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FLAG INVESTORS
[PHOTOGRAPH]
FLAG
INVESTORS
SHORT-
INTERMEDIATE
INCOME
FUND
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o Duration shifts made mid-year to extend the portfolio's weighted average
maturity enabled the Fund to turn in excellent six-month results.
o We kept the Fund's asset allocation evenly balanced among Treasuries,
agencies, mortgages, corporates and asset-backed issues during most of
the second half of the year. As a result, the Fund's different sectors
contributed equally to the year's total return of 4.0%.
Name Change
The Board of Directors has changed the Fund's name to Flag Investors
Short-Intermediate Income Fund effective February 14, 1997. This new name more
accurately reflects the Fund's weighted average maturity, which has been in
the three- to five-year range since its inception. Because Intermediate-Term
Income, the Fund's former name, indicates a maturity of three to ten years, it
did not represent the Fund's actual investing practice as precisely as the new
name does.
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the Fund's progress for the six- and
twelve-month periods ended December 31, 1996.
1996 in Review
In sharp contrast to the exuberance of 1995--a year of exceptional returns
for both stocks and bonds--the tone of the fixed-income market was noticeably
more subdued in 1996 and marked with shifting investor sentiment about the
direction of interest rates. After 1995's uninterrupted decline in rates, it was
perceived that an environment of slow-to-moderate growth, benign inflationary
pressures, strong foreign demand for U.S. dollar-denominated debt securities
coupled with weak foreign growth, and bias toward asset allocations favoring
bonds over stocks would be sufficient to push rates lower and sustain the rally
well into 1996. While these assessments of fundamentals proved to be almost
correct, statistical evidence told a different story as the year unfolded. Even
though broad price indices failed to indicate an increase in the underlying rate
of inflation, by the second quarter there were indications of a tightening labor
market and accelerating wage gains. Further evidence of strength from incoming
economic data continued to influence investor inflation expectations and push
rates higher (see chart below).
U.S. Treasury Yields
(12/31/95-12/31/96)
[Graph appears here--see plot points below]
10-Year 5-year
5.67 5.41
5.74 5.43
5.53 5.27
5.63 5.33
5.67 5.26
5.66 5.23
5.78 5.3
5.96 5.51
5.96 5.58
6.41 6.06
6.45 6.18
6.33 6.06
6.33 6.09
6.55 6.38
6.5 6.29
6.52 6.32
6.52 6.28
6.89 6.6
6.75 6.47
6.65 6.41
6.65 6.41
6.85 6.63
6.9 6.7
6.93 6.7
6.95 6.72
6.71 6.46
7.01 6.82
6.86 6.65
6.79 6.57
6.85 6.63
6.51 6.27
6.48 6.22
6.55 6.3
6.75 6.51
6.94 6.72
6.92 6.7
6.72 6.47
6.84 6.62
6.68 6.43
6.48 6.21
6.55 6.28
6.5 6.25
6.54 6.26
6.38 6.11
6.25 6.03
6.18 5.96
6.14 5.93
6.04 5.83
6.24 5.99
6.31 6.05
6.36 6.14
6.29 6.08
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- --------------------------------------------------------------------------------
The second half of the year was a near reverse image of the first. Although
stronger-than-expected employment reports hinted that Federal Reserve Board
policy could turn restrictive, Fed Board Chairman Alan Greenspan's testimony
before Congress in July indicated that the consensus view among Fed officials
was that the economy was apt to slow in the second half and that a change in Fed
policy was not in order. This seemed to calm market anxieties and allowed
five-year and ten-year rates to trend lower in a narrow range of 6.8% to 5.8%
and 7.0% to 6.0%, respectively. This gradual decline in interest rates during
the late summer months again provided much of the fuel that propelled common
stocks to higher prices and enabled bond investors to recoup much of their
losses from the first quarter.
Absent exposure to more rate-sensitive long-term bonds, your Fund, with its
inherently defensive maturity bias, delivered another year of consistent results
in this environment of roller coaster interest rates. A credit to the durability
and mettle of its short-intermediate charter, the Fund posted total returns of
4.5% and 4.0% for the six- and twelve-month periods ended December 31, 1996,
respectively. In contrast to 1995's results, which enjoyed substantial NAV
appreciation as rates declined, the bulk of this year's positive return came
from the Fund's monthly dividend. From its inception on May 13, 1991, the Fund's
Class A Shares have posted a cumulative total return of 46.9%, translating into
an average annual return of 7.1%. Specific total return comparisons are listed
below.
Performance Comparisons*
<TABLE>
<CAPTION>
For Periods Ended Dec. 31, 1996 Six Months One Year Avg. Maturity
....................................................................................................
<S> <C>
Flag Investors Short-Intermediate Income Fund--Class A 4.5% 4.0% 4.7 yrs.
Lipper Short/Intermediate-Term Bond Fund
Peer Group Average 4.0% 4.3% 3-5 yrs.
Lehman Brothers Intermediate-Term
Gov't./Corp. Bond Index 4.3% 4.0% 4.2 yrs.
Lehman Brothers Gov't./Corp. Bond Index 5.9% 2.9% 9.4 yrs.
....................................................................................................
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ----------
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales
charge were reflected, the quoted performance would be lower. Since
investment return and principal value will fluctuate, an investor's shares
may be worth more or less than their original cost when redeemed. The
unmanaged indices listed above are widely recognized as indicators of
performance in their respective sectors. Past performance is not an
indicator of future results. Please review the Additional Performance
Information on page 6.
2
<PAGE>
Outlook
Our 1997 outlook for interest rates hinges on several interrelated factors,
foremost of which are the pace of economic growth and consumption, the rate of
inflation, the appetite of foreign investors for U.S. debt instruments and the
Fed's policy response. We expect the pace of the economy to continue well into
1997 with stronger cyclical forces coming into play later in the year as
tightening labor markets lead to a rise in wage pressures, which should result
in higher prices. Should foreign economies gather more strength and need to
divert surplus cash flow internally, foreign demand for U.S. debt securities,
primarily Treasuries, would slacken and put temporary pressure on yields to
attract domestic buyers.
With its defensive maturity bias, this is an ideal market environment for
your Fund.
Portfolio Considerations
Unable to discern any spread changes among sectors during the second half
of 1996, we kept the Fund's overall asset allocation evenly balanced among the
bond market's major sectors: Treasuries, agencies, mortgages, corporates and
asset-backed issues (see charts, page 4). Optimistic that the mid-year rise in
rates was more cyclical than secular, we extended the Fund's duration slightly,
to 3.6 years, to take advantage of the gradual decline in rates that evolved in
late summer. These "fine-tuning" measures worked well as each of the Fund's
different sectors contributed equally to the year's results. Near-term concern
that the Federal Reserve could adopt a less accommodating policy should the U.S.
economy exhibit greater-than-expected strength, we recently shortened the Fund's
duration to 3.2 years by reducing the mortgage sector from 46% to 33% of total
assets.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
Portfolio Composition
June 30, 1996 December 31, 1996
[Pie chart appears here] [Pie chart appears here]
[See values below] [See values below]
Agency & Mortgage-Backed 46% Agency & Mortgage-Backed 33%
Corporate 22% Treasury 22%
Treasury 18% Asset-Backed 18%
Asset-Backed 10% Corporate 18%
Cash 4% Cash 9%
Dividend Policy
The Fund continues to distribute $0.05 per share monthly. Recognizing the
importance of improving shareholder wealth, we continue to emphasize strategies
that maximize total return (current income plus NAV appreciation).
We appreciate your continued support.
Sincerely,
/s/ M. Elliott Randolph, Jr. /s/ Paul D. Corbin
M. Elliott Randolph, Jr. Paul D. Corbin
President Executive Vice President
January 20, 1997
4
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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Portfolio Statistics
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Average Maturity 4.7 years
................................................................................
Average Duration 3.2 years
................................................................................
Average Quality AAA
................................................................................
Maturity Breakdown:
................................................................................
0-1 year 10.9%
................................................................................
1-3 years 24.9%
................................................................................
3-5 years 12.7%
................................................................................
5-10 years 51.5%
................................................................................
Dividends for Calendar 1996
- --------------------------------------------------------------------------------
Total dividends declared for calendar 1996 are as follows:
- --------------------------------------------------------------------------------
Income $0.60
Shareholders who have elected to participate in the Fund's dividend
reinvestment plan have received their distribution in additional shares of
the Fund. If you are not currently a plan participant but would like to
have your dividends reinvested at net asset value, please contact your
investment representative or the Fund at 1-800-553-8080.
5
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on May 13,
1991 through the most recent fiscal year-end and must reflect the impact of the
Fund's total expenses and the currently effective 1.50% maximum sales charge for
the Fund's Class A Shares.
While the following charts are required by SEC rules, such comparisons are
of limited utility since the index shown is not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of this index would have
had to own the securities that it represents. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment in Class A Shares*
May 13, 1991-December 31, 1996
[Graph appears here--see plot points below]
Flag Investors Lehman Brothers
Short-Intermediate Intermediate Gov't./Corp.
Income Fund Bond Index
5/91 9850 10000
12/91 10815 10993
6/92 11040 11324
12/92 11429 11781
6/93 12150 12513
12/93 12455 12817
6/94 12042 12481
12/94 12042 12569
6/95 13156 13776
12/95 13909 14498
6/96 13849 14652
12/96 14471 15278
Average Annual Total Return*
Periods Ended 12/31/96 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class A Shares 2.48% 5.68% 6.78%
................................................................................
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index that is widely recognized as a general measure of the
performance in the intermediate-term government and corporate bond sector.
**May 13, 1991.
7
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares*
November 2, 1995-December 31, 1996
[Graph appears here--see plot points below]
Flag Investors Lehman Brothers
Short-Intermediate Intermediate Gov't./Corp.
Income Fund Bond Index
................................................................................
11/95 10000 10000
12/95 10202 10105
3/96 10118 10021
6/96 10174 10083
9/96 10360 10262
12/96 10630 10514
Average Annual Total Return*
Periods Ended 12/31/96 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Institutional Shares 4.20% -- 5.39%***
................................................................................
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**11/2/95.
***Annualized.
8
<PAGE>
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
9
<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
10
<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.
11
<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.
12
<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.
13
<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.
14
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
<S> <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.
15
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.
16
<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.
17
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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.
18
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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)
==========================================================================
19
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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.
20
<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
============
21
<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
22
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Directors and Officers
RICHARD T. HALE
Chairman
CHARLES W. COLE, JR. PAUL D. CORBIN
Director Executive Vice President
JAMES J. CUNNANE GARY V. FEARNOW
Director Vice President
JOHN F. KROEGER MONICA M. HAUSNER
Director Vice President
LOUIS E. LEVY EDWARD J. VEILLEUX
Director Vice President
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Vice President
REBECCA W. RIMEL JOSEPH A. FINELLI
Director Treasurer
CARL W. VOGT, ESQ. EDWARD J. STOKEN
Director Secretary
M. ELLIOTT RANDOLPH, JR. LAURIE D. COLLIDGE
President Assistant Secretary
Investment Objective
An open-end mutual fund designed to provide a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure.
23
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<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
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