LOGO
Short-Intermediate
Income
Annual Report
December 31, 1998
<PAGE>
REPORT HIGHLIGHTS
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o Maintaining its focus on quality, your Fund's Class A Shares delivered
total returns of 3.6% and 6.8% for the 6- and 12-month periods ending
December 31, 1998, respectively.
o Global financial turmoil, particularly the Long Term Capital hedge fund
crisis, prompted the Federal Reserve to lower short-term rates in an effort
to restore stability.
o Benign inflationary pressures, a domestic budget surplus, and a steady U.S.
economy have allowed long Treasury rates to fall to levels not seen for a
generation.
o Declines in rates on non-governmental debt (corporates and mortgages) have
not kept pace with Treasuries, presenting future opportunities.
<PAGE>
LETTER TO SHAREHOLDERS
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Dear Shareholders:
We are pleased to report on the Fund's progress for the six- and
twelve-month period ended December 31, 1998.
1998 In Review
The environment of steady interest rates, low inflation and a relatively
stable government vaulted the U.S. economy to the status of the only pillar of
strength in the world. The combination of foreign investors, assured by the
financial leadership of Federal Reserve Chairman Greenspan and Treasury
Secretary Rubin, and an American consumer, confident with abundant jobs and
buoyant income, drove equity prices to record high levels. Concerned by steadily
climbing equity prices and tight labor markets, the Federal Reserve signaled a
bias toward tighter monetary policy. Neither the Federal Reserve nor investors
could have anticipated that events looming on the horizon, specifically the
Russian debt default and the Long Term Capital hedge fund crisis, would threaten
world financial market stability. As investors fled to the security of the U.S
treasury market, temporarily causing a de-linking of equity and fixed income
markets, credit and liquidity spreads widened dramatically. The Federal Reserve
responded to the turbulence with three twenty-five basis point reductions in
interest rates, restoring confidence and liquidity to the markets and
establishing the foundation for an historic continuation of the eight year old
bull market.
Outlook
The outlook for interest rates in 1999 will depend on the pace of economic
growth, its influence on inflation and the Federal Reserve's response to these
developments. As international monetary flows remain critical to the world's
capital markets, competition from the ascending euro currency may challenge the
U.S government market as a safe haven. With Brazil's economic problems
escalating, likely forcing currency devaluation and the Japanese government
unwilling to address their languishing economy, our markets may experience deja
vu. While Greenspan remains the world's most respected central banker, concerns
of Rubin resigning his post and the impending impeachment proceedings against
President Clinton may deter confidence in the United States' ability to attract
global investments. The stellar rebound in our equity markets has perpetuated
potentially unrealistic return expectations and if corporate earnings disappoint
investors and the economy slows, we think the Federal Reserve will resume easing
of interest rates.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
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Portfolio Considerations
With intermediate- and long-term maturity U.S. Treasuries at interest rate
levels not seen for decades, we may be closer to the end of the secular decline
in interest rates. Avoiding principal risk while maximizing income will take
even greater care. To enhance the yield of your Fund, we have purchased
benchmark agency issues as a proxy for Treasuries. Additionally, we have
increased mortgage positions and continue to hold corporate and asset-backed
paper to provide yield. As the fixed-income market returns to justifiable spread
relationships, we intend to reduce the Fund's exposure to these spread sectors.
<TABLE>
<CAPTION>
Performance Comparisons 1
For Periods Ended December 31, 1998 Six Months One Year Avg. Duration
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Short-Intermediate
Income Fund - Class A Shares 3.58% 6.81% 3.1 yrs.
.....................................................................................
Institutional Shares 3.67% 7.07% 3.1 yrs.
.....................................................................................
Lehman Brothers Intermediate-Term Gov't./
Corp. Bond Index 4.80% 8.84% 3.4 yrs.
.....................................................................................
Lipper Short Intermediate-Term Bond Fund
Peer Group 3.48% 6.59% N/A
- -------------------------------------------------------------------------------------
</TABLE>
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1 These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of the Fund's 1.50% maximum sales charge.
If the sales charge were reflected, the quoted performance would be lower. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. The Lehman
Brothers Intermediate Government/Corporate Bond Index is an unmanaged index that
is widely recognized as an indicator of performance in the intermediate-term
government and corporate bond sector. The Lipper Short-Intermediate Investment
Grade Debt Funds Average is an index of approximately 85 managed funds that have
at least 65% of their assets in investment grade debt securities that are rated
in the top four grades and have dollar-weighted average maturities of one to
five years. Individuals cannot invest directly in any index. Past performance is
not an indicator of future results. Please review the Additional Performance
Information on page 5.
2
<PAGE>
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PIE CHART
Portfolio Composition
December 31, 1997
Mortgage-Backed 13%
Treasury and Agency 33%
Corporate 28%
Asset-Backed 18%
Cash 8%
December 31, 1998
Treasury and Agency 11%
Mortgage-Backed 28%
Corporate 39%
Asset-Backed 21%
Cash 1%
Dividend Policy
The Fund continues to distribute $0.05 per share monthly. Maintaining the
current income level while preserving principal will be challenging in the
months to come. We appreciate your continued support.
Sincerely,
M. Elliott Randolph, Jr. Paul D. Corbin
- ----------------------- ---------------
/s/ M. Elliott Randolph, Jr. /s/ Paul D. Corbin
Portfolio Manager Portfolio Manager
January 20, 1999
3
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on May 13,
1991 through the most recent fiscal year-end and must reflect the impact of the
Fund's total expenses and its currently effective 1.50% maximum sales charge for
the Fund's Class A Shares.
In addition to the Lehman Brothers Intermediate Government/Corporate Bond
Index, we will also begin comparing the Fund's performance to the Merrill Lynch
1-3 Year Treasury Index because we believe its shorter average maturity also
makes it an appropriate benchmark for the Fund.
While the following chart is required by SEC rules, such comparisons are of
limited utility since the indices shown are not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of these indices would have
had to own the securities that they represent. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
4
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment in Class A Shares* May 13, 1991-December
31, 1998
5/91 9850 10000 10000
12/91 10815 10993 10759
12/92 11429 11780 11436
12/93 12455 12815 12057
12/94 12042 12569 12125
12/95 13909 14497 13458
12/96 14471 15084 14129
12/97 15503 16271 15070
12/98 16558 17709 16125
Flag Investors Short-Intermediate Income Fund $16,558
Lehman Brothers Intermediate Gov't./Corp. Bond Index $17,709
Merrill Lynch 1-3 Year Treasury Index $16,125
Average Annual
Total Return*
Periods Ended 12/31/98 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class A Shares 5.20% 5.54% 6.83%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results. The
Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index that is widely recognized as a general measure of the
performance in the intermediate-term government and corporate bond sector.
The Merrill Lynch 1-3 Year Treasury Index is an unmanaged index that is
widely recognized as a general measure of the performance in the short-term
Treasury sector.
** May 13, 1991.
5
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares*
November 2, 1995-December 31, 1998
11/95 10000 10000 10000
12/95 10202 10105 10077
6/96 10174 10083 10212
12/96 10630 10514 10578
6/97 10922 10812 10883
12/97 11417 11342 11282
6/98 11791 11736 11623
12/98 12224 12345 12072
Flag Investors Short-Intermediate Income Fund $12,224
Lehman Brothers Intermediate Gov't./Corp. Bond Index $12,345
Merrill Lynch 1-3 Year Treasury Index $12,072
- --------------------------------------------------------------------------------
Average Annual
Total Return*
Periods Ended 12/31/98 1 Year 5 Years Since Inception**
Institutional Shares 7.07% 6.21% 6.56%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** 11/2/95
6
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7
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<TABLE>
<CAPTION>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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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
-----------
8
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- ------------------------------------------------------------------------------------
S&P Par
Security Rating* (000) Market Value
- ------------------------------------------------------------------------------------
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
9
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- -----------------------------------------------------------------------------------
Statement of Net Assets (concluded) December 31, 1998
S&P Par
Security Rating* (000) Market Value
- -----------------------------------------------------------------------------------
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
See Notes to Financial Statements
10
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- ------------------------------------------------------------------------------------
S&P Par
Security Rating* (000) Market Value
- ------------------------------------------------------------------------------------
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>
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* 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.
11
<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.
12
<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.
13
<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 Return1 ......................................... 6.81% 7.13% 4.04% 15.43% (3.32)%
Ratios to Average Daily Net Assets:
Expenses2 .......................................... 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income3 ............................. 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>
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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.
14 and 15
<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, 19951
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 Return2 ............................................ 7.07% 7.40% 4.20% 12.47%
Ratios to Average Daily Net Assets:
Expenses3 ............................................. 0.45% 0.45% 0.45% 0.45%5
Net investment income4 ................................ 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>
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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.
16 and 17
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
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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
18
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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
19
<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.
20
<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
============ ============
21
<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.
22
<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
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE TAX YEAR ENDED DECEMBER 31, 1998
Of the ordinary distributions made during the fiscal year ended December
31, 1998, 46.94% have been derived from investments in U.S. Government and
Agency Obligations. All or a portion of the distributions from this income may
be exempt from taxation at the state level. Consult your tax advisor for state
specific information.
23
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
Directors and Officers
RICHARD T. HALE
Chairman
JAMES J. CUNNANE
Director
JOSEPH R. HARDIMAN
Director
LOUIS E. LEVY
Director
EUGENE J. MCDONALD
Director
REBECCA W. RIMEL
Director
TRUMAN T. SEMANS
Director
CARL W. VOGT, ESQ.
Director
HARRY WOOLF
President
JOSEPH A. FINELLI
Treasurer
AMY M. OLMERT
Secretary
SCOTT J. LIOTTA
Assistant Secretary
Investment Objective
An open-end mutual fund designed to provide a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure.
24
<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
<PAGE>
LOGO
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
SPECIALTY
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
BALANCED
Flag Investors Value Builder Fund
FIXED INCOME
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
TAX-FREE INCOME
Flag Investors Managed Municipal Fund Shares
MONEY MARKET
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
SHORTANN
(2/99)
