[FLAG INVESTORS LOGO]
FLAG
INVESTORS
SHORT-
INTERMEDIATE
INCOME
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1998
<PAGE>
REPORT HIGHLIGHTS
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o Maintaining its focus on quality, your Fund's Class A Shares delivered total
returns of 3.1% and 7.7% for the six- and 12-month periods ending June 30,
1998, respectively.
o The bond market has enjoyed a near-perfect environment of strong economic
growth and benign inflationary pressure for much of the past twelve months.
o As the unfolding Asian financial crisis continues to rattle U.S. equity
markets, investors are increasing their investment in U.S. fixed-income
securities in an effort to reduce volatility within their portfolios.
o With interest rates fairly flat across all maturities, the Fund's
Short-Intermediate-term maturity structure now captures the majority of the
market's current yield with only a nominal amount of its systematic risk.
<PAGE>
LETTER TO SHAREHOLDERS
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Dear Shareholders:
We are pleased to report on the Fund's progress for the six- and
twelve-month periods ended June 30, 1998.
INVESTMENT ENVIRONMENT
The bond market has enjoyed a near-perfect environment of strong economic
growth and benign inflationary pressure for much of the past twelve months.
Although this rare and unlikely combination has been more conducive to
unprecedented equity performance, domestic fixed income securities earned
considerable investor respect, especially recently, in the turbulent wake of
Asia's widening financial crisis. Concerned that fallout from Asia would spark a
round of bank defaults and currency devaluations, international investors sought
the safe haven of the U.S. bond market. Following suit, U.S. investors,
convinced that spillover from Asia would keep inflation in check by dampening
export growth and related manufacturing activity, rushed to lock in yields and
reduce portfolio volatility. While there were brief scares during the year that
a tightening labor market and rising wage demands could ignite another round of
inflation, the Federal Reserve's monetary policy--key to the financial market's
well-being--remained guardedly supportive as economic growth moderated. Although
this low interest rate environment prompted a stampede by many smaller companies
to issue lower quality debt at very attractive nominal levels, the supply side
of the equation among high-grade sectors was favorably influenced by a slowdown
in new Treasury- and corporate-bond issuance.
U.S. Treasury Yields
(6/97-6/98)
[LINE GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
5-year 10-year
6/97 6.194% 6.307%
6.116 6.22
6.143 6.242
6.075 6.179
6.071 6.18
6.216 6.366
6.064 6.235
6.194 6.358
6.222 6.339
6.229 6.35
6.166 6.282
6.01 6.092
9/97 5.987 6.081
5.865 5.988
6.024 6.143
6.076 6.158
5.898 5.981
5.708 5.831
5.81 5.902
5.802 5.879
5.754 5.81
5.839 5.874
5.88 5.914
5.685 5.728
12/97 5.707 5.736
5.707 5.738
5.605 5.647
5.247 5.413
5.404 5.531
5.516 5.687
5.379 5.505
5.469 5.617
5.421 5.484
5.486 5.543
5.585 5.622
5.647 5.714
3/98 5.53 5.58
5.549 5.563
5.676 5.683
5.458 5.48
5.556 5.582
5.56 5.587
5.633 5.66
5.624 5.656
5.646 5.706
5.67 5.683
5.644 5.635
5.549 5.552
6/98 5.593 5.575
5.446 5.427
5.508 5.461
5.489 5.448
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
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PERFORMANCE REVIEW
The general level of interest rates, after Asia's difficulties precipitated
a wholesale flight to quality, moved lower in earnest during 1997's second half,
settling recently to levels not seen since the early 1970's. Although most of
the rally in the bond market has centered on longer-term maturities, your Fund,
with its more defensive maturity and quality focus, met all of its performance
benchmarks, earning 3.1% for the six months and 7.7% for the twelve months ended
June 30, 1998. Coupon interest income generated the bulk of these returns;
modest share price appreciation provided the balance. Indicative of the
attractive risk/reward attributes of its maturity structure, the Fund's assets
have increased by 17% during the past year.
From its inception on May 13, 1991, the Fund has posted a cumulative total
return of 62.3%, translating into an average annual return of 7.3%. With
interest rates fairly flat across all maturities, the Fund's
short-intermediate-term maturity structure now captures the majority of the
market's current yield with only a nominal amount of its systematic risk.
Specific total return comparisons are listed below. These figures assume
the reinvestment of dividends and capital gains, but exclude the impact of any
sales charge. For additional information regarding the Fund's performance see
page 5.
Performance Comparisons*
For Periods Ending June 30, 1998 Six Months One Year Avg. Duration
------------------------------------------------------------------------------
Flag Investors Short-Intermediate
Income Fund - Class A Shares 3.1% 7.7% 3.0 yrs.
..............................................................................
Institutional Shares 3.3% 8.0% 3.0 yrs.
..............................................................................
Lehman Brothers Intermediate-Term Gov't./
Corp. Bond Index 3.5% 8.5% 3.3 yrs.
..............................................................................
Lipper Short Intermediate-Term Bond Fund
Peer Group 3.2% 7.4% 3-5 yrs.
..............................................................................
- --------
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of the Fund's 1.50% maximum sales charge.
If the sales charge were reflected, the quoted performance would be lower. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. The Lehman
Brothers Intermediate Government/Corporate Bond Index is an unmanaged index that
is widely recognized as an indicator of performance in the intermediate-term
government and corporate bond sector. The Lipper Short-Intermediate Investment
Grade Debt Funds Average is an index of approximately 85 managed funds that have
at least 65% of their assets in investment grade debt securities that are rated
in the top four grades and have dollar-weighted average maturities of one to
five years. Individuals cannot invest directly in any index. Past performance is
not an indicator of future results. Please review the Additional Performance
Information on page 5.
2
<PAGE>
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OUTLOOK
Our outlook for interest rates for the balance of the year and into 1999
hinges on many interrelated factors; foremost are the pace of economic growth
and consumption in the wake of Asia's unfolding financial turmoil, its influence
on inflation, and the Fed's policy response to these developments. Our economy
is not immune from the tumult in the Asian economies, but neither is it likely
to succumb to these developments. We expect our domestic economy to remain on
sound footing even though the pace of economic growth will decline and the rate
of inflation, which seems imbedded in long-term yields at 2.5%, likely to stay
low, if not move lower. Near-term, we are optimistic on the course of interest
rates and expect many of the factors that helped the bond market in 1997 to
persist. We are encouraged by the following positive observations: the U.S.
dollar remains strong; monetary policy is on hold due to high real rates;
improving budgetary/fiscal strength has reduced the Federal government's
dependency on bond issuance; and the growing demand for bonds is likely to
persist, given the ongoing flight to quality in the international arena and the
rebalancing of asset allocations away from a very fully priced stock market.
With its defensive maturity bias, this is an ideal market environment for your
Fund.
PORTFOLIO CONSIDERATIONS
We continue to keep the Fund's duration close to its prescribed 4-year
maximum. Earlier this year we increased significantly its corporate bond
allocation as the surge in corporate underwritings put price pressure on many
intermediate-term corporate bonds. While the general decline in rates brought on
a deluge of corporate financings, it raised fears that the mortgage backed
securities (MBS) would undergo another wave of refinancing as it did in 1993.
Anticipating this shift in sentiment, we have kept pre-payment sensitive MBS at
minimal levels for much of the past year, though we are willing to readdress its
viability should these fears prove unfounded. We also moved out of several
Treasury issues into newly minted U.S. Agency "benchmark" securities which
afford ample liquidity and, more importantly, a highter yield. These "fine
tuning" measures worked well as each of the Fund's different sectors contributed
proportionally to the year's results.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
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Portfolio Composition
December 31, 1997 June 30, 1998
Mortgage- Corporate Mortgage- Corporate
Backed 28% Backed 36%
13% 24%
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
Treasury Treasury
and Agency and Agency
33% Asset-Backed 20%
18% Cash Asset-Backed
Cash 8% 2% 18%
DIVIDEND POLICY
The Fund continues to distribute $0.05 per share monthly. Recognizing the
importance of improving shareholder wealth, we continue to emphasize strategies
which 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
Portfolio Manager Portfolio Manager
July 17, 1998
4
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 1.50% maximum sales charge for the Fund's Class A Shares.
Average Annual Total Return
Periods Ended 6/30/98 1 Year 5 Years Since Inception*
------------------------------------------------------------------------------
Class A Shares 6.08% 5.32% 6.80%
..............................................................................
Institutional Shares 7.96% -- 6.39%
..............................................................................
*Inception dates: Class A 5/13/91, Institutional 11/2/95.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
5
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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STATEMENT OF NET ASSETS JUNE 30, 1998
(UNAUDITED)
S&P Par
Security Rating* (000) Market Value
- --------------------------------------------------------------------------------
CORPORATE BONDS--35.8%
Atlantic City Electric
6.00%, 1/15/03 A- $2,000 $ 1,995,000
Baltimore Gas &Electric
6.75%, 6/5/12 A 1,000 1,081,250
Bear Stearns Company Incorporated
6.50%, 8/1/02 A 2,000 2,025,000
Block Financial Corporation
6.75%, 11/1/04 A 2,000 2,047,500
Computer Associates
6.375%, 4/15/05 A- 2,200 2,213,750
Countrywide Home Loan
7.26%, 5/10/04 A 2,900 3,052,250
Dana Corporation
6.50%, 3/15/08 A- 2,000 2,017,500
First Maryland Bancorp
7.20%, 7/1/07 A- 2,000 2,122,500
Ford Motor Credit
6.000%, 1/14/03 A 2,000 1,992,500
General Motors Acceptance Corporation
5.625%, 2/15/01 A- 1,000 995,000
International Lease Finance
6.43%, 9/15/00 A+ 2,000 2,022,500
New York Telephone
7.375%, 12/15/11 A+ 1,700 1,738,250
Pacific Gas & Electric
6.25%, 3/1/04 A 2,000 2,037,500
Philip Morris, Inc.
6.95%, 6/1/06 A 2,000 2,052,500
Sears Roebuck Acceptance Corporation
6.34%, 9/19/00 A- 2,190 2,203,688
Sony Corporation
6.125%, 3/4/03 A 2,000 2,012,500
-----------
Total Corporate Bonds
(Cost $31,247,773) 31,609,188
-----------
U.S. GOVERNMENT AGENCY SECURITIES--37.8%
FEDERAL HOME LOAN BANKS BOARD - 5.6%
Debentures
5.530%, 1/15/03 AAA 5,000 4,966,250
6
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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S&P Par
Security Rating* (000) Market Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES (concluded)
FEDERAL NATIONAL MORTGAGE ASSOC. - 8.5%
Debentures
6.25%, Due 8/12/03 AAA $3,500 $ 3,496,675
7.12%, Due 4/19/02 AAA 2,000 2,019,780
5.75%, Due 2/15/08 AAA 2,000 1,989,620
MORTGAGE-BACKED SECURITIES - 22.6%
Federal Home Loan Mortgage Corp.
Pool #G10049, 8.00%, 10/1/07 AAA 705 728,003
Pool #G10543, 6.00%, 6/1/11 AAA 2,482 2,460,033
Pool #C00210, 8.00%, 1/01/23 AAA 670 693,600
T-5 A3, 7.15%, 1/25/12 AAA 2,500 2,559,175
T-9 A2, 6.43%, 2/25/13 AAA 1,500 1,503,510
Federal Home Loan Mortgage Corp Gold
6.50%, 2/1/01 AAA 1,417 1,432,147
6.50%, 5/1/09 AAA 4,177 4,208,349
Federal National Mortgage Association
Pool #326570
7.00%, 2/1/08 AAA 2,674 2,725,097
Pool #362537
6.50%, 10/1/03 AAA 2,505 2,528,184
Pool #409589
9.50%, 11/1/15 AAA 1,068 1,140,141
GUARANTEED EXPORT TRUST - 1.1%
8.187%, 12/15/04 AAA 839 895,529
-----------
Total U.S. Government Agency Securities
(Cost $31,886,236) 33,346,093
-----------
U.S. TREASURY SECURITIES--3.4%
U.S. Treasury Notes
5.875%, 2/15/00 AAA 1,000 1,005,660
5.750%, 8/15/03 AAA 2,000 2,021,880
-----------
Total U.S. Treasury Securities
(Cost $2,894,693) 3,027,540
-----------
7
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) JUNE 30, 1998
(UNAUDITED)
S&P Par
Security Rating* (000) Market Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--17.8%
Aesop Funding II Limited Liability Company
6.22%, 10/20/01 AAA $2,500 $ 2,512,500
CPS Auto Trust
6.09%, 11/15/03 AAA 1,485 1,487,218
California Infrastructure PG&E
6.160%, 6/25/03 AAA 2,000 2,013,440
Discover Card Master
5.75%, 10/16/03 AAA 3,500 3,487,190
Green Tree Financial Corporation
8.25%, 1/15/20 NR** 3,000 3,199,350
Metris Master Trust
6.87%, 10/20/05 AAA 3,000 3,083,790
-----------
Total Asset-Backed Securities
(Cost $15,612,237) 15,783,488
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.4%
FEDERAL NATIONAL MORTGAGE ASSOC. - .1%
FNMA Series 1988-18B
9.40%, 7/25/03 AAA 103 107,900
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.3%
FHLMC Series 106-F
8.50%, 12/15/20 AAA 1,133 1,147,310
-----------
Total Collateralized Mortgage Obligations
(Cost $1,265,942) 1,255,210
-----------
REPURCHASE AGREEMENT--2.3%
Goldman Sachs & Co., 5.40%
Dated 6/30/98, to be repurchased on
7/1/98, collateralized by U.S. Treasury
Bonds with a market value of $2,106,444.
(Cost $2,036,000) NR 2,036 2,036,000
-----------
TOTAL INVESTMENT IN SECURITIES--98.5%
(Cost $86,102,254)*** 87,057,519
OTHER ASSETS IN EXCESS OF LIABILITIES, NET--1.5% 1,320,209
-----------
NET ASSETS--100.0% $88,377,728
===========
See Notes to Financial Statements.
8
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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- --------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER:
Class A Share
($49,988,390 / 4,779,027 shares outstanding) $10.46
======
Institutional Share
($38,389,338 / 3,628,503 shares outstanding) $10.58
======
MAXIMUM OFFERING PRICE PER:
Class A Share ($10.46 / 0.985) $10.62
======
Institutional Share $10.58
======
- ---------
* The Standard & Poor's rating indicated is believed to be the most recent
rating available as of June 30, 1998. The U.S. Government Agency Securities
and U.S. Treasury Securities are assumed to have AAA ratings because they
are backed by the full faith and credit of the U.S. government. These
ratings have not been audited by Deloitte & Touche L.L.P.
** Although this holding is not rated by S&P, it is rated Aaa by Moody's and
AAA by Fitch.
*** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Investment Income:
Interest $2,794,754
Expenses:
Investment advisory fee 154,343
Distribution fee 60,658
Accounting fee 31,206
Transfer agent fee 18,545
Registration fees 15,680
Printing and postage 12,735
Custodian fee 8,371
Directors' fees 2,118
Legal fees 52,490
Miscellaneous 20,027
----------
Total expenses 376,173
Less: Fees waived (117,070)
----------
Net expenses 259,103
----------
Net investment income 2,535,651
----------
Realized and unrealized gain on investments:
Net realized gain from security transactions 324,906
Change in unrealized appreciation/depreciation of investments (104,029)
----------
Net gain on investments 220,877
----------
Net increase in net assets resulting from operations $2,756,528
==========
- --------
(1) Unaudited.
See Notes to Financial Statements.
10
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For the
Period Ended For the Year
June 30, Ended Dec. 31,
- --------------------------------------------------------------------------------
1998(1) 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 2,535,651 $ 4,590,636
Net gain from security transactions 324,906 95,306
Change in unrealized appreciation/
depreciation of investments (104,029) 680,823
------------ ------------
Net increase in net assets resulting
from operations 2,756,528 5,366,765
------------ ------------
Dividends to Shareholders from:
Net investment income:
Class A Shares (1,180,257) (3,165,854)
Institutional Shares (1,011,516) (1,359,289)
------------ ------------
Total distributions (2,191,773) (4,525,143)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 30,125,584 23,594,729
Value of shares issued in reinvestment of
dividends 1,253,344 2,514,042
Cost of shares repurchased (21,191,453) (25,416,223)
------------ ------------
Increase in net assets derived from
capital share transactions 10,187,475 692,548
------------ ------------
Total increase in net assets 10,752,230 1,534,170
Net Assets:
Beginning of period 77,625,498 76,091,328
------------ ------------
End of period, including undistributed
net investment income (distributions
in excess of net investment income) of
$287,353 and ($56,525) respectively) $ 88,377,728 $ 77,625,498
============ ============
- --------
(1) Unaudited.
See Notes to Financial Statements.
11
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Six Months Ended
June 30
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 10.39
-------
Income from Investment Operations:
Net investment income 0.30
Net realized and unrealized gain/(loss) on investments 0.02
-------
Total from Investment Operations 0.32
Less Distributions:
Distributions from net investment income
and short-term gains (0.25)
Return of capital --
Distributions from net realized long-term gains --
-------
Total distributions (0.25)
-------
Net asset value at end of period $ 10.46
=======
Total Return(3) 3.12%
Ratios to Average Daily Net Assets:
Expenses 0.70%(2,4)
Net investment income 5.64%(2,5)
Supplemental Data:
Net assets at end of period (000) $49,989
Portfolio turnover rate 33%
- --------
(1) Unaudited
(2) Annualized
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.97%, 0.96%, 0.99%, 0.93%, 0.84%,
and 0.85% for the period ended June 30, 1998 and for the years ended
December 31, 1997, 1996, 1995, 1994, and 1993, respectively.
(5) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 5.91%, 5.66%, 5.83%,
5.77%, 5.43%, and 5.28% for the period ended June 30, 1998 and for the years
ended December 31, 1997, 1996, 1995, 1994, and 1993, respectively.
12
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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<TABLE>
<CAPTION>
For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.28 $ 10.48 $ 9.62 $ 10.57 $ 10.37
Income from Investment Operations:
Net investment income 0.61 0.63 0.62 0.57 0.57
Net realized and unrealized gain/(loss) on investments 0.10 (0.23) 0.84 (0.92) 0.34
------- ------- ------- ------- -------
Total from Investment Operations 0.71 0.40 1.46 (0.35) 0.91
Less Distributions:
Distributions from net investment income
and short-term gains (0.60) (0.60) (0.60) (0.57) (0.69)
Return of capital -- -- -- (0.03) --
Distributions from net realized long-term gains -- -- -- -- (0.02)
------- ------- ------- ------- -------
Total distributions (0.60) (0.60) (0.60) (0.60) (0.71)
------- ------- ------- ------- -------
Net asset value at end of period $ 10.39 $ 10.28 $ 10.48 $ 9.62 $ 10.57
======= ======= ======= ======= =======
Total Return(3) 7.13% 4.04% 15.43% (3.32)% 8.98%
Ratios to Average Daily Net Assets:
Expenses 0.70%(4) 0.70%(4) 0.70%(4) 0.70%(4) 0.70%(4)
Net investment income 5.92%(5) 6.11%(5) 6.00%(5) 5.57%(5) 5.43%(5)
Supplemental Data:
Net assets at end of period (000) $45,569 $58,584 $67,116 $78,789 $112,520
Portfolio turnover rate 65% 42% 46% 50% 86%
</TABLE>
See Notes to Financial Statements.
13
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Six Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 10.50
-------
Income from Investment Operations:
Net investment income 0.31
Net realized and unrealized gain/(loss) on investments 0.03
-------
Total from Investment Operations 0.34
Less Distributions:
Distributions from net investment income
and short-term gains (0.26)
-------
Net asset value at end of period $ 10.58
=======
Total Return(3) 3.28%
Ratios to Average Daily Net Assets:
Expenses 0.45%(2,4)
Net investment income 5.86%(2,5)
Supplemental Data:
Net assets at end of period (000) $38,389
Portfolio turnover rate 33%
- ---------
(1) Unaudited
(2) Annualized
(3) Total return excluded the effect of sales charge.
(4) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.72%, 0.72%, 0.76%, and 0.72%
(annualized) for the period ended June 30, 1998 and for the years ended
December 31, 1997 and 1996 and for the period ended December 31, 1995,
respectively.
(5) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 6.12%, 5.90%, 6.04%, and
6.27% (annualized) for the period ended June 30, 1998 and for the years
ended December 31, 1997 and 1996 and for the period ended December 31, 1995,
respectively.
(6) Commencement of operations
14
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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<TABLE>
<CAPTION>
For the Period
For the Years November 2, 19956
Ended December 31, through December 31,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.38 $ 10.58 $10.42
------- ------- ------
Income from Investment Operations:
Net investment income 0.61 0.59 0.09
Net realized and unrealized gain/(loss) on investments 0.13 (0.17) 0.12
------- ------- ------
Total from Investment Operations 0.74 0.42 0.21
Less Distributions:
Distributions from net investment income
and short-term gains (0.62) (0.62) (0.05)
------- ------- ------
Net asset value at end of period $ 10.50 $ 10.38 $10.58
======= ======= ======
Total Return(3) 7.40% 4.20% 12.47%
Ratios to Average Daily Net Assets:
Expenses 0.45%(4) 0.45%(4) 0.45%(2,4)
Net investment income 6.17%(5) 6.35%(5) 6.52%(2,5)
Supplemental Data:
Net assets at end of period (000) $32,056 $17,507 $2,186
Portfolio turnover rate 65% 42% 46%
</TABLE>
See Notes to Financial Statements.
15
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies
Flag Investors Short-Intermediate Income Fund, Inc. (the "Fund"), formerly
Flag Investors Intermediate-Term Income Fund, Inc., was organized as a Maryland
Corporation on April 16, 1990 and commenced operations May 13, 1991. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
investment management company. It is designed to provide a high level of current
income consistent with preservation of principal within an intermediate-term
maturity structure.
The Fund consists of two share classes: Class A Shares, which commenced May
13, 1991, and Institutional Shares, which commenced November 2, 1995.
The Class A Shares have a 1.50% maximum front-end sales charge and a 0.25%
distribution fee. The Institutional Shares have neither a front-end sales charge
nor a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. SECURITY VALUATION--The Fund values debt securities based on quotations
provided by a pricing service, which uses transactions on bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities to determine
value. The Fund values portfolio securities that are primarily traded on
a national exchange by using the last sale price reported for the day.
When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors
establishes and monitors. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost.
B. REPURCHASE AGREEMENTS--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
16
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
collateral in a separate account until the repurchase agreement matures.
The agreement ensures that the collateral's market value, including any
accrued interest, is sufficient if the broker defaults. The Fund's
access to the collateral may be delayed or limited if the broker
defaults and the value of the collateral declines or if the broker
enters into an insolvency proceeding.
C. FEDERAL INCOME TAXES--The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
income taxes.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER--The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed. Interest
income is recorded on an accrual basis and includes the pro rata
scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated to
each class based on its respective average net assets. Class specific
expenses are charged directly to each class. Dividends from net
investment income are declared and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. Distributions in
excess of net investment income are due to different tax treatments of
dividends declared.
17
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investment Advisory Fee, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. As compensation for its
advisory services, the Fund pays ICC an annual fee. This fee is based on the
Fund's average daily net assets and is calculated daily and paid monthly at the
following annual rates: 0.35% of the first $1 billion, 0.30% of the next $500
million and 0.25% of the amount over $1.5 billion. Accrued advisory fees
amounted to $26,472, net of waived expenses of $19,227 at June 30, 1998.
ICC has agreed to reduce its aggregate fees so that ordinary Fund expenses
for any fiscal year do not exceed 0.70% of the Class A Shares' average daily net
assets and 0.45% of the Institutional Shares' average daily net assets. For the
six month period ended June 30, 1998, ICC waived fees of $117,070.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. At June 30, 1998 accrued accounting fees owed by the Fund amounted to
$5,249.
Effective September 22, 1997 Bankers Trust Corporation became the Fund's
custodian. The Fund owed $2,906 in custody services at June 30, 1998.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. At June 30, 1998, transfer
agent fees owed by the Fund amounted to $4,300.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors"), which is not related to ICC, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the Class A Shares' average daily net assets. At June 30,
1998 accrued distribution fees owed by the Fund amounted to $10,129.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period ended
June 30, 1998 was approximately $2,659, and the accrued liability was
approximately $5,939.
18
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 60 million shares of $.001 par value
capital stock (45 million Class A, 2 million Class B, 5 million Institutional, 5
million Alex. Brown Capital Advisory &Trust and 3 million undesignated).
Transactions in shares of the Fund are listed below.
Class A Shares
-------------------------------
For the For the
Period Ended Year Ended
June 30, 1998(1) Dec. 31, 1997
---------------- -------------
Shares sold 1,486,126 643,871
Shares issued to shareholders on
reinvestment of dividends 84,988 188,623
Shares redeemed (1,178,717) (2,147,036)
------------ ------------
Net decrease in shares outstanding 392,397 (1,314,542)
============ ============
Proceeds from sale of shares $ 15,514,107 $ 6,656,537
Value of reinvested dividends 884,170 1,939,315
Cost of shares redeemed (12,299,592) (22,186,651)
------------ ------------
Net decrease from capital share transactions $ 4,098,685 $(13,590,799)
============ ============
Institutional Shares
-------------------------------
For the For the
Period Ended Year Ended
June 30, 1998(1) Dec. 31, 1997
---------------- -------------
Shares sold 1,383,151 1,621,803
Shares issued to shareholders on
reinvestment of dividends 35,098 55,315
Shares redeemed (842,306) (310,716)
------------ ------------
Net increase in shares outstanding 575,943 1,366,402
============ ============
Proceeds from sale of shares $ 14,611,476 $ 16,938,192
Value of reinvested dividends 369,175 574,727
Cost of shares redeemed (8,891,861) (3,229,572)
------------ ------------
Net increase from capital share transactions $ 6,088,790 $ 14,283,347
============ ============
- --------
(1) Unaudited.
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FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $40,676,100 and sales of investment securities aggregated $26,743,749
for the six month period ended June 30, 1998.
On June 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $1,033,860,
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $78,596. Payable for investments purchased
amounted to $4,089,500 at June 30, 1998.
NOTE 5--Net Assets
On June 30, 1998, net assets consisted of:
Paid-in Capital:
Flag Investors Class A Shares $52,411,816
Flag Investors Institutional Shares 37,807,908
Undistributed net investment income 287,355
Accumulated net realized loss from security transactions (3,084,615)
Unrealized appreciation of investments 955,264
-----------
$88,377,728
===========
NOTE 6--Federal Income Tax Information
Generally accepted accounting principles require that we reclassify certain
components of net assets to reflect permanent differences between financial
reporting and tax purposes. This reclassification has no effect on net assets or
net asset values per share.
At June 30, 1998, there was a tax capital loss carryforward of $3,406,552,
of which $260,038 expires in 2002 and $3,111,390 expires in 2003. This
carryforward will be used to offset future net capital gains, if any.
20
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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DIRECTORS AND OFFICERS
RICHARD T. HALE
CHAIRMAN
JAMES J. CUNNANE CARL W. VOGT, ESQ.
DIRECTOR DIRECTOR
JOHN F. KROEGER HARRY WOOLF
DIRECTOR PRESIDENT
LOUIS E. LEVY JOSEPH A. FINELLI
DIRECTOR TREASURER
EUGENE J. MCDONALD AMY M. OLMERT
DIRECTOR SECRETARY
REBECCA W. RIMEL SCOTT J. LIOTTA
DIRECTOR ASSISTANT SECRETARY
TRUMAN T. SEMANS
DIRECTOR
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.
- -------------------------------------------------------------------------------
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.
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<PAGE>
[FLAG INVESTORS LOGO]
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
SPECIALTY
Flag Investors Real Estate Securities Fund
Flag Investors Communications 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
CURRENT INCOME
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
S-A419/443
