCAT Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other
than Fund shareholders.
14
<PAGE>
==============================================================================
11. 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 December 31, 1996, ICC received a fee equal to .06% of the Fund's
average daily net assets. (See the Statement of Additional Information.) PNC
Bank, National Association, a national banking association, acts as custodian
of the Fund's assets.
==============================================================================
12. 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. 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.
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
performance of the Fund may also be compared to the Lehman Brothers
Intermediate Aggregate Bond Index, the Merrill Lynch 1-3 year Treasury Index
and the Lehman Brothers Government Corporate Intermediate-Term Bond Index.
The Fund may also use total return perfor-
15
<PAGE>
mance 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.
Performance is generally a function of the type and quality of instruments
held by the Fund, operating expenses and market conditions.
==============================================================================
13. GENERAL INFORMATION
..............................................................................
DESCRIPTION OF SHARES
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on April 16, 1990 and is
authorized to issue 60 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 December 31. Prior to February 14, 1997, the Fund was known as Flag
Investors Intermediate-Term Income Fund, Inc.
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 Short-Intermediate 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 Short-Intermediate Income Fund Class A Shares and Flag
Investors Short-Intermediate Income Fund Institutional Shares. Additional
information concerning the Fund's other classes of shares may be obtained by
calling Alex. Brown 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 to the extent the classes have different distribution fees
or sales load structures, the net asset value per share of the classes may
differ at times.
16
<PAGE>
..............................................................................
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 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.
17
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
SHORT-INTERMEDIATE INCOME SHARES
(A Class of Flag Investors Short-Intermediate Income Fund, Inc.)
Investment Advisor Distributor
INVESTMENT COMPANY CAPITAL CORP. ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
(Telephone: 1-800-727-3524)
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street 117 Campus Drive
Baltimore, Maryland 21202 Princeton, New Jersey 08540
(Telephone: 1-800-553-8080)
Custodian Fund Counsel
PNC BANK, NATIONAL ASSOCIATION MORGAN, LEWIS & BOCKIUS LLP
Airport Business Park 2000 One Logan Square
200 Stevens Drive Philadelphia, Pennsylvania 19103
Lester, Pennsylvania 19113
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLAG INVESTORS SHORT-INTERMEDIATE 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 ANY
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING ALEX. BROWN & SONS INCORPORATED, ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202, OR BY
CALLING (800) 767-FLAG.
Statement of Additional Information Dated: May 1, 1997
Relating to the Prospectuses Dated:
May 1, 1997 -- Relating to the Flag Investors Class A Shares,
the Flag Investors Institutional Shares and the Alex.
Brown Capital Advisory & Trust Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History.......................... 1
2. Investment Objectives and Policies....................... 1
3. Valuation of Shares and Redemption....................... 6
4. Federal Tax Treatment of Dividends and
Distributions.......................................... 6
5. Management of the Fund................................... 9
6. Investment Advisory and Other Services.................. 14
7. Distribution of Fund Shares............................. 15
8. Brokerage............................................... 18
9. Capital Stock........................................... 19
10. Semi-Annual Reports..................................... 20
11. Custodian, Transfer Agent and Accounting Services ...... 20
12. Independent Auditors ................................... 21
13. Performance Information................................. 21
14. Control Persons and Principal Holders of
Securities............................................ 23
15. Financial Statements.................................... 24
Appendix..................................................A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Short-Intermediate 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 Short-Intermediate Income Fund Class A Shares
(the "Flag Investors Class A Shares"), Flag Investors Short-Intermediate Income
Fund Institutional Shares (the "Flag Investors Institutional Shares") and Alex.
Brown Capital Advisory & Trust Short-Intermediate Income Shares (the "ABCAT
Shares") (collectively, the "Shares"). The Flag Investors Class A Shares were
formerly known as the Flag Investors Shares. Prior to February 14, 1997, the
Fund was known as Flag Investors Intermediate- Term Income Fund, Inc.
There are three separate prospectuses for the Fund's Shares: one for the
Flag Investors Class A Shares, one for the Flag Investors 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 and the Flag Investors Institutional
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
Short-Intermediate 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 for 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
April 16, 1990. The Fund filed a registration statement with the SEC registering
itself as an open-end 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, and commenced
operations on May 13, 1991. The Fund has offered the Flag Investors Class A
Shares since its inception on May 13, 1991 and the Flag Investors Institutional
Shares since November 2, 1995. The ABCAT Shares have not been offered prior to
the date of this Statement of Additional Information.
Under a license agreement dated May 10, 1991 between the Fund and Alex.
Brown Incorporated, Alex. Brown 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 a high level of current income
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 in high-quality debt obligations, primarily securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, corporate bonds, collateralized
-1-
<PAGE>
mortgage obligations and other asset-backed securities. There can be no
assurance that the Fund's investment objective will be achieved.
Mortgage-Backed Securities
As indicated in the Prospectus, the Fund may invest in mortgage-backed
securities representing ownership interests in a pool of mortgage loans which
securities are issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
the Federal National Mortgage Association ("FNMA").
GNMA Certificates.
GNMA Certificates are mortgage-backed securities that evidence an
undivided ownership interest in a pool of mortgage loans. Principal and interest
is paid back monthly by the borrower over the term of the underlying loans. The
National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration or the Farmers' Home Administration or
guaranteed by the Veterans Administration. The GNMA guarantee is backed by the
full faith and credit of the U.S. Government. The GNMA is also empowered to
borrow without limitation from the U.S. Treasury if necessary to make any
payments required under its guarantees.
The average life of a GNMA Certificate is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment substantially
before maturity of the mortgages in the pool. Because prepayment rates of
individual mortgage pools vary, it is not possible to predict accurately the
average life of a particular issue of GNMA Certificates. However, statistics
published by the FHA indicate that the average life of single-family home
mortgage loans with 25 to 30 year maturities (the type of mortgage underlying
most GNMA Certificates) is approximately 12 years. It is customary, therefore,
to treat GNMA Certificates as 30-year mortgage-backed securities that prepay in
full in the twelfth year.
FHLMC and FNMA Certificates.
The FHLMC is a corporate instrumentality of the U.S. Government and was
created in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing through the development of a nationwide secondary
market in conventional residential mortgages. The FHLMC issues Participation
Certificates that represent a pro rata share of all interest and principal
payments made and owed on the underlying pool (which consists of mortgages from
FHLMC's national portfolio). The FHLMC guarantees the timely payment of interest
and ultimate collection of principal. FHLMC Participation Certificates are
assumed to be prepaid in full in the twelfth year.
The FNMA is a government-sponsored corporation owned by private
stockholders that was established in 1938 to create a secondary market in
mortgages issued by the FHA. FNMA Certificates resemble GNMA Certificates in
that each Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and full return of principal. FNMA Certificates
are assumed to be prepaid in full in the twelfth year.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA securities, FHLMC and FNMA securities
are not backed by the full faith and credit of the U.S. Government.
-2-
<PAGE>
Interests in such mortgage-backed securities differ from other forms of
debt securities, which typically provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments to the certificate holders,
consisting of both interest and principal payments, which in effect
"pass-through" the monthly interest and principal payments made on the
underlying mortgage loans. Although the underlying mortgage loans are
for specified periods of time (such as 20 or 30 years), borrowers can repay
their loans sooner and the certificate holders would receive any such prepayment
of principal in addition to the principal that is part of the monthly payment. A
borrower is more likely to prepay a mortgage that bears a relatively high rate
of interest. Accordingly, during periods of declining interest rates, prepayment
of mortgages underlying mortgage-backed securities can be expected to
accelerate. Because prepayment of the underlying mortgages may vary, it is not
possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. When the prepayments of principal
are included in the monthly payments to the Fund as a certificate holder, the
Fund reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Prepayments of mortgages that underlie
securities purchased at a premium could result in capital losses.
Changes in market yields will affect the value of securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(including mortgage-backed securities) because the price of fixed income
securities generally increases when interest rates decline and decreases when
interest rates rise. Prices of longer term securities generally increase or
decrease more sharply in response to interest rate changes than those of shorter
term securities. In addition, prepayments of principal on mortgage pass-through
securities may make it difficult to fix interest rates for a specified period of
time. To the extent that mortgage-backed securities are purchased at prices that
differ from par, such prepayments (which are received at par) may make up a
significant portion of the pass-through total return.
Collateralized Mortgage Obligations
As indicated in the Prospectus, the Fund may invest in collateralized
mortgage obligations ("CMOs") that are collateralized by mortgage-backed
securities issued by GNMA, FHLMC or FNMA (collectively, "Mortgage Assets") and
that are rated AAA by Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's
Investors Service, Inc. ("Moody's") or are determined to be of comparable
quality by the Fund's investment advisor.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. Payments of principal of and interest
on the Mortgage Assets are commonly applied to the classes of a series of the
CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of a CMO until
all other classes having an earlier stated maturity or final distribution date
have been paid in full. Because CMOs are collateralized by mortgage-backed
securities, they are subject to similar risks and uncertainties associated with
the prepayment of principal and the ability to accurately predict yield
described above with respect to mortgage-backed securities.
Asset-Backed Securities
The Fund may also invest in securities backed by assets other than
mortgages, including company receivables, truck and auto loans, leases, and
credit card receivables, which securities are rated AAA by S&P or Aaa by
Moody's, or if not rated, are determined by the Advisor to be of comparable
quality.
-3-
<PAGE>
Through the use of trusts and special purpose corporations, these types of
assets are being securitized in pass-through structures similar to the mortgage
pass-through structure or in pay-through structures similar to the CMO
structure, both as described above. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. However, asset-backed securities
do not generally have the benefit of the same security interest in the related
collateral as either mortgage-backed securities or CMOs, and may therefore
present certain risks not associated with such other securities. If the
asset-backed security is issued in a pay-through structure similar to a CMO, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pay-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments,
and will depend on, among other things, the characteristics of the underlying
assets, the coupon rates on the securities, prevailing interest rates, the
amount of administrative expenses and the actual prepayment experience on the
underlying assets.
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
Fund's investment advisor (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 be at least 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.
Foreign Currency Exchange Transactions.
The Fund may conduct its foreign currency exchange transactions through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date (which may be any fixed number of days from
the date the contract is entered into by the parties) at the price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
The Fund may use such forward contracts only under two circumstances:
first, if the Advisor believes that the Fund should fix the U.S. dollar price of
the foreign security when the Fund enters into a contract for the purchase or
sale, at a future date, of a security denominated in a foreign currency; and
second, if the Advisor believes that the Fund should hedge against risk of loss
in the value of its portfolio securities denominated in foreign currencies, the
Fund may enter into a forward contract to purchase or
-4-
<PAGE>
sell an amount of the foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign currency.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions that reflect self-imposed standards as well as federal and state
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 or futures
contracts;
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;
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);
9. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs; or
10. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days.
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;
The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
-5-
<PAGE>
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, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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, Flag Investors Institutional Shares by wire transfer of funds
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 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 federal income 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 general 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
Prospectus. 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 intends to continue to qualify as a regulated investment
company ("RIC") under Subchapter M of the Code. In order to qualify as a RIC for
any taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans
-6-
<PAGE>
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") and (2)
derive less than 30% of its gross income (exclusive of certain gains from
designated hedging transactions that are offset by unrealized losses on
offsetting positions) from gains on the sale or other disposition of any of the
following investments if such investments are held for less than three months
(the "Short-Short Gain Test"): (a) stock or securities (as defined in Section
2(a)(36) of the Investment Company Act); (b) options, futures or forward
contracts (other than options, futures, or forward contracts on foreign
currencies), and (c) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or options,
futures, or forward contracts on foreign currencies) are not directly related to
the regulated investment company's principal business of investing in stock or
securities (or options and futures with respect to stocks or securities). The
Short-Short Gain Test will not prevent the Fund from disposing of investments at
a loss, since the recognition of a loss before the expiration of the three-month
holding period is disregarded.
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 RICs, 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 that the Fund
controls and that are engaged in the same, similar or related trades or
businesses (the "Asset Diversification Test"). Generally, the Fund will not lose
its status as a RIC 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
net investment income and net capital gains that 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 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). Distributions of investment company taxable income
will generally be taxable to shareholders as ordinary income, regardless of
whether such distributions are paid in cash or are reinvested in Shares.
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.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gain"). If such gains are distributed as capital gains, they are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder
-7-
<PAGE>
has held the Shares. Conversely, if the Fund elects to retain its net capital
gains, it will be taxed thereon at the applicable corporate capital gains tax
rate. In this event, it is expected that the Fund also will elect to have
shareholders treated as having received a distribution of such gains, with the
result that they will be required to report such gains on their returns as
long-term capital gains, will receive a tax credit for their allocable share of
capital gains tax paid by the Fund on the gains, and will increase the tax basis
for their Shares by an amount equal to 65% of the deemed distribution.
Generally, gains or losses on the sale or exchange of a Share will be
capital gains or losses, which will be long-term if the Share is held for more
than one year. However, if a shareholder realizes a loss on the sale, exchange
or redemption of a Share held for six months or less and has previously received
a capital gains distribution with respect to the Share (or any undistributed net
capital gains of the Fund with respect to such Share are included in determining
the shareholder's long-term capital gains), the shareholder must treat the loss
as a long-term capital loss to the extent of the amount of the prior capital
gains distribution (or any undistributed net capital gains of the Fund that have
been included in determining such investor's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
Investors purchasing Shares just prior to the ex-dividend date of any
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase reflected the amount of such distribution.
If for any taxable year, the Fund does not qualify as a RIC, 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 tax to
the United States Treasury on distributions payable to any shareholder who (1)
has provided the Fund either an incorrect tax identification number or no number
at all, (2) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (3) 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% federal excise tax on RICs 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 (the
excess of short- and long-term capital gains over short- and long-term capital
losses) 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
-8-
<PAGE>
to avoid excise tax liability, and, in addition, that the liquidation of such
investments in such circumstances may affect the ability of the Fund to satisfy
the Short-Short Gain Test.
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.
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, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered investment
advisor); Chartered Financial Analyst.
*CHARLES W. COLE, JR., Director (11/11/35)+
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Chairman, Investment Company Capital Corp.
(registered investment advisor); Director, Provident Bankshares
Corporation and Provident Bank of Maryland; Formerly, President and
Chief Executive Officer, Chief Administrative Officer, and Director,
First Maryland Bancorp, The First National Bank of Maryland and First
Omni Bank; Director, York Bank and Trust Company.
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director, Investment
Company Capital Corp. (registered investment advisor); Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141, 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
company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960, Director/Trustee, AIM
Funds (registered investment companies); Formerly, 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 (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly,
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<PAGE>
Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; 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 AMBAC
Treasurers Trust (registered investment company).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, PA 19103-7017. 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.
CARL W. VOGT, 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); Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak) and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
M. ELLIOTT RANDOLPH, President (1/10/42)
Principal, Alex. Brown & Sons Incorporated.
PAUL D. CORBIN, Executive Vice President (7/24/52)
Principal, Alex. Brown & Sons Incorporated.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Vice President, Armata
Financial Corp. (registered broker-dealer); Executive Vice President,
Investment Company Capital Corp., (registered investment advisor).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager, Private
Client Marketing, Alex. Brown & Sons Incorporated.
MONICA M. HAUSNER, Vice President (10/26/61)
Vice President, Fixed Income Management Department, Alex. Brown & Sons
Incorporated, March 1992-Present; Formerly, Assistant Vice President,
First National Bank of Maryland, 1984-1992.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65)+
Manager, Fund Administration, Alex. Brown & Sons 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.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated and Investment Company
Capital Corp. (registered investment advisor), September 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company Inc. (investments), 1980-August 1995.
-10-
<PAGE>
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated, 1991-
Present.
- ----------
* Messrs. Hale, Cole and Semans are Directors who are "interested persons,"
as defined in the Investment Company Act.
+ Mr. Liotta is Mr. Cole's son-in-law.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised or
distributed by Alex. Brown or its affiliates. There are currently twelve funds
in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. fund
complex (the "Fund Complex"). Mr. Hale serves as Chairman of three funds, as
President and Director of one fund, and as a Director of each of the other funds
in the Fund Complex. Mr. Cole serves as Chairman of one fund and as a Director
of seven other funds in the Fund Complex. Mr. Semans serves as Chairman of five
funds and as a Director of five other funds in the Fund Complex. Messrs.
Cunnane, Kroeger, Levy and McDonald serve as Directors of each fund in the Fund
Complex. Ms. Rimel serves as a Director of ten funds in the Fund Complex. Mr.
Vogt serves as a Director of nine funds in the Fund Complex. Mr. Veilleux serves
as Executive Vice President of one fund and as Vice President of each of the
other funds in the Fund Complex. Mr. Liotta serves as Vice President and
Secretary, Mr. Finelli serves as Treasurer and Ms. Collidge serves as Assistant
Secretary, respectively, of each fund in the Fund Complex. Mr. Randolph serves
as President of two funds and Vice President of one fund in the Fund Complex.
Mr. Corbin serves as Executive Vice President of two funds and Vice President of
one fund in the Fund Complex. Mr. Fearnow serves as Vice President of ten funds
and Ms. Hausner serves as Vice President of three funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, the Distributor in the ordinary course of business.
All such transactions were made on substantially 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.
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 the Distributor 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) (a
"Non-Interested Director") 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 each fund in the Fund Complex
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
December 31, 1996, Non-Interested Directors' fees attributable to the assets of
the Fund totaled approximately $111. 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 December 31, 1996.
-11-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Total Compensation
From the Fund in the Benefits Accrued As From the Fund
Fiscal Year Ended Part of Fund Expenses and Fund Complex
December 31, 1996 Payable to Directors
in the Fiscal Year
Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard T. Hale, Chairman (1) $0 $0 $0
W. James Price, Director (1, 2) $0 $0 $0
Charles W. Cole, Jr., Director (1, 3) $0 $0 $0
Truman T. Semans, Director (1, 3) $0 $0 $0
James J. Cunnane, Director $488 (4) (5) $39,000 for service on 12
Boards in the Fund Complex
N. Bruce Hannay, Director (6) $ 39 (4) (5) $3,321 for service on 12
Boards in the Fund Complex
John F. Kroeger, Director $613 (4) (5) $49,000 for service on 12
Boards in the Fund Complex
Louis E. Levy, Director $488 (4) (5) $39,000 for service on 12
Boards in the Fund Complex
Eugene J. McDonald, Director $488 (4) (5) $39,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director (3) N/A (5) $39,000 for service on 6
Boards in the Fund Complex (7)
Carl W. Vogt, Director (3) N/A (5) $39,000 for service on 5
Boards in the Fund Complex (7)
Harry Woolf, Director (2) $488 (4) (5) $39,000 for service on 12
Boards in the Fund Complex
</TABLE>
- ----------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Retired on December 31, 1996.
(3) Elected to the Fund's Board of Directors on March 7, 1997.
(4) Of the amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald
and Woolf, $488, $0, $0, $0, $488, and $488 respectively, was deferred
pursuant to a deferred compensation plan.
(5) The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the year ended December 31, 1996 was approximately $2,511.
(6) Retired on January 31, 1996 and is now deceased.
(7) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve as a director.
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 in his or her last year of
service. Upon retirement, each Participant will receive annually 10% of such fee
for each year that he or she served after completion of the first five years, up
to a maximum annual benefit of 50% of the fee earned by the Participant in his
or her last year of service. The fee will be paid quarterly, for life, by each
Fund for which he or she serves. The Retirement Plan is unfunded and unvested.
Mr. Kroeger has qualified but has not received benefits. The Fund has two
Participants, a Director who retired effective December 31,
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<PAGE>
1994 and a Director who retired effective December 31, 1996, who have qualified
for the Retirement Plan by serving thirteen years and fourteen years,
respectively, as Directors in the Fund Complex and each of whom will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Another
Participant, who retired on January 31, 1996 and died on June 2, 1996, was paid
fees of $8,090 by the Fund Complex under the Retirement Plan in the fiscal year
ended December 31, 1996. 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 for each
of the Fund's non-interested directors at December 31, 1996 was as follows: for
Mr. Cunnane, 1 year; for Mr. Kroeger, 14 years; for Mr. Levy, 2 years; for Mr.
McDonald, 4 years; for Ms. Rimel, 1 year; and for Mr. Vogt, 1 year.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<C> <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 various Flag Investors and Alex. Brown Cash
Reserve Funds 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.
The Code of Ethics requires that covered employees of the Advisor,
certain directors or officers of the Distributor, and all Fund Directors who are
"interested persons", preclear personal securities investments (with certain
exceptions, such as non-volitional purchases or purchases that are part of an
automatic dividend reinvestment plan). 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 special 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
-13-
<PAGE>
certain other employees within periods of trading by the Fund in the same
security. 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 May 9, 1991, the sole shareholder of the Fund approved an Investment
Advisory Agreement between the Fund and Investment Company Capital Corp ("ICC"or
the "Advisor"). ICC is a wholly-owned subsidiary of Alex. Brown Financial
Corporation and an indirect subsidiary of Alex. Brown Incorporated. ICC is also
the investment advisor to other funds in the Flag Investors family of funds and
Alex. Brown Cash Reserve Fund, Inc.
Under the Investment Advisory Agreement, ICC obtains and evaluates
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 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
following annual rates based upon the Fund's average daily net assets: 0.35% of
the first $1 billion, 0.30% of the next $500 million and 0.25% of that portion
in excess of $1.5 billion. 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 .70% of the Flag Investors Class A Shares'
average daily net assets and .45% of the Flag Investors Institutional Shares'
and the ABCAT Shares' respective average daily net assets. As compensation for
investment advisory services for the fiscal years ended December 31, 1996,
December 31, 1995 and December 31, 1994, ICC received fees of $245,318, $252,372
and $357,585 and from such amounts waived fees of $201,059, $162,943 and
$141,214, respectively. Absent such waivers for the fiscal years ended December
31, 1996, December 31, 1995 and December 31, 1994, the Fund's Total Operating
Expenses would have been .99%, .93% and .84%, respectively, of the Flag
Investors Class A Shares' 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 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 Non-Interested
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 approved in the foregoing manner by the Fund's
Board of Directors most recently on September 30, 1996 and by a majority of the
outstanding Shares on July 31, 1992. 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).
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. (See "Custodian, Transfer Agent and Accounting Services.")
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<PAGE>
7. DISTRIBUTION OF FUND SHARES
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor")
serves as the exclusive distributor of the Fund's Shares pursuant to three
separate Distribution Agreements, one for each class of the Fund's shares
(collectively, the "Distribution Agreements").
The Flag Investors Class A Shares
The Flag Investors Class A Distribution Agreement provides that Alex.
Brown has the exclusive right to distribute Flag Investors Class A Shares either
directly or through other broker-dealers. The Flag Investors Class A
Distribution Agreement further provides that Alex. Brown will: (a) solicit and
receive orders for the purchase of Flag Investors Class A Shares; (b) accept or
reject such orders on behalf of the Fund in accordance with the Fund's currently
effective Prospectus and transmit such orders as are accepted to the Fund's
transfer agent as promptly as possible; (c) receive requests for redemptions and
transmit such redemption requests to the Fund's transfer agent as promptly as
possible; and (d) respond to inquiries from shareholders concerning the status
of their accounts and the operations of the Fund. Alex. Brown has not undertaken
to sell any specific number of Flag Investors Class A Shares. The Flag Investors
Class A Shares Distribution Agreement further provides that, in connection with
the distribution of Shares, Alex. Brown will be responsible for all of the
promotional expenses. The services provided by Alex. Brown to the Fund are not
exclusive, and Alex. Brown is free to provide similar services to others. Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown 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.
Alex. Brown and certain broker-dealers ("Participating Dealers") have
entered into Sub-Distribution Agreements under which such broker-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.
As compensation for providing distribution services for the Flag
Investors Class A Shares as described above, Alex. Brown receives an annual fee,
paid monthly, equal to .25% of the average daily net assets of the Flag
Investors Class A Shares. Alex. Brown expects to allocate most of its annual fee
to its investment representatives and up to all of its fee to Participating
Dealers. For the fiscal years ended December 31, 1996, December 31, 1995 and
December 31, 1994, Alex. Brown received distribution fees of $151,753, $179,666
and $255,418, respectively. Alex. Brown, in return, paid the
distribution-related expenses of the Fund including one or more of the
following: printing and mailing of prospectuses to other than current
shareholders; compensation to dealers and sales personnel; and interest,
carrying, or other financing charges.
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 Fund's Flag Investors Class A Shares (the "Flag Investors Class A
Plan"). Under the Flag Investors Class A Plan, the Fund pays a fee to Alex.
Brown for distribution and other shareholder servicing assistance as set forth
in the Flag Investors Class A Distribution Agreement, and Alex. Brown is
authorized to make payments out of its fee to its investment representatives and
to participating broker-dealers. The Flag Investors Class A Distribution
Agreement, including the Flag Investors Class A Plan and a form of
Sub-Distribution Agreement, was most recently approved by the Fund's Board of
Directors, including a majority of the Non-Interested Directors, on September
30, 1996. The Flag Investors Class A Distribution Agreement and the Flag
Investors Class A Plan encompassed therein will remain in effect from year to
year thereafter, if specifically approved at least annually by the Fund's Board
of Directors and by the affirmative vote of a majority of the Non-Interested
Directors by votes cast in person at a meeting called for such purpose.
-15-
<PAGE>
In approving the Flag Investors Class A Plan, the Directors concluded,
in the exercise of reasonable business judgment, that there was a reasonable
likelihood that the Flag Investors Class A Plan would benefit the Fund and its
shareholders. The Flag Investors Class A Plan will be renewed only if the
Directors make a similar determination in each subsequent year. The Flag
Investors Class A Plan may not be amended to increase materially the fee to be
paid pursuant to the Flag Investors Class A Distribution Agreement without the
approval of the shareholders of the Fund. The Flag Investors Class A Plan may be
terminated at any time and the Flag Investors Class A Distribution Agreement may
be terminated at any time upon sixty days' notice, in either case without
penalty, by the vote of a majority of the Fund's Non-Interested Directors or by
a vote of a majority of the outstanding Shares (as defined under "Capital
Stock"). Any Sub-Distribution Agreement may be terminated in the same manner at
any time. The Flag Investors Class A Distribution Agreement and any
Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
During the continuance of the Flag Investors Class A 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
Plan to Alex. Brown pursuant to the Flag Investors Class A Distribution
Agreement and to broker-dealers pursuant to Sub-Distribution Agreements. Such
reports shall be made by the persons authorized to make such payments. In
addition, during the continuance of the Flag Investors Class A Plan, the
selection and nomination of the Fund's Non-Interested Directors shall be
committed to the discretion of the Non-Interested Directors then in office.
In addition, with respect to the Flag Investors Class A Shares, the
Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, such as banks, to act as Shareholder Servicing Agents, pursuant to
which Alex. Brown will allocate a portion of its distribution fee as
compensation for such financial institutions' 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. Such financial institutions
may impose separate fees in connection with these services and investors should
review the Prospectus and this Statement of Additional Information in
conjunction with any such institution's fee schedule.
Under the Flag Investors Class A Plan, amounts allocated to
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to Alex. Brown under the Flag Investors Class A Plan. The Flag Investors
Class A Plan does not provide for any charges to the Fund for excess amounts
expended by Alex. Brown and, if the Flag Investors Class A Plan is terminated in
accordance with its terms, the obligation of the Fund to make payments to Alex.
Brown pursuant to the Flag Investors Class A Plan will cease and the Fund will
not be required to make any payments past the date the related Flag Investors
Class A Distribution Agreement terminates.
In the fiscal years ended December 31, 1996, December 31, 1995 and
December 31, 1994, Alex. Brown received sales commissions on the Flag Investors
Class A Shares of $26,849, $11,196 and $134,543 and from such amounts retained
$24,060, $11,088 and $132,337 for each such year, respectively.
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<PAGE>
The Flag Investors Institutional Shares and the ABCAT Shares
The Flag Investors Institutional Distribution Agreement and the ABCAT
Distribution Agreement provide that Alex. Brown has the exclusive right to
distribute the related class of shares, either directly or through Participating
Dealers, and further provide that Alex. Brown will solicit and receive orders
for the purchase of Flag Investors Institutional Shares or ABCAT Shares, as
appropriate, accept or reject such orders on behalf of the Fund in accordance
with the Fund's currently effective Prospectus for the related class of shares
and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible, receive requests for redemption and transmit such
redemption requests to the Fund's transfer agent as promptly as possible,
respond to inquiries from the Fund's shareholders concerning the status of their
accounts with the Fund, maintain such accounts, books and records as may be
required by law or be deemed appropriate by the Fund's Board of Directors, and
take all actions deemed necessary to carry into effect the distribution of the
related class of shares. Alex. Brown has not undertaken to sell any specific
number of Flag Investors Institutional Shares or ABCAT Shares. The Flag
Investors Institutional Distribution Agreement and the ABCAT Distribution
Agreement further provide that, in connection with the distribution of the
related class of shares, Alex. Brown will be responsible for all of the
promotional expenses. The services provided by Alex. Brown to the Fund are not
exclusive, and Alex. Brown is free to provide similar services to others. Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown 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.
Alex. Brown receives no compensation for distributing the Flag
Investors Institutional Shares or the ABCAT Shares.
With respect to the Flag Investors Institutional Shares, Alex. Brown
and 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 Alex. Brown will enter into Sub-Distribution Agreements for the
ABCAT Shares.
The Flag Investors Institutional Distribution Agreement and the ABCAT
Distribution Agreement were approved by the Fund's Board of Directors on
September 25, 1995 and September 30, 1996, respectively. Each such Agreement has
an initial term of two years and will remain in effect from year to year
thereafter, if specifically approved at least annually by the Fund's Board of
Directors and by the affirmative vote of a majority of the Non-Interested
Directors by votes cast at a meeting called for such purpose. Each Agreement may
be terminated at any time upon sixty days' written notice, without penalty, by
the vote of a majority of the Fund's Non-Interested Directors or by a vote of a
majority of the outstanding shares of the class (as defined under Capital
Stock). The Flag Investors Institutional Distribution Agreement, the ABCAT
Distribution Agreement and any Sub-Distribution Agreement shall automatically
terminate in the event of assignment.
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
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<PAGE>
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 Non-Interested 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 that 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 Alex.
Brown or ICC.
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 direct
purchase and sale orders to any broker-dealer, including, to the extent and in
the manner permitted by applicable law, Alex. Brown.
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 Alex.
Brown in any transaction in which Alex. Brown acts as a principal, nor will the
Fund buy or sell over-the-counter securities with Alex. Brown acting as market
maker.
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 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 that 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 Alex. Brown
higher commissions on brokerage transactions for the Fund in order to secure
research and investment services described above. The
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<PAGE>
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board of Directors. For the fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994, ICC
directed no brokerage transactions to broker-dealers and paid no related
commissions because of research services provided to the Fund.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization, the Board adopted
certain policies and procedures incorporating the standards of Rule 17e-1 under
the Investment Company Act, which requires that the commissions paid Alex. Brown
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. The Distribution Agreements
between Alex. Brown and the Fund do not provide for any reduction in the
distribution fee to be received by Alex. Brown from the Fund as a result of
profits resulting from brokerage commissions on transactions of the Fund
effected through Alex. Brown. For the fiscal years ended December 31, 1996,
December 31, 1995 and December 31, 1994, the Fund paid no brokerage commissions
to Alex. Brown. The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the Investment Company Act) that
the Fund has acquired during its most recent fiscal year. As of December 31,
1996, the Fund held a 6.00% repurchase agreement issued by Goldman Sachs & Co.
valued at $6,171,000. Goldman Sachs & Co. is a "regular broker or dealer" of the
Fund.
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 that it seeks to purchase or sell.
9. CAPITAL STOCK
The Fund is authorized to issue 60 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 Short-Intermediate Income
Fund Class A Shares, Flag Investors Short-Intermediate Income Fund Class B
Shares, Flag Investors Short-Intermediate Income Fund Institutional Shares and
Alex. Brown Capital Advisory & Trust Short-Intermediate Income Shares. The ABCAT
Shares and the Flag Investors Class B Shares are not currently being offered.
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
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<PAGE>
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 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
PNC Bank, National Association ("PNC Bank") has been retained to act as
custodian of the Fund's investments. PNC Bank receives such compensation from
the Fund for its services as custodian as may be agreed to from time to time by
PNC Bank and the Fund. Investment Company Capital Corp. serves as the Fund's
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 $10.62 per account per year, plus reimbursement for out-of-pocket
expenses incurred in connection therewith. For the fiscal year ended December
31, 1996, such fees totaled $32,766.
As compensation for providing accounting services, ICC receives an
annual fee, calculated daily and paid monthly, as shown below.
Average Net Assets Incremental Fee
------------------ ---------------
$ 0 - $ 10,000,000 $15,000 (fixed fee)
$ 10,000,000 - $ 25,000,000 .080%
$ 25,000,000 - $ 50,000,000 .077%
$ 50,000,000 - $ 75,000,000 .050%
$ 75,000,000 - $ 100,000,000 .030%
$ 100,000,000 - $ 500,000,000 .020%
$ 500,000,000 - $1,000,000,000 .008%
over $1,000,000,000 .003%
In addition, the Fund reimburses ICC for certain out-of-pocket expenses.
For the fiscal year ended December 31, 1996, ICC received accounting fees of
$56,244.
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<PAGE>
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices 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:
n
P(1 + T) = 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 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 Prospectuses 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. The Flag Investors Institutional Shares and the
ABCAT Shares are sold without a sales load.
Calculated according to SEC rules, the ending redeemable value and average
annual total return of a hypothetical $1,000 payment for the periods ended
December 31, 1996 were as follows:
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<TABLE>
<CAPTION>
One-Year Period Ended Five-Year Period Ended Inception Through
December 31, 1996 December 31, 1996 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Ending Average Ending Average Ending Average
Class Redeemable Annual Total Redeemable Annual Total Redeemable Annual Total
Value Return Value Return Value Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A $1,024.82 2.48% $1,318.02 5.68% $1,447.10 6.78%
May 31, 1991 +
- -----------------------------------------------------------------------------------------------------------------------------------
Flag Investors Institutional $1,042.01 4.20% N/A N/A $1,063.01 5.40%
November 2, 1995 +
- -----------------------------------------------------------------------------------------------------------------------------------
ABCAT* N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Inception Date.
* ABCAT Shares were not offered in any period ended December 31, 1996.
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/Weisenberger or Morningstar
Inc., or with the performance of the Lehman Brothers Intermediate Aggregate Bond
Index, the Lehman Brothers Government Intermediate-Term Bond Index or the
Merrill Lynch 1-3 year Treasury Index, 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.
Yield Calculations
The Fund's yield for the Flag Investors Class A Shares and the Flag
Investors Institutional Shares for the 30 day period ended December 31, 1996 was
5.77% and 6.12%, respectively, 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 semi-annual basis by adding one to the quotient, raising the sum to
the power of six, subtracting one from the
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<PAGE>
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 Flag Investors Institutional Shares or 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.
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 that, 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. The Fund's portfolio
turnover rate was 42% for the fiscal year ended December 31, 1996 and 46% for
the fiscal year ended December 31, 1995. 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.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons owned of record or
beneficially 5% or more of the Fund's outstanding Shares, as of April 15, 1997:
-23-
<PAGE>
Name and Address % Ownership
---------------- -----------
Olicon A/S 13.15%
Attn: Jorgen Nielsen
Nyerovy 114
DK 2800
Lynqby Denmark
Lauer & Co. Cust. 9.49%
127931-9
BAT Customers
c/o Glenmede Income Collection Dept.
1650 Market Street, Ste. 1200
Philadelphia, PA 19103
Alex. Brown & Sons Incorporated 59.85%*
One South Street
Baltimore, MD 21202
-------------
* As of such date Alex. Brown owned beneficially less than
1% of such Shares.
Directors and officers as a group owned less than 1% of the
Fund's total outstanding Shares, as of April 15, 1997.
15. FINANCIAL STATEMENTS
(See next page.)
-24-
<PAGE>
Alex. Brown Flag Inv. Short-Intermed. Inc. Fund AR
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Net Assets December 31, 1996
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS--17.8%
Banc One Columbus
7.375%, 12/1/02 AA- $1,000 $ 1,036,250
Countrywide Funding
8.25%, 7/15/02 A- 3,250 3,461,250
Ford Motor Credit
6.05%, 3/31/98 A+ 2,000 2,002,500
General Motors Acceptance Corporation
5.625%, 2/15/01 A- 1,000 968,750
Pacific Gas & Electric
6.25%, 3/1/04 A 2,000 1,947,500
Philip Morris Cos., Inc.
6.95%, 6/1/06 A 2,000 2,027,500
Societe Nationale Elf Aquitaine
7.75%, 5/1/99 AA- 2,000 2,065,000
- --------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $13,310,342) 13,508,750
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES--24.6%
Federal Home Loan Banks Board - 3.9%
Debentures
7.151%, 9/13/05 (Callable 9/13/97) AAA 3,000 2,976,780
Federal National Mortgage Assoc. - 4.5%
Debentures
6.250%, Due 8/12/03 AAA 3,500 3,400,285
Mortgage-Backed Securities - 14.7%
Federal Home Loan Mortgage Corp.
Pool #G10049, 8.00%, 10/1/07 AAA 1,078 1,109,772
Federal National Mortgage Assoc.
Pass-through
Pool #326570, 7.00%, Due 2/1/08 AAA 3,589 3,586,454
Government National Mortgage Assoc.
Pass-throughs
Pool #194615, 8.00%, Due 3/15/17 AAA 155 158,702
Pool #204405, 8.00%, Due 4/15/17 AAA 156 158,891
Pool #371200, 8.00%, Due 12/15/23 AAA 1,588 1,621,390
Pool #371206, 8.00%, Due 12/15/23 AAA 1,746 1,782,888
Pool #780195, 8.00%, Due 7/15/25 AAA 2,691 2,757,210
-25-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED)
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES--continued
Guaranteed Export Trust - 1.5%
8.187%, 12/15/04 AAA $1,063 $ 1,129,524
- --------------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $18,623,161) 18,681,896
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--21.9%
U.S. Treasury Notes
4.750%, 9/30/98 AAA 2,000 1,965,120
5.250%, 1/31/01 AAA 2,000 1,938,560
6.250%, 2/15/03 AAA 5,000 4,999,550
5.750%, 8/15/03 AAA 4,000 3,882,040
5.875%, 2/15/04 AAA 4,000 3,896,600
- --------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $16,610,814) 16,681,870
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--18.2%
Banc One Credit Card Master Trust
6.30%, 10/15/02 AAA 3,000 2,995,440
Discover Credit Card Trust, 93-A-A
6.25%, 8/16/00 AAA 3,000 3,005,760
Green Tree Financial Corporation, 94-6-A5
8.25%, 1/15/20 NR** 3,000 3,207,210
NationsBank Auto Owner Trust, 96-A-B1
6.75%, 6/15/01 AAA 2,706 2,734,927
Premier Auto Trust, 94-1-A3
4.75%, 2/2/00 AAA 413 411,276
Premier Auto Trust, 96-3-A4
6.75%, 11/6/00 AAA 1,500 1,520,145
- --------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $13,834,317) 13,874,758
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--8.3%
Federal Home Loan Mortgage Corp. - 3.2%
Multi-Class Mortgage Certificates
Series 106-F, 8.50%, 12/15/20 AAA 2,379 2,428,933
-26-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
S&P Par Value
Security Rating* (000) (Note 1)
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--continued
Federal National Mortgage Assoc. - 5.1%
Multi-Class Mortgage Certificates
Series 88-18-B, 9.40%, 7/25/03 AAA $ 173 $ 180,952
Series 149-D, 12.00%, 4/25/19 AAA 847 857,502
Series 91-11-G, 7.00%, 11/25/19 AAA 1,678 1,678,490
Series 95-W1-A2, 8.20%, 4/25/25 AAA 1,204 1,212,413
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(Cost $6,348,460) 6,358,290
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--8.1%
Goldman Sachs & Co., 6.00%
Dated 12/31/96, to be repurchased on 1/2/97, collateralized by U.S. Treasury
Bonds with a market value of $6,294,544.
(Cost $6,171,000) NR** 6,171 6,171,000
- --------------------------------------------------------------------------------
Total Investment in Securities--98.9%
(Cost $74,898,094)*** 75,276,564
Other Assets in Excess of Liabilities, Net--1.1% 814,764
- --------------------------------------------------------------------------------
Net Assets--100.0% $76,091,328
================================================================================
Net Asset Value and Redemption Price Per:
Class A Share
($58,584,058 / 5,701,172 shares outstanding) $10.28
================================================================================
Institutional Share
($17,507,270 / 1,686,158 shares outstanding) $10.38
================================================================================
Maximum Offering Price Per:
Class A Share ($10.28 / .985) $10.44
================================================================================
Institutional Share $10.38
================================================================================
- ----------
* The Standard & Poor's ratings indicated are believed to be the most recent
ratings available as of December 31, 1996.
** Not rated.
*** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
-27-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31,
- --------------------------------------------------------------------------------
1996
Investment Income (Note 1):
Interest $ 4,776,889
Expenses:
Investment advisory fee (Note 2) 245,318
Distribution fee (Note 2) 151,753
Accounting fee (Note 2) 56,244
Printing and postage 47,714
Legal 38,582
Audit 32,964
Transfer agent fees 32,766
Registration fees 28,304
Custodian fee 14,116
Miscellaneous 10,986
Pricing service 4,798
Organizational expense (Note 1) 3,786
Insurance 2,536
Directors' fees 111
- --------------------------------------------------------------------------------
Total expenses 669,978
Less: Fees waived (Note 2) (201,059)
- --------------------------------------------------------------------------------
Net expenses 468,919
- --------------------------------------------------------------------------------
Net investment income 4,307,970
- --------------------------------------------------------------------------------
Realized and unrealized gain/(loss) on investments (Note 1):
Net realized loss from securities transactions (141,613)
Change in unrealized appreciation or depreciation
of investments (1,267,527)
- --------------------------------------------------------------------------------
Net loss on investments (1,409,140)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 2,898,830
================================================================================
See Notes to Financial Statements.
-28-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 4,307,970 $ 4,324,862
Net loss from security transactions (141,613) (1,018,416)
Change in unrealized appreciation or
depreciation of investments (1,267,527) 7,179,328
Change in unrealized appreciation or
depreciation of assets and liabilities
denominated in foreign currency -- 1,216
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,898,830 10,486,990
- --------------------------------------------------------------------------------
Dividends to Shareholders From:
Net investment income:
Class A Shares (3,528,967) (4,208,250)
Institutional Shares (602,635) (7,962)
- --------------------------------------------------------------------------------
Total distributions (4,131,602) (4,216,212)
- --------------------------------------------------------------------------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 24,144,316 4,986,795
Value of shares issued in reinvestment of
dividends 2,641,312 2,635,861
Cost of shares repurchased (18,763,222) (23,380,739)
- --------------------------------------------------------------------------------
Increase/(decrease) in net assets derived from
capital share transactions 8,022,406 (15,758,083)
- --------------------------------------------------------------------------------
Total increase/(decrease) in net assets 6,789,634 (9,487,305)
Net Assets:
Beginning of period 69,301,694 78,788,999
- --------------------------------------------------------------------------------
End of period $ 76,091,328 $ 69,301,694
================================================================================
See Notes to Financial Statements.
-29-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each year)
For the Year Ended
December 31,
- --------------------------------------------------------------------------------
1996
Per Share Operating Performance:
Net asset value at beginning of year $ 10.48
- --------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.63
Net realized and unrealized gain/(loss) on investments (0.23)
- --------------------------------------------------------------------------------
Total from Investment Operations 0.40
Less Distributions:
Dividends from net investment income and
short-term gains (0.60)
Return of capital --
Distributions from net realized long-term gains --
- --------------------------------------------------------------------------------
Total distributions (0.60)
- --------------------------------------------------------------------------------
Net asset value at end of year $ 10.28
================================================================================
Total Return(1) 4.04%
Ratios to Average Daily Net Assets:
Expenses(2) 0.70%
Net investment income(3) 6.11%
Supplemental Data:
Net assets at end of year (000) $58,584
Portfolio turnover rate 42%
- ----------
(1) Total return excludes the effect of sales charge.
(2) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.99%, 0.93%, 0.84%, 0.85% and
0.87% for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 5.83%, 5.77%, 5.43%,
5.28% and 5.83% for the years ended December 1996, 1995, 1994, 1993 and
1992, respectively.
-30-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 9.62 $ 10.57 $ 10.37 $ 10.54
- ---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.62 0.57 0.57 0.63
Net realized and unrealized gain/(loss) on investments 0.84 (0.92) 0.34 (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.46 (0.35) 0.91 0.58
Less Distributions:
Dividends from net investment income and
short-term gains (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) (0.71) (0.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 10.48 $ 9.62 $ 10.57 $ 10.37
=================================================================================================================================
Total Return(1) 15.43% (3.32)% 8.98% 5.68%
Ratios to Average Daily Net Assets:
Expenses(2) 0.70% 0.70% 0.70% 0.70%
Net investment income(3) 6.00% 5.57% 5.43% 6.01%
Supplemental Data:
Net assets at end of year (000) $67,116 $78,789 $112,520 $78,706
Portfolio turnover rate 46% 50% 86% 107%
See Notes to Financial Statements.
</TABLE>
-31-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights --Institutional Shares
(For a share outstanding throughout each period)
For the Year For the Period
Ended November 2, 1995(1)
December 31, through December 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $ 10.58 $10.42
- --------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.59 0.09
Net realized and unrealized gain/(loss)
on investments (0.17) 0.12
- --------------------------------------------------------------------------------
Total from Investment Operations 0.42 0.21
Less Distributions:
Distributions from net investment income
and short-term gains (0.62) (0.05)
- --------------------------------------------------------------------------------
Net asset value at end of period $ 10.38 $10.58
================================================================================
Total Return 4.20% 12.47%(2)
Ratios to Average Daily Net Assets:
Expenses(3) 0.45% 0.45%(2)
Net investment income(4) 6.35% 6.52%(2)
Supplemental Data:
Net assets at end of period (000) $17,507 $2,186
Portfolio turnover rate 42% 46%
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Annualized.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.76% and 0.72% (annualized) for
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 6.04% and 6.27%
(annualized) for the year ended December 31, 1996 and the period
ended December 31, 1995, respectively.
See Notes to Financial Statements.
-32-
<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"), formally
Flag Investors Intermediate-Term Income Fund, Inc., is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company designed to provide a high level of current income consistent with
preservation of capital within an intermediate-term maturity structure. The Fund
commenced operations on May 13, 1991, 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, the Fund began offering Institutional Shares, which
are not subject to a front-end sales charge or a distribution fee.
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--Debt securities are valued on the basis of
quotations provided by a pricing service, which uses information with
respect to transactions on bonds, quotations from bond dealers,
market transactions in comparable securities and various
relationships between securities in determining value. Portfolio
securities that are listed on a national securities exchange are valued
on the basis of their last sale price or, in the absence of recorded
sales, at the average of readily available closing bid and asked
prices. Securities or other assets for which market quotations are not
readily available are valued at their fair value so 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. 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 Subchapter M of the Internal Revenue Code and to
make requisite distributions to 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 taxable net investment income on a monthly
basis and net realized long-term capital gains annually, if any.
-33-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--concluded
C. Dividends and Distributions--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 differing tax treatments of dividends
declared.
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 is recorded on an accrual basis
and includes amortization of premiums and accretion of discounts.
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 Fee, Transactions with Affiliates
and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., 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 following annual rates based upon the Fund's
average daily net assets: 0.35% of the first $1 billion, 0.30% of the next $500
million and 0.25% of that portion in excess of $1.5 billion.
ICC has agreed to reduce its aggregate fees so that ordinary expenses of
the Fund for any fiscal year do not exceed 0.70% of the Fund's average daily net
assets for Class A Shares and 0.45% for Institutional Shares. For the year ended
December 31, 1996, ICC waived fees of $201,059.
As compensation for its transfer agent services, ICC receives from the
Fund a per account fee, calculated and paid monthly. ICC received $32,766 for
transfer agent services for the year ended December 31, 1996.
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 $56,244 for accounting services for the year ended December
31, 1996.
-34-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 2--concluded
As compensation for providing distribution services, ICC receives from the
Fund an annual fee, calculated daily and paid monthly, at an annual rate equal
to 0.25% of the Fund's average daily net assets of Class A Shares. For the year
ended December 31, 1996, distribution fees aggregated $151,753.
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 period January 1, 1996 through December 31, 1996 was
approximately $2,500, and the accrued liability was approximately $10,000.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 55 million shares of capital stock
(45 million Class A, 5 million Institutional, 2 million Class B and 3 million
undesignated), par value, $.001 per share, all of which shares are designated as
common stock. Transactions in shares of the Fund were as follows:
Class A Shares
----------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
Shares sold 824,212 267,783
Shares issued to shareholders on
reinvestment of dividends 223,342 261,580
Shares redeemed (1,752,832) (2,317,104)
- --------------------------------------------------------------------------
Net decrease in shares outstanding (705,278) (1,787,741)
==========================================================================
Proceeds from sale of shares $ 8,509,093 $ 2,690,780
Value of reinvested dividends 2,288,737 2,635,861
Cost of shares redeemed (18,054,319) (23,241,599)
- --------------------------------------------------------------------------
Net decrease from capital share
transactions $ (7,256,489) $(17,914,958)
==========================================================================
-35-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--concluded
Institutional Shares
----------------------------
For the Period
For the Nov. 2, 1995*
Year Ended through
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
Shares sold 1,513,443 219,797
Shares issued to shareholders on
reinvestment of dividends 34,119 --
Shares redeemed (67,989) (13,212)
- --------------------------------------------------------------------------------
Net increase in shares outstanding 1,479,573 206,585
================================================================================
Proceeds from sale of shares $15,635,223 $2,296,015
Value of reinvested dividends 352,575 --
Cost of shares redeemed (708,903) (139,140)
- --------------------------------------------------------------------------------
Net increase from capital share
transactions $15,278,895 $2,156,875
================================================================================
- ----------
*Commencement of operations.
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $31,232,448 and $27,853,065, respectively, for the year
ended December 31, 1996.
On December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$792,050, and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $413,580.
-36-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 5--Federal Income Tax Information
Generally accepted accounting principles require that certain components
of net assets be reclassified to reflect permanent differences between financial
reporting and tax purposes. Accordingly, current year's permanent book/tax
difference of $81,463 has been reclassified 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 future net
capital gains, if any.
NOTE 6--Net Assets
On December 31, 1996, net assets consisted of:
Paid-in capital:
Class A Shares $61,903,932
Institutional Shares 17,435,771
Accumulated net realized loss from security transactions (3,574,628)
Unrealized appreciation of investments 378,470
Overdistribution of net investment income (52,217)
------------
$76,091,328
============
-37-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Flag Investors Short-Intermediate Income Fund, Inc.:
We have audited the accompanying statement of net assets of the Flag
Investors Short-Intermediate Income Fund, Inc. as of December 31, 1996, 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 years in the five-year period then ended.
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 December
31, 1996 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
Short-Intermediate Income Fund, Inc. as of December 31, 1996, 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
January 29, 1997
-38-
<PAGE>
APPENDIX
Corporate Bond Rating Definitions
- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group
AAA--The highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA--Very strong capacity to pay interest and repay principal. Differs from the
highest rated issues only in small degree.
A--Strong capacity to pay interest and repay principal although somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Aaa--Judged to be of the best quality. Carry the smallest degree of investment
risk. Generally referred to as "gilt edged." Interest payments are protected by
a large or by an 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--Judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high-grade bonds. Rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or 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--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.
Commercial Paper Rating Definitions
- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Commercial paper issuers rated Prime-1 by Moody's are judged by Moody's to be of
the highest quality on the basis of relative repayment capacity.
A-1
<PAGE>
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 Part A of the Registration Statement:
- Financial Highlights for Flag Investors Class A
Shares for the fiscal years ended December 31,
1996, December 31, 1995, December 31, 1994,
December 31, 1993 and December 31, 1992 and for
the period May 13, 1991 (commencement of
operations) through December 31, 1991.
- Financial Highlights for Flag Investors
Institutional Shares for the fiscal year ended
December 31, 1996 and for the period November 2,
1995 (commencement of operations) through December
31, 1995.
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of December 31, 1996.
- Statement of Operations for the year ended
December 31, 1996.
- Statements of Changes in Net Assets for the years
ended December 31, 1996 and December 31, 1995.
- Financial Highlights for Flag Investors Class A
Shares for the years ended December 31, 1996,
December 31, 1995, December 31, 1994, December 31,
1993 and December 31, 1992 and for the period
ended December 31, 1991.
- Financial Highlights for Flag Investors
Institutional Shares for the fiscal year ended
December 31, 1996 and the period November 2, 1995
(commencement of operations) through December 31,
1995.
- Notes to Financial Statements.
(3) All required financial statements are included in
Part B of the Registration Statement. All other
financial statements and schedules are inapplicable.
(b) Exhibits.
(1) (a)(3) Articles of Incorporation.
(b)(4) Amended Articles of Incorporation.
(c)(4) Amendment to Amended Articles of
Incorporation.
C-1
<PAGE>
(d)(4) Articles Supplementary dated April 23,
1992.
(e)(4) Articles Supplementary dated October 6,
1995.
(f)(5) Articles Supplementary dated April 25,
1996.
(g)(1) Articles Supplementary with respect to
creation of ABCAT Shares Class dated
October 31, 1996.
(h)(1) Articles of Amendment to Articles of
Incorporation with respect to
Registrant's name change dated December
19, 1996.
(2)(1) By-Laws, as amended through December 18, 1996.
(3) Not Applicable.
(4)(2) Specimen Security.
(5)(4) Investment Advisory Agreement between
Registrant and Flag Investors Management Corp.
(now known as Investment Company Capital
Corp).
(6) (a)(4) Distribution Agreement between
Registrant and Alex. Brown & Sons
Incorporated with respect to
Registrant's Flag Investors Class A
Shares.
(b)(1) Form of Sub-Distribution Agreement
between Alex. Brown & Sons Incorporated
and Participating Dealers.
(c)(3) Form of Shareholder Servicing Agreement
between Registrant and Shareholder
Servicing Agents.
(d)(4) Distribution Agreement between
Registrant and Alex. Brown & Sons
Incorporated with respect to
Registrant's Flag Investors
Institutional Shares.
(e)(5) Form of Distribution Agreement between
Registrant and Alex. Brown & Sons
Incorporated with respect to
Registrant's Alex. Brown Capital
Advisory & Trust Shares.
(7) Not Applicable.
(8) (a)(4) Custodian Agreement between Registrant
and Provident National Bank (now known
as PNC Bank).
(b)(4) Master Services Agreement between
Registrant and Investment Company
Capital Corp.
(9) Not Applicable.
(10)(4) Opinion of Counsel.
C-2
<PAGE>
(11) (a)(1) Consent of Deloitte & Touche LLP.
(b)(4) Consents to Serve as Directors.
(12) Not Applicable.
(13)(3) Form of Subscription Agreement re: initial
$100,000 capital.
(14) Not Applicable.
(15)(4) Distribution Plan with respect to Flag
Investors Class A Shares.
(16)(3) Schedule of Computation of Performance
Quotations (unaudited).
(18)(1) (a)(5) Rule 18f-3 Plan.
(b)(1) Registrant's 18f-3 Plan, as amended
through March 26, 1997.
(24)(1) Powers of Attorney.
(27)(1) Financial Data Schedule.
(1) Filed herewith.
(2) Incorporated by reference to Pre-Effective Amendment No. 1. to Registrant's
Registration Statement on Form N-1A (Registration No. 33-34275), filed
with the Securities and Exchange Commission on March 14, 1991.
(3) Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-34275), filed
with the Securities and Exchange Commission on August 18, 1995.
(4) Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-34275), filed
with the Securities and Exchange Commission on April 26, 1996.
(5) Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-34275), filed
with the Securities and Exchange Commission 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.
C-3
<PAGE>
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 April 15, 1997.
Title of Class Number of Record Holders
Flag Investors Class A Shares 994
Flag Investors Institutional Shares 58
ABCAT 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.
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 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
C-4
<PAGE>
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.
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.
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., the Flag Investors Total Return U.S.
Treasury Fund Shares of Total Return U.S. Treasury Fund, Inc., the
Flag Investors Managed Municipal Fund Shares of Managed Municipal
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., all registered open-end management investment
companies.
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------- -------------- ---------------
Alvin B. Krongard Chairman, Chief None
Executive
Officer, Director
Benjamin Howell Griswold, IV Director None
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial None
Officer and
Treasurer
C-5
<PAGE>
Robert F. Price Secretary and None
General Counsel
- -------------
* One South Street
Baltimore, Maryland 21202
(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.
Investment Company Capital Corp., One South Street, Baltimore,
Maryland 21202, the Fund's investment advisor and transfer and dividend
disbursing agent, maintains physical possession of each such account,
book or other document of the Fund, except for those accounts, books
and documents pursuant to Rule 31a-1(b)(1) maintained by the
Registrant's custodian, PNC Bank, Airport Business Park, 200 Stevens
Drive, Lester, Pennsylvania 19113.
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.
See Exhibit 8.
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting the Registrant
at (800) 767-3524.
C-6
<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 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 28th day of April, 1997.
FLAG INVESTORS SHORT-INTERMEDIATE
INCOME FUND, INC.
By: /s/ M. Elliott Randolph, Jr.
------------------------------
M. Elliott Randolph, Jr.,
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:
* Director April 28, 1997
- ---------------------------- ---------------
Richard T. Hale Date
* Director April 28, 1997
- ---------------------------- ---------------
Charles W. Cole, Jr. Date
* Director April 28, 1997
- ---------------------------- ---------------
James J. Cunnane Date
* Director April 28, 1997
- ---------------------------- ---------------
John F. Kroeger Date
* Director April 28, 1997
- ---------------------------- ---------------
Louis E. Levy Date
* Director April 28, 1997
- ---------------------------- ---------------
Eugene J. McDonald Date
* Director April 28, 1997
- ---------------------------- ---------------
Rebecca W. Rimel Date
* Director April 28, 1997
- ---------------------------- ---------------
Truman T. Semans Date
* Director April 28, 1997
- ---------------------------- ---------------
Carl W. Vogt Date
/s/ M. Elliott Randolph, Jr. President April 28, 1997
- ---------------------------- ---------------
M. Elliott Randolph, Jr. Date
/s/ Joseph A. Finelli Chief Financial April 28, 1997
- ---------------------------- ---------------
Joseph A. Finelli and Accounting Date
Officer
*By: /s/ Scott J. Liotta
------------------------
Scott J. Liotta
Attorney-In-Fact
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit Number Document
- --------------- ----------
(1) (a) Articles of Incorporation.(3)
(1) (b) Amended Articles of Incorporation.(4)
(1) (c) Amendment to Amended Articles of Incorporation.(4)
(1) (d) Articles Supplementary dated April 23, 1992.(4)
(1) (e) Articles Supplementary dated October 6, 1995.(4)
(1) (f) Articles Supplementary dated April 25, 1996.(5)
EX-99.B (1) (g) Articles Supplementary with respect to creation of ABCAT
Shares Class dated October 31, 1996.(1)
EX-99.B (1) (h) Articles of Amendment to Articles of Incorporation with
respect to Registrant's name change dated December 19,
1997.(1)
EX-99.B (2) By-Laws, as amended through December 18, 1996.(1)
(3) Not Applicable.
(4) Specimen Security.(2)
(5) Investment Advisory Agreement between Registrant and Flag
Investors Management Corp. (now known as Investment Company
Capital Corp.).(4)
(6) (a) Distribution Agreement between Registrant and Alex. Brown
& Sons Incorporated with respect to Registrant's Flag
Investors Class A Shares.(4)
EX-99.B (6) (b) Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Broker-Dealers.(1)
(6) (c) Form of Shareholder Servicing Agreement.(3)
(6) (d) Distribution Agreement between Registrant and Alex. Brown
& Sons Incorporated with respect to Registrant's Flag
Investors Institutional Shares.(4)
(6) (e) Form of Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
Registrant's Alex. Brown Capital Advisory & Trust
Shares.(5)
(7) Not Applicable.
<PAGE>
EDGAR
Exhibit Number Document
- --------------- ----------
(8) (a) Custodian Agreement between Registrant and Provident
National Bank (now known as PNC Bank).(4)
(8) (b) Master Services Agreement between Registrant and
Investment Company Capital Corp.(4)
(9) Not Applicable.
(10) Opinion of Counsel.(4)
EX-99.B (11) (a) Consent of Deloitte & Touche LLP.(1)
(11) (b) Consents of Directors to serve.(4)
(12) Not Applicable.
(13) Form of Subscription Agreement re: initial capitalization of
the Funds.(3)
(14) Not Applicable.
(15) Distribution Plan with respect to the Flag Investors Class A
Shares.(4)
(16) Schedule of Computation of Performance Quotations
(unaudited).(3)
(18) (a) Rule 18f-3 Plan.(5)
EX-99.B (b) Rule 18f-3 Plan, as amended through March 26, 1997.(1)
EX-99.B (24) Powers of Attorney.(1)
EX-27 Financial Data Schedule.(1)
- --------------------
(1) Filed herewith.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on
March 14, 1991.
(3) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on
August 18, 1995.
(4) Incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on
April 26, 1996.
<PAGE>
5 Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission on
October 18, 1996.
<PAGE>
EX-99.B(1)(g)
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC. (the "Corporation"),
having its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to sixty million (60,000,000) shares of
Common Stock, of the par value of 1 mil ($.001) per share and of the aggregate
par value of sixty thousand dollars ($60,000), all of which shares are
designated and classified as follows: forty-five million (45,000,000) shares are
designated "Flag Investors Intermediate-Term Income Fund Class A Shares," two
million (2,000,000) shares are designated "Flag Investors Intermediate-Term
Income Fund Class B Shares," five million (5,000,000) shares are designated
"Flag Investors Intermediate-Term Income Fund Institutional Shares," five
million (5,000,000) shares are designated "Alex. Brown Capital Advisory & Trust
Intermediate-Term Income Shares" and three million (3,000,000) shares remain
undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue fifty-five million (55,000,000) shares of Common Stock, of
the par value of 1 mil ($.001) per share and of the aggregate par value of
fifty-five thousand dollars ($55,000), all of which shares were designated and
classified as follows: forty-five million (45,000,000) shares were designated
"Flag Investors Intermediate-Term Income Fund Class A Shares," two million
(2,000,000) shares were designated "Flag Investors Intermediate-Term Income Fund
Class B Shares," five million (5,000,000) shares were designated "Flag Investors
Intermediate-Term Income Fund Institutional Shares" and three million
(3,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Flag Investors Intermediate-Term Income Fund, Inc. has
caused these Articles Supplementary to be executed by one of its Vice Presidents
and its corporate seal to be affixed and attested by its Secretary on this 31st
day of October, 1996.
<PAGE>
[CORPORATE SEAL]
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
By: /s/ Edward J. Veilleux
-------------------------------------------
Edward J. Veilleux
Vice President
Attest: /s/ Edward J. Stoken
--------------------
Edward J. Stoken
Secretary
The undersigned, Vice President of FLAG INVESTORS INTERMEDIATE-TERM INCOME
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Edward J. Veilleux
-------------------------------------------
Edward J. Veilleux
Vice President
<PAGE>
EX-99.B(1)(h)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC. (the "Corporation"), a
corporation organized under the laws of the State of Maryland, having its
principal place of business at One South Street, Baltimore, Maryland 21202, does
hereby certify to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.
SECOND: Pursuant to the authority contained in Section 2-605(a)(4) of the
Maryland General Corporation Law and under authority contained in Article XI,
Section 1 of the Articles of Incorporation of the Corporation, a majority of the
full Board of Directors by resolution passed December 18, 1996, have changed the
name of the Corporation to Flag Investors Short-Intermediate Income Fund, Inc.
THIRD: Pursuant to the requirements of Section 2-607 of the Maryland
General Corporation Law, the Board of Directors has determined to file of record
these Articles of Amendment, which Amendment is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders and which Amendment is solely for the purpose
of changing the name of the Corporation.
FOURTH: Article II of the Articles of Incorporation of the Corporation is
hereby amended to read in its entirety as follows:
The name of the Corporation is:
Flag Investors Short-Intermediate Income Fund, Inc.
FIFTH: These Articles of Amendment shall be effective as of the later of
the time the State Department of Assessments and Taxation of Maryland accepts
these Articles of Amendment of record or February 14, 1997.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Intermediate-Term Income Fund, Inc. has
caused these Articles of Amendment to be signed in its corporate name and on its
behalf by its President and its corporate seal to be hereunto affixed and
attested by its Secretary as of the 19th day of December, 1996.
FLAG INVESTORS INTERMEDIATE-TERM INCOME FUND, INC.
By: /s/ M. Elliott Randolph
---------------------------------------------
M. Elliott Randolph, Jr.
President
[SEAL]
Attest:
/s/ Edward J. Stoken
- --------------------
Edward J. Stoken
Secretary
<PAGE>
THE UNDERSIGNED, President of Flag Investors Intermediate-Term Income Fund,
Inc., who executed on behalf of said corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles of Amendment to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
/s/ M. Elliott Randolph, Jr.
----------------------------------------------
M. Elliott Randolph, Jr.
President
<PAGE>
EX-99.B(2)
As Amended Through
December 18, 1996
BY-LAWS
OF
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the
shareholders of the Corporation shall not be required to be held in any year in
which shareholders are not required to elect directors under the Investment
Company Act of 1940 (the "1940 Act") even if the Corporation is holding a
meeting of the shareholders for a purpose other than the election of directors.
If the Corporation is required by the 1940 Act to hold a meeting to elect
directors, the meeting shall be designated as the Annual Meeting of shareholders
for that year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may be properly brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter of the
Corporation may be called for any purpose or
<PAGE>
purposes by a majority of the Board of Directors or the President, and shall be
called by the President or Secretary on the written request of the shareholders
as provided by the Maryland General Corporation Law. Such request shall state
the purpose or purposes of the proposed meeting and the matters proposed to be
acted on at it; provided, however, that unless requested by shareholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
shareholders held during the preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of shareholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of shareholders shall be deemed
waived by any shareholder who shall attend such meeting in person or by proxy,
or who shall, either before or after the meeting, submit a signed waiver of
notice which is filed with the records of the meeting. A meeting of shareholders
convened on the date for which it was called may be adjourned from time to time
without further notice to a date not more than 120 days after the original
record date.
(c) At least five (5) days prior to each meeting of
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
-2-
<PAGE>
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting of
shareholders may authorize another person or persons to act for him by a proxy
signed by such shareholder or his attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
shareholder executing it, except in those cases where such proxy states that it
is irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or the Corporation or these By-Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at meeting at which a quorum is present is sufficient to elect
director.
(c) If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the shareholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a
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certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of shareholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the
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President or the Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number or Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may
be held with notice at such times and places as may be determined by the Board
of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written
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waiver of notice which is filed with the records of the meeting or who shall
attend such meeting. Except as otherwise specifically required by these By-Laws,
a notice or waiver of notice of any meeting need not state the purposes of such
meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons (as defined in the 1940 Act) of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
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Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
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(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment
adviser or principal underwriter, as such terms are defined in the 1940 Act, or
take any other action required to be taken by the Board of Directors by the 1940
Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not
require shareholder approval.
Section 4. General. (a) One-third, but not less than two
members, of the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the transaction of
business at such meeting, and the act of a majority present shall be the act of
such committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of its
meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member or any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Board shall have the power at any time to change the membership of
any committee, to fill all vacancies, to designate alternate members, to replace
any absent or disqualified member, or to dissolve any such committee.
(b) All committees shall keep written minutes of their
proceedings and shall report such minutes to the Board. All such proceedings
shall be subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more
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offices may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
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Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
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(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who
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has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in office at
the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
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Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of December in each year.
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ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall
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be selected annually by the Board of Directors and ratified by the Board of
Directors or the shareholders in accordance with the provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and officers
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person 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 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from
-15-
<PAGE>
the Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the full
extent permissible under the Maryland General Corporation Law and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law and the 1940 Act, as
such statutes are now or hereafter in force, whether the standards required by
this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any annual meeting of the shareholders or at any special meeting of
the shareholders at which a quorum is present or represented, provided that
notice of the proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be amended, altered or
repealed by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board of Directors.
-16-
<PAGE>
EX-99.B(6)(b)
FLAG INVESTORS FAMILY OF FUNDS
One South Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland corporation,
serves as distributor (the "Distributor") of the Flag Investors Funds
(collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies 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" used herein refers to the
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
Shares.
<PAGE>
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 $250,000 for each Fund 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 the 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 NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class 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 Prospectus and provisions of the
Agreement.
<PAGE>
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to register or qualify in certain states
where registration or qualification is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares have been qualified
for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds 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 provision 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 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 to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at the address specified by you below.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(11)
INDEPENDENT AUDITORS' CONSENT
Flag Investors Short-Intermediate Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 9 to the Registration
Statement of Flag Investors Short-Intermediate Income Fund, Inc. (Registration
No. 33-34275) of our report dated January 29, 1997 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.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 24, 1997
<PAGE>
EX-99.B(18)(b)
Flag Investors Short-Intermediate Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Institutional
and Alex. Brown Capital Advisory & Trust Shares Classes
Adopted December 13, 1995
Amended through March 26, 1997
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
Short-Intermediate Income Fund, Inc. (formerly, Flag Investors Intermediate-Term
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 (formerly known as the Flag
Investors Shares), Flag Investors Class B, Flag Investors Institutional 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
May 13, 1991 and the Flag Investors Institutional Shares have been offered since
November 2, 1995. The Alex. Brown Capital Advisory & Trust Shares and the Flag
Investors Class B Shares have not yet been offered.
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. For each additional class of shares approved by the Fund's
Board of Directors after the date hereof, the appropriate officers of the Fund
will attest the resolutions approving such class as an exhibit hereto. Before
any material amendment of the Plan, the Fund is required to obtain a finding by
a majority of the Board, and a
<PAGE>
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. 6 to Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-95-000390) on August 18, 1995 are incorporated herein
by reference.
2. Articles Supplementary establishing the ABCAT Shares filed as Exhibit (1)(g)
to this Registration Statement on Form N-1A (Registration No. 33-34275) are
incorporated herein by reference.
3. Articles of Amendment to the Articles of Incorporation with respect to the
Registrant's name change filed as Exhibit (1)(h) to this Registration Statement
on Form N-1A (Registration No. 33-34275) are incorporated herein by reference.
4. By-Laws as amended through December 18, 1996 filed as Exhibit (2) to this
Post-Effective Amendment to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275) are incorporated herein by reference.
5. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
with respect to Registrant's Class A Shares filed as Exhibit (6)(a) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000268) on April 26, 1996 is
incorporated herein by reference.
6. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
with respect to Registrant's Institutional Shares filed as Exhibit (6)(d) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000268) on April 26, 1996 is
incorporated herein by reference.
7. Form of Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Registrant's Alex. Brown Capital Advisory & Trust
Shares filed as Exhibit (6)(e) to this Registration Statement on Form N-1A
(Registration No. 33-34275), is incorporated herein by reference.
8. Distribution Plan with respect to the Class A Shares filed as Exhibit (15) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000268) on April 26, 1996 is
incorporated herein by reference.
<PAGE>
9. Form of Sub-Distribution Agreement between Alex. Brown & Sons Incorporated
and Participating Broker-Dealers filed as Exhibit (6)(b) to this Post Effective
Amendment to Registrant's Registration Statement on Form N-1A (Registration No.
33-34275) is incorporated herein by reference.
10. Prospectus relating to Registrant's Class A Shares filed as part of this
Post-Effective Amendment to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275) is incorporated herein by reference, as amended from
time to time.
11. Prospectus relating to Registrant's Institutional Shares filed as part of
this Post-Effective Amendment to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275) is incorporated herein by reference, as amended
from time to time.
12. Prospectus relating to Registrant's Alex. Brown Capital Advisory & Trust
Shares filed as part of this Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A (Registration No. 33-34275) is incorporated
herein by reference, as amended from time to time.
<PAGE>
BOARD APPROVALS
Class A Shares
Date Approved: March 20, 1991
Resolutions of Board Approving Distribution Agreement, Plan of Distribution and
Form of Sub-Distribution Agreement
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, 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;
FURTHER RESOLVED, that the proposed Plan of Distribution (the"Plan") is
determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved by
the Board of Directors and by the Directors who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) of the Fund and have
no direct or indirect financial interest in the operation of the Plan;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
of the Fund be, and the same hereby is, approved.
RESOLVED, that the filing of the Articles of Incorporation of the Fund
and the Articles of Amendment thereto by the Fund's incorporator be, and the
same hereby is, ratified.
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 Intermediate-Term 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.
<PAGE>
Date Approved: April 1, 1996
Resolutions of Board Renaming Flag Investors Shares
RESOLVED, that the Fund's forty-five million (45,000,000) 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.
Date Approved: September 23, 1994
Resolutions of Board Creating Flag Investors Class B Shares
FURTHER RESOLVED, that an additional class of shares of Flag Investors
Intermediate-Term Income Fund, Inc. (the "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 No. of Shares Class A Shares Class B Shares Unclassified Shares
50,000,000 45,000,000 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 Flag Investors
Intermediate-Term Income Fund, Inc. and Alex. Brown & Sons Incorporated for the
Class B Shares of the Fund be, and the same hereby is, approved;
FURTHER RESOLVED, that at such time as the Fund offers the Class B
Shares, the Plan of Distribution shall govern the payment of 12b-1 fees by that
class;
<PAGE>
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.
Date Approved: September 26, 1995
Resolutions of Board Creating Flag Investors Institutional Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Intermediate-Term Income Fund, Inc. (the
"Fund") is authorized to issue is hereby increased from fifty million
(50,000,000) to fifty-five million (55,000,000) and that from such amount, five
million (5,000,000) authorized and unissued shares be, and hereby are,
designated and classified as the "Flag Investors Intermediate-Term Income Fund
Institutional Shares" ("Institutional Shares");
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 to effectuate the increase in authorized shares
and to designate and classify the new class;
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Intermediate-Term Income Fund, Inc. and Alex. Brown & Sons
Incorporated for the Institutional Shares of said Fund be, and the same hereby
is, approved in substantially the form presented to this meeting;
FURTHER RESOLVED, that the proper officers of Flag Investors
Intermediate-Term Income Fund, Inc. be, and they hereby are, authorized and
directed to enter into and execute the 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.
Date Approved: October 1, 1996
Resolutions of Board Creating Alex. Brown
Capital Advisory & Trust Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Intermediate-Term Income Fund, Inc. is
authorized to issue is hereby increased from fifty-five million (55,000,000) to
sixty million (60,000,000) and that from
<PAGE>
such amount, five million (5,000,000) authorized and unissued shares be, and
hereby are, designated and classified as the "Alex. Brown Advisory & Trust
Intermediate-Term Income Shares";
FURTHER RESOLVED, that the proper officers of Flag Investors
Intermediate-Term Income Fund, Inc. be, and each of them hereby is, authorized
and directed to file Articles Supplementary to the 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 the 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 the Fund.
Date Approved: October 1, 1996
Resolutions of Board Approving Distribution Agreement for
New Alex. Brown Capital Advisory & Trust Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Intermediate-Term 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;
FURTHER RESOLVED, that the proper officers of Flag Investors
Intermediate-Term Income Fund, Inc. be, and they hereby are, authorized and
directed to enter into and execute the 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 Short-Intermediate 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.
<PAGE>
EX-99.B(24)
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, 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
Short-Intermediate 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
Chief Financial and Accounting Officer 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/ Joseph A. Finelli
---------------------
Joseph A. Finelli
Date: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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/ Richard T. Hale
--------------------
Richard T. Hale
Date: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, M. Elliott Randolph, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Scott J. Liotta, 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
Short-Intermediate 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/ M. Elliott Randolph, Jr.
----------------------------
M. Elliott Randolph, Jr.
Date: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles W. Cole, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, 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
Short-Intermediate 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/ Charles W. Cole, Jr.
-------------------------------
Charles W. Cole, Jr.
Date: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott
J. Liotta, 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 Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE 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 Scott J. Liotta, 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
Short-Intermediate 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: March 26, 1997
--------------
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<EXPENSES-NET> 468,919
<NET-INVESTMENT-INCOME> 4,307,970
<REALIZED-GAINS-CURRENT> (141,613)
<APPREC-INCREASE-CURRENT> (1,267,527)
<NET-CHANGE-FROM-OPS> 2,898,830
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<DISTRIBUTIONS-OF-INCOME> 3,528,967
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 824,212
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<SHARES-REINVESTED> 223,342
<NET-CHANGE-IN-ASSETS> (8,531,916)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,514,478)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 245,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 424,660
<AVERAGE-NET-ASSETS> 60,704,503
<PER-SHARE-NAV-BEGIN> 10.48
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> (0.60)
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<NAME> SHORT-INTERMEDIATE INSTITUTIONAL
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 74,898,094
<INVESTMENTS-AT-VALUE> 75,276,564
<RECEIVABLES> 912,548
<ASSETS-OTHER> 209,019
<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 306,803
<TOTAL-LIABILITIES> 306,803
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<PAID-IN-CAPITAL-COMMON> 17,434,084
<SHARES-COMMON-STOCK> 1,686,158
<SHARES-COMMON-PRIOR> 1,220,742
<ACCUMULATED-NII-CURRENT> 439,462
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,656,091)
<OVERDISTRIBUTION-GAINS> 0
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<NET-CHANGE-FROM-OPS> 2,898,830
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<DISTRIBUTIONS-OF-INCOME> 602,635
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,513,443
<NUMBER-OF-SHARES-REDEEMED> 67,989
<SHARES-REINVESTED> 34,119
<NET-CHANGE-IN-ASSETS> 15,321,550
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> 0.59
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