FLAG INVESTORS SHORT INTERMEDIATE INCOME FUND INC, 497, 2000-05-02

FLAG INVESTORS SHORT INTERMEDIATE INCOME FUND INC
497, 2000-05-02

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Short-Intermediate
Income Fund, Inc.
(Class A Shares)

Prospectus
May 1, 2000

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.

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{GRAPHIC OMITTED]

This mutual fund (the "Fund") seeks a high level of current income consistent
with preservation of principal within an intermediate-term maturity structure.

TABLE OF CONTENTS
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Investment Summary ............................ 1
Fees and Expenses of the Fund ................. 2
Investment Program ............................ 3
The Fund's Net Asset Value .................... 4
How to Buy Shares ............................. 4
How to Redeem Shares .......................... 5
Telephone Transactions ........................ 6
Sales Charges ................................. 6
Dividends and Taxes ........................... 8
Investment Advisor and Sub-Advisor ............ 8
Financial Highlights .......................... 10

Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203

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INVESTMENT SUMMARY
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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 (the "Advisors") 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 may be 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.

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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.

Maturity, Duration and Credit Risk. The increases and decreases in the
value of the Fund's shares in response to changes in interest rates will
generally be larger if the Fund's portfolio has a longer duration, if the Fund
holds securities with longer maturities or if the Fund holds lower-quality
securities.

Prepayment Risk. Unexpected prepayment of principal in connection with
mortgage-backed securities held by the Fund may negatively impact the value of
your investment in the Fund.

If you invest in the Fund, you 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 different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record and do not
necessarily indicate how the Fund will perform in the future.

Class A Shares*
For years ended December 31,

5.68% 8.98% (3.32)% 15.43% 4.04% 7.13% 6.81% 0.70%
---------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999

</TABLE>

* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period from December 31, 1999 through March
31, 2000, the year-to-date return for Class A Shares was 1.62%.

During the eight-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).

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Average Annual Total Return (for periods ended December 31, 1999)

<TABLE>
<CAPTION>
Lehman Brothers Intermediate Merrill Lynch 1-3
Government/Corp Bond Year Treasury
Class A Shares(1) Index(2) Index(2)
------------------------------ ------------------------------ ------------------
<S> <C> <C> <C>
Past One Year ........... (0.81)% 0.39% 3.06%
Past Five Years ......... 6.40% 7.10% 6.51%
Since Inception ......... 6.10%(5/13/91) 6.89%(3) 6.10%(3)
</TABLE>

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(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 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. The indexes are passive measures of bond and Treasury
performance, respectively. They do 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 12/31/99.

FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.

<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment):

Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) ..... 1.50%(1)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or
redemption proceeds, whichever is lower) ............................................... 0.50%(1)
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)%(2)
----
Net Expenses ............................................................................. 0.70%
====
</TABLE>

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(1) 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.")
(2) 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, 2001 and
may be extended.

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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:

1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Class A Shares(1) ....... $220 $420 $637 $1,266

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(1) Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year one only.

Federal regulations require that the Example 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.

INVESTMENT PROGRAM
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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 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 only purchase 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. Average maturity measures the average time until which
the bonds in the Fund's portfolio are payable. Average duration measures the
Fund's exposure to the risk of changing interest rates. 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.

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Interest Rate 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.

Prepayment Risk. In addition to the interest rate risk experienced by all
fixed income securities, mortgage-backed securities are exposed to prepayment
risk. Rising interest rates tend to discourage refinancings, a primary source
of prepayments. As a result, in a rising interest rate environment, the average
life and volatility of mortgage-backed securities will increase and their
market price will decrease. Falling interest rates tend to encourage
refinancings. As a result, in a falling interest rate environment, the market
price of mortgage-backed securities will not increase as much as other debt
securities and the cash generated by the prepayments will have to be reinvested
at the lower prevailing rates. Prepayment changes 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.

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There can be no guarantee that the Fund will achieve its goals.

To reduce the Fund's risks 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 in pursuing
the Fund's primary investment strategies outweighed the opportunity for gain.

THE FUND'S NET ASSET VALUE
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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 on each day the Exchange is open
for business. While regular trading ordinarily closes at 4:00 p.m. Eastern
Time, it could be earlier on the day before a holiday. Contact the Transfer
Agent to determine whether the Fund will close early before a particular
holiday. The net asset value per share of a class is calculated by subtracting
the liabilities attributable to a class from its proportionate share of the
Fund's assets and dividing the result by the outstanding shares of the class.

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,
the security is priced at its "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
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You may buy Class A Shares through your secur-ities 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 Class A Shares by sending your check (along with a completed
Application Form) directly to the Fund.

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. Your subsequent

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investments may be as low as $100 if you participate in the monthly
plan or $250 if you participate in the quarterly plan. Refer to the
section on the Fund's Automatic Investing Plan for details.

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 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 Class A shares of other Flag Investors funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the 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 Class A 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:

1) A letter of instructions specifying your account number and the number of
Class A Shares or dollar amount you wish to redeem. All owners of shares
must sign the letter exactly as their names appear on the account.

2) A guarantee of your signature if you are redeeming shares worth more than
$50,000. You can obtain a signature guarantee from most banks or securities
dealers.

3) Any stock certificates representing the 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 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 paid to you in cash whether or not that is the payment
option you have selected.

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.

If you own Class A Shares having a value of at least $10,000, you may
arrange to have some of your 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.

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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 7:00 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 either 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 or facsimile. If you hold your 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 is the 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 is based on 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 charge you pay on your current purchase of Class A Shares may
be reduced under the following circumstances:

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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 a reduced sales charge. (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. Each time you make a 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 Class A shares of another Flag
Investors fund for an investment in this Fund (see "Purchases by Exchange"
for a description of the conditions).

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3) If you are a current or retired Director of this or any affiliated fund, 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 shares of
the Fund.

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. Your securities dealer or servicing
agent may charge you an additional fee if you buy shares in this
manner.

Purchases by Exchange

You may exchange Class A shares of any other Flag Investors fund for an
equal dollar amount of Class A Shares, without payment of the sales charges
described above or any other charge, up to four times a year. You may not
exchange Class A shares of a Flag Investors money market fund unless you
acquired those shares through a prior exchange from shares of another Flag
Investors fund. 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

You will pay a sales charge when you redeem Class A Shares within 24
months of purchase only if your shares were purchased at net asset value
because they were part of an investment of $1 million or more. The amount of
any sales charge deducted from your redemption price will be determined
according to the following schedule:

<PAGE>

Sales Charge as a Percentage
of the Dollar Amount
Subject to Charge
(as % of
Years Since Purchase Cost or Value)
- -------------------------------------------------------
First ................ 0.50%
Second ............... 0.50%
Thereafter ........... None
- -------------------------------------------------------

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 shares you own as a result of reinvesting
dividends or distributions.

2) If you have purchased shares at various times, the sales charge will be
applied first to the shares you have owned for the longest period of time.

3) If you acquired your shares through an exchange of Class A shares of another
Flag Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase.

4) The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.

Waiver of Sales Charge. You may redeem Class A Shares within 24 months of
purchase 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.

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 share balance.

4) If 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 Minors Acts.

(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.

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<PAGE>

5) If 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 it to pay your
securities dealer or shareholder servicing agent distribution and other fees
for the sale of Class A Shares and for shareholder service. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges. In addition to these payments, the Fund's
investment advisor may provide significant compensation to securities dealers
and servicing agents for distribution, administrative and promotional services.

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

Dividends and Distributions

The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends and to distribute
net capital gains on an annual basis.

Taxes

The following summary is based on current tax laws, which may change.

The Fund will distribute substantially all of its net income and capital
gains. The dividends and distributions you receive are 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. Each
sale or exchange of the Fund's shares is generally a taxable event. The Fund
will tell you annually how to treat dividends and distributions.

More information about taxes is in the Statement of Additional
Information.

Please contact your tax advisor if you have specific questions about
federal, state and local income taxes.

INVESTMENT ADVISOR AND SUB-ADVISOR
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Investment Company Capital Corp. ("ICCC" 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. ICCC is also the investment advisor
to other mutual funds in the Flag Investors family of funds and Deutsche Banc
Alex. Brown Cash Reserve Fund, Inc. These funds, together with the Fund, had
approximately $14 billion of net assets as of March 31, 2000. Brown Trust is a
Maryland trust company with approximately $5 billion under management as of
March 31, 2000.

ICCC 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.

As compensation for its advisory services for the fiscal year ended
December 31, 1999, ICCC received from the Fund a fee equal to 0.12% (net of fee
waivers) of the Fund's average daily net assets. ICCC compensates Brown Trust
out of its investment advisory fee. ICCC 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 0.70% of average daily net assets. This
agreement will continue until at least April 30, 2001 and may be extended.

The Advisor is an indirect, wholly owned subsidiary of Deutsche Bank,
A.G. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including investment management, mutual
funds, retail and commercial banking, investment banking and insurance. The
Advisor was formerly an indirect subsidiary of Bankers Trust Corporation.

On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. ICCC became a subsidiary of Bankers Trust Corporation in a
merger that occurred after these events took place. Bankers Trust plead guilty
to misstating entries in the bank's books and records and agreed to pay a $63.5

8
<PAGE>

million fine to state and federal authorities. On July 26, 1999, the federal
criminal proceedings were concluded with Bankers Trust's formal sentencing. The
events leading up to the guilty pleas did not arise out of the investment
advisory or mutual fund management activities of Bankers Trust or its
affiliates.

As a result of the plea, absent an order from the SEC, ICCC may not be
able to continue to provide investment advisory services to the Fund. The SEC
has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.

Portfolio Managers

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 over 25 years of investment experience. He is a Partner
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 22 years of investment experience. He is a Partner 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.

9
<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). The information for the year ended December 31, 1999 has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's Annual Report, which is
available upon request. The information for the years ended December 31, 1995
through December 31, 1998 has been audited by Deloitte & Touche LLP.

(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A Shares
-------------------------------------------------------------------
For the Years Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ............. $ 10.48 $ 10.39 $ 10.28 $ 10.48 $ 9.62
-------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ............................ 0.57 0.58 0.61 0.63 0.62
Net realized and unrealized gain/(loss) on
investments .................................... (0.50) 0.11 0.10 (0.23) 0.84
--------- ------- ------- ------- -------
Total from Investment Operations ................. 0.07 0.69 0.71 0.40 1.46
--------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment income ......... (0.59) (0.58) (0.60) (0.60) (0.60)
Distributions in excess of net investment
income ......................................... -- (0.02) -- -- --
Return of capital ................................ (0.01) -- -- -- --
--------- ------- ------- ------- -------
Total distributions .............................. (0.60) (0.60) (0.60) (0.60) (0.60)
--------- ------- ------- ------- -------
Net asset value at end of year ................... $ 9.95 $ 10.48 $ 10.39 $ 10.28 $ 10.48
========= ======= ======= ======= =======
Total Return(1) ................................... 0.70% 6.81% 7.13% 4.04% 15.43%
Ratios to Average Daily Net Assets:
Expenses before waivers .......................... 0.93% 0.93% 0.96% 0.99% 0.93%
Expenses after waivers ........................... 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income ............................ 5.63% 5.57% 5.92% 6.11% 6.00%
Supplemental Data:
Net assets at end of year (000) .................. $ 42,559 $47,107 $45,569 $58,584 $67,116
Portfolio turnover rate .......................... 47% 40% 65% 42% 46%
</TABLE>

- -----------
(1) Total return excludes the effect of a sales charge.

10
<PAGE>

Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202

Sub-Advisor
BROWN INVESTMENT ADVISORY & TRUST COMPANY
Furness House
19 South Street
Baltimore, Maryland 21202

Distributor
ICC DISTRIBUTORS, INC.

Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080

Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201

Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006

Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103

<PAGE>

[GRAPHIC OMITTED]

Flag Investors o P.O. Box 515 o Baltimore, MD 21203 o (800) 767-FLAG
www.flaginvestors.com

- --------------------------------------------------------------------------------

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 1-202-942-8090 to find out about the operation of the Public Reference
Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.

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 (5/00)

<PAGE>

[GRAPHIC OMITTED]

Short-Intermediate
Income Fund, Inc.
(Institutional Shares)

Prospectus
May 1, 2000

<PAGE>

[GRAPHIC OMITTED]

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 financial institutions
that act as shareholder servicing agents. You may also buy 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, by certain qualified retirement plans,
or by investment advisory affiliates of DB Alex. Brown LLC or the Flag Investors
family of funds on behalf of their clients. (See "How to Buy Institutional
Shares.")

TABLE OF CONTENTS
- -----------------

Investment Summary ............................ 1
Fees and Expenses of the Institutional
Shares ..................................... 2
Investment Program ............................ 2
The Fund's Net Asset Value .................... 3
How to Buy Institutional Shares ............... 4
How to Redeem Institutional Shares ............ 4
Telephone Transactions ........................ 4
Dividends and Taxes ........................... 5
Investment Advisor and Sub-Advisor ............ 5
Financial Highlights .......................... 7

Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203

<PAGE>

INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
Objectives and Strategies

Risk Profile

The Fund may be 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.

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.

Prepayment Risk. Unexpected prepayment of principal in connection with
mortgage-backed securities held by the Fund may negatively impact the value of
your investment in the Fund.

If you invest in the Fund, you 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.

<PAGE>

Fund Performance

Institutional Shares*
For years ended December 31,

1996 1997 1998 1999
----------------------------------------
4.20% 7.40% 7.07% 1.02%

- --------------------------------------

* For the period from December 31, 1999 through March 31, 2000, the
year-to-date return for the Institutional Shares was 1.64%.

During the four-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, 1999)

<TABLE>
<CAPTION>
Lehman
Brothers Merrill
Intermediate Lynch
Government/ 1-3 Year
Institutional Corp Bond Treasury
Shares(1) Index(2) Index(2)
--------- -------- --------
<S> <C> <C> <C>
Past One Year ........ 1.02% 0.39% 3.06%
Since Inception ...... 5.20%(11/2/95) 5.52%(3) 5.61%(3)
</TABLE>

- -----------
(1) These figures assume the reinvestment of dividends and capital gain
distributions.
(2) 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. The indexes are passive measures of bond and Treasury
performance, respectively. They do 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 12/31/99.

1
<PAGE>

FEES AND EXPENSES OF THE 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)%(1)
Net Expenses .................................................................. 0.45%
========
</TABLE>

- ------------------------
(1) 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 0.45% of the Institutional Shares' average
daily net assets. This agreement will continue until at least April 30, 2001
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(1) .......... $46 $196 $362 $853
</TABLE>

- ------------------------
(1) Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year one only.

<PAGE>

INVESTMENT PROGRAM
- --------------------------------------------------------------------------------

Investment Objective, Policies and Risk
Considerations

An investment in the Fund entails risk.

2
<PAGE>

There can be no guarantee that the Fund will achieve its goals.

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 on each day the Exchange is open for business. While regular trading
ordinarily closes at 4:00 p.m. Eastern Time, it could be earlier on the day
before a holiday. Contact the Transfer Agent to determine whether the Fund will
close early before a particular holiday. The net asset value per share of the
Institutional Shares 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,
the secur-ity is priced at its "fair value" using procedures approved by the
Fund's Board of Directors.

The following sections describe how to buy and redeem Institutional
Shares.

3
<PAGE>
HOW TO BUY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

You may buy Institutional Shares if you are any of the following:

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 DB Alex. Brown LLC or the Flag
Investors family of funds 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.

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 DB Alex. Brown LLC or the Flag Investors family of funds
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 of the Fund up to four times
a year. The Fund may modify or terminate this offer of exchange upon 60 days'
notice.

HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

You may redeem 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 paid in cash whether or not that is the payment option you
have selected.

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 7:00 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.

4
<PAGE>

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

Dividends and Distributions

The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends and to distribute
net capital gains on an annual basis.

Dividend Reinvestment

Unless you elect otherwise, all income and capital gains distributions
will be reinvested in additional Fund 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
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.

Taxes

The following summary is based on current tax laws, which may change.

The Fund will distribute substantially all of its net income and capital
gains. The dividends and distributions you receive are 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. Each
sale or exchange of the Fund's shares is generally a taxable event. The Fund
will tell you annually how to treat dividends and distributions.

More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.

INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------

As compensation for its advisory services for the fiscal year ended
December 31, 1999, ICCC received from the Fund a fee equal to 0.12% (net of fee
waivers) of the Fund's average daily net assets. ICCC compensates Brown Trust
out of its advisory fee. ICCC 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, 2001 and may be extended. ICCC
also may provide significant compensation to securities dealers and servicing
agents for distribution, administrative and promotional services.

On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in

5
<PAGE>

the Southern District of New York to resolve an investigation concerning
inappropriate transfers of unclaimed funds and related record-keeping problems
that occurred between 1994 and early 1996. ICCC became a subsidiary of Bankers
Trust Corportion in a merger that occurred after these events took place.
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.

Portfolio Managers

M. Elliott Randolph, Jr., and Paul D. Corbin have shared primary
responsibility for managing the Fund's assets since its inception in 1991.

6
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Fund's financial performance since
the class 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). The information for the year ended
December 31, 1999 has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, is included in the Fund's Annual
Report, which is available upon request. The information for the period ended
December 31, 1995 and the years ended December 31, 1996 through December 31,
1998 has been audited by Deloitte & Touche LLP.

(For an Institutional Share outstanding throughout each period)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For the Years
Ended
December 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
1999 1998 1997 1996
---- ---- ---- ----
Per Share Operating Performance:
Net asset value at beginning of period ................... $ 10.60 $ 10.50 $ 10.38 $ 10.58
-------- -------- --------- ---------
Income from Investment Operations:
Net investment income .................................... 0.61 0.61 0.61 0.59
Net realized and unrealized gain/(loss) on
investments ............................................ (0.51) 0.11 0.13 (0.17)
-------- -------- --------- ---------
Total from Investment Operations ......................... 0.10 0.72 0.74 0.42
-------- -------- --------- ---------
Less Distributions:
Distributions from net investment income ................. (0.60) (0.61) (0.62) (0.62)
Distributions in excess of net investment income ......... -- (0.01) -- --
-------- -------- --------- ---------
Return of capital ........................................ (0.02) -- -- --
Total distributions ...................................... (0.62) (0.62) (0.62) (0.62)
-------- -------- --------- ---------
Net asset value at end of period ......................... $ 10.08 $ 10.60 $ 10.50 $ 10.38
======== ======== ========= =========
Total Return .............................................. 1.02% 7.07% 7.40% 4.20%
Ratios to Average Daily Net Assets:
Expenses before waivers .................................. 0.68% 0.67% 0.72% 0.76%
Expenses after waivers ................................... 0.45% 0.45% 0.45% 0.45%
Net investment income .................................... 5.88% 5.81% 6.17% 6.35%
Supplemental Data:
Net assets at end of period (000) ........................ $ 40,617 $ 45,112 $ 32,056 $ 17,507
Portfolio turnover rate .................................. 47% 40% 65% 42%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
For the Period
November 2, 1995(1)
through
December 31,
------------------
<S> <C>
1995
----
Per Share Operating Performance:
Net asset value at beginning of period ................... $ 10.42
---------
Income from Investment Operations:
Net investment income .................................... 0.09
Net realized and unrealized gain/(loss) on
investments ............................................ 0.12
---------
Total from Investment Operations ......................... 0.21
---------
Less Distributions:
Distributions from net investment income ................. (0.05)
Distributions in excess of net investment income ......... --
---------
Return of capital ........................................ --
Total distributions ...................................... (0.05)
---------
Net asset value at end of period ......................... $ 10.58
=========
Total Return .............................................. 12.47%
Ratios to Average Daily Net Assets:
Expenses before waivers .................................. 0.72%
Expenses after waivers ................................... 0.45%(2)
Net investment income .................................... 6.52%(2)
Supplemental Data:
Net assets at end of period (000) ........................ $ 2,186
Portfolio turnover rate .................................. 46%
</TABLE>

- -----------
(1) Commencement of operations.
(2) Annualized.

7
<PAGE>

Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202

Sub-Advisor
BROWN INVESTMENT ADVISORY & TRUST COMPANY
Furness House
19 South Street
Baltimore, Maryland 21202

Distributor
ICC DISTRIBUTORS, INC.

Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080

Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201

Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006

Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103

<PAGE>

[GRAPHIC OMITTED]

Flag Investors o P.O. Box 515 o Baltimore, MD 21203 o (800) 767-FLAG
www.flaginvestors.com

- --------------------------------------------------------------------------------

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.

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 (5/00)

<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
THE FUND, ONE SOUTH STREET,
BALTIMORE, MARYLAND 21202, OR BY CALLING (800)
767-FLAG. THE FUND'S FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1999, AND
THE REPORT OF INDEPENDENT ACCOUNTANTS ARE
INCLUDED IN THE FUND'S ANNUAL REPORT AND
INCORPORATED BY REFERENCE INTO THIS
STATEMENT OF ADDITIONAL INFORMATION.

Statement of Additional Information Dated May 1, 2000

Relating to the Prospectuses Dated May 1, 2000

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
GENERAL INFORMATION AND HISTORY...............................................................................1

INVESTMENT OBJECTIVES AND POLICIES............................................................................1

VALUATION OF SHARES AND REDEMPTION............................................................................6

FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS..........................................................7

MANAGEMENT OF THE FUND........................................................................................9

INVESTMENT ADVISORY AND OTHER SERVICES.......................................................................14

DISTRIBUTION OF FUND SHARES..................................................................................15

BROKERAGE....................................................................................................18

CAPITAL STOCK................................................................................................19

CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES............................................................20

INDEPENDENT ACCOUNTANT.......................................................................................21

LEGAL MATTERS................................................................................................21

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................................................23

FINANCIAL STATEMENTS.........................................................................................24

APPENDIX..................................................................................................25
</TABLE>

<PAGE>

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 Securities and Exchange Commission (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 "1940 Act"), and its Shares
under the Securities Act of 1933, as amended (the "1933 Act"), 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 DB Alex. Brown LLC (formerly 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.

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:

<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 Aaa(4)

Corporate Debt........................................... A or better(4) A or better(4)

Other Asset-Backed Securities............................ AAA(4) Aaa(4)

Securities of Non-U.S. Governmental Issuers.............. AAA(4) Aaa(4)

Securities of Designated International Organization...... AAA(4) Aaa(4)

Non-Dollar U.S. Government Securities.................... AAA(4) Aaa(4)

Securities of Foreign Corporations....................... AAA(4) Aaa(4)
</TABLE>

<PAGE>
- ----------
(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
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
<PAGE>

obligations of the issuing agency or instrumentality (such as the Federal Farm
Credit System and Fannie Mae 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 GNMA, Fannie Mae or the Federal Home Loan Mortgage Corporation
("FHLMC").

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 ("FHA") 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.

FHLMC and Fannie Mae Certificates.

The FHLMC is a corporate instrumentality of the U.S. Government and was
created in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing through the development of a nationwide secondary
market in conventional residential mortgages. The FHLMC issues Participation
Certificates that represent a pro rata share of all interest and principal
payments made and owed on the underlying pool (which consists of mortgages from
FHLMC's national portfolio). The FHLMC guarantees the timely payment of interest
and ultimate collection of principal.

The Fannie Mae 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. Fannie Mae 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. Fannie Mae guarantees
timely payment of interest on Fannie Mae Certificates and full return of
principal.

Risk of foreclosure of the underlying mortgages is greater with FHLMC
and Fannie Mae securities because, unlike GNMA securities, FHLMC and Fannie Mae
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.
<PAGE>

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, at a yield 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
Fannie Mae (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 also may 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 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 previously. 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 in the following paragraphs.

Repurchase Agreements.

The Fund may enter into repurchase agreements with financial
institutions, such as banks and broker-dealers, deemed to be creditworthy by the

<PAGE>

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; (i) if the Advisors believe
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;and (ii) if the Advisors believe the Fund
should hedge against risk of loss in the value of those portfolio securities
denominated in foreign currencies.

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
previously. 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 1933 Act, 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.

<PAGE>

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 for extraordinary or emergency
purposes in an amount not exceeding 10% of the value of the total assets at
the time of such borrowing;

4) Invest in real estate or mortgages on real estate;

5) Purchase or sell commodities or commodities contracts provided that the Fund
may invest in financial futures and options on such futures;

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; or

8) Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objectives and policies and may loan portfolio
securities and enter into repurchase agreements.

The following investment restrictions 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 1940
Act, except as permitted by federal law; or

2) Invest more than 10% of the value of its net assets in illiquid securities
(as defined under federal and state securities laws).

The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
<PAGE>

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. So long as a third party receives an order prior to the Fund's close
of business, the order is deemed to have been received by the Fund and,
accordingly, may receive the net asset value computed at the close of business
that day. These "late day" agreements are intended to permit investors placing
orders with third parties to place orders up to the same time as other
investors.

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 readily
marketable 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 1940 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.

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.
<PAGE>

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 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 previously,
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 previously, in order to
qualify as a RIC, the Fund must distribute at least 90% of its investment
company taxable income (that generally includes dividends, taxable interest, and
the excess of net short-term capital gains over net long-term capital losses
less operating expenses, but determined without regard to the deduction for
dividends paid) 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 RIC, 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
<PAGE>

in December of one year, but paid in January of the 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 generally 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.

MANAGEMENT OF THE FUND

Directors and Officers

The Fund's Board of Directors manages the Fund's overall business and
affairs. 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 Advisors, distributor, custodian and transfer
agent.

<PAGE>

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 (7/17/45)
Managing Director, Deutsche Asset Management and DB Alex. Brown LLC
(formerly BT Alex. Brown Incorporated); Director and President,
Investment Company Capital Corp. (registered investment advisor);
Director or President, Deutsche Asset Management Family of Funds
(registered investment companies); Chartered Financial Analyst.
Formerly, Director, ISI Family of Funds (registered investment
companies).

RICHARD R. BURT, Director (2/3/47)

IEP Advisors, LLP, 1275 Pennsylvania Avenue, NW, 10th Floor,
Washington, DC 20004. Chairman, IEP Advisors, Inc.; Chairman of the
Board, Weirton Steel Corporation; Member of the Board, Archer Daniels
Midland Company (agribusiness operations), Hollinger International,
Inc. (publishing), Homestake Mining Company (mining and exploration),
HCL Technologies (information technology) and Anchor Gaming (gaming
software and equipment); Director, Mitchell Hutchins family of funds
and Flag Investors Funds, Inc. (formerly Deutsche Funds, Inc.); and
Trustee, Flag Investors Portfolios Trust (formerly Deutsche Portfolios)
(registered investment companies); and Member, Textron Corporation
International Advisory Council. Formerly, partner, McKinsey & Company
(consulting), 1991-1994; U.S. Chief Negotiator in Strategic Arms
Reduction Talks (START) with former Soviet Union and U.S. Ambassador to
the Federal Republic of Germany, 1985-1991.

JOSEPH R. HARDIMAN, Director (5/27/37)

8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, Wit Capital Group (registered
broker-dealer), The Nevis Fund and ISI Family of Funds (registered
investment companies). Formerly, Director, Circon Corp. (medical
instruments), November 1998-January 1999; 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 DB Alex. Brown LLC), 1985-1987; and
General Partner, Alex. Brown & Sons (now DB Alex. Brown LLC),
1976-1985.

<PAGE>

LOUIS E. LEVY, Director (11/16/32)

26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products), Household
International (banking and finance) and ISI Family of Funds (registered
investment companies). Formerly, Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants,
1992-1998; 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.

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), DP Mann Holdings
(insurance) and ISI Family of Funds (registered investment companies).

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 (charitable foundation);
Director and Executive Vice President, The Glenmede Trust Company.
Formerly, Executive Director, The Pew Charitable Trusts; and Director,
ISI Family of Funds (registered investment companies).

*TRUMAN T. SEMANS, Director (10/27/26)
Brown Investment Advisory & Trust Company, 19 South Street, Baltimore,
Maryland 21202. Vice Chairman, Brown Investment Advisory & Trust
Company (formerly, Alex. Brown Capital Advisory & Trust Company);
Director, Investment Company Capital Corp. (registered investment
advisor) and Director and President of Virginia Hot Springs Inc.
(property management). Formerly, Managing Director, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC); Vice Chairman, Alex. Brown &
Sons Incorporated (now DB Alex. Brown LLC) and Director, ISI Family of
Funds (registered investment companies).

ROBERT H. WADSWORTH, Director (1/29/40)

4455 E. Camelback Road, Suite 261 E., Phoenix, Arizona 85018.
President, Director, Investment Company Administration LLC, and
President, Director, First Fund Distributors, Inc. (registered
broker-dealer); Director, The Germany Fund, Inc., The New Germany Fund
Inc., The Central European Equity Fund, Inc., Flag Investors Funds,
Inc. (formerly Deutsche Funds, Inc.); Trustee, Flag Investors
Portfolios Trust (formerly Deutsche Portfolios); and Vice President,
Professionally Managed Portfolios and Advisors Series Trust (registered
investment companies). Formerly, President, Guinness Flight Investment
Funds, Inc. (registered investment companies); and President, The
Wadsworth Group (registered investment advisor)

CARL W. VOGT, Esq., President (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);
Interim President of Williams College; Director, Yellow Corporation
(trucking), American Science & Engineering (x-ray detection equipment)
and ISI Family of Funds (registered investment companies); Formerly,
Chairman and Member, National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak); and Member, Aviation
System Capacity Advisory Committee (Federal Aviation Administration);
and Director, of Flag Investors Family of Funds (registered investment
companies).

<PAGE>

CHARLES A. RIZZO, Treasurer (8/5/57)

Director, Deutsche Asset Management. Certified Public Accountant and
Certified Management Accountant. Formerly, Vice President, BT Alex.
Brown Incorporated (now DB Alex. Brown LLC), 1998-1999 and Senior
Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP)
1993-1998.

AMY M. OLMERT, Secretary (5/14/63)

Director, Deutsche Asset Management. Certified Public Accountant.
Formerly, Vice President, BT Alex. Brown Incorporated (now DB Alex.
Brown LLC), 1997-1999 and Senior Manager, Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) 1992-1997.

DANIEL O. HIRSCH, Assistant Secretary (3/27/54)

Director, Deutsche Asset Management. Formerly, Principal, BT Alex.
Brown Incorporated (now DB Alex. Brown LLC), 1998-1999 and Assistant
General Counsel, United States Securities and Exchange Commission,
1993-1998.

- ----------
* Messrs. Semans and Hale are directors who are "interested persons," as defined
in the 1940 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 Investment Company Capital Corporation ("ICCC") or its affiliates. There are
currently 24 funds in the Flag Investors Funds and Deutsche Banc Alex. Brown
Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Semans serves as
Chairman of five funds and as a Director of 19 other funds in the Fund Complex.
Mr. Hale serves as Chairman of three funds and as Director of 21funds in the
Fund Complex. Ms. Rimel and Messrs. Burt, Hardiman, Levy, McDonald and Wadsworth
serve as Directors of each of the funds in the Fund Complex. Mr. Vogt serves as
President of seven of the funds in the Fund Complex. Mr. Rizzo serves as
Treasurer, Ms. Olmert serves as Secretary, and Mr. Hirsch serves as Assistant
Secretary, for each of the funds in the Fund Complex. Prior to September 28,
1999, the Fund Complex included the four funds in the ISI Family of Funds.

Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, DB 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 DB 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 1940 Act) (an "Independent Director") and Mr. Vogt
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,
1999, Independent Directors' fees attributable to the assets of the Fund totaled
approximately $5,997.

<PAGE>

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, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Pension or Retirement Total Compensation From the
Position From the Fund Payable to Benefits Accrued As Fund and Fund Complex payable
Directors for the Fiscal Year Part of Fund Expenses to Directors for the Fiscal Year
Ended December 31, 1999 Ended December 31, 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale, Chairman (2) $ 0 $0 $0

Truman T. Semans, Director(2) $ 0 $0 $0

Richard R. Burt, Director(5) $ 80(3) 4 $39,000 for service on 12
Boards in the Fund Complex

James J. Cunnane, Director(6) $ 267(3) 4 $29,250 for service on 12
Boards in the Fund Complex

Joseph R. Hardiman, Director $ 251 4 $39,000 for services on 12
Boards in the Fund Complex

Louis E. Levy, Director $ 436 4 $49,000 for service on 12
Boards in the Fund Complex

Eugene J. McDonald, Director $ 436(3) 4 $49,000 for service on 12
Boards in the Fund Complex

Rebecca W. Rimel, Director $ 348(3) 4 $39,000 for service on 12
Boards in the Fund Complex

Carl W. Vogt, Esq., President(7) $ 348(3) 4 $39,000 for service on 12
Boards in the Fund Complex

Robert H. Wadsworth, Director(5) $ 80(3) 4 $9,750 for service on 12
Boards in the Fund Complex
</TABLE>
- ----------
(1) At December 31, 1999, there were eight funds in the Fund Complex. Prior to
September 28, 1999, the Fund Complex included the four funds in the ISI Fund
Complex.
(2) A Director who is an "interested person" as defined in the 1940 Act.
(3) Of the amounts payable to Messrs. Burt, Cunnane, McDonald, Vogt and
Wadsworth and Ms. Rimel, $80, $267, $436, $348, $80 and $348, respectively,
was deferred pursuant to a deferred compensation plan.
(4) The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described in the next paragraph. The actuarially computed pension expense
for the Fund for the year ended December 31, 1999 was approximately $2,351.
(5) Elected to the Fund's board effective October 7, 1999.
(6) Retired from the Fund's board effective October 7, 1999.
(7) Retired as Fund Director effective October 7, 1999. Currently President of
the Fund.

<PAGE>

The Fund Complex has adopted a Retirement Plan for Directors who are
not employees of the Fund, the Fund's Advisor or its respective affiliates (the
"Directors' Retirement Plan") and a Retirement Plan for a former Director
serving as the Fund's President (collectively the "Retirement Plans"). After
completion of six years of service, each participant in the Retirement Plans
will be entitled to receive an annual retirement benefit equal to a percentage
of the fee earned by the participant 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 Plans are unfunded and unvested. The Fund
currently has two participants in the Directors' Retirement Plan, a Director who
retired effective December 31, 1994 and another Director who retired effective
December 31, 1996, who have qualified for the Retirement Plan by serving
thirteen years and fourteen years, respectively, as Directors in the Fund
Complex and each of whom will be paid a quarterly fee of $4,875 by the Fund
Complex for the rest of his life. Such fees are allocated to each fund in the
Fund Complex based upon the relative net assets of such fund to the Fund
Complex. Mr. McDonald has qualified for, but has not received, benefits

Set forth in the next table 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 previously. The approximate credited years of service at
December 31, 1999 was as follows: for Mr. Levy, 5 years; for Mr. McDonald, 7
years; for Ms. Rimel, 4 years; for Mr. Vogt, 4 years; for Mr. Hardiman, 1 year
and for Mr. Burt and Mr. Wadsworth, 0 years.

<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairmen of Audit and
Executive Committees Other Participants
--------------------- ------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>

Any Director and the President of the Fund who receive fees from the
Fund are permitted to defer 50% to 100% of his or her annual compensation
pursuant to a Deferred Compensation Plan. Messrs. Burt, Levy, McDonald, Vogt and
Wadsworth and Ms. Rimel have each executed a Deferred Compensation Agreement.
Currently, the deferring Directors and the President may select from among
various Flag Investors funds and Deutsche Banc Alex. Brown Cash Reserve Fund,
Inc. 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.

<PAGE>

Code of Ethics

The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Fund's Code of Ethics permits
access persons to trade securities that may be purchased or held by the Fund for
their own accounts, subject to compliance with the Code's pre-clearance
requirements. In addition, the Fund's Code provides for trading "blackout
periods" that prohibit trading by personnel within periods of trading by the
Fund in the same security, subject to certain exceptions. The Fund's Code also
prohibits short term trading profits and personal investment in initial public
offerings. The Fund's Code require prior approval with respect to purchases of
securities in private placements.

<PAGE>

Access persons of The Fund's advisor, Investment Company Capital
Corporation ("ICCC" or the "Advisor"), and the sub-advisor, Brown Investment
Advisory & Trust, are subject to the same Code of Ethics. The Code permits
access persons to trade securities that may be purchased or held by the Fund for
their own accounts, subject to compliance with preclearance requirements. In
addition, the Code also provides for trading "blackout periods" that prohibit
trading by access persons within periods of trading by the fund in the same
security, subject to certain exceptions. The Code also prohibits short-term
trading profits and personal investment in initial public offerings. The Code
requires prior approval with respect to purchases of securities in private
placements.

These codes of ethics are on public file with, and are available from,
the SEC.

The Fund's principal underwriter, ICC Distributors, Inc., is not
required to adopt a Code of Ethics as it meets the exception provided by Rule
17j-1(c)(3) under the 1940 Act.

INVESTMENT ADVISORY AND OTHER SERVICES

The Advisor is an indirect subsidiary of Deutsche Bank A.G. 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

<PAGE>

officer is Michael D. Hankin. Brown Capital Holdings is owned by management and
employees of Brown Trust and outside investors. ICCC also serves as investment
advisor and Brown Trust serves as sub-advisor to other funds in the Fund
Complex.

Under the Investment Advisory Agreement, ICCC obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Fund. ICCC has delegated this responsibility to
Brown Trust provided that ICCC continues to supervise the performance of Brown
Trust and report thereon to the Fund's Board of Directors. Any investment
program undertaken by ICCC or Brown Trust will at all times be subject to
policies and control of the Fund's Board of Directors. ICCC 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 ICCC without reimbursement by the
Fund for any costs. Neither ICCC nor Brown Trust shall be liable to the Fund or
its shareholders for any act or omission by ICCC 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 ICCC and Brown Trust to the Fund are not exclusive and ICCC and
Brown Trust are free to render similar services to others. Investment advisory
fees paid to ICCC for the last three fiscal years are shown below:

<TABLE>
<CAPTION>
Advisory Fees For the Fiscal Year Ended December 31,
- -------------------------------
1999 1998 1997
---- ---- ----
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contractual Fee $317,059 $323,196 $268,092
- ---------------------------------------------------------------------------------------------------------------
Less amount waived ($212,106) ($208,010) ($203,590)
- ---------------------------------------------------------------------------------------------------------------
Fee after waivers $104,953* $115,186* $ 64,502*
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Absent fee waivers for the fiscal years ended December 31, 1999, December
31, 1998 and December 31, 1997, the Fund's Total Operating Expenses would
have been 0.93%, 0.93% and 0.96%, respectively, of the Flag Investors Class
A Shares' average daily net assets.

For the period from December 31, 1998 through December 31, 1999, Brown
Trust received $70,413 (net of fee waivers of $137,869) for sub-advisory
services.

As compensation for its services, ICCC 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. ICCC 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, 2001 and may be extended.

As compensation for providing sub-advisory services, Brown Trust is
entitled to receive a fee from ICCC, calculated daily and payable monthly at the

<PAGE>

following annual rates based upon the Fund's average daily net assts: 0.23% of
the first $1 billion , 0.20% of the next $500 million and 0.16% of that portion
in excess of $1.5 billion. Brown Trust has agreed to waive its fees in
proportion to any fee waivers by ICCC.

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 ICCC 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 1940
Act). The Sub-Advisory Agreement has similar termination provisions.

In addition to its services as Advisor, ICCC also provides accounting
services to the Fund and serves as the Fund's transfer and dividend disbursing
agent. An affiliate of ICCC provides custody services. (See "Custodian, Transfer
Agent and Accounting Services.")

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").

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.

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.

<PAGE>

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 DB 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. Such financial institutions may
impose separate fees in connection with these services and investors should
review the Prospectus and this Statement of Additional Information in
conjunction with any such institution's fee schedule. State securities laws may
require banks and financial institutions to register as dealers.

As compensation for providing distribution services for the Flag
Investors Class A Shares as described previously, 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>
- -------------------------------------------------------------------------------------------------------------------
Class Fiscal Year Ended December 31,
---------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Flag Investors Class A Shares 12b-1 Fee $113,276(1) $124,577(1) $136,962(2)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Received by ICC Distributors.
(2) Of this amount, Alex Brown & Sons, the distributor prior to August 31, 1997,
received $93,060 and ICC Distributors, the distributor effective August 31,
1997, received $43,902.

<PAGE>

Pursuant to Rule 12b-1 under the 1940 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 will remain in effect from year to year,
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 60-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 previously 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:

<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
Class 1999 1998 1997
- ----- ---- ---- ----
--------------------------------------------------------------------------------------------------
Received Retained Received Retained Received Retained
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors
Class A Shares
Commissions $25,126(1) $0(1) $35,645(1) $0(1) $13,144(2) $6,190(2)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) By ICC Distributors.
(2) Of this amount, Alex Brown & Sons, the distributor prior to August 31, 1997,
received $6,926 and ICC Distributors, the distributor effective August 31,
1997 received $6,188.

<PAGE>

General Information

The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the 1940 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 ICCC.

BROKERAGE
ICCC 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. ICCC 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.

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.
<PAGE>

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.

ICCC's primary consideration in effecting securities transactions is to
obtain best price and execution of orders on an overall basis. As described
below, however, ICCC may, in its discretion, effect brokerage transactions with
broker-dealers that furnish statistical, research or other information or
services that are deemed by ICCC to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ICCC with clients other than the Fund. Similarly, any research services received
by ICCC through placement of portfolio transactions of other clients may be of
value to ICCC in fulfilling its obligations to the Fund. No specific value can
be determined for research and statistical services furnished without cost to
ICCC by a broker-dealer. ICCC 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 ICCC's research and analysis.
Therefore, it may tend to benefit the Fund by improving ICCC's investment
advice. ICCC'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 ICCC'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, ICCC 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, 1999, December 31, 1998 and December 31,
1997, ICCC 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 1940 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 ICCC to furnish reports and
to maintain records in connection with such reviews. For the fiscal years ended
December 31, 1999 and 1998, and for the period from September 1, 1997 through
December 31, 1997, the Fund did not pay brokerage commissions to DB Alex. Brown
LLC or its affiliates. For the period from January 1, 1997 through August 31,
1997, the Fund did not pay brokerage commissions to Alex. Brown & Sons
Incorporated. The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) that the Fund has
acquired during its most recent fiscal year. As of December 31, 1999, the Fund
held a 6.25%, 2/1/03 corporate note issued by Goldman Sachs Group and a 2.0%
repurchase agreement issued by Goldman Sachs & Co. valued at $8,556,500. Goldman
Sachs & Co. is a "regular broker or dealer" of the Fund.

ICCC 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 ICCC. ICCC 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.

<PAGE>

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.

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, 1999, Bankers Trust was paid $36,813 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 ICCC. As compensation for providing dividend and
transfer agency services, the Fund pays ICCC up to $16.61 per account per year,
plus reimbursement for out-of-pocket expenses incurred in connection therewith.
For the fiscal year ended December 31, 1999, ICCC received transfer agency fees
of $27,452.

As compensation for providing accounting services, ICCC receives an
annual fee, calculated daily and paid monthly, as shown below.

<PAGE>

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 ICCC for certain out-of-pocket
expenses. For the fiscal year ended December 31, 1999, ICCC received accounting
fees of $62,427.

INDEPENDENT ACCOUNTANT

The independent accountant for the Fund is PricewaterhouseCoopers LLP,
250 West Pratt Street, Baltimore, Maryland, 21201. For the period ended December
31, 1991 and for the fiscal years ended December 31, 1992 through December 31,
1998, the annual financial statements of the Fund were audited by Deloitte &
Touche LLP, located at Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540.

On December 15, 1999, at a regular meeting of the Board of Directors,
the Audit and Compliance Committees and the Board of Directors of the Fund
participated in and approved the decision to change the Fund's independent
auditors from Deloitte & Touche LLP to PricewaterhouseCoopers LLP for the Fund's
fiscal year ended December 31, 1999.

The reports of Deloitte & Touche LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.

In connection with the Fund's audits for the two most recent fiscal
years and through December 13, 1999, there have been no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Deloitte & Touche LLP would
have caused them to make reference thereto in their report on the financial
statements for such years.

During the two most recent fiscal years and through December 13, 1999,
there have been no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).

LEGAL MATTERS

Morgan, Lewis & Bockius LLP acts as counsel to the Fund.

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

<PAGE>

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.
<PAGE>

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, 1999 were as follows:
<TABLE>
<CAPTION>

One-Year Period Ended Five-Year Period Ended Inception Through
December 31, 1999 December 31, 1999 December 31, 1999
----------------- ----------------- -----------------
Ending Ending Average Ending Average
Redeemable Redeemable Annual Total Redeemable Annual Total
Class Value Total Return Value Return Value Return
- ----- ----- ------------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A $ 992 (0.81)% $1,364 6.40% $1,667 6.10%
5/13/91*

Flag Investors $1,010 1.02% N/A N/A $1,235 5.20%
Institutional Class-
11/2/95*
</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, 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, 1999 was
6.10% and 6.45%, respectively, and was computed in the following manner. 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.

<PAGE>

Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.

Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income that, at the end of
the base period, has not been declared as a dividend, but is reasonably expected
to be and is declared as a dividend shortly thereafter.

The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. The Fund's portfolio
turnover rates for the fiscal years ended December 31, 1999, 1998 and 1997, were
47%, 40% and 65%, respectively. 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.

<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of April 4, 2000, to Fund management's knowledge, DB Alex. Brown
beneficially owned less than 1% of the Fund's total outstanding Shares and
directors and officers as a group, owned less than 1% of the Fund's total
outstanding Shares. As of April 4, 2000, 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:
<TABLE>
<CAPTION>

Owned of Beneficially
Name and Address Record Owned Percentage Owned
- ---------------- ------ ----- ----------------
<S> <C> <C>
Mercantile TR X 5.21% of Class A Shares
U/A 08/01/96
Keswick Pension Plan
FBO Keswick Home Pension Plan
766 Old Hammonds Ferry Road Linthicum, MD 21090

Chase Manhattan Bank TR X 7.03% of Institutional
Wells Aluminum Corp Shares
Master Trust 29400333
4 New York Plaza
New York, NY 10004-2413

DB Alex. Brown LLC X 80.53% of
FBO 250-10788-16 Institutional Shares
PO Box 1346
Baltimore, MD 21203-1346

Wexford Clearing Services Corp X 7.16% Class A Shares
FBO Gettysburg Hospital Operating Investment
Attn: Richard A. Harley CFO
147 Gettys Street
Gettysburg, PA 17325-2534
</TABLE>

<PAGE>

FINANCIAL STATEMENTS

The Fund furnishes shareholders with semi-annual and 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 financial statements for the Fund for the period ended December 31,
1999, are incorporated herein by reference to the Fund's Annual Report dated
December 31, 1999. A copy of the Fund's Annual Report must accompany this
Statement of Additional Information. The annual financial statements are audited
by the Fund's independent accountants.

<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 different from AAA
issues only to a small degree.

A - Strong capacity to pay interest and repay principal although somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
- --------------------------------------------------------------------------------

Moody's Investors Service, Inc.

Aaa - Judged to be of the best quality. 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
comprise what are generally known as high-grade bonds. Rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
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.