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As Filed With the Securities and Exchange Commission on February 26, 1999
Registration No. 33-34275
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 13 [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
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
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Edward J. Veilleux
One South Street
Baltimore, MD 21202
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(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
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)
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on May 1, 1999 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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X on May 1, 1999 pursuant to paragraph (a) of Rule 485
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<PAGE>
FLAG INVESTORS
SHORT-INTERMEDIATE INCOME FUND INC.
(Class A Shares)
Prospectus & Application -- May 1, 1999
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This mutual fund (the "Fund") seeks a high level of current income consistent
with preservation of principal within an intermediate-term maturity structure.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") of the Fund.
TABLE OF CONTENTS
Investment Summary.............................................................2
Fees and Expenses of the Fund..................................................4
Investment Program.............................................................5
The Fund's Net Asset Value.....................................................6
How to Buy Shares..............................................................7
How to Redeem Shares...........................................................8
Telephone Transactions.........................................................9
Sales Charges.................................................................10
Dividends and Taxes...........................................................14
Investment Advisor and Sub-Advisor............................................14
Financial Highlights..........................................................16
Application..................................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT SUMMARY
Objective and Strategies
The Fund seeks a high level of current income consistent with
preservation of principal within an intermediate-term maturity structure. The
Fund's investment advisor and sub-advisor select U.S. Government securities,
corporate debt and mortgage-backed and asset-backed securities for the Fund's
portfolio subject to quality, maturity and duration criteria. Corporate debt
will be rated at least "A" by either Moody's Investors Services, Inc. or
Standard & Poors Ratings Group. Mortgage and asset-backed securities will be
rated at least "AAA" by S&P or "Aaa" by Moody's. Under normal circumstances, the
Fund's portfolio will have a dollar-weighted average maturity at the time of
investment of three to five years and a maximum duration of four years.
Risk Profile
The Fund is suited for you if you are seeking a high level of current
income but are willing to sacrifice some of that income to reduce your risk of
capital loss.
The value of your investment in the Fund will vary from day to day
based on changes in the prices of the securities the Fund holds. These prices
will, in turn, change in response to economic and market factors and especially
in response to changes in interest rates. In general, a change in interest rates
will cause an inverse change in the value of the Fund's securities. Unexpected
prepayment of principal by mortgage backed securities in the Fund's portfolio
may negatively impact the assumptions which guided the advisor when it selected
the Fund's investments.
An investment in the Fund could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
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Class A Shares*
For the years ended December 31,
1992 5.68%
1993 8.98%
1994 -3.32%
1995 15.43%
1996 4.04%
1997 7.13%
1998 6.81%
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period from December 31, 1998 through March
31, 1999, the year-to-date return for Class A shares was __%.
During the 7-year period shown in the bar chart, the highest return for a
quarter was 4.98% (quarter ended 6/30/95) and the lowest return for a quarter
was -2.55% (quarter ended 3/31/94).
Average Annual Total Return (for periods ended December 31, 1998)
Lehman Brothers
Intermediate
Government/
Corporate Bond
Class A Shares(1) Index(2)
------------------- ---------------
Past One Year ..................... 5.20% 8.44%
Past Five Years.................... 5.54% 6.60%
Since Inception.................... 6.83% (5/13/91) 7.77%(3)
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) 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 index is a
passive measure of bond performance. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(3) For the period from 5/31/91 through 12/31/98.
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold Class A Shares.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)................................................................ 1.50%*
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, whichever is lower).............................. 0.50%*
Maximum Sales Charge (Load) Imposed on Reinvested Dividends....................... None
Redemption Fee ................................................................... None
Exchange Fee...................................................................... None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees................................................................... 0.35%
Distribution and/or Service (12b-1) Fees.......................................... 0.25%
Other Expenses ................................................................... 0.33%
------
Total Annual Fund Operating Expenses.............................................. 0.93%
Less Fee Waivers and Expense Reimbursements....................................... (0.23)%**
-------
Net Expenses...................................................................... 0.70%
=====
</TABLE>
* You will pay no sales charge on purchases of $1 million or more of
Class A Shares but, unless you are otherwise eligible for a sales
charge waiver or reduction, you may pay a contingent deferred sales
charge when you redeem your shares. (See "Sales Charges -- Redemption
Price.")
** The Advisor has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's Total Annual Fund
Operating Expenses do not exceed 0.70% of the Class A Shares' average
daily net assets. This agreement will continue until at least April
30, 2000 and may be extended.
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class A Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares................................... $518* $712* $922* $1,532*
</TABLE>
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* Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year 1 only.
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Assuming no redemption, expenses for Class A Shares would be the same
as in the above Example.
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold your shares
for a long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD
Rules").
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks a high level of current income consistent with
preservation of principal within an intermediate-term maturity structure by
investing primarily in U.S. Government securities, corporate debt and
mortgage-backed and asset-backed securities.
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors") are responsible
for managing the Fund's investments. In selecting investments for the Fund, the
Advisors first focus on a security's quality. They will purchase only securities
that have been granted certain minimum credit ratings by an independent rating
agency. Corporate debt will be rated at least "A" by either S&P or Moody's.
Mortgage and asset-backed securities will be rated at least "AAA" by S&P or
"Aaa" by Moody's. [Then the Advisors focus on maturity and duration.] Under
normal circumstances, the Fund's portfolio will have an average maturity of
three to five years and a maximum duration of four years. Some of the securities
selected by the Advisors will be mortgage-backed and asset-backed securities. A
mortgage-backed security represents an interest in a pool of underlying mortgage
loans. An asset-backed security represents an interest in an underlying pool of
assets, such as auto loans or credit card receivables.
An investment in the Fund entails risk. The primary risk of the Fund is
interest rate risk. The value of the Fund's shares can be expected to increase
during periods of falling interest rates and decrease during periods of rising
interest rates. Prices of securities with longer maturities generally increase
or decrease more sharply in response to interest rate changes than those of
shorter term securities. A portfolio with a lower average duration generally
will experience less price volatility in responses to changes in interest rates
as compared with a portfolio with a higher duration. Lower quality securities
also react more sharply to changes in interest rates. Mortgage-backed securities
are subject to special risks. They are sensitive to changes in interest rates,
but may respond to these changes differently from other fixed income securities
due to the possibility of prepayment of the underlying loans. Because of
5
<PAGE>
prepayments, it may not be possible to determine in advance the actual maturity
of a mortgage-backed security. Rising interest rates tend to discourage
refinancings, with the result that the average life and volatility of the
security will increase and its market price will decrease. When interest rates
fall, however, mortgage-backed securities may not gain as much in market value
because of additional prepayments that must be reinvested at lower interest
rates. Prepayment risk may make it difficult to calculate the average maturity
of a portfolio of these securities and, therefore, the ability to assess the
volatility risk of the portfolio. There can be no guarantee that the Fund will
achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments. These investments may not be consistent
with the Fund's objectives. While engaged in a temporary defensive strategy, the
Fund may not achieve its investment objective. The Advisors would follow such a
strategy only if they believed that the risk of loss outweighed the opportunity
for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and has received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Fund. The Fund and its shareholders
may experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem Class A
Shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the liabilities attributable to Class A Shares from its
proportionate share of the Fund's assets and dividing the result by the
outstanding Class A Shares.
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In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Class A Shares.
HOW TO BUY SHARES
You may buy Class A Shares through your securities dealer or through
any financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy shares by sending your check (along with a completed Application Form)
directly to the Fund. The Application Form, which includes instructions, is
attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may
be as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. If you participate in the
monthly plan, your subsequent investments may be as low as $100. If
you participate in the quarterly plan, your subsequent investments
may be as low as $250. Refer to the section on the Fund's Automatic
Investing Plan for details.
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o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Class A Shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in Class A Shares
at that day's offering price. Either you or the Fund may discontinue your
participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Class A Shares at
net asset value. You may elect to receive your distributions in cash or to have
your distributions invested in shares of other Flag Investors funds. To make
either of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase Class A Shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem Class A Shares through your securities dealer or
servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
8
<PAGE>
1) A letter of instructions specifying your account number and the number of
Class A Shares or dollar amount you wish to redeem. The letter must be signed
by all owners of the shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company, broker,
dealer, securities exchange or association, clearing agency, savings
association or (if authorized by state law) credit union.
3) Any stock certificates representing the Class A Shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on Class A Shares you redeem will be paid on the
next dividend payable date. If you have redeemed all of your Class A Shares by
that time, the dividend will be paid to you by check whether or not that is the
payment option you have selected.
If you redeem sufficient Class A Shares to reduce your investment to
$500 or less, the Fund has the power to redeem the remaining Class A Shares
after giving you 60 days' notice. The Fund reserves the right to redeem Class A
Shares in kind under certain circumstances.
If you own Class A Shares having a value of at least $10,000, you may
arrange to have some of your Class A Shares redeemed monthly or quarterly under
the Fund's Systematic Withdrawal Plan. Each redemption under this plan involves
all the tax and sales charge implications normally associated with Fund
redemptions. Contact your securities dealer, your servicing agent or the
Transfer Agent for information on this plan.
TELEPHONE TRANSACTIONS
If your Class A Shares are in an account with the Transfer Agent, you
may redeem them in any amount up to $50,000 or exchange them for Class A shares
in another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
9
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The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it reasonably believes to be genuine. Your
telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your Class A Shares in
certificate form, you may not exchange or redeem them by telephone.
SALES CHARGES
Purchase Price
The price you pay to buy Class A Shares will be the Fund's offering
price which is calculated by adding any applicable sales charges to the Class A
Shares' net asset value per share. The amount of any sales charge included in
your purchase price will be according to the following schedule:
Class A
Sales Charge
as % of
-----------------------------------
Offering Net Amount
Amount of Purchase Price Invested
- --------------------------------------------------------------------------------
Less than $100,000 ..................... 1.50% 1.52%
$ 100,000 - $499,999 ..................... 1.25% 1.27%
$ 500,000 - $999,999...................... 1.00% 1.01%
$1,000,000 and over ..................... None None
- --------------------------------------------------------------------------------
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares, you may pay a sales charge when you redeem
your Class A Shares. Refer to the section on redemption price for details. Your
securities dealer may be paid a commission at the time of your purchase.
The sales charges you pay on your current purchase of Class A Shares
may be reduced under the circumstances listed below.
10
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Rights of Accumulation. If you are purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for reduced sales charges. (For this purpose your existing investments
will be valued at the higher of cost or current value.) You may also combine
your purchases and investments with those of your spouse and your children under
the age of 21 for this purpose. You must be able to provide sufficient
information to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of
Class A Shares over the next 13 months, you may combine the value of your
current purchase with the value of your anticipated purchases to determine
whether you qualify for a reduced sales charge. You will be required to sign a
letter of intent specifying the total value of your anticipated purchases and to
initially purchase at least 5% of the total. When you make each purchase during
the period, you will pay the sales charge applicable to their combined value.
If, at the end of the 13-month period, the total value of your purchases is less
than the amount you indicated, you will be required to pay the difference
between the sales charges you paid and the sales charges applicable to the
amount you actually did purchase. Some of the Class A Shares you own will be
redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without
paying a sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.
2) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of the
conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Advisors or a
broker-dealer authorized to sell Class A Shares.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must be paying an account management fee for the fiduciary or
advisory services. You may be charged an additional fee by your
securities dealer or servicing agent if you buy shares in this manner.
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<PAGE>
Purchases by Exchange
You may exchange Class A shares of any other Flag Investors fund with a
higher sales charge structure for an equal dollar amount of Class A Shares
without payment of the sales charges described above or any other charge. If you
own Flag Investors Cash Reserve Prime Class A Shares, you may exchange into
Class A Shares upon payment of the difference in sales charges. You may enter
both your redemption and purchase orders on the same Business Day or, if you
have already redeemed the shares of the other fund, you may enter your purchase
order within 90 days of the redemption. The Fund may modify or terminate these
offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
Years Since Purchase (As % of Cost or Value)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
First ................................................ 0.50%*
Second ............................................... 0.50%*
Thereafter ........................................... None
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1 million or
more.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to Class A Shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased Class A Shares at various times, the sales charge will
be applied first to the Class A Shares you have owned for the longest period
of time.
3) If you acquired your Class A Shares through an exchange of Class A shares of
another Flag Investors fund, the period of time you held the original Class A
shares will be combined with the period of time you held the Class A Shares
being redeemed to determine the years since purchase.
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<PAGE>
4) The sales charge is applied to the lesser of the cost of the Class A Shares
or their value at the time of your redemption.
Waiver of Sales Charge. You may redeem Class A Shares without paying a
sales charge under any of the following circumstances:
1) If you are exchanging your Class A Shares for Class A shares of another Flag
Investors fund with a higher sales charge structure and have held your Class
A Shares for at least 24 months.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your Class A Share balance.
4) If Class A Shares are being redeemed in your account following your death or
a determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minor Acts.
(ii) Either or your representative notifies your securities dealer, servicing
agent or the Transfer Agent that such circumstances exist.
5) If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to
pay your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder services. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Because
this fee is paid out of net assets on an ongoing basis, it will, over time,
increase the cost of your investment and may cost you more than paying other
types of sales charges.
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DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of monthly dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions. If you redeem Class A Shares, you will be subject to tax on any
gains. The character of such gain will generally be based on your holding period
for the shares. An exchange of Class A Shares for Class A shares of another fund
is a sale of Fund shares for tax purposes. More information about taxes is in
the Statement of Additional Information.
Because each investor's tax circumstances are unique and because tax
laws are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Brown Investment Advisory & Trust Company (formerly, Alex
Brown Capital Advisory & Trust Company)("Brown Trust" or the "Sub-Advisor") is
the Fund's sub-advisor. ICC is also the investment advisor to other mutual funds
in the Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund, Inc.
These funds, together with the Fund, had approximately $___ billion of net
assets as of March 31, 1999. Brown Trust is a Maryland trust company with
approximately $____ billion under management as of March 31, 1999.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Brown Trust. Brown Trust is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for the negotiation of commission rates.
As compensation for its services for the fiscal year ended December 31,
1998, ICC received from the Fund a fee equal to 0.12% (net of fee waivers) of
the Fund's average daily net assets. ICC compensates Brown Trust out of its
advisory fee. ICC has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's total annual operating
expenses do not exceed 0.70% of average daily net assets. This agreement will
continue until at least April 30, 2000 and may be extended.
14
<PAGE>
The Advisor is a wholly owned subsidiary of Bankers Trust Corporation
("Bankers Trust"). Bankers Trust has entered into an Agreement and Plan of
Merger with Deutsche Bank AG ("Deutsche Bank"), dated as of November 30, 1998,
under which Bankers Trust would merge with and into a subsidiary of Deutsche
Bank. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals, as well as the approval of the Fund's Board of Directors
and the Fund's shareholders. If the transaction is approved and completed,
Deutsche Bank, as the Advisor's new parent company, will control the operations
of the Advisor. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.
Portfolio Managers
Messrs. M. Elliott Randolph, Jr., and Paul D. Corbin have shared
primary responsibility for managing the Fund's assets since its inception in
1991.
Mr. Randolph has nearly 25 years of investment experience. He is a
Principal at Brown Trust where he has served as the Fund's portfolio manager
since October, 1998. Prior to that he served as the Fund's portfolio manager
while employed at BT Alex. Brown Incorporated. From 1988-1991 he was a Principal
with Monument Capital Management, Inc.
Mr. Corbin has 21 years of investment experience. He is a Principal at
Brown Trust where he has served as the Fund's portfolio manager since October,
1998. Prior to that he served as the Fund's portfolio manager while employed at
BT Alex. Brown Incorporated. From 1984-1991 he served as the Senior Vice
President in charge of Fixed Income Portfolio Management at First National Bank
of Maryland.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements for the Class A Shares, is included in the
Statement of Additional Information, which is available upon request.
(For a Class A Share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year........ $10.39 $10.28 $10.45 $ 9.62 $10.57
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income....................... 0.58 0.61 0.63 0.62 0.57
Net realized and unrealized gain/(loss) on
investments.............................. 0.11 0.10 0.23 0.84 (0.92)
------ ------ ------ ------ ------
Total from Investment Operations............ 0.69 0.71 0.40 1.46 (0.35)
------ ------ ------ ------ ------
Less Distributions:
Distributions from net investment income and
short-term gains............................ (0.60) (0.60) (0.60) (0.60) (0.57)
Return of capital........................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions......................... (0.60) (0.60) (0.60) (0.60) (0.60)
------ ------ ------ ------ ------
Net asset value at end of year ............. $10.48 $10.39 $10.28 $10.48 $ 9.62
====== ====== ====== ====== ======
Total Return(1)................................ 6.81% 7.13% 4.04% 15.43% (3.32)%
Ratios to Average Daily Net Assets:
Expenses(2)................................. 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income(3).................... 5.57% 5.92% 6.11% 6.00% 5.57%
Supplemental Data:
Net assets at end of year (000)............. $47,107 $45,569 $58,584 $67,116 $78,789
Portfolio turnover rate..................... 40% 65% 42% 46% 50%
</TABLE>
- ---------------------------
(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 0.93%, 0.96%, 0.99%, 0.93% and 0.84% for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 5.34%, 5.66%, 5.83%, 5.77% and
5.43% for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
16
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Make check payable to "Flag Investors For assistance in completing this Application please call: 1-800-553-8080,
Short-Intermediate Income Fund, Inc." Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
and mail with this Application to:
Flag Investors Funds To open an IRA account, please call 1-800-767-3524 for an IRA information kit.
P.O. Box 419663
Kansas City, MO 64141-6663
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.
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 Minor's Date of Birth (Mo./Day/Yr.)
under the_______________________ Uniform Gifts to Minors Act
(State of Residence)
Corporations, Trusts, Partnerships, etc. Mailing Address
_________________________________________________________ _______________________________________________________________________
Name of Corporation, Trust or Partnership Street
_________________________________________________________ _______________________________________________________________________
Tax ID Number Date of Trust City State Zip
_________________________________________________________ (____________)_________________________________________________________
Name of Trustees (if to be included in the Registration) Daytime Phone
_________________________________________________________
For the Benefit of
Letter of Intent (Optional)
/ / I intend to invest at least the amount indicated below in Class A Shares of Flag Investors Short-Intermediate Income Fund, Inc.
I understand that if I satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the
applicable level of reduced sales charges on my purchases.
/ /$100,000 / /$500,000 / /$1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your immediate family already own that qualify you for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
Distribution Options
Please check appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional shares of
the same class of the Fund 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.
</TABLE>
A-1
<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 (if joint acct., both must sign) Date
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 (complete as applicable) $______________________________________, 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 redemption privileges / / Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a predesignated
bank account, please provide the following information:
Bank:_____________________________________________ Bank Account No.:________________________________________
Address:__________________________________________ Bank Account Name:_______________________________________
__________________________________________
Signature and Taxpayer Certification
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains distributions and
redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to provide the information and/or
certifications required below. This backup withholding is not an additional tax, and any amounts withheld may be credited against
your 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 because (a) I am exempt from backup withholding, or (b) I have not been notified by
the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest
or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
/ / If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to the IRS or
the Social Security Administration for a Tax ID Number or a Social Security Number, and I understand that if I do not
provide either number to the Transfer Agent within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a penalty and a 31% backup withholding on distributions
and redemption proceeds. (Please provide either number on IRS Form W- 9. You may request such form by calling the Transfer
Agent at 800-553-8080.)
/ / Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax purposes:____________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as defined by
the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required
to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
_____________________________________________________ ___________________________________________________________
Signature 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.: _______________________________
</TABLE>
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
BROWN INVESTMENT ADVISORY & TRUST ICC DISTRIBUTORS, INC.
COMPANY Two Portland Square
Furness House Portland, Maine 04101
19 South Street
Baltimore, Maryland 21202
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-553-8080 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report, a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800)767-FLAG, or your securities dealer or servicing
agent.
Investment Company Act File No. 811-6084
- --------------------------------------------------------------------------------
SHORTPRS
<PAGE>
FLAG INVESTORS
SHORT-INTERMEDIATE INCOME FUND, INC.
(Institutional Shares)
Prospectus & Application -- May 1, 1999
This mutual fund (the "Fund") seeks a high level of current income consistent
with preservation of principal within an intermediate-term maturity structure.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy
Institutional Shares through the Fund's Transfer Agent. This Prospectus
describes Flag Investors Institutional Shares (the "Institutional Shares") of
the Fund. Institutional Shares may be purchased only by eligible institutions,
certain qualified retirement plans or by investment advisory affiliates of BT
Alex. Brown Incorporated on behalf of their clients.
TABLE OF CONTENTS
Investment Summary...................................................... 2
Fees and Expenses of Institutional Shares............................... 4
Investment Program...................................................... 5
The Fund's Net Asset Value.............................................. 6
How to Buy Institutional Shares......................................... 6
How to Redeem Institutional Shares...................................... 8
Telephone Transactions.................................................. 8
Dividends and Taxes..................................................... 9
Investment Advisor and Sub-Advisor...................................... 9
Financial Highlights.................................................... 11
Application............................................................. A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor
disapproved these securities nor has it passed upon the adequacy of
this Prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks a high level of current income consistent with
preservation of principal within an intermediate-term maturity structure. The
Fund's investment advisor and sub-advisor select U.S. Government securities,
corporate debt and mortgage-backed and asset-backed securities for the Fund's
portfolio subject to quality, maturity and duration criteria. Corporate debt
will be rated at least "A" by either Moody's Investors Services, Inc. or
Standard & Poors Ratings Group. Mortgage and asset-backed securities will be
rated at least "AAA" by S&P or "Aaa" by Moody's. Under normal circumstances, the
Fund's portfolio will have a dollar-weighted average maturity of three to five
years and a maximum duration of four years.
Risk Profile
The Fund is suited for you if you are seeking a high level of current
income but are willing to sacrifice some of that income to reduce your risk of
capital loss.
The value of your investment in the Fund will vary from day to day
based on changes in the prices of the securities the Fund holds. These prices
will, in turn, change in response to economic and market factors and especially
in response to changes in interest rates. In general, a change in interest rates
will cause an inverse change in the value of the Fund's securities. Unexpected
prepayment of principal by mortgage backed securities in the Fund's portfolio
may negatively impact the assumptions which guided the advisor when it selected
the Fund's investments.
An investment in the Fund could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
2
<PAGE>
Institutional Shares*
For years ended December 31,
1996 1997 1998
4.20% 7.40% 7.07%
* For the period from December 31, 1998 through March 31, 1999, the
year-to-date total return for the Institutional Shares was ___%.
During the 3-year period shown in the bar chart, the highest return for
a quarter was 3.69% (quarter ended 9/30/98) and the lowest return for a quarter
was -0.82% (quarter ended 3/31/96).
Average Annual Total Return (for periods ended December 31, 1998)
Lehman Brothers
Intermediate
Government/Corporate
Institutional Shares(1) Bond Index(2)
------------------------ --------------------
Past One Year .................. 7.07% 8.44%
Since Inception ................ 6.56% (11/2/95) 7.19%(3)
- -----------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) 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. This index is a
passive measure of bond performance. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(3) For the period from 10/31/95 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF INSTITUTIONAL SHARES
This table describes the fees and expenses that you may pay if you buy
and hold Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases.................................................. None
Maximum Deferred Sales Charge (Load).............................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends....................................... None
Redemption Fee.................................................................................... None
Exchange Fee...................................................................................... None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees................................................................................... 0.35%
Distribution and/or Service (12b-1) Fees.......................................................... None
Other Expenses.................................................................................... 0.33%
----
Total Annual Fund Operating Expenses.............................................................. 0.68%
----
Less Fee Waivers and Expense Reimbursements ...................................................... (0.23)%*
Net Expenses ..................................................................................... 0.45%
====
</TABLE>
- -----------
* The Advisor has contractually agreed to limit its fees and reimburse expenses
to the extent necessary so that the Funds's Total Annual Fund Operating
Expenses do not exceed 0.45% of the Institutional Shares' average daily net
assets. This agreement will continue until at least April 30, 2000 and may be
extended.
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Institutional Shares for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares................................ $46* $194* $357* $841*
</TABLE>
- ---------
* Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year 1 only.
4
<PAGE>
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks a high level of current income consistent with
preservation of principal within an intermediate-term maturity structure by
investing primarily in U.S. Government securities, corporate debt and
mortgage-backed and asset-backed securities.
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors") are responsible
for managing the Fund's investments. In selecting investments for the Fund, the
Advisors first focus on a security's quality. They will purchase only securities
that have been granted certain minimum credit ratings by an independent rating
agency. Corporate debt will be rated at least "A" by either S&P or Moody's.
Mortgage and asset-backed securities will be rated at least "AAA" by S&P or
"Aaa" by Moody's. Then the Advisors focus on maturity and duration. Under normal
circumstances, the Fund's portfolio will have an average maturity of three to
five years and a maximum duration of four years. Some of the securities selected
by the Advisors will be mortgage-backed and asset-backed securities. A
mortgage-backed security represents an interest in a pool of underlying mortgage
loans. An asset-backed security represents an interest in an underlying pool of
assets, such as auto loans or credit card receivables.
An investment in the Fund entails risk. The primary risk of the Fund is
interest rate risk. The value of the Fund's shares can be expected to increase
during periods of falling interest rates and decrease during periods of rising
interest rates. Prices of securities with longer maturities generally increase
or decrease more sharply in response to interest rate changes than those of
shorter term securities. A portfolio with a lower average duration generally
will experience less price volatility in responses to changes in interest rates
as compared with a portfolio with a higher duration. Lower quality securities
also react more sharply to changes in interest rates. Mortgage-backed securities
are subject to special risks. They are sensitive to changes in interest rates,
but may respond to these changes differently from other fixed income securities
due to the possibility of prepayment of the underlying loans. Because of
prepayments, it may not be possible to determine in advance the actual maturity
of a mortgage-backed security. Rising interest rates tend to discourage
refinancings, with the result that the average maturity and volatility of the
security will increase and its market price will decrease. When interest rates
fall, however, mortgage-backed securities may not gain as much in market value
because of additional prepayments that must be reinvested at lower interest
rates. Prepayment risk may make it difficult to calculate the average maturity
of a portfolio of these securities and, therefore, the ability to assess the
volatility risk of that portfolio. There can be no guarantee that the Fund will
achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments. These investments may not be consistent
with the Fund's objectives. While engaged in a temporary defensive strategy, the
Fund may not achieve its investment
5
<PAGE>
objective. The Advisors would follow such a strategy only if they believed that
the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and has received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Fund. The Fund and its shareholders
may experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. The net asset value per share
of the Fund is determined at the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern Time) on each day the Exchange is open
for business. It is calculated by subtracting the liabilities attributable to
the Institutional Shares from their proportionate share of the Fund's assets and
dividing the result by the outstanding Institutional Shares.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem Institutional Shares on any day the New York
Stock Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that day,
the price you pay or receive will be based on the next Business Day's net asset
value per share.
The following sections describe how to buy and redeem Institutional
Shares.
HOW TO BUY INSTITUTIONAL SHARES
You may buy Institutional Shares if you are any of the following:
6
<PAGE>
o An eligible institution (e.g., a financial institution, corporation,
investment counselor, trust, estate or educational, religious or
charitable institution or a qualified retirement plan other than a
defined contribution plan).
o A defined contribution plan with assets of at least $75 million.
o An investment advisory affiliate of BT Alex. Brown purchasing shares
for the accounts of your investment advisory clients.
You may buy Institutional Shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy Institutional Shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $500,000.
The following are exceptions to this minimum:
o There is no minimum initial investment for investment advisory
affiliates of BT Alex. Brown purchasing shares for the accounts of
their investment advisory clients.
o There is no minimum initial investment for defined contribution
plans with assets of at least $75 million.
o The minimum initial investment for all other qualified retirement
plans is $1 million.
There are no minimums for subsequent investments.
Purchases by Exchange
You may exchange Institutional shares of any other Flag Investors fund
for an equal dollar amount of Institutional Shares. The Fund may modify or
terminate this offer of exchange upon 60 days' notice.
7
<PAGE>
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
HOW TO REDEEM INSTITUTIONAL SHARES
You may redeem any Institutional Shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If your shares are in an account with
the Fund, you may also redeem them by contacting the Transfer Agent by mail or
(if you are redeeming less than $500,000) by telephone. You will be paid for
redeemed shares by wire transfer of funds to your securities dealer, servicing
agent or bank upon receipt of a duly authorized redemption request as promptly
as feasible and, under most circumstances, within three Business Days.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be remitted by wire to your securities dealer, servicing agent or
bank.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $500,000 or exchange them for Institutional
shares of another Flag Investors fund by calling the Transfer Agent on any
Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You
are automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it reasonably believes to be genuine. Your
telephone transaction request will be recorded.
8
<PAGE>
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of monthly dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information about taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique, and because the tax laws
are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company) ("Brown Trust" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $___
billion of net assets as of March 31, 1999. Brown Trust is a Maryland trust
company with approximately $___ billion under management as of March 31, 1999.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Brown Trust. Brown Trust is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
9
<PAGE>
As compensation for its services for the fiscal year ended December 31,
1998, ICC received from the Fund a fee equal to 0.12% (net of fee waivers) of
the Fund's average daily net assets. ICC compensates Brown Trust out of its
advisory fee. ICC has contractually agreed to waive its fees and reimburse
expenses to the extent necessary so that the Fund's total annual operating
expenses do not exceed 0.45% of average daily net assets. This agreement will
continue until at least April 30, 2000 and may be extended.
The Advisor is a wholly owned subsidiary of Bankers Trust Corporation
("Bankers Trust"). Bankers Trust has entered into an Agreement and Plan of
Merger with Deutsche Bank AG ("Deutsche Bank"), dated as of November 30, 1998,
under which Bankers Trust would merge with and into a subsidiary of Deutsche
Bank. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals, as well as the approval of the Fund's Board of Directors
and the Fund's shareholders. If the transaction is approved and completed,
Deutsche Bank, as the Advisor's new parent company, will control the operations
of the Advisor. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.
Portfolio Managers
Messrs. M. Elliott Randolph, Jr., and Paul D. Corbin have shared
primary responsibility for managing the Fund's assets since its inception in
1991.
Mr. Randolph has nearly 25 years of investment experience. He is a
Principal at Brown Trust where he has served as the Fund's portfolio manager
since October, 1998. Prior to that he served as the Fund's portfolio manager
while employed at BT Alex. Brown Incorporated. From 1988-1991 he was a Principal
with Monument Capital Management, Inc.
Mr. Corbin has 21 years of investment experience. He is a Principal at
Brown Trust where he has served as the Fund's portfolio manager since October,
1998. Prior to that he served as the Fund's portfolio manager while employed at
BT Alex. Brown Incorporated. From 1984-1991 he served as the Senior Vice
President in charge of Fixed Income Portfolio Management at First National Bank
of Maryland.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since it began operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, is included in the Statement of Additional
Information, which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Year November 2, 1995(1)
Ended through
December 31, December 31,
---------------------------------------------------------
1998 1997 1996 1995
- ----------------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period....................... $10.50 $10.38 $10.58 $10.42
------ ------ ----- -----
Income from Investment Operations:
Net investment income........................................ 0.61 0.61 0.59 0.09
Net realized and unrealized gain/(loss) on investments....... 0.11 0.13 (0.17) 0.12
------ ------ ------ ------
Total from Investment Operations............................. 0.72 0.74 0.42 0.21
Less Distributions:
Distributions from net investment income and short-term
gains ...................................................... (0.62) (0.62) (0.62) (0.05)
------ ------ ------ ------
Net asset value at end of period ............................ $10.60 $10.50 $10.38 $10.58
====== ====== ====== ======
Total Return(2).................................................. 7.07% 7.40% 4.20% 12.47%
Ratios to Average Daily Net Assets:
Expenses(3).................................................. 0.45% 0.45% 0.45% 0.45%(5)
Net investment income(4)..................................... 5.81% 6.17% 6.35% 6.52%(5)
Supplemental Data:
Net assets at end of period (000)............................ $45,112 $32,056 $17,507 $2,186
Portfolio turnover rate...................................... 40% 65% 42% 46%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Total return excluded the effect of sales charge.
(3) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.67%, 0.72%, 0.76% and 0.72% (annualized) for
the years ended December 31, 1998, 1997 and 1996 and for the period ended
December 31, 1995, respectively.
(4) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 5.58%, 5.90%, 6.04% and 6.27%
(annualized) for the years ended December 31, 1998, 1997 and 1996 and for
the period ended December 31, 1995, respectively.
(5) Annualized.
11
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Send completed Application by overnight carrier to: For assistance in completing this application please call: 1-800-553-8080,
Flag Investors Funds Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
330 West Ninth Street, First 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
-------------------------------------------------------------------
|_| Non-Profit or Charitable Organization |_|Other---------- City State Zip
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 Investgment
Indicate the amount to be invested and the method of payment:
__A. By Mail: Enclosed is a check in the amount of $ ___________________ able to Flag Investors Short-Intermediate Income Fund, Inc.
__B. By Wire: A bank wire in the amount of $____________________________ has been sent from _________________ ___________________
Wire Instructions Name of Bank Wire Control Number
Follow the instructions below to arrange for a wire transfer for initial
investment:
o Send completed Application by overnight carrier to 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 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 The amount to be invested
o "For further credit to _________________________________."
(Investor's Fund Account Number)
Distribution Options
Please check appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional
Institutional Shares of the Fund.
Income Dividends Capital Gains
|_| Reinvested in additional shares |_| Reinvested in additional shares
|_| Paid in cash |_| Paid in cash
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for amounts up to $500,000) and exchange privileges
(with respect to Institutional Shares of other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I do not want: |_|Telephone redemption privileges |_|Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank account designated below.
Bank Account Designation
(This Section Must Be Completed)
Please attach a blank, voided check to provide account and bank routing
information.
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Bank Branch
- ------------------------------------------------------------------------------------------------------------------------------------
Bank Address City/State/Zip
- ------------------------------------------------------------------------------------------------------------------------------------
Name(s) on Account
- ------------------------------------------------------------------------------------------------------------------------------------
Account Number A.B.A. Number
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Acknowledgment, Certificate and Signature
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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
your 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 because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup withholding.
|_| If no Tax ID Number has been provided above, I have applied, or intend to apply, to the IRS for a Tax ID Number, and I
understand that if I do not provide such number to the Transfer Agent within 60 days of the date of this Application or
if I fail to furnish my correct Tax ID Number, I may be subject to a penalty and a 31% backup withholding on distributions
and redemption proceeds. (Please provide your Tax ID Number on IRS Form W- 9.You may request such form by calling the
Transfer Agent at 800-553-8080.)
|_| Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax purposes: _________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as defined
by the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required
to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- ------------------------------------------------------------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers, trustees, general partners or other authorized agents of
the investor. Any * of the Authorized Person(s) is, by lawful and appropriate action of the investor, a person entitled to give
instructions regarding purchases and redemptions or make inquiries regarding the Account.
- ----------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- ----------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- ----------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- ----------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
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 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 the general
partners/trustees of the investor and that they have done the following under the authority of the investor's partnership
agreement/trust agreement: (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
</TABLE>
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
BROWN INVESTMENT ADVISORY & ICC DISTRIBUTORS, INC.
TRUST COMPANY Two Portland Square
Furness House Portland, Maine 04101
19 South Street
Baltimore, Maryland 21202
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-553-8080 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling
(800)767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report, a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767 - FLAG or your securities dealer or
servicing agent.
Investment Company Act File No. 811-6084
- --------------------------------------------------------------------------------
SHORTIPRS
<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 YOUR SECURITIES
DEALER OR SHAREHOLDER SERVICING AGENT OR BY WRITING
OR CALLING THE FUND, ONE SOUTH STREET, BALTIMORE,
MARYLAND 21202, OR BY CALLING (800) 767-FLAG.
Statement of Additional Information Dated: May 1, 1999
Relating to the Prospectuses Dated:
May 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. GENERAL INFORMATION AND HISTORY..................................1
2. INVESTMENT OBJECTIVES AND POLICIES...............................1
3. VALUATION OF SHARES AND REDEMPTION...............................7
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS.............8
5. MANAGEMENT OF THE FUND..........................................11
6. INVESTMENT ADVISORY AND OTHER SERVICES..........................16
7. DISTRIBUTION OF FUND SHARES.....................................17
8. BROKERAGE.......................................................20
9. CAPITAL STOCK...................................................22
10. SEMI-ANNUAL REPORTS.............................................23
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES...............23
12. INDEPENDENT AUDITORS............................................23
13. LEGAL MATTERS...................................................23
14. PERFORMANCE INFORMATION.........................................24
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............26
16. FINANCIAL STATEMENTS............................................27
APPENDIX ...............................................................A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Short-Intermediate Income Fund, Inc. (the "Fund") is an
open-end diversified management investment company. The Fund currently offers
two classes of shares: Flag Investors Short-Intermediate Income Fund Class A
Shares (the "Flag Investors Class A Shares") and Flag Investors
Short-Intermediate Income Fund Institutional Shares (the "Flag Investors
Institutional 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.
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.
Important information concerning the Fund is included in the Fund's
Prospectuses, which may be obtained without charge from the Fund's distributor
(the "Distributor"), or, from Participating Dealers that offer Shares to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. 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 began 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.
Under a license agreement dated May 10, 1991 between the Fund and Alex.
Brown & Sons Incorporated (predecessor to BT Alex. Brown Incorporated), Alex.
Brown & Sons Incorporated licenses to the Fund the "Flag Investors" name and
logo but retains the rights to the name and logo, including the right to permit
other investment companies to use them.
2. INVESTMENT OBJECTIVES AND POLICIES
The Fund is designed to provide a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure. 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:
-1-
<PAGE>
<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
CMO's...................................................... AAA Aaa4
Corporate Debt............................................. A or better(4) A or better(4)
Other Asset-Backed Securities.............................. AAA4 Aaa4
Securities of Non-U.S. Governmental Issuers................ AAA4 Aaa4
Securities of Designated International Organization........ AAA4 Aaa4
Non-Dollar U.S. Government Securities...................... AAA4 Aaa4
Securities of Foreign Corporations......................... AAA4 Aaa4
</TABLE>
- --------------------
1. In the event any security owned by the Fund is downgraded, the Fund's
investment 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.
To meet its short-term liquidity needs, the Fund may invest in
repurchase agreements 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.
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 due to the
possibility that prepayments on home mortgages will alter their cash flow.
During periods of declining interest rates, prepayments are passed through to
holders of mortgage-backed securities who may then have to reinvest at lower
interest rates. In periods of rising interest rates, prepayments tend to slow,
with the result that the average life of mortgage-backed securities may be
lengthened. Consequently, 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.
Purchases of 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
-2-
<PAGE>
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.
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
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 the 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
-3-
<PAGE>
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.
Interests in 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.
Collateralized Mortgage Obligations
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").
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 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. Through the use of trusts and
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<PAGE>
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 and sub-advisor (the "Advisors"). A repurchase
agreement is a short-term investment in which 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 Fund'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 is authorized to use forward foreign currency exchange
contracts to protect against uncertainty in the level of future foreign exchange
rates. 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 Advisors
believes the Fund should fix the U.S. dollar price of the foreign security when
the Fund enters into a contract for the purchase of sale, at a future date, of a
security denominated in a foreign currency. Second, if the Advisors believe the
Fund should hedge against risk of loss in the value of those portfolio
securities denominated in foreign currencies.
-5-
<PAGE>
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 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.
Rule 144A Securities
Subject to the Fund's overall investment limitations on investment 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.
Purchase of When-Issued Securities
The Fund may purchase securities at their current market value 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 choose to sell the securities before the settlement
date. The value of securities so purchased or sold is subject to market
fluctuation and no interest accrues to the purchaser during this period.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions that reflect self- imposed standards as well as federal regulatory
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. 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);
3. 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
-6-
<PAGE>
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;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts or futures
contracts;
6. 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;
7. Issue senior securities;
8. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies;
9. Effect short sales of securities;
10. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
11. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs; or
12. 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.
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 (or the days on which they are observed): New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business which is ordinarily 4:00 p.m. (Eastern Time). So long as a third party
receives an order prior to the Fund's close of business, the order is
-7-
<PAGE>
deemed to have been received by the Fund and, accordingly, may receive the NAV
computed at the close of business that day. These "late day" agreements are
intended to permit shareholders placing orders with third parties to place
orders up to the same time as other shareholders.
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 Shares by check or wire
transfer of funds. However, if the Board of Directors determines that it would
be in the best interests of the remaining shareholders, the Fund will make
payment of the redemption price in whole or in part by a distribution of
securities from the portfolio of the Fund in lieu of cash, in conformity with
applicable rules of the SEC. 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 Prospectuses. 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 Prospectuses is not intended as a substitute
for careful tax planning. For example, under certain specified circumstances,
state income tax laws may exempt from taxation distributions of a regulated
investment company to the extent that such distributions are derived from
interest on federal obligations. Investors are urged to consult with their tax
advisor regarding whether such exemption is available.
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
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, United States Government securities,
securities of other RICs, and other securities, with such other
-8-
<PAGE>
securities limited, in respect to any one issuer, to an amount not greater than
5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than United States Government
securities or securities of other RICs) of any one issuer or two or more issuers
that the Fund controls and which are engaged in the same, similar, or related
trades or business. For purposes of the 90% gross income requirement described
above, foreign currency gains that are not directly related to the Fund's
principal business of investing in stock or securities (or options or futures
with respect to stock or securities) may be excluded from income that qualifies
under the 90% requirement.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net short-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for distributions to
shareholders, and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of the Fund's current and accumulated
earnings and profits. In this event, such distributions generally will be
eligible for the dividends-received deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
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
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders that are individuals at a maximum rate of 20%,
regardless of the length of time the shareholder has held Shares. If any such
gains are retained, the Fund will pay federal income tax thereon, and, if the
Fund makes an election, the shareholders will include such undistributed gains
in their income, will increase their basis in Fund shares by the difference
between the amount of such includable gains and the tax deemed paid by such
shareholder and will be able to claim their share of the tax paid by the Fund as
a refundable credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, it is not expected that any Fund distribution will
qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year
of payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the
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<PAGE>
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those investors will be taxable on the
entire amount of the dividend or distribution received, even though the net
asset value per share on the date of such purchase may have reflected the amount
of such distribution.
The Fund will provide an annual statement to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale or Exchange of Fund Shares
The sale or exchange of a share is a taxable event for the shareholder.
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. 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 shareholder'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.
In certain cases, the Fund will be required to withhold and remit to the
United States Treasury 31% of distributions payable to any shareholder who (1)
has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to properly
report receipt of interest or dividends, or (3) has failed to certify to the
Fund that such shareholder is not subject to backup withholding.
Federal Excise Tax; Miscellaneous Considerations; Effect of Future Legislation
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain 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 that year (and any retained
amount from the prior calendar year), the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. The Fund
intends to make sufficient distributions to avoid imposition of this tax, or to
retain, at most, its net capital gains and pay tax thereon.
State and Local Tax Considerations
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.
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<PAGE>
5. MANAGEMENT OF THE FUND
Directors and Officers
The overall business and 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, sub-advisor, distributor, custodian and
transfer agent.
The Directors and executive officers of the Fund, their respective dates
of birth and their principal occupations during the last five years are set
forth below. Unless otherwise indicated, the address of each Director and
executive officer is One South Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor); and
Chartered Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/26)
Vice Chairman, Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company); and Director, Investment
Company Capital Corp. (registered investment advisor) and Virginia Hot
Springs, Inc. (property management); Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated (now BT Alex. Brown Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present and Director, Net.World
(telecommunications), 1998-present. Formerly, Senior Vice President and
Chief Financial Officer, General Dynamics Corporation (defense), 1989-
1993; and Director, The Arch Fund (registered investment company).
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, The Nevis Fund (registered
investment company) and Circon Corp. (medical instruments). Formerly,
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer of Alex. Brown & Sons Incorporated (now BT Alex.
Brown Incorporated) 1985-1987; General Partner, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated) 1976 -1985.
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, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; and Partner, KPMG Peat Marwick, retired 1990.
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<PAGE>
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); Executive Vice Chairman and Director, Central
Carolina Bank & Trust (banking) and Director, Victory Funds (registered
investment companies). Formerly, Director AMBAC Treasurers Trust
(registered investment company) and DP Mann Holdings (insurance;).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 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, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking) and American Science &
Engineering (x-ray detection equipment); Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak) and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, Olden Lane, Princeton, New Jersey 08540.
Professor-at-Large Emeritus, Institute for Advanced Study; Director, ATL
and Spacelabs Medical Corp. (medical equipment) and Family Health
International (non-profit research and education); Director, Research
America (non-profit medical research); Formerly, Trustee, Reed College
(education) and Rockefeller Foundation; Director, Merrill Lynch Cluster
C Funds (registered investment companies) and, Flag Investors/ISI/BT
Alex. Brown Cash Reserve Fund, Inc., Family of funds.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Investment Company
Capital Corp. (registered investment advisor), 1995-Present; Formerly,
Vice President and Treasurer, The Delaware Group of Funds (registered
investment companies) and Vice President, Delaware Management Company
Inc. (investments), 1980-1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP) 1988 -1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present;
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994- 1996; Supervisor, Brown
Brothers Harriman & Co. (domestic and global custody), 1991-1994.
* Messrs. Hale and Semans are Directors who are "interested persons," as
defined in the Investment Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or advised
by BT Alex. Brown Incorporated ("BT Alex. Brown") or its affiliates. There are
currently 12 funds in the Flag Investors/ISI Funds and BT Alex. Brown Cash
Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hale serves as
Chairman of three funds, and as a Director of seven funds in the Fund Complex.
Mr. Semans serves as Chairman of five
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funds and as a Director of five other funds in the Fund Complex. Messrs.
Cunnane, Hardiman, Levy, McDonald and Vogt serve as Directors of each fund in
the Fund Complex. Ms. Rimel serves as Director of 11 funds in the Fund Complex.
Mr. Woolf serves as President of seven funds in the Fund Complex. Ms. Olmert
serves as Secretary, Mr. Finelli serves as Treasurer and Mr. Liotta serves as
Assistant Secretary of each fund in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, BT Alex. Brown in the ordinary course of business.
All such transactions were made on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
With the exception of the Fund's President, officers of the Fund receive
no direct remuneration in such capacity from the Fund. Officers and Directors of
the Fund who are officers or directors of BT Alex. Brown or its affiliates may
be considered to have received remuneration indirectly. As compensation for his
or her services as Director, each Director who is not an "interested person" of
the Fund (as defined in the Investment Company Act) (an "Independent Director")
and Mr. Woolf receives an aggregate annual fee (plus reimbursement for
reasonable out-of-pocket expenses incurred in connection with his or her
attendance at Board and committee meetings) from each fund in the Fund Complex
for which he or she serves. In addition, the Chairmen of the Fund Complex's
Audit Committee and Executive Committee receive an 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, 1998, Independent Directors' fees attributable to
the assets of the Fund totaled approximately $2,441.
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, 1998.
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<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Total Compensation
From the Fund Payable to Benefits Accrued As From the Fund
Directors for the Fiscal Year Part of Fund Expenses and Fund Complex
Ended December 31, 1998 Payable to Directors
for the Fiscal Year
Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale, Chairman(1) $0 $0 $0
Truman T. Semans, Director(1) $0 $0 $0
James J. Cunnane, Director $446(2) 3 $39,000 for service on 13(4)
Boards in the Fund Complex
Joseph R. Hardiman, Director(5) $ 0 3 $19,500 for services on 11(6)
Boards in the Fund Complex
John F. Kroeger, Director(7) $560 3 $49,000 for service on 13(4)
Boards in the Fund Complex
Louis E. Levy, Director $503(2) 3 $44,000 for service on 13(4)
Boards in the Fund Complex
Eugene J. McDonald, Director $446(2) 3 $39,000 for service on 13(4)
Boards in the Fund Complex
Rebecca W. Rimel, Director $453(2) 3 $39,000 for service on 12(4,6)
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $456(2) 3 $39,000 for service on 13(4,6)
Boards in the Fund Complex
</TABLE>
- -----------
1 A Director who is an "interested person" as defined in the Investment
Company Act.
2 Of the amounts payable to Messrs. Cunnane, Levy, McDonald and Vogt and Ms.
Rimel, $446, $0, $446, $456, and $453 respectively, was deferred pursuant
to a deferred compensation plan.
3 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, 1998 was approximately $5,362.
4 One of these funds ceased operations on July 29, 1998.
5 Elected to Fund's board effective October 1, 1998.
6 Mr. Hardiman and Ms. Rimel receive and Mr. Vogt received proportionately
higher compensation from each fund for which they serve as a director.
7 Retired from the Fund's board on September 28, 1998.
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.
The Fund has two Participants, a Director who retired effective December 31,
1994 and Mr. Woolf, 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. Such fees are
-14-
<PAGE>
allocated to each fund in the Fund Complex based upon the relative net assets of
such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1998 was as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years; for Mr. Vogt, 3 years;
and for Mr. Hardiman, 0 years.
Years of Service Estimated Annual Benefits Payable By
- ---------------- Fund Complex Upon Retirement
------------------------------------
Chairmen of Audit and
Executive Committees Other Participants
---------------------- ------------------
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
Any Director who receives fees from the Fund is permitted to defer 50%
to 100% of his or her annual compensation pursuant to a Deferred Compensation
Plan. Messrs. Cunnane, Levy, McDonald and Vogt, and Ms. Rimel have each executed
a Deferred Compensation Agreement. Currently, the deferring Directors may select
from among various Flag Investors funds, BT Alex. Brown Cash Reserve Fund, Inc.
and BT International Equity Fund in which all or part of their deferral account
shall be deemed to be invested. Distributions from the deferring Directors'
deferral accounts will be paid in cash, in generally equal quarterly
installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisors and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisors' 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 any officer, director or employee of
the Fund or the Advisors preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases that are part
of an automatic dividend reinvestment plan). The foregoing would apply to any
officer, director or employee of the Distributor that is an access person. The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and 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 certain other employees within periods of trading by the Fund in
the same security. Trading by investment personnel and certain other employees
of the Advisor or Sub-Advisor, as appropriate, would be exempt from this
"blackout period" provided that (1) the market capitalization of a particular
security exceeds $2 billion; and (2) orders of such entity (including trades of
both clients
-15-
<PAGE>
and covered persons) do not exceed ten percent of the daily average trading
volume of the security for the prior 15 days. Officers, directors and employees
of the Advisors 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 June 17, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. ("ICC" or the "Advisor")
The Investment Advisory Agreement was approved by a vote of shareholders of the
Fund on August 14, 1997. On September 25, 1998, a Sub-Advisory Agreement among
the Fund, ICC and Brown Investment Advisory & Trust Company (formerly, Alex.
Brown Capital Advisory & Trust Company) ("Brown Trust") was approved by a vote
of shareholders of the Fund. ICC, the investment advisor, is an indirect
subsidiary of Bankers Trust Corporation. Brown Trust is a trust company
chartered under the laws of the State of Maryland. Brown Trust is a wholly-owned
subsidiary of Brown Capital Holdings Incorporated ("Brown Capital Holdings"), a
Maryland corporation whose principal executive officer is Michael D. Hankin.
Brown Capital Holdings is owned by management and employees of Brown Trust and
outside investors. ICC also serves as investment advisor and Brown Trust serves
as sub-advisor to other funds in the Flag Investors family of funds.
Under the Investment Advisory Agreement, ICC obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Fund. ICC has delegated this responsibility to Brown
Trust provided that ICC continues to supervise the performance of Brown Trust
and report thereon to the Fund's Board of Directors. Any investment program
undertaken by ICC or Brown Trust 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. Neither ICC nor Brown Trust shall be liable to the Fund or its
shareholders for any act or omission by ICC or Brown Trust 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. The
services of ICC and Brown Trust to the Fund are not exclusive and ICC and Brown
Trust are free to render similar services to others. Investment advisory fees
paid to ICC for the last three fiscal years are shown below:
Advisory Fees For the Fiscal Year Ended December 31,
1998 1997 1996
Contractual Fee $323,196 $268,092 $245,318
Less amount waived ($208,010) ($203,590) ($201,059)
Fee after waivers $115,186* $64,502* $44,259*
- ---------------
* Absent fee waivers for the fiscal years ended December 31, 1998, December
31, 1997 and December 31, 1996, the Fund's Total Operating Expenses would
have been 0.93%, 0.96% and 0.99%, respectively, of the Flag Investors Class
A Shares' average daily net assets.
For the period from October 1, 1998 through December 31, 1998, Brown
Trust received $24,083 ( net of fee waivers of $32,281) for sub-advisory
services.
-16-
<PAGE>
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
contractually agreed to reduce its annual fee, if necessary, or to reimburse
expenses of the Fund to the extent so that the Fund's annual expenses do not
exceed 0.70% of the Flag Investors Class A Shares' average daily net assets and
0.45% of the Flag Investors Institutional Shares' average daily net assets. This
agreement will continue until at least April 30, 2000 and may be extended. As
compensation for providing sub-advisory services, Brown Trust is entitled to
receive a fee from ICC, calculated daily and payable monthly, at the annual rate
of 0.23% of the first $1 billion of the Fund's average daily net assets, 0.20%
of the next $500 million of the Fund's average daily net assets, and 0.16% of
that portion of the Fund's average daily net assets in excess of $1.5 billion.
Brown Trust has voluntarily agreed to waive its fees in proportion to any fee
waivers by ICC.
Each of the Investment Advisory Agreement and the Sub-Advisory
Agreement has an initial term of two years and will continue in effect from year
to year thereafter if such continuance is specifically approved at least
annually by the Fund's Board of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in such
agreements, by votes cast in person at a meeting called for such purpose, and by
a vote of a majority of the outstanding Shares (as defined under "Capital
Stock"). 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). The Sub-Advisory Agreement has similar termination
provisions.
In addition to its services as investment advisor, ICC also provides
accounting services to the Fund and serves as the Fund's transfer and dividend
disbursing agent. An affiliate of ICC provides custody services. (See
"Custodian, Transfer Agent and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the distributor of each class of the Fund's Shares pursuant to a Distribution
Agreement (the "Distribution Agreement") effective August 31, 1997.
The Distribution Agreement provides that ICC Distributors shall; (i)
use reasonable efforts to sell Shares upon the terms and conditions contained in
the Distribution Agreement and the Fund's then current Prospectus; (ii) use its
best efforts to conform with the requirements of all federal and state laws
relating to the sale of the Shares; (iii) adopt and follow procedures as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. and any other applicable self-regulatory organization;
(iv) perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of its duties or obligations under the
Distribution Agreement or by reason of its reckless disregard of its duties and
obligations under the Distribution Agreement. The Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
-17-
<PAGE>
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of distribution is approved at least annually
by the Independent Directors in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement, including the form of
Sub-Distribution Agreement, was most recently approved by the Board of
Directors, including a majority of the Independent Directors, on September 29,
1998.
ICC Distributors 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. Any Sub-Distribution Agreement may be terminated in the
same manner as the Distribution Agreement at any time and shall automatically
terminate in the event of assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, including BT Alex. Brown and certain banks,
to act as Shareholder Servicing Agents, pursuant to which ICC Distributors will
allocate a portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. The Fund may also enter into
Shareholder Servicing Agreements pursuant to which the Advisor, the Distributor,
or their respective affiliates, will provide compensation out of their own
resources for ongoing shareholder services. Although banking laws and
regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations by various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the shareholder servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents.
As compensation for providing distribution services for the Flag
Investors Class A Shares as described above, ICC Distributors receives an annual
fee, paid monthly, equal to 0.25% of the average daily net assets of the Flag
Investors Class A Shares. ICC Distributors expects to allocate most of its
annual fee to Participating Dealers and Shareholder Servicing Agents. ICC
Distributors receives no compensation for distributing the Flag Investors
Institutional Shares.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received fees
in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Class 1998 1997 1996
<S> <C> <C> <C>
Class A 12b-1 Fee $124,577(1) $136,962(2) $151,753(3)
</TABLE>
- ------------
1 Received by ICC Distributors, the Fund's distributor.
-18-
<PAGE>
2 Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $93,060 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $43,902.
3 Fees received by Alex. Brown, the Fund's distributor.
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 "Plan"). Under the Plan, the
Fund pays a fee to ICC Distributors for distribution and other shareholder
servicing assistance as set forth in the Distribution Agreement, and ICC
Distributors is authorized to make payments out of its fee to Participating
Dealers and Shareholder Servicing Agents. The Plan was most recently approved by
the Fund's Board of Directors, including a majority of the Independent
Directors, on September 29, 1998. The Plan 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 Independent
Directors by votes cast in person at a meeting called for such purpose.
In approving the Plan, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plan would benefit the Fund and its shareholders. The Plan will be renewed only
if the Directors make a similar determination in each subsequent year. The Plan
may not be amended to increase materially the fee to be paid pursuant to the
Distribution Agreement without the approval of the shareholders of the Fund. The
Plan may be terminated at any time upon sixty days' notice, without penalty, by
the vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the outstanding Shares (as defined under "Capital Stock").
During the continuance of the 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 Plan to ICC Distributors pursuant to the
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 Plan, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
Under the Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
under the Plan with respect to shares held by or on behalf of customers of such
entities. Payments under the Plan are made as described above regardless of ICC
Distributors' actual cost of providing distribution services and may be used to
pay ICC Distributors' overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Flag Investors Class A
Shares is less than 0.25% of the Flag Investors Class A Shares' average daily
net assets for any period, the unexpended portion of the distribution fee may be
retained by ICC Distributors. The Plan does not provide for any charges to the
Fund for excess amounts expended by ICC Distributors and, if the Plan is
terminated in accordance with its terms, the obligation of the Fund to make
payments to ICC Distributors pursuant to the Plan will cease and the Fund will
not be required to make any payments past the date the Distribution Agreement
terminates with respect to the class of the Fund. In return for payments
received pursuant to the Plan for the last three years, the fund's distributor
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.
The Fund's distributor received commissions on the sale of Class A
Shares (of which only a portion was retained) in the following amounts:
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Class 1998 1997 1996
Received Retained Received Retained Received Retained
<S> <C> <C> <C> <C> <C> <C>
Class A $35,645(1) $0 $13,144(2) $6,190(3) $26,849(4) $24,060(4)
Commissions
</TABLE>
- -------------
1 By ICC Distributors, the Fund's distributor.
2 Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $6,926 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $6,188.
3 Retained by Alex. Brown.
4 By Alex. Brown, the Fund's distributor.
General Information
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the Independent
Directors, and of independent auditors, in connection with any matter relating
to the Fund; a portion of membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund 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 ICC Distributors 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, its affiliates and ICC Distributors.
-20-
<PAGE>
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with
affiliates of the Advisor in any transaction in which they act as a principal.
If affiliates of the Advisor are participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with rules of the SEC. The Fund believes that the limitation will
not affect its ability to carry out its present investment objective.
ICC's primary consideration in effecting securities transactions is to
obtain best price and execution of orders on an overall basis. As described
below, however, ICC may, in its discretion, effect brokerage transactions with
broker-dealers that furnish statistical, research or other information or
services 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 affiliates of
the Advisor higher commissions than other brokers might have charged on
brokerage transactions for the Fund for brokerage or research services. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board of Directors. For the fiscal
years ended December 31, 1998, December 31, 1997 and December 31, 1996, [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 affiliates of the Advisor. 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
to affiliates of the Advisor must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Directors and requires ICC to
furnish reports and to maintain records in connection with such reviews. For the
fiscal year ended December 31, 1998 and the period from September 1, 1997
through December 31, 1997, the Fund did not pay brokerage commissions to BT
Alex. Brown or its affiliates. For the period from January 1, 1997 through
August 31, 1997 and for the fiscal year ended December 31, 1996, the Fund did
not pay 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, 1998, the Fund held a 4.5% repurchase agreement
issued by Goldman Sachs & Co. valued at $1,482,845. Goldman Sachs & Co. is a
"regular broker or dealer" of the Fund.
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<PAGE>
ICC manages other investment accounts. It is possible that, at times,
identical securities will be acceptable for the Fund and one or more of such
other accounts; however, the position of each account in the securities of the
same issuer may vary and the length of time that each account may choose to hold
its investment in such securities may likewise vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security that it seeks to purchase or sell.
9. CAPITAL STOCK
The Fund is authorized to issue 85 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 Class C Shares and Flag
Investors Short-Intermediate Income Fund Institutional Shares. The Flag
Investors Class B Shares and the Flag Investors Class C 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 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. 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.
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<PAGE>
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust"), 130 Liberty Street, New York,
New York 10006, has been retained to act as custodian of the Fund's investments.
Bankers Trust receives such compensation from the Fund for its services as
custodian as may be agreed to from time to time by Bankers Trust and the Fund.
For the fiscal year ended December 31, 1998, Bankers Trust was paid $24,372 as
compensation for providing custody services to 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 $15.62 per account per year,
plus reimbursement for out-of-pocket expenses incurred in connection therewith.
For the fiscal year ended December 31, 1998, ICC received transfer agency fees
of $17,722.
As compensation for providing accounting services, ICC receives an
annual fee, calculated daily and paid monthly, as shown below.
Average Net Assets Incremental Annual Accounting Fee
$ 0 - $ 10,000,000 $15,000 (fixed fee)
$ 10,000,000 - $ 25,000,000 0.080%
$ 25,000,000 - $ 50,000,000 0.077%
$ 50,000,000 - $ 75,000,000 0.050%
$ 75,000,000 - $ 100,000,000 0.030%
$ 100,000,000 - $ 500,000,000 0.020%
$ 500,000,000 - $ 1,000,000,000 0.008%
over $1,000,000,000 0.003%
In addition, the Fund reimburses ICC for certain out-of-pocket expenses.
For the fiscal year ended December 31, 1998, ICC received accounting fees of
$63,952.
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP, independent auditors, whose report thereon appears elsewhere herein,
and have been included herein in reliance upon the report of such firm given on
their authority as experts in accounting and auditing. Deloitte & Touche LLP has
offices at University Square, 117 Campus Drive, Princeton, New Jersey 08540.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP acts as counsel to the Fund.
-23-
<PAGE>
14. 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:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-,
or 10-year periods (or fractional portion thereof)
of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement (or the later commencement of
operations of a Series or class). In calculating the ending redeemable value,
the maximum sales load 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.
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, 1998 were as follows:
-24-
<PAGE>
<TABLE>
<CAPTION>
One-Year Period Ended Five-Year Period Ended Inception Through
December 31, 1998 December 31, 1998 December 31, 1998
------------------- ------------------- ------------------
Ending Ending Average Ending Average
Class Redeemable Redeemable Annual Total Redeemable Annual Total
Value Total Return Value Return Value Return
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A $1,052 5.20% $1,309 5.54% $1,656 6.83%
May 13, 1991 +
Flag Investors Institutional $1,071 7.07% N/A N/A $1,222 6.56%
November 2, 1995 +
</TABLE>
+ Inception Date.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA/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. 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, 1998 was
5.00% and 5.33%, 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 result and then doubling the
difference. 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
-25-
<PAGE>
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 40% for the fiscal year ended December 31, 1998 and 65% for
the fiscal year ended December 31, 1997. 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.
15. 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 outstanding shares of a class of the Fund, as of
February 1, 1999:
-26-
<PAGE>
<TABLE>
<CAPTION>
Owned of Beneficially
Name and Address Record Owned Percentage Owned
---------------- ------ ----- ----------------
<S> <C> <C> <C>
Mercantile TR X 5.15% of Class A Shares
U/A 08/01/96
Keswick Pension Plan
FBO Keswick Home Pension Plan
P.O. Box 17002
Baltimore, MD 21297-0300
BT Alex. Brown Incorporated X 5.60% of Class A Shares
FBO 204-16943-12
P.O. Box 1346
Baltimore, MD 21203-1346
Chase Manhattan Bank TR X 6.74% of Institutional Shares
Well Aluminum Corp
Master Trust 29400333
770 Broadway
New York, NY 10003-9522
BT Alex. Brown Incorporated X 75.82% of Institutional Shares
FBO 250-10788-16
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>
*As of such date, BT 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 February 1, 1999.
16. FINANCIAL STATEMENTS
(See next page.)
-27-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statement of Net Assets December 31, 1998
S&P Par
Security Rating* (000) Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE NOTES--38.7%
Atlantic City Electric
6.00%, 1/15/03 ............................. A- $ 2,000 $ 2,040,000
Baltimore Gas & Electric
6.75%, 6/5/12 .............................. A 1,000 1,110,000
Bear Stearns Company Incorporated
6.50%, 8/1/02 .............................. A 2,000 2,040,000
Block Financial Corporation
6.75%, 11/1/04 ............................. A 2,000 2,057,500
Computer Associates International
6.375%, 4/15/05 ............................ A- 2,805 2,769,937
Countrywide Home Loan
7.26%, 5/10/04 ............................. A 2,900 3,034,125
Dana Corporation
6.50%, 3/15/08 ............................. A- 2,000 2,090,000
First Maryland Bancorp
7.20%, 7/1/07 .............................. A- 3,000 3,258,750
Ford Motor Credit
6.00%, 1/14/03 ............................. A 2,000 2,037,500
General Motors Acceptance Corporation
5.625%, 2/15/01 ............................ A- 1,000 1,003,750
International Lease Finance
6.43%, 9/15/00 ............................. A+ 2,000 2,037,500
New York Telephone
7.375%, 12/15/11 ........................... A+ 1,700 1,736,125
Pacific Gas & Electric
6.25%, 3/1/04 .............................. A 2,000 2,062,500
Philip Morris, Inc. ...........................
6.95%, 6/1/06 .............................. A 2,000 2,052,500
Sears Roebuck Acceptance Corporation
6.34%, 9/19/00 ............................. A- 2,290 2,324,350
Sony Corporation
6.125%, 3/4/03 ............................. A 2,000 2,047,500
Tyco International Corporation
5.875%, 11/1/04 ............................ A- 2,000 2,007,500
-----------
Total Corporate Notes
(Cost $34,980,231) .......................... 35,709,537
-----------
</TABLE>
-28-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
S&P Par
Security Rating* (000) Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES--37.0%
Federal Home Loan Banks Board - 2.2%
Debentures
FHLB Board
5.12%, 9/15/03 .............................. AAA $ 2,000 $2,003,560
FEDERAL NATIONAL MORTGAGE ASSOC. - 4.4%
Debentures
FNMA-Govt
7.12%, 4/19/02 .............................. AAA 2,000 2,011,820
5.75%, 2/15/08 .............................. AAA 2,000 2,074,500
FEDERAL HOME LOAN MORTGAGE CORP. - 2.2%
Debentures
FHLMC
5.12%, 10/15/08 ............................. AAA 2,000 1,982,400
MORTGAGE BACKED-SECURITIES - 27.3%
FHLMC Pool #C00210
8.00%, 1/1/23 ............................... AAA 555 574,480
FHLMC Pool #E20099
6.50%, 5/1/09 ............................... AAA 3,674 3,729,189
FHLMC Pool #G10049
8.00%, 10/1/07 .............................. AAA 579 596,820
FHLMC Pool #G10543
6.00%, 6/1/11 ............................... AAA 2,271 2,280,797
FHLMC Pool #G50334
6.50%, 2/1/01 ............................... AAA 1,070 1,080,838
FHLMC T-5 A3
7.15%, 1/25/12 .............................. AAA 2,500 2,546,250
FHLMC T-9 A2
6.43%, 2/25/13 .............................. AAA 3,000 3,002,250
FNMA Pool #326570
7.00%, 2/1/08 ............................... AAA 2,340 2,392,213
FNMA Pool #362537
6.50%, 10/1/03 .............................. AAA 2,079 2,106,256
FNMA Pool #433646
6.00%, 10/1/13 .............................. AAA 5,508 5,527,069
FNGL Pool #409589
9.50%, 11/1/15 .............................. AAA 1,287 1,374,594
</TABLE>
-29-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Statement of Net Assets (concluded) December 31, 1998
S&P Par
Security Rating* (000) Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GUARANTEED EXPORT TRUST - 0.9%
Guaranteed Export Trust , 94-F-A
8.18%, 12/15/04 .............................. AAA $ 764 $ 821,776
-----------
Total U.S. Government Agency Securities
(Cost $33,863,955) ............................ 34,104,812
-----------
U.S. TREASURY SECURITIES--2.3%
U.S. Treasury Notes
5.75%, 8/15/03 ............................... AAA 2,000 2,089,460
-----------
Total U.S. Treasury Securities
(Cost $1,913,253) ............................. 2,089,460
-----------
ASSET BACKED SECURITIES--20.9%
Aesop Funding II Limited Liability
Company, 1997-1-A1
6.22%, 10/20/01 .............................. AAA 3,000 3,049,680
CPS Auto Trust , 1998-2-A
6.09%, 11/15/03 .............................. AAA 2,753 2,766,196
Discover Card Master , Trust I, 1998-4-A
5.75%, 10/15/03 .............................. AAA 3,500 3,537,625
Green Tree Financial Corporation, 1994-6-A5
8.25%, 1/15/20 ............................... NR** 3,000 3,089,010
Metris Master Trust , 97-1-A
6.87%, 10/20/05 .............................. AAA 3,000 3,099,240
PG&E Rate Reduction Bonds, California
Infrastructure, 97-1-A4
6.16%, 6/25/03 ............................... AAA 3,700 3,761,050
-----------
Total Asset Backed Securities
(Cost $19,100,826) ............................ 19,302,801
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.6%
FEDERAL NATIONAL MORTGAGE ASSOC. - 0.1%
FNMA Series 1988-18B
9.40%, 7/25/03 ............................... AAA 84 86,649
</TABLE>
See Notes to Financial Statements
-30-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
S&P Par
Security Rating* (000) Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation - 0.5%
FHLMC Series 106-F
8.50%, 12/15/20 ................................ AAA $ 518 $ 519,760
------------
Total Collateralized Mortgage Obligations
(Cost $613,489) ................................. 606,409
------------
REPURCHASE AGREEMENT--1.6%
Goldman Sachs & Co., 4.50%
Dated 12/31/98, to be repurchased on
01/04/99, collateralized by U.S. Treasury
Bond with a par value of $1,447,000,
Coupon rate of 4.50%, due 1/11/01
with a market value of $1,482,845
(Cost $1,453,000) .............................. NR 1,453 1,453,000
------------
Total Investments--101.1%
(Cost $91,924,754) *** .......................... $ 93,266,019
------------
Other Liabilities in Excess of Other
Assets--(1.1%).................................. (1,047,540)
------------
Total Net Assets--100.0% .......................... $ 92,218,479
============
Net Asset Value and Redemption Price Per:
Class A Share
($47,106,899 divided 4,496,031 shares
outstanding).................................... $ 10.48
============
Institutional Share
($45,111,580 divided 4,254,449 shares
outstanding).................................... $ 10.60
============
Maximum Offering Price Per:
Class A Share ($10.48 divided 0.985)............ $ 10.64
============
Institutional Share ............................ $ 10.60
============
</TABLE>
- ---------
* The Standard & Poor's rating indicated is believed to be the most
recent rating available as of December 31, 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 LLP.
** 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.
-31-
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
December 31,
- --------------------------------------------------------------------------------
1998
<S> <C>
Investment Income:
Interest ...................................................... $ 5,779,577
-----------
Expenses:
Investment advisory fee ....................................... 323,196
Distribution fee .............................................. 124,577
Professional fees ............................................. 111,420
Accounting fee ................................................ 63,952
Registration fees ............................................. 43,180
Custodian fee ................................................. 24,372
Printing and postage .......................................... 24,178
Transfer agent fee ............................................ 17,722
Miscellaneous ................................................. 15,548
-----------
Total expenses ....................................... 748,145
Less: Fees waived ................................................ (208,010)
-----------
Net expenses ......................................... 540,135
-----------
Net investment income ............................................ 5,239,442
-----------
Realized and unrealized gain on investments:
Net realized gain from security transactions .................. 626,662
Change in unrealized appreciation/depreciation of investments.. 281,972
-----------
Net gain on investments .............................. 908,634
-----------
Net increase in net assets resulting from operations ............. $ 6,148,076
===========
</TABLE>
See Notes to Financial Statements.
-32-
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ........................ $ 5,239,442 $ 4,590,636
Net gain from security transactions .......... 626,662 95,306
Change in unrealized appreciation/
depreciation of investments ................ 281,972 680,823
------------ ------------
Net increase in net assets resulting
from operations ............................ 6,148,076 5,366,765
------------ ------------
Dividends to Shareholders from:
Net investment income:
Class A Shares ............................. (2,783,314) (3,165,854)
Institutional Shares ....................... (2,456,128) (1,359,289)
Distributions in excess of net investment income:
Class A Shares ............................. (84,080) --
Institutional Shares ....................... (74,196) --
------------ ------------
Total distributions .......................... (5,397,718) (4,525,143)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares ................. 46,758,290 23,594,729
Value of shares issued in reinvestment of
dividends .................................. 2,730,265 2,514,042
Cost of shares repurchased ................... (35,645,932) (25,416,223)
------------ ------------
Increase in net assets derived from
capital share transactions ................. 13,842,623 692,548
------------ ------------
Total increase in net assets ................. 14,592,981 1,534,170
Net Assets:
Beginning of year ............................ 77,625,498 76,091,328
------------ ------------
End of year .................................. $ 92,218,479 $ 77,625,498
============ ============
</TABLE>
See Notes to Financial Statements.
-33-
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Year Ended
December 31, For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ............... $ 10.39 $ 10.28 $ 10.48 $ 9.62 $ 10.57
------------- ------------- ------------- ------------- -------------
Income from Investment Operations:
Net investment income .............................. 0.58 0.61 0.63 0.62 0.57
Net realized and unrealized gain/(loss) on
investments........................................ 0.11 0.10 (0.23) 0.84 (0.92)
------------- ------------- ------------- ------------- -------------
Total from Investment Operations ................... 0.69 0.71 0.40 1.46 (0.35)
Less Distributions:
Distributions from net investment income ........... (0.58) (0.60) (0.60) (0.60) (0.57)
Distributions in excess of net investment income ... (0.02) -- -- -- --
Return of capital .................................. -- -- -- -- (0.03)
------------- ------------- ------------- ------------- -------------
Total distributions ................................ (0.60) (0.60) (0.60) (0.60) (0.60)
------------- ------------- ------------- ------------- -------------
Net asset value at end of year ..................... $ 10.48 $ 10.39 $ 10.28 $ 10.48 $ 9.62
============= ============= ============= ============= =============
Total Return(1) ....................................... 6.81% 7.13% 4.04% 15.43% (3.32)%
Ratios to Average Daily Net Assets:
Expenses(2) ........................................ 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income(3) ........................... 5.57% 5.92% 6.11% 6.00% 5.57%
Supplemental Data:
Net assets at end of year (000) .................... $ 47,107 $ 45,569 $ 58,584 $ 67,116 $ 78,789
Portfolio turnover rate ............................ 40% 65% 42% 46% 50%
</TABLE>
- ----------------
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 0.93%, 0.96%, 0.99%, 0.93%, and
0.84%, for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
3 Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 5.34%, 5.66%, 5.83%,
5.77%, and 5.43%, for the years ended December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
See Notes to Financial Statements.
34 and 35
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the For the Period
Year Ended For the Years November 2, 1995(1)
December 31, Ended December 31, through December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................ $ 10.50 $ 10.38 $ 10.58 $ 10.42
--------- --------- --------- ----------
Income from Investment Operations:
Net investment income ................................. 0.61 0.61 0.59 0.09
Net realized and unrealized gain/(loss) on investments. 0.11 0.13 (0.17) 0.12
--------- --------- --------- ----------
Total from Investment Operations ...................... 0.72 0.74 0.42 0.21
Less Distributions:
Distributions from net investment income .............. (0.61) (0.62) (0.62) (0.05)
Distributions in excess of net investment income ...... (0.01) -- -- --
--------- --------- --------- ----------
Total distributions ................................... (0.62) (0.62) (0.62) (0.05)
--------- --------- --------- ----------
Net asset value at end of period ...................... $ 10.60 $ 10.50 $ 10.38 $ 10.58
========= ========= ========= ==========
Total Return(2)........................................... 7.07% 7.40% 4.20% 12.47%
Ratios to Average Daily Net Assets:
Expenses(3)............................................ 0.45% 0.45% 0.45% 0.45%(5)
Net investment income(4)............................... 5.81% 6.17% 6.35% 6.52%(5)
Supplemental Data:
Net assets at end of period (000) ..................... $ 45,112 $ 32,056 $ 17,507 $ 2,186
Portfolio turnover rate ............................... 40% 65% 42% 46%
</TABLE>
- --------------
1 Commencement of operations
2 Total return excluded the effect of sales charge.
3 Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.67%, 0.72%, 0.76%, and 0.72%
(annualized) for the years ended December 31, 1998, 1997 and 1996 and for 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 5.58%, 5.90%, 6.04%, and
6.27% (annualized) for the years ended December 31, 1998, 1997 and 1996, and
for the period ended December 31, 1995, respectively.
5 Annualized
See Notes to Financial Statements.
36 and 37
<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"), 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 in accordance 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. At December 31, 1998 there are no Board
valued securities. 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
collateral in a separate account until the repurchase agreement
-38-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
matures. The agreement requires that the collateral's market value,
including any accrued interest, exceeds the broker's repurchase
obligation. 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 occur when taxable income exceeds
income under generally accepted accounting principles.
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
-39-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--CONTINUED
million and 0.25% of the amount over $1.5 billion. For the year ended December
31, 1998, ICC's advisory fees amounted to $323,196, of which $8,697 was payable
at the end of the period.
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
year ended December 31, 1998, ICC waived fees of $208,010.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly from the Fund's
average daily net assets. For the year ended December 31, 1998 ICC's fees were
$63,952, of which $5,504 was payable at the end of the period.
ICC also provides transfer agent services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the year
ended December 31, 1998 ICC's fees were $17,722, of which $3,450 was payable at
the end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee, pursuant to rule 12b-1, 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. Prior to September 1, 1997, Alex. Brown & Sons, Incorporated
served as the Fund's distributor for the same compensation and on substantially
the same terms as ICC Distributors.
Effective September 22, 1997 Bankers Trust Corporation became the Fund's
custodian. For the year ended December 31, 1998 Bankers Trust fees were $24,372
of which $3,272 was payable at the end of the period.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
December 31, 1998 was approximately $5,362, and the accrued liability was
approximately $12,254.
-40-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
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
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------ -------------
Shares sold .................................... 1,491,889 643,871
Shares issued to shareholders on
reinvestment of dividends ................... 203,462 188,623
Shares redeemed ................................ (1,585,950) (2,147,036)
------------ ------------
Net increase/(decrease) in shares outstanding .. 109,401 (1,314,542)
============ ============
Proceeds from sale of shares ................... $ 15,616,738 $ 6,656,537
Value of reinvested dividends .................. 2,128,706 1,939,315
Cost of shares redeemed ........................ (16,609,172) (22,186,651)
------------ ------------
Net increase/(decrease) from capital share
transactions ................................ $ 1,136,272 $(13,590,799)
============ ============
Institutional Shares
----------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------ -------------
Shares sold .................................... 2,941,098 1,621,803
Shares issued to shareholders on
reinvestment of dividends ................... 56,983 55,315
Shares redeemed ................................ (1,796,192) (310,716)
------------ ------------
Net increase in shares outstanding ............. 1,201,889 1,366,402
============ ============
Proceeds from sale of shares ................... $ 31,141,552 $ 16,938,192
Value of reinvested dividends .................. 601,559 574,727
Cost of shares redeemed ........................ (19,036,760) (3,229,572)
------------ ------------
Net increase from capital share transactions ... $ 12,706,351 $ 14,283,347
============ ============
-41-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4--INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities
aggregated $64,786,573 and sales of investment securities aggregated $34,192,004
for the year ended December 31, 1998.
At December 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $1,484,580,
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $143,315.
NOTE 5--NET ASSETS
At December 31, 1998, net assets consisted of:
Paid-in Capital:
Flag Investors Class A Shares ............................ $ 49,449,406
Flag Investors Institutional Shares ...................... 44,425,466
Distributions in excess of net investment income ............. (214,183)
Accumulated net realized loss from security transactions ..... (2,783,475)
Net unrealized appreciation of investments ................... 1,341,265
------------
$ 92,218,479
============
NOTE 6--FEDERAL INCOME TAX INFORMATION
At December 31, 1998, there was a tax capital loss carryforward of
$2,757,728, of which $2,722,604 expires in 2003 and $35,124 expires in 2004.
This carryforward will be used to offset future net capital gains, if any.
-42-
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998, and the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the 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 financial
highlights are free from 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, 1998, by correspondence with the custodian and broker. 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. at December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for the
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 2, 1999
-43-
<PAGE>
APPENDIX
Corporate Bond Rating Definitions
- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group
AAA - Highest rating assigned by Standard & Poor's to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from AAA
issues only to a small degree.
A - Strong capacity to pay interest and repay principal although they are
somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Aaa - Judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt-edged." Interest payments
are protected by a large or 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. They are 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 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 "extremely strong" safety characteristics. Those rated A-1
reflect a " 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 23. Exhibits.
(a)(1) Articles of Incorporation, incorporated by reference to
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.
950116-95-000390) on August 18, 1995.
(2) Amended Articles of Incorporation, incorporated by
reference to Exhibit (1)(b) 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. 950116-95-000390) on August 18, 1995.
(3) Amendment to Amended Articles of Incorporation,
incorporated by reference to Exhibit (1)(c) 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 (950116-96-000268) on April 26,
1996.
(4) Articles Supplementary dated April 23, 1992,
incorporated by reference to Exhibit (1)(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 (950116-96-000268) on April 26,
1996.
(5) Articles Supplementary dated October 6, 1995,
incorporated by reference to Exhibit (1)(e) 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 (950116-96-000268) on April 26,
1996.
(6) Articles Supplementary dated April 25, 1996,
incorporated by reference to Exhibit (1)(f) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange
Commission via EDGAR (950116-97-000791) on April 28,
1997.
(7) Articles Supplementary with respect to creation of
ABCAT Shares Class dated October 31, 1996, incorporated
by reference to Exhibit (1)(g) to Post-Effective
Amendment No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-34275), filed with
the Securities and Exchange Commission via EDGAR
(950116-97-000791) on April 28, 1997.
(8) Articles of Amendment to Articles of Incorporation with
respect to Registrant's name change dated December 19,
1996, incorporated by reference to Exhibit (1)(h) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange
Commission via EDGAR (950116-97-000791) on April 28,
1997.
C-1
<PAGE>
(9) Articles Supplementary dated October 23, 1998, filed
herewith.
(10) Articles Supplementary dated November 19, 1998, filed
herewith.
(11) Articles of Amendment to Articles of Incorporation to
reclassify the ABCAT Shares dated November 20, 1998,
filed herewith.
(b) By-Laws, as amended through December 18, 1996, incorporated
by reference to Exhibit (2) to Post-Effective Amendment No.
9 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275), filed with the Securities and
Exchange Commission via EDGAR (950116-97-000791) on April
28, 1997.
(c) Instruments Defining Rights of Security Holders,
incorporated by reference to Exhibit 1(Articles of
Incorporation) as amended to date, filed as part of
Post-Effective Amendments Nos. 6, 7 and 8, to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange Commission
via EDGAR (Accession Nos. 950116-95-000390, 950116-96-000268
and 950116-97-000791, respectively) on August 18, 1995,
April 26, 1996 and April 28, 1997, respectively, and Exhibit
2 (By-Laws) as amended to date, filed as part of
Post-Effective Amendment No. 9 to such Registration
Statement filed with the Securities and Exchange Commission
via EDGAR on April 28, 1997.
(d)(1) Investment Advisory Agreement dated September 1, 1997
between Registrant and Investment Company Capital
Corp., incorporated by reference to Exhibit (5)(a) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000948)
on April 28, 1998.
(2) Investment Sub-Advisory Agreement dated October 1, 1998
between Registrant, Investment Company Capital Corp.
and Alex. Brown Capital Advisory & Trust Company (now
known as Brown Investment Advisory & Trust Company),
filed herewith.
(3) Expense Limitation Agreement, filed herewith.
(e)(1) Distribution Agreement dated August 31, 1997 between
Registrant and ICC Distributors, Inc., incorporated by
reference to Exhibit (6)(a) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275) filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-98-000948) on April 28, 1998.
(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers,
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000948)
on April 28, 1998.
(3) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents,
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000948)
on April 28, 1998.
C-2
<PAGE>
(f) Not Applicable.
(g) (1) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed herewith.
(2) Master Services Agreement between Registrant and
Investment Company Capital Corp., incorporated by
reference to Exhibit (8)(b) 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
(950116-96-000268) on April 26, 1996.
(h) Not Applicable.
(i) Opinion of Counsel, incorporated by reference to Exhibit 10 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
(950116-96-000268) on April 26, 1996.
(j) (1) Consent of Independent Auditors, filed herewith.
(2) Consents of Directors to serve, incorporated by
reference to Exhibit (11)(b) 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 (950116-96-000268) on April 26, 1996.
(k) Not Applicable.
(l) Form of Subscription Agreement re: initial $100,000 capital,
incorporated by reference to Exhibit 13 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.
950116-95-000390) on August 18, 1995.
(m) (1) Distribution Plan (Flag Investors Class A
Shares), incorporated by reference to Exhibit (15)(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 (950116-96-000268) on April 26,
1996.
(2) Amended Distribution Plan (Flag Investors Class A
Shares), incorporated by reference to Exhibit (15)(b)
to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000948)
on April 28, 1998.
C-3
<PAGE>
(n) Financial Data Schedule, filed herewith as EX-27.
(o) (1) Rule 18f-3 Plan, incorporated by reference to
Exhibit (18)(a) 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 via EDGAR (Accession No.
950116-96-001118) on October 18, 1996.
(2) Amended Rule 18f-3 Plan, filed herewith.
(p) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any person
controlled by another person, disclose the percentage of voting securities owned
by the immediately controlling person or other basis of that person's control.
For each company, also provide the state or sovereign power under the law of
which the company is organized.
None.
Item 25. 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 against any liability incurred in their
official 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 a 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.
C-4
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1940 Act
and will be governed by the final adjudication of such issue.
Item 26. 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,
engaged within the last two fiscal years for his or her own account or in the
capacity of director, officer, employee, partner or trustee. (Disclose the name
and principal business address of any company for which a person listed above
serves in the capacity of director, officer, employee, partner or trustee, and
the nature of the relationship.)
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, and no partner of
Brown Investment Advisory & Trust Company 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 27. Principal Underwriters.
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor or
investment advisor.
ICC Distributors, Inc. acts as distributor for BT Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Communications Fund, Inc. (formerly, Flag
Investors Telephone Income Fund, Inc.), Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., 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 Real Estate Securities Fund,
Inc. and Flag Investors Equity Partners Fund, Inc., all registered open-end
management investment companies.
(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 21.
Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ------------------ ------------ -------------
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance None
Officer
C-5
<PAGE>
- -----------------
* Two Portland Square
Portland, Maine 04101
(c) Not Applicable.
Item 28. Location of Accounts and Records.
State the name and address of each person maintaining physical
possession of 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] thereunder.
Investment Company Capital Corp., One South Street,
Baltimore, Maryland 21202, the Registrant's investment
advisor and transfer and dividend disbursing agent and Brown
Investment Advisory & Trust Company, Furness House, 19 South
Street, Baltimore, Maryland 21202, Registrant's sub-advisor,
maintains physical possession of each such account, book or
other document of the Fund, except for those maintained by
the Registrant's custodian, Bankers Trust Company, 130
Liberty Street, New York, New York 10006.
In particular, with respect to the records required
by Rule 31a-1(b)1, ICC and Brown Investment Advisory & Trust
each maintains physical possession of all journals
containing itemized daily records of all purchases and sales
of securities, including sales and redemptions of Fund
securities, and Bankers Trust Company maintains physical
possession of all receipts and deliveries of securities
(including certificate numbers if such detail is not
recorded by the transfer agent), all receipts and
disbursements of cash, and all other debts and credits.
Item 29. Management Services.
Provide a summary of the substantive provisions of any management
related service contract not discussed in Part A or Part B of this Form
disclosing the parties to the contract and the total amount paid and by whom,
for the Registrant's last three fiscal years.
See Exhibit g.
Item 30. 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 has duly caused this
Post-Effective Amendment No. 11 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 26th day of February, 1999.
FLAG INVESTORS SHORT-INTERMEDIATE
INCOME FUND, INC.
By: /s/Harry Woolf
----------------
Harry Woolf
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:
* February 26, 1999
- ------------------------ Chairman ------------------------
Richard T. Hale and Director Date
* February 26, 1999
- ------------------------ Director ------------------------
James J. Cunnane Date
* February 26, 1999
- ------------------------ Director ------------------------
Joseph R. Hardiman Date
* February 26, 1999
- ------------------------ Director ------------------------
Louis E. Levy Date
* February 26, 1999
- ------------------------ Director ------------------------
Eugene J. McDonald Date
* February 26, 1999
- ------------------------ Director ------------------------
Rebecca W. Rimel Date
February 26, 1999
* ------------------------
- ------------------------ Director Date
Truman T. Semans
*
- ------------------------ Director February 26, 1999
Carl W. Vogt ------------------------
Date
/s/Harry Woolf
- ------------------------ President February 26, 1999
Harry Woolf ------------------------
Date
Joseph A. Finelli Chief Financial February 26, 1999
- ------------------------ and Accounting ------------------------
/s/ Joseph A. Finelli Officer Date
*By: /s/Amy M. Olmert
-------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
Flag Investors Short-Intermediate Income Fund, Inc.
Index of Exhibits
EDGAR
Exhibit Number Document
- -------------- --------
(a) (1)Articles of Incorporation, incorporated by
reference to 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. 950116-95-000390) on
August 18, 1995.
(2)Amended Articles of Incorporation, incorporated
by reference to Exhibit (1)(b) 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. 950116- 95-000390) on
August 18, 1995.
(3)Amendment to Amended Articles of Incorporation,
incorporated by reference to Exhibit (1)(c) 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 (950116-96-000268) on
April 26, 1996.
(4)Articles Supplementary dated April 23, 1992,
incorporated by reference to Exhibit (1)(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 (950116-96- 000268)
on April 26, 1996.
(5)Articles Supplementary dated October 6, 1995,
incorporated by reference to Exhibit (1)(e) 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 (950116-96-000268) on
April 26, 1996.
(6)Articles Supplementary dated April 25, 1996,
incorporated by reference to Exhibit (1)(f) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275), filed with the Securities and
Exchange Commission via EDGAR (950116-97- 000791)
on April 28, 1997.
(7)Articles Supplementary with respect to creation
of ABCAT Shares Class dated October 31, 1996,
incorporated by reference to Exhibit (1)(g) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275), filed with the Securities and
Exchange Commission via EDGAR (950116-97-000791) on
April 28, 1997.
(8)Articles of Amendment to Articles of
Incorporation with respect to Registrant's name
change dated December 19, 1996, incorporated by
reference to Exhibit (1)(h) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-
34275), filed with the Securities and Exchange
Commission via EDGAR (950116-97-000791) on April
28, 1997.
<PAGE>
EX-99.B (9)Articles Supplementary dated October 23, 1998,
filed herewith.
EX-99.B (10)Articles Supplementary dated November 17, 1998,
filed herewith.
EX-99.B (11)Articles of Amendment to Articles of
Incorporation to reclassify the ABCAT Shares dated
November 18, 1998, filed herewith.
(b) By-Laws, as amended through December 18, 1996,
incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275), filed with the Securities and
Exchange Commission via EDGAR (950116-97-000791) on
April 28, 1997.
(c) Instruments Defining Rights of Security Holders,
incorporated by reference to Exhibit 1(Articles of
Incorporation) as amended to date, filed as part of
Post-Effective Amendments Nos. 6, 7 and 8, to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275) filed with the
Securities and Exchange Commission via EDGAR
(Accession Nos. 950116-95-000390, 950116-96-000268
and 950116-97-000791, respectively) on August 18,
1995, April 26, 1996 and April 28, 1997,
respectively, and Exhibit 2 (By- Laws) as amended
to date, filed as part of Post-Effective Amendment
No. 9 to such Registration Statement filed with the
Securities and Exchange Commission via EDGAR on
April 28, 1997.
(d) (1)Investment Advisory Agreement dated September 1,
1997 between Registrant and Investment Company
Capital Corp., incorporated by reference to Exhibit
(5)(a) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275) filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000948) on April 28, 1998.
EX-99.B (2)Investment Sub-Advisory Agreement dated October
1, 1998 between Registrant, Investment Company
Capital Corp. and Alex. Brown Capital Advisory &
Trust Company (now known as Brown Investment
Advisory & Trust), filed herewith.
EX-99.B (3)Expense Limitation Agreement, filed herewith.
(e) (1)Distribution Agreement dated August 31, 1997
between Registrant and ICC Distributors, Inc.,
incorporated by reference to Exhibit (6)(a) to
Post- Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000948) on April 28, 1998.
(2)Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers,
incorporated by reference to Exhibit (6)(b) to
Post- Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000948) on April 28, 1998.
(3)Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents,
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-34275) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000948) on April 28, 1998.
<PAGE>
(f) Not Applicable.
EX-99.B (g) (1)Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed
herewith.
(2)Master Services Agreement between Registrant
and Investment Company Capital Corp., incorporated
by reference to Exhibit (8)(b) 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 (950116-96-000268) on April 26, 1996.
(h) Not Applicable.
(i) Opinion of Counsel, incorporated by reference to
Exhibit 10 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
(950116-96-000268) on April 26, 1996.
EX-99.B (j) (1)Consent of Independent Auditors, filed herewith.
(2)Consents of Directors to serve, incorporated by
reference to Exhibit (11)(b) 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 (950116-96-000268) on April 26, 1996.
(k) Not Applicable.
(l) Form of Subscription Agreement re: initial $100,000
capital, incorporated by reference to Exhibit 13 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.
950116-95-000390) on August 18, 1995.
(m) (1)Distribution Plan (Flag Investors Class A
Shares), incorporated by reference to 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 (950116-96-000268) on
April 26, 1996.
(2)Amended Distribution Plan (Flag Investors Class
A Shares), incorporated by reference to Exhibit
(15)(b) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275) filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000948) on April 28, 1998.
EX-27 (n) Financial Data Schedule, filed herewith as EX-27.
(o) (1)Rule 18f-3 Plan, incorporated by reference to
Exhibit (18)(a) 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 via EDGAR
(Accession No. 950116-96-001118) on October 18,
1996.
EX-99.B (2)Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS SHORT-INTERMEDIATE 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 at a meeting duly convened and
held on September 28, 1998 has adopted a resolution designating a new class of
shares and increasing the total number of shares of capital stock which the
Corporation has the authority to issue to seventy-five million (75,000,000)
shares of Common Stock, par value $.001 per share and having an aggregate par
value of seventy-five thousand dollars ($75,000.00), all of which shares are
designated and classified as follows: forty-five million (45,000,000) shares are
designated "Flag Investors Short-Intermediate Income Fund Class A Shares," two
million (2,000,000) shares are designated "Flag Investors Short-Intermediate
Income Fund Class B Shares," fifteen million (15,000,000) shares are designated
"Flag Investors Short-Intermediate Income Fund Class C Shares" (the "Class C
Shares"), five million (5,000,000) shares are designated "Flag Investors
Short-Intermediate Income Fund Institutional Shares," five million (5,000,000)
shares are designated "Alex. Brown Capital Advisory & Trust Short-Intermediate
Income Shares" and three million (3,000,000) shares remain undesignated.
SECOND: Immediately before the increase in authorized shares and the
designation of the Class C Shares, the Corporation was authorized to issue sixty
million (60,000,000) shares of Common Stock, par value $.001 per share and
having an aggregate par value of sixty thousand dollars ($60,000.00), all of
which shares were designated and classified as follows: forty-five million
(45,000,000) shares were designated "Flag Investors Short-Intermediate Income
Fund Class A Shares," two million (2,000,000) shares were designated "Flag
Investors Short-Intermediate Income Fund Class B Shares," five million
(5,000,000) shares were designated "Flag Investors Short-Intermediate Income
Fund Institutional Shares," five million (5,000,000) shares were designated
"Alex. Brown Capital Advisory & Trust Short-Intermediate Income 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.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Short-Intermediate Income Fund, Inc. has
caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 23rd day of
October, 1998.
[CORPORATE SEAL]
FLAG INVESTORS SHORT-INTERMEDIATE INCOME
FUND, INC.
By: /s/Harry Woolf
------------------
Harry Woolf
President
Attest: /s/Amy M. Olmert
-------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS
SHORT-INTERMEDIATE 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/Harry Woolf
------------------
Harry Woolf
President
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS SHORT-INTERMEDIATE 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, by unanimous consent dated
November 16, 1998, has adopted a resolution increasing the total number of
shares of capital stock which the Corporation has the authority to issue to
eighty-five million (85,000,000) shares of Common Stock, par value $.001 per
share and having an aggregate par value of eighty-five thousand dollars
($85,000.00), all of which shares are designated and classified as follows:
forty-five million (45,000,000) shares are designated "Flag Investors
Short-Intermediate Income Fund Class A Shares," two million (2,000,000) shares
are designated "Flag Investors Short-Intermediate Income Fund Class B Shares,"
fifteen million (15,000,000) shares are designated "Flag Investors
Short-Intermediate Income Fund Class C Shares," fifteen million (15,000,000)
shares are designated "Flag Investors Short-Intermediate Income Fund
Institutional Shares," five million (5,000,000) shares are designated "Alex.
Brown Capital Advisory & Trust Short-Intermediate Income Shares" and three
million (3,000,000) shares remain undesignated.
SECOND: Immediately before the increase in authorized shares, the
Corporation was authorized to issue seventy-five million (75,000,000) shares of
Common Stock, par value $.001 per share and having an aggregate par value of
seventy-five thousand dollars ($75,000.00), all of which shares were designated
and classified as follows: forty-five million (45,000,000) shares were
designated "Flag Investors Short-Intermediate Income Fund Class A Shares," two
million (2,000,000) shares were designated "Flag Investors Short-Intermediate
Income Fund Class B Shares," fifteen million (15,000,000) shares were designated
"Flag Investors Short-Intermediate Income Fund Class C Shares," five million
(5,000,000) shares were designated "Flag Investors Short-Intermediate Income
Fund Institutional Shares," five million (5,000,000) shares were designated
"Alex. Brown Capital Advisory & Trust Short-Intermediate Income 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.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Short-Intermediate Income Fund, Inc. has
caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 17th day of
November, 1998.
[CORPORATE SEAL]
FLAG INVESTORS SHORT-INTERMEDIATE INCOME
FUND, INC.
By: /s/Harry Woolf
-------------------------
Harry Woolf
President
Attest: /s/Amy M. Olmert
--------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS
SHORT-INTERMEDIATE 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/Harry Woolf
-----------------------
Harry Woolf
President
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
ARTICLES OF AMENDMENT
FLAG INVESTORS SHORT-INTERMEDIATE 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, by a unanimous consent dated
November 16, 1998, has adopted a resolution redesignating the Corporation's
previously designated eighty-five million (85,000,000) shares of Common Stock,
par value $.001 per share, having an aggregate par value of eighty-five thousand
dollars ($85,000.00), as follows: fifty million (50,000,000) shares are
designated "Flag Investors Short-Intermediate Income Fund Class A Shares," two
million (2,000,000) shares are designated "Flag Investors Short-Intermediate
Income Fund Class B Shares," fifteen million (15,000,000) shares are designated
"Flag Investors Short-Intermediate Income Fund Class C Shares," fifteen million
(15,000,000) shares are designated "Flag Investors Short-Intermediate Income
Fund Institutional Shares," and three million (3,000,000) shares remain
undesignated.
SECOND: Immediately before the redesignation of the Alex. Brown Capital
Advisory & Trust Short-Intermediate Income Fund Shares, pursuant to these
Articles of Amendment, the Corporation was authorized to issue eighty-five
million (85,000,000) shares of Common Stock, par value eighty-five thousand
dollars ($85,000.00), of which forty-five million (45,000,000) shares were
designated "Flag Investors Short-Intermediate Income Fund Class A Shares," two
million (2,000,000) shares were designated "Flag Investors Short-Intermediate
Income Fund Class B Shares," fifteen million (15,000,000) shares were designated
"Flag Investors Short-Intermediate Income Fund Class C Shares," five million
(5,000,000) shares were designated "Alex. Brown Capital Advisory & Trust
Short-Intermediate Income Fund Shares," fifteen million (15,000,000) shares were
designated "Flag Investors Short-Intermediate 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.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Short-Intermediate Income Fund, Inc. has
caused these Articles of Amendment to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 18th day of
November, 1998.
[CORPORATE SEAL]
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
By: /s/Harry Woolf
--------------------
Harry Woolf
President
Attest: /s/Amy M. Olmert
-----------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS SHORT-INTERMEDIATE INCOME
FUND, INC., who executed on behalf of said corporation the foregoing Articles of
Amendment 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 of Amendment 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/Harry Woolf
-------------------
Harry Woolf
President
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is made as of the 1st
day of October, 1998 by and among FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND,
INC., a Maryland corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor"), and, ALEX. BROWN CAPITAL ADVISORY & TRUST,
a Maryland trust company (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on
April 16, 1990 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on April 17,
1990;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-34275)
and under the 1940 Act as filed with the SEC on April 17, 1990 relating
to the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are
herein called the "Prospectus").
<PAGE>
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall, subject to overall supervision by
the Advisor:
(a) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of
Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which appear
to the Fund necessary to carry into effect such purchase and sale
programs as aforesaid, including the placing of orders for the purchase
and sale of securities of the Fund;
(e) provide the Board of Directors of the Fund on a regular
basis with financial reports with respect to the Fund's portfolio
investments and analyses of the Fund's operations and the operations of
comparable investment companies; and
(f) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. [In certain
instances the Sub-Advisor may make purchases of underwritten issues at prices
which include underwriting fees.] In selecting a broker-dealer to execute each
particular transaction, the Sub-Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Directors may determine, the Sub-Advisor shall
not be deemed to have acted unlawfully or to have breached any duty created by
this Agreement or otherwise solely by reason of its having caused the Fund to
pay a broker-dealer that provides brokerage and research services to the
Sub-Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Sub-Advisor determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the Sub-Advisor's
overall responsibilities with respect to the Fund. The Sub-Advisor is further
authorized to allocate the orders placed by it on behalf of the Fund to such
broker-dealers who also provide research or statistical material or other
services to the Fund or the Sub-Advisor. Such allocation shall be in such
-2-
<PAGE>
amounts and proportions as the Sub-Advisor shall determine and the Sub-Advisor
will report on said allocation regularly to the Board of Directors of the Fund,
indicating the brokers to whom such allocations have been made and the basis
therefor.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Sub-Advisor may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Sub-Advisor may direct BT Alex. Brown
Incorporated ("BT Alex. Brown") to execute portfolio transactions for the Fund
on an agency basis. The commissions paid to BT Alex. Brown must be, as required
by Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." If the purchase or sale of securities
consistent with the investment policies of the Fund or one or more other
accounts of the Sub-Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Sub-Advisor. BT Alex. Brown and the Sub-Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.
The Fund will not deal with the Sub-Advisor or BT Alex. Brown
in any transaction in which the Sub-Advisor or BT Alex. Brown acts as a
principal with respect to any part of the Fund's order. If BT Alex. Brown is
participating in an underwriting or selling group, the Fund may not buy
portfolio securities from the group except in accordance with policies
established by the Board of Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any activities
undertaken by the Sub-Advisor on behalf of the Fund pursuant hereto, shall at
all times be subject to any applicable directives of the Board of Directors of
the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable among the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without
cost to the Fund, the services of one or more officers of the Fund, to
the extent that such officers may be required by the Fund for the
proper conduct of its affairs.
-3-
<PAGE>
(b) The Sub-Advisor shall maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under Section 3 hereof to place orders for the purchase and
sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to
the Advisor under the Investment Advisory Agreement between the Fund
and the Advisor; payments to the Fund's distributor under the Fund's
plan of distribution; the charges and expenses of any registrar, any
custodian or any depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs
and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares
with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and
travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not "interested persons" (as
defined in the 1940 Act) of the Fund and of the independent
accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims, liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: 0.23% of the first $1 billion of
the Fund's average daily net assets, 0.20% of the next $500 million of the
Fund's average daily net assets and 0.16% of the Fund's average daily net assets
in excess of $1.5 billion. The Sub-Advisor will waive its fee in an amount
proportionate to any fee waivers by the Advisor. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued daily
and the amounts of the daily accruals paid monthly. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculations of the
fees as set forth above. Payment of the Sub-Advisor's compensation for the
preceding month shall be made as promptly as possible.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
10. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
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<PAGE>
11. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors
who are not parties to this Agreement or "interested persons" of a
party to this Agreement (other than as Directors of the Fund) by votes
cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Advisor or the Sub-Advisor on
sixty (60) days' written notice to the Fund and the other party. Upon the
termination of the Investment Advisory Agreement, this Agreement shall
automatically terminate on sixty (60) days' written notice. The notice provided
for herein may be waived by any person to whom such notice is required. This
Agreement shall automatically terminate in the event of its assignment (as
defined in Section 2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers or Directors of the Sub-Advisor may serve as
officers or Directors of the Fund, and that officers or Directors of the Fund
may serve as officers or Directors of the Sub-Advisor to the extent permitted by
law; and that the officers and Directors of the Sub-Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, trustees or directors of
any other firm, trust or corporation, including other investment companies.
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 19-21 South Street, Baltimore, Maryland
21202, and the address of the Advisor and the Fund shall be One South Street,
Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
/s/Amy M. Olmert By: /s/Harry Woolf
- ---------------- --------------
Name: Amy M. Olmert Name: Harry Woolf
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/Amy M. Olmert By: /s/Edward J. Veilleux
- ---------------- ---------------------
Name: Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ALEX. BROWN CAPITAL ADVISORY & TRUST
/s/Amy M. Olmert By: /s/D. M. Churchill
- ---------------- ------------------
Name: Amy M. Olmert Name: D. M. Churchill
Title: CFO
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<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 1st day of May,
1999 by and between FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC., a
Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor"), with respect to the following:
WHEREAS, the Advisor serves as the Fund's investment advisor pursuant
to an Investment Advisory Agreement dated September 1, 1997; and
WHEREAS, the Advisor has voluntarily agreed to waive its fees and
reimburse expenses so that the Fund's total annual operating expenses 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; and
WHEREAS, the Fund and the Advisor desire to formalize these voluntary
fee waiver and expense reimbursement arrangements for a one year period
beginning on May 1, 1999 and ending on April 30, 2000.
NOW THERETOFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. The Advisor agrees to waive its fees and reimburse expenses for a
one year period from May 1, 1999 to April 30, 2000 to the extent necessary so
that Fund's total annual operating expenses 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.
2. Upon the termination of the Investment Advisory Agreement this
Agreement shall automatically terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to said Act. In addition, where
the effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
Otherwise the provisions of this Agreement shall be interpreted in accordance
with the laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
FLAG INVESTORS SHORT-
INTERMEDIATE INCOME FUND, INC.
Attest:/s/ Amy M. Olmert by:/s/ Harry Woolf
----------------- ---------------
By: Harry Woolf
Title: President
INVESTMENT COMPANY CAPITAL
CORP.
Attest:/s/ Amy M. Olmert by:/s/ Edward J. Veilleux
----------------- ----------------------
By: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS SHORT-INTERMEDIATE FUND, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. Without limitation, such Property shall
include stocks and other equity interests of every type, evidences of
indebtedness, other instruments representing same or rights or obligations to
receive, purchase, deliver or sell same and other non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property at Custodian and Subcustodian Locations.
Pursuant to Instructions, the Customer shall direct the Custodian to (a) settle
Securities transactions and maintain cash in the country or other jurisdiction
in which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are acquired
and (b) maintain Cash and Cash equivalents in such countries in amounts
reasonably necessary to effect the Customer's transactions in such Securities.
Instructions to settle Securities transactions in any country shall be deemed to
authorize the holding of such Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to
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<PAGE>
give, and authorize others to give, instructions relative thereto. The Custodian
may deliver securities of the same class in place of those deposited in the
Account.
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, except that until
the Custodian receives Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than ministerial exchanges
described in (i)above) is received for the Account, endeavor to receive
Instructions, provided that if such Instructions are not received in time for
the Custodian to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for the Account and such rights entitlement or fractional interest
bears an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action or
if actual notice of such actions was received too late to seek Instructions,
sell in the discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or fractional interest
and credit the Account with the net proceeds of such sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the Property in
the Account by any governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and
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<PAGE>
levies, the Custodian shall notify the Customer of the amount of the shortfall
and the Customer, at its option, may deposit additional Cash in the Account or
take steps to have sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the payment of any
such taxes to cooperate with the Custodian in furnishing information, executing
documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without limitation,
affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(a) one of its U.S. branches or another U.S. bank or trust company or branch
thereof located in the U.S. which is itself qualified under the Investment
Company Act of 1940, as amended ("1940 Act"), to act as custodian (individually,
a "U.S. Subcustodian"), or a U.S. securities depository or clearing agency or
system in which the Custodian or a U.S. Subcustodian participates (individually,
a "U.S. Securities System") or (b) one of its non-U.S. branches or
majority-owned non-U.S. subsidiaries, a non-U.S. branch or majority-owned
subsidiary of a U.S. bank or a non-U.S. bank or trust company, acting as
custodian (individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and
non-U.S. Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository
or clearing agency or system in which the Custodian or any Subcustodian
participates (individually, a "non-U.S. Securities System"; U.S. Securities
System and non-U.S. Securities System, collectively, "Securities System"),
provided that in each case in which a U.S. Subcustodian or U.S. Securities
System is employed, each such Subcustodian or Securities System shall have been
approved by Instructions; provided further that in each case in which a non-U.S.
Subcustodian or non-U.S. Securities System is employed, (a) such Subcustodian or
Securities System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5
under the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within
the meaning of Rule 17f-5 or such Subcustodian or Securities System is the
subject of an order granted by the U.S. Securities and Exchange Commission
("SEC") exempting such agent or the subcustody arrangements thereto from all or
part of the provisions of Rule 17f-5 and (b) the agreement between the Custodian
and such non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or responsibility for
determining whether the approval of any Subcustodian or Securities System has
been proper under the 1940 Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
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<PAGE>
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a Subcustodian
with respect to maintaining Property shall require that (i) the Account will be
adequately indemnified or its losses adequately insured; (ii) the Securities so
maintained will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial ownership of such
Securities will be freely transferable without the payment of money or value
other than for safe custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the Property maintained
pursuant to such agreement as belonging to the Custodian, on behalf of its
customers and (v) to the extent permitted by applicable law, officers of or
auditors employed by, or other representatives of or designated by, the
Custodian, including the independent public accountants of or designated by, the
Customer be given access to the books and records of such Subcustodian relating
to its actions under its agreement pertaining to any
-4-
<PAGE>
Property held by it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by its
agreement with the Custodian to, identify on its books such Property as being
maintained for the account of the Custodian or Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the account
of the Custodian or a Subcustodian will be subject only to the instructions of
the Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or Subcustodian,
as the case may be, unless precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the Account. All accounts, books and
records of the Custodian relating thereto shall be open to inspection and audit
at all reasonable times during normal business hours by any person designated by
the Customer. All such accounts shall be maintained and preserved in the form
reasonably requested by the Customer. The Custodian will supply to the Customer
from time to time, as mutually agreed upon, a statement in respect to any
Property in the Account maintained by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such
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<PAGE>
statement within sixty (60) days of the mailing thereof, the Customer shall be
deemed to have approved such statement and in such case or upon written approval
of the Customer of any such statement, such statement shall be presumed to be
for all purposes correct with respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N1A and the Customer's Form NSAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Property,
including Property deposited and/or maintained in a securities system or with a
Subcustodian. Such report shall be of sufficient scope and in sufficient detail
as may reasonably be required by the Customer and as may reasonably be obtained
by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through a Subcustodian or
which are eligible for deposit in a Securities System as provided above may be
maintained with the Subcustodian or the Securities System in an account for the
Custodian's or Subcustodian's customers, unless prohibited by law, rule, or
regulation. The Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in the Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the event that any
Securities in the name of the Custodian or its nominee or held by a Subcustodian
and registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or
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<PAGE>
regulations pertaining to allocation of any Securities System in which such
Securities have been deposited, allot, or cause to be allotted, the called
portion of the respective beneficial holders of such class of Security in any
manner the Custodian deems to be fair and equitable. Securities maintained with
a Securities System shall be maintained subject to the rules of that Securities
System governing the rights and obligations among the Securities System and its
participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (iii) as may otherwise be agreed upon between the
Custodian and the Customer. The liability and responsibility of the Custodian in
connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which the
Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for the Account and delivery of Securities
out of the Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
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Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the Account in the event that the transaction does not
settle, or the income is not received in a timely manner, and the Customer
agrees to hold the Custodian harmless from any losses which may result
therefrom.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any Instructions to settle the
purchase of any securities for the Account, unless there are sufficient
immediately available funds in the relevant currency in the Account, provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have been made
final entries as set forth in (c) below, the amount of immediately available
funds in the relevant currency in such Account is at least equal to the
aggregate purchase price of all Securities for which the Custodian has received
Instructions to settle on that date ("Settlement Date"), the Custodian, upon
settlement, shall credit the Securities to the Account by making a final entry
on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit (as
defined below) applicable to the Account or the amount of immediately available
funds in a given currency in such Account are less than the aggregate purchase
price in such currency of all securities for which the Custodian has received
Instructions to settle on the Settlement Date, the Custodian, upon settlement,
may provisionally credit the Securities to the Account by making a conditional
entry on its books and records ("Conditional Credit"), pending receipt of
sufficient immediately available funds in the relevant currency in the Account.
(c) If, within a reasonable time after the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account, the
Custodian shall make the Conditional Credit a final entry on its books and
records. In such case, the Customer shall be liable to the Custodian only for
late charges at a rate which the Custodian customarily charges for similar
extensions of credit.
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(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding shall
occur, the Custodian may sell such of the Securities subject to the Conditional
Credit as it selects in its sole discretion and shall apply the net proceeds of
such sale to cover such Debit, including related late charges, and any remaining
proceeds shall be credited to the Account. If such proceeds are insufficient to
satisfy such debt in full, the Customer shall continue to be liable to the
Custodian for any shortfall. The Custodian shall make the Conditional Credit a
final entry on its books as to the Securities not required to be sold to satisfy
such Debit. Pending payment in full by the Customer of the purchase price for
Securities subject to a Conditional Credit, and the Custodian's making a
Conditional Credit a final entry on its books, and unless consented to by the
Custodian, the Customer shall have no right to give further Instructions in
respect of Securities subject to a Conditional Credit. The Custodian shall have
the sole discretion to determine which Securities shall be deemed to have been
paid for by the Customer out of funds available in the Account. Any such
Conditional Credit may be reversed (and any corresponding Debit shall be
canceled) by the Custodian unless and until the Custodian makes a final entry on
its books crediting such Securities to the Account. The term "Proceeding" shall
mean any insolvency, bankruptcy, receivership, reorganization or similar
proceeding relating to the Customer, whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally use the Account
to facilitate the purchase of securities without sufficient funds in the Account
(which funds shall not include the expected proceeds of the sale of the
purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
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(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Portfolio's investment advisor and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission or of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 21.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian in
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accordance with Section 22 below (i) in writing (including, without limitation,
facsimile transmission) or by tested telex signed or given by such one or more
person or persons as the Customer shall have from time to time authorized in
writing to give the particular class of Instructions in question and whose name
and (if applicable) signature and office address have been filed with the
Custodian, or (ii) which have been transmitted electronically through an
electronic on-line service and communications system offered by the Custodian or
other electronic instruction system acceptable to the Custodian, or (iii) a
telephonic or oral communication by one or more persons as the Customer shall
have from time to time authorized to give the particular class of Instructions
in question and whose name has been filed with the Custodian; or (iv) upon
receipt of such other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by the
Customer by tested telex or writing in the manner set forth in clause (i) above,
but the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in the Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the
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event of any loss to the Customer by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Customer to the extent of the Customer's actual damages at the time such loss
was discovered without reference to any special conditions or circumstances. In
no event shall the Custodian be liable for any consequential or special damages.
The Custodian shall be entitled to rely, and may act, on advice of counsel (who
may be counsel for the Customer) on all matters and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian or hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
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17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer pursuant to any contract or any law or regulation.
The provisions of this Section shall survive termination of this Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. The
Customer hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the Account for any
amount payable to the Custodian under this Agreement, including but not limited
to amounts payable pursuant to Section 13 and pursuant to indemnities granted by
the Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall, within ninety (90) days following the giving of such notice,
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deliver to the Custodian a written notice specifying the names of the persons to
whom the Custodian shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid. In either case, the Custodian will deliver
such Property to the persons so specified, after deducting therefrom any amounts
which the Custodian determines to be owed to it hereunder. In addition, the
Custodian may in its discretion withhold from such delivery such Property as may
be necessary to settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of set off against the Account
and all Property held therein from time to time in the full amount of the
foregoing obligations. If within ninety (90) days following the giving of a
notice of termination by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing business in the
State of New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that the Custodian's
obligations shall be limited to safekeeping.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answer back.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of set off against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to take such other actions or
exercise such other options, powers and rights as the Custodian now or hereafter
has as a secured creditor under the New York UCC or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
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(ii) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms;
(iii) it will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who are not parties hereto that refer
in any way to the Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in writing within
ten (10) business days of receipt thereof (or such other time as may be mutually
agreed) after receipt thereof. The provisions of this Section shall survive the
termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
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laying of venue of any such suit, action or proceeding brought in such a court
and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Section shall survive the termination of this Agreement.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement together with any Exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
33. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
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IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
FLAG INVESTORS
SHORT-INTERMEDIATE FUND, INC.
By: /s/ Amy M. Olmert
-------------------
Name: Amy M. Olmert
-----------------
Title: Secretary
----------------
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
--------------------
Name: Richard Fogarty
------------------
Title: Vice President
-----------------
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EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Short-Intermediate Fund, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the applicable Service Standards.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official language of the
country in which the related security is held, the Custodian will as soon as
practicable after receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
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Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless other
arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
-19-
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Short-Intermediate Fund, Inc.
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
Effective October 1, 1997
CUSTODY FEES
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
-20-
<PAGE>
2. DOMESTIC TRANSACTION FEES
TRANSACTION TYPE $USD
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
PHYSICAL AUTOMATED 15.00
PHYSICAL MANUAL 20.00
P&I PAYMENTS 5.00
REDEMPTIONS 10.00
REORGANIZATIONS Included in safekeeping charge
3. GLOBAL SAFEKEEPING AND ASSET FEES
Annual Receive and
Country Asset Fee Deliver
Transactions
================================================================================
Argentina 35 Basis Points $100
Australia 3 Basis Points $50
Austria 5 Basis Points $75
Bangladesh 40 Basis Points $150
Belgium 4 Basis Points $60
Botswana 50 Basis Points $150
Brazil 30 Basis Points $70
Canada 2 Basis Points $20
Cedel/Euroclear 3 Basis Points $20
Chile 30 Basis Points $80
China 30 Basis Points $75
Columbia 35 Basis Points $100
Czech Republic 20 Basis Points $70
Denmark 4 Basis Points $50
Ecuador 45 Basis Points $100
Egypt 45 Basis Points $80
Finland 10 Basis Points $75
France 5 Basis Points $50
Germany 3 Basis Points $30
-21-
<PAGE>
Annual Receive and
Country Asset Fee Deliver
Transactions
================================================================================
Ghana 50 Basis Points $150
Greece 35 Basis Points $120
Hong Kong 5 Basis Points $30
Hungary 45 Basis Points $150
India (Physical) 60 Basis Points $200
India (Dematerialized) 25 Basis Points $140
Indonesia 8 Basis Points $35
Ireland 5 Basis Points $50
Israel 40 Basis Points $50
Italy 3 Basis Points $50
Japan 3 Basis Points $35
Jordan 30 Basis Points $100
Kenya 50 Basis Points $150
Luxembourg 4 Basis Points $60
Malaysia 7 Basis Points $50
Mauritius 50 Basis Points $140
Mexico 5 Basis Points $30
Morocco 30 Basis Points $130
Netherlands 4 Basis Points $45
New Zealand 4 Basis Points $50
Norway 5 Basis Points $50
Pakistan 30 Basis Points $150
Peru 50 Basis Points $100
Philippines 8 Basis Points $30
Poland 45 Basis Points $100
Portugal 4 Basis Points $75
Russia 50 Basis Points $300
Singapore 7 Basis Points $50
Slovakia 25 Basis Points $100
South Africa 5 Basis Points $30
South Korea 15 Basis Points $50
Spain 6 Basis Points $50
Sri Lanka 12 Basis Points $60
-22-
<PAGE>
Annual Receive and
Country Asset Fee Deliver
Transactions
================================================================================
Sweden 4 Basis Points $50
Switzerland 3 Basis Points $50
Taiwan 15 Basis Points $100
Thailand 7 Basis Points $100
Tunisia 45 Basis Points $50
Turkey 15 Basis Points $50
United Kingdom 2 Basis Points $15
Venezuela 35 Basis Points $100
Zambia 50 Basis Points $150
Zimbabwe 50 Basis Points $150
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
-23-
<PAGE>
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at month-end to
determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in writing,
i.e. facsimile
o The standard Global Custody Service includes: asset safekeeping, trade
settlement, income collection, corporate action processing including
proxy voting and tax reclaims where appropriate.
o Third party FX transactions and other cash movements with no associated
security transaction (e.g. free payments/receipts) are charged at $10
per U.S. wire and $25 per non-U.S. wire. No fee is levied for FX
transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
-24-
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Short-Intermediate Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account in
the countries specified in the applicable Service Standards. Terms used herein
as defined terms shall unless otherwise defined have the meanings ascribed to
them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
-25-
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
I,_____________________ [Name of Secretary], hereby certify
that I am the Secretary of [Name of Entity], a ______________________[type of
entity] organized under the laws of ________________________ [jurisdiction] (the
"Customer"), and as such I am duly authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of _____________________ [jurisdiction], the Customer continues to be
in existence and is in good standing, and no action has been taken to repeal
such organizational documents, the same being in full force and effect on the
date hereof.
2. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, which resolutions (i) have not in any way been revoked or
rescinded, (ii) have been in full force and effect since their adoption, to and
including the date hereof, and are now in full force and effect, and (iii) are
the only corporate proceedings of the Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the signatures
set forth opposite the respective names and titles of said officers are their
true, authentic signatures:
Name Title Signature
- -------------------- -------------------- --------------------
- -------------------- -------------------- --------------------
-26-
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of _______________[Date], 1997.
By: __________________________________
Name: __________________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By:________________________________________
Name:______________________________________
Title:_____________________________________
-27-
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
FLAG INVESTORS SHORT-INTERMEDIATE FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the contrary,
the Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
-----------------------
FLAG INVESTORS SHORT-INTERMEDIATE FUND, INC.
By: /s/ Amy M. Olmert
-----------------------
-28-
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is based on a
specific market benchmark (such as Effective Fed Funds) and is
calculated by taking an average of the benchmark rate and subtracting a
spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S. Dollar. Over
time we will be considering additional currencies to include in this
category.
o Operationally, most balances in Benchmark Rate Currencies are swept
overnight into deposits at the London branch of Bankers Trust Company.
Where you have selected a short-term investment fund, your U.S. Dollar
balances in the U.S. will be swept overnight in accordance with your
instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is based on the
rate paid by the London branch or the local subcustodian on overnight
deposits in the currency. In either case, interest is calculated by
using the overnight rate (which will be the actual overnight, a weekly
average, or monthly average rate, depending on the currency) and
subtracting a spread. (See Schedule A)
o Currencies that are part of the sweep program will earn interest based
on the base rate, which will be the higher of the rate offered by the
London branch of Bankers Trust Company or the local subcustodian.
o Currencies that are not part of the sweep program will generally earn
interest based on the rate paid by the local subcustodian. We may at
times be able to sweep certain currency balances into deposits of
Bankers Trust Company's London branch in order to be able to earn a
higher rate for you. On those days, any such currency will be treated
as part of the sweep program, and you will earn interest on all of your
balances in that currency at the higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are included
in our sweep program to the London branch.
-29-
<PAGE>
o Operationally, most balances in Base Rate Currencies that are part of
our sweep program are swept overnight into deposits at the London
branch, while balances in Base Rate Currencies that are not part of our
sweep program remain with the local subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in spreads and
updates to the cash management program. These program updates also will
be available through Global Custody Flash Notices.
o You earn interest at the calculated rate on your entire contractual
balance without any action on your part and without any minimum balance
requirements. This is the case regardless of whether we are able to
invest your balances at or near the applicable benchmark or base rate
and regardless of whether your contractual balance may exceed your
actual balance.
o Our program generally requires that overnight balances in each currency
remain with (or are swept to) a subcustodian we designate for that
currency. Nevertheless, we pay our stated rate of interest on any
balances that, because of transactions in your account, are held
overnight with an alternate subcustodian if we receive interest on that
currency from that subcustodian. If the alternate subcustodian does not
pay interest, however, these balances are excluded from our program.
o The minimum rate paid is 0.50%, except for the Japanese Yen (for which
it is 0.05%) and the Singapore Dollar (for which it is 0.25%). Please
note that this is also subject to change as appropriate for any
currency.
o You will have continuous access through Globe*View, BTWorld, or
Globe*Link or other agreed electronic on-line system to the interest
rate earned during the previous rate averaging period. Because we may
use weekly or monthly average rates to calculate the interest you earn,
we do not know the actual interest rate until the weekly or monthly
period is completed.
o For swept currencies, from time to time we may not be able to sweep the
full amount of your balances to the London branch because of
operational constraints or because your balance on a contractual basis
temporarily exceeds your actual balance. You will, however, always
receive credit for interest based on your entire contractual balance.
To the extent you would have earned a lower rate on balances not swept,
we will make up the difference. To the extent that actual balances are
higher than contractually posted balances due to purchase fails or
otherwise, we will retain the interest earned as compensation.
o The effective rate we pay on overnight balances will generally differ
from the effective rate we receive (whether from the London branch or
the local subcustodian). Any difference between the effective rate we
receive and the effective rate we pay (which may be positive or
negative, but is generally positive) is kept by us and covers our fee
for running the cash management program and the related costs we
absorb.
-30-
<PAGE>
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to ERISA will be deemed to have engaged in the transaction
under the authority of the class exemptions available to qualified professional
asset managers and in-house investment managers. To the extent that the
overdraft is less than the U.S. dollar equivalent of $50,000, Bankers Trust's
foreign exchange desk will bundle the transaction with other small amounts for
other clients.
-31-
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
- ---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100 1
-32-
<PAGE>
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
1 Not applicable if U.S. Dollars are swept to a short-term investment
fund.
-33-
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Flag Investors Short-Intermediate Income Fund, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 11 to Registration Statement No. 33-34275 of Flag Investors
Short-Intermediate Income Fund, Inc. of our report dated February 2, 1999,
appearing in the Statement of Additional Information, which is a part of such
Registration Statement, and to the references to us under the captions
"Financial Highlights" appearing in the Prospectuses, which also are a part of
such Registration Statement.
/s/DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 24, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000862473
<NAME> SHORT-INTERMEDIATE INCOME FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 91,924,754
<INVESTMENTS-AT-VALUE> 93,266,019
<RECEIVABLES> 945,832
<ASSETS-OTHER> 38,829
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,250,680
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,032,200
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,449,406
<SHARES-COMMON-STOCK> 4,496,031
<SHARES-COMMON-PRIOR> 4,386,630
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<EXPENSES-NET> 540,135
<NET-INVESTMENT-INCOME> 5,239,442
<REALIZED-GAINS-CURRENT> 626,662
<APPREC-INCREASE-CURRENT> 281,972
<NET-CHANGE-FROM-OPS> 6,148,076
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,867,394
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,491,889
<NUMBER-OF-SHARES-REDEEMED> 1,585,950
<SHARES-REINVESTED> 203,462
<NET-CHANGE-IN-ASSETS> 14,592,981
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,409,521)
<OVERDISTRIB-NII-PRIOR> (56,525)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 323,196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 748,145
<AVERAGE-NET-ASSETS> 49,758,983
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0.00
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000862473
<NAME> SHORT-INTERMEDIATE INCOME FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 91,924,754
<INVESTMENTS-AT-VALUE> 93,266,019
<RECEIVABLES> 945,832
<ASSETS-OTHER> 38,829
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,250,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,032,200
<TOTAL-LIABILITIES> 2,032,200
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,425,469
<SHARES-COMMON-STOCK> 4,254,449
<SHARES-COMMON-PRIOR> 3,052,560
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 214,183
<ACCUMULATED-NET-GAINS> (2,783,475)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,341,265
<NET-ASSETS> 92,218,479
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,779,577
<OTHER-INCOME> 0
<EXPENSES-NET> 540,135
<NET-INVESTMENT-INCOME> 5,239,442
<REALIZED-GAINS-CURRENT> 626,662
<APPREC-INCREASE-CURRENT> 281,972
<NET-CHANGE-FROM-OPS> 6,148,076
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,530,324
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,941,098
<NUMBER-OF-SHARES-REDEEMED> 1,796,192
<SHARES-REINVESTED> 56,983
<NET-CHANGE-IN-ASSETS> 14,592,981
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,409,521)
<OVERDISTRIB-NII-PRIOR> (56,525)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 323,196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 748,145
<AVERAGE-NET-ASSETS> 42,548,953
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0.00
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE>
Flag Investors Short-Intermediate Income Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Class C and
Flag Investors Institutional Shares
Adopted December 13, 1995
Amended through March 26, 1997
With exhibits through September 28, 1998
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors
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 Class C and Flag
Investors Institutional) 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 Flag Investors Class B and the Flag Investors Class C 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. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors. Before any material 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>
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:
<TABLE>
<CAPTION>
===============================================================================================================
<S> <C> <C> <C>
Total No. of Shares Class A Shares Class B Shares Unclassified Shares
- ---------------------------------------------------------------------------------------------------------------
50,000,000 45,000,000 2,000,000 3,000,000
================================================================================================================
</TABLE>
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: March 26, 1997
<PAGE>
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.
Approved: August 4, 1997
Approval of Distribution Agreements for all classes of
Flag Investors Short-Intermediate Income Fund, Inc.
RESOLVED, that ICC Distributors, Inc. Brown Cash Reserve Fund, Inc., Flag
Investors Telephone Income Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., Flag Investors Short-Intermediate
Income Fund, Inc., Flag Investors Value Builder Fund, ("ICC ") be, and it hereby
is, appointed distributor for all classes of Alex. Inc., Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc. and Flag Investors Equity Partners Fund, Inc., and for the Flag
Investors classes of each of Managed Municipal Fund, Inc. and Total Return U.S.
Treasury Fund, Inc., such appointment to be effective upon the consummation of
the merger of Alex. Brown Incorporated with and into a subsidiary of Bankers
Trust New York Corporation (the "Merger"), or at such other time as the proper
officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement between
Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with respect to
all shares except the Flag Investors Shares be, and the same hereby is, approved
in substantially the form presented to this meeting and that the appropriate
officers of the Fund be, and they hereby are, authorized and directed to
negotiate, enter into and execute such Distribution Agreement with such
modifications as said officers in consultation with counsel shall deem necessary
or appropriate or as may be required to conform with the requirements of any
applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Distribution Agreement between
Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag
<PAGE>
Investors International Fund, Inc., Flag Investors Emerging Growth Fund, Inc.,
Total Return U.S. Treasury Fund, Inc. (for Flag Investors Shares), Managed
Municipal Fund, Inc. (for the Flag Investors Shares), Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc., and Flag Investors Equity Partner Fund, Inc.,
and ICC Distributors, Inc. be, and the same hereby is, approved in substantially
the form presented to this meeting and that the appropriate officers of the
Funds be, and they hereby are, authorized and directed to negotiate, enter into
and execute such Distribution Agreement with such modifications as said officers
in consultation with counsel shall deem necessary or appropriate or as may be
required to conform with the requirements of any applicable statute, regulation
or regulatory body.
Approved: August 4, 1997
Approval of Distribution Plans for Flag Investors
Class A Shares and Flag Investors Class B Shares
RESOLVED, that the Plan of Distribution for the Flag Investors Class A Shares of
Flag Investors Short-Intermediate Income Fund, Inc. be, and hereby is, amended
to reflect the change in distributor approved at this meeting, such amendment to
be effective upon the consummation of the Merger, or such other time as the
proper officers of the Fund shall determine;
RESOLVED, that the amended Plan is determined to be reasonably likely
to benefit such class and its shareholders; and that based on information
reasonably available to the Directors, expenditures contemplated by such Plan
are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as amended, be,
and the same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Flag Investors
Class B Shares of said Fund be, and hereby is, amended to reflect the change in
distributor approved at this meeting, such amendment to be effective upon the
consummation of the Merger, or such other time as the proper officers of the
Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be reasonably
likely to benefit such class and its shareholders; and that based on information
reasonably available to the Directors, expenditures contemplated by such Plan
are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as amended, be,
and the same hereby is, approved; and
<PAGE>
FURTHER RESOLVED, that at such time as the Fund offers the Flag
Investors Class B Shares, the amended Plan of Distribution presented at this
meeting shall govern the payment of 12b-1 fees by that class.
Date Approved: March 27, 1998
Approval of Restated New Distribution Agreements and Forms
of Sub-Distribution and Shareholder Servicing Agreements
RESOLVED, that the proposed Restated Distribution Agreement between
Flag Investors Short-Intermediate Income Fund, Inc. and ICC Distributors, Inc.
for each class of the Fund's shares, be, and the same hereby is, approved in
substantially the form presented to this meeting and that the appropriate
officers of the Fund be, and they hereby are, authorized and directed to enter
into and execute such Distribution Agreement with such modifications as said
officers shall deem necessary or appropriate or as may be required to conform
with the requirements of any applicable statute, regulation or regulatory body.
RESOLVED, that the proposed form of Sub-Distribution Agreement for the
Flag Investors Family of Funds be, and hereby is, approved in substantially the
form presented to this meeting; and
FURTHER RESOLVED, that the proposed form of Shareholder Servicing
Agreement for the Flag Investors Family of Funds be, and the same hereby is,
approved in substantially the form submitted to this meeting.
FURTHER RESOLVED, that the proper officers of Flag Investors
Short-Intermediate Income Fund, Inc. be, and they hereby are, authorized and
directed in the name and on behalf of their respective Funds, to take all
necessary or appropriate actions to effect the purposes of the foregoing
resolutions.
Date Approved: September 28, 1998
Establishment of Flag Investors Class C
Shares, Authorization to Increase Authorized
Amounts, Designate New Shares, File Articles Supplementary
to the Fund's Articles of Incorporation and
Take Other Necessary or Appropriate Action
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Short-Intermediate Income Fund, Inc. is
authorized to issue be, and hereby is, increased from sixty million (60,000,000)
shares, having the aggregate par value of sixty thousand dollars ($60,000), to
seventy-five million (75,000,000) shares, having the aggregate par value of
seventy-five thousand dollars ($75,000), and that from such amount, fifteen
million (15,000,000) authorized and unissued shares be, and they hereby are,
designated and classified as the "Flag Investors Short-Intermediate Income Fund
Class C Shares" (the "Flag Investors Class C Shares");
FURTHER RESOLVED, that the proper officers of Flag Investors
Short-Intermediate Income Fund, Inc. be, and each of them hereby is, authorized
and directed to execute and file Articles Supplementary to the Fund's Articles
of Incorporation to effectuate the increase in authorized shares and to
designate and classify the Flag Investors Class C Shares;
FURTHER RESOLVED, that the proper officers of Flag Investors
Short-Intermediate Income Fund, Inc. be, and they hereby are, authorized and
directed in the name and on behalf of the Fund to file with the Securities and
Exchange Commission a supplement to the Fund's prospectus and to take all other
actions and make all other filings that the officer so acting may deem necessary
or appropriate in connection with the establishment of
<PAGE>
the Flag Investors Class C Shares, the taking of any such action to establish
conclusively such officer's authority therefor and the approval and ratification
thereof by the Fund; and
FURTHER RESOLVED, that any and all actions heretofore or hereafter
taken by such officer or officers within the terms of the foregoing resolutions
be, and they hereby are, ratified and confirmed as the authorized act and deed
of Flag Investors Short-Intermediate Income Fund, Inc.
<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. Amended Articles of Incorporation and Amendment to Amended Articles of
Incorporation filed as Exhibits (1)(b) and (1)(c), respectively,
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 are
incorporated herein by reference.
3. Articles Supplementary filed as Exhibits (1)(d) and (1)(e) 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 are
incorporated herein by reference.
4. Articles Supplementary filed as Exhibit (1)(f) to Post Effective Amendment
No. 9 to Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-97-000791) on April 28, 1997 are incorporated herein
by reference.
5. Articles Supplementary establishing the ABCAT Shares filed as Exhibit (1)(g)
to Post-Effective Amendment No. 9 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-97-000791) on April 28, 1997 are
incorporated herein by reference.
6. Articles of Amendment to the Articles of Incorporation with respect to the
Registrant's name change filed as Exhibit (1)(h) to Post-Effective Amendment No.
9 to Registrant's Registration Statement on Form N-1A (Registration No.
33-34275), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-97-000791) on April 28, 1997 are incorporated herein
by reference.
7. Articles Supplementary filed as Exhibits (a)(9) and (a)(10) to this
Post-Effective Amendment No. 11 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed herewith and are herein incorporated by
reference.
8. Articles of Amendment filed as Exhibit (a)(11) to this Post-Effective
Amendment No. 11 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275), filed herewith and are incorporated herein by
reference.
9. By-Laws as amended through December 18, 1996 filed as Exhibit (2) to
Post-Effective Amendment No. 9 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-34275), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-97-000791) on April 28, 1997 are
incorporated herein by reference.
10. Distribution Agreement between Registrant and ICC Distributors, Inc. with
respect to Flag Investors Shares filed as Exhibit (6)(a) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-34275), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000948) on April 28, 1998 and is
incorporated herein by reference.
<PAGE>
11. Distribution Plan with respect to the Class A Shares filed as Exhibit
(15)(b) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-34275), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-98-000948) on April 28,
1998 and is incorporated herein by reference.
12. Form of Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Broker-Dealers filed as Exhibit (6)(b) to Post Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A (Registration No.
33-34275) filed with the Securities and Exchange Commission via EDGAR (Accession
No. 950116-98-000948) on April 28, 1998 and is incorporated herein by reference.
13. 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), and as amended from time to time, is incorporated
herein by reference.
14. 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), and as amended from time to time, is
incorporated herein by reference.
<PAGE>
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 Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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: February 25, 1999
<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 Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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 Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Richard T. Hale
----------------------
Richard T. Hale
Date: February 25, 1999
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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/Joseph R. Hardiman
-----------------------
Joseph R. Hardiman
Date: February 25, 1999
<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 Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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: February 25, 1999
<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 Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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: February 25, 1999
<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 Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors 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: February 25, 1999
<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 Amy M. Olmert, and each of them singly, her true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in her name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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: February 25, 1999
<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 Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors 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: February 25, 1999
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors 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/Harry Woolf
-------------------
Harry Woolf
Date: February 25, 1999
