(GRAPHIC APPEARS HERE)
Short-Intermediate
Income Fund
Annual Report
December 31, 1999
<PAGE>
REPORT HIGHLIGHTS
o 1999--Rising rates, despite low inflation.
o Short and intermediate bonds cushioned price declines.
o Economy remains strong; Fed expected to continue raising short rates.
o Y2K liquidity and credit concerns are fading.
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
We are pleased to report on the Fund's progress for the six and
twelve-month period ended December 31, 1999.
1999
Try as they may, the Federal Reserve was unable, through a series of
three rate increases in 1999, to apply the brakes to a strong domestic economy.
As the year unfolded, few economists predicted inflation would remain low in the
face of tightening labor markets, higher commodity prices and an unstoppable
bull market in equities. Having passed the turn of the millennium without
serious disruptions and with Mr. Greenspan's re-nomination to the chairmanship,
the bond market widely anticipates the Fed to take action at the first meeting
in February and to continue the tightening bias. Despite core inflation at its
lowest level since the mid-1960's, two 25 basis point increases during the first
half of the year would seem likely, as the U.S. economy continues to outpace
what the Fed considers sustainable non-inflationary growth.
Under the specter of restrictive monetary policy, long-term Treasuries
provided returns which distinguished 1999 as the worst year in the post-WWII
(GRAPHIC APPEARS HERE)
Stock Prices
and
Bond Yields
5 Yr Treasury Yield
S&P 500
1/1/99 1,229 4.54
1,275 4.73
1,243 4.55
1,225 4.52
1,279 4.55
1,239 4.86
1,230 4.96
1,239 4.99
1,238 5.22
1,275 5.22
1,294 5.06
1,299 5.08
3/31/99 1,282 5.08
1,293 5.05
1,348 4.96
1,319 5.11
1,356 5.14
1,335 5.21
1,345 5.37
1,337 5.5
1,330 5.42
1,301 5.58
1,327 5.73
1,293 5.91
1,342 5.73
6/30/99 1,315 5.89
1,391 5.69
1,403 5.69
1,418 5.55
1,356 5.69
1,328 5.79
1,300 5.91
1,327 5.86
1,336 5.77
1,348 5.77
1,357 5.77
1,351 5.78
1,335 5.75
9/30/99 1,277 5.66
1,282 5.86
1,336 5.95
1,247 5.97
1,301 6.1
1,362 5.95
1,370 5.86
1,396 5.86
1,422 5.99
1,416 6.05
1,433 6.07
1,417 5.98
1,421 6.19
1,458 6.31
12/31/99 1,469 6.28
- ----------
(1) The S&P is an unmanaged index that is a widely recognized indicator of
general stock market performance. Individuals cannot invest directly in any
index.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
period (30 year Treasury bonds declined by 15%). The year-long rise in market
yields seemed to slow only when the equity markets stumbled briefly in the late
summer and fall. High consumer (and investor) confidence, fueled by plentiful
jobs and the "wealth effect" of stock market gains convinced investors (and
consumers) to continue their buying binge. Higher rates to close out the year
were the inevitable result.
Performance Comparisons(1)
<TABLE>
<CAPTION>
For Periods Ended December 31, 1999 Six Months One Year Three Year(2) Five Year(2) Avg. Duration
.......................................................................................................................
<S><C>
Flag Investors Short-Intermediate
Income Fund - Class A Shares 1.00% 0.70% 4.84% 6.73% 3.1yrs.
Institutional Shares 1.12% 1.02% 5.12% -- 3.1yrs.
Lehman Brothers Intermediate-Term Gov't./
Corp. Bond Index 0.98% 0.39% 5.50% 7.10% 3.5yrs.
Lipper Short-Intermediate-Term U.S. Gov't.
Bond Fund Average 1.00% 0.64% 4.63% 6.00% 3.3yrs.
</TABLE>
- ----------
(1) These figures assume the reinvestment of dividends and capital gain
distributions and exclude the impact of the Fund's 1.50% maximum sales
charge in Class A Shares. If the sales charge were reflected, the quoted
performance would be lower. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their
original cost when redeemed. The Lehman Brothers Intermediate
Government/Corporate Bond Fund Index is an unmanaged index that is widely
recognized as an indicator of performance in the intermediate-term
government and corporate bond sector. The Lipper Short-Intermediate-Term
U.S. Government Bond Fund Average is an index of approximately 85 managed
funds that have at least 65% of their assets in investment grade debt
securities that are rated in the top four grades and have dollar-weighted
average maturities of one to five years. Individuals cannot invest directly
in any index. Past performance is not an indicator of future results. Please
review the Additional Performance Information on page 4.
(2) Annualized.
2
<PAGE>
Portfolio Composition (as a percentage of net assets)
(PIE CHARTS APPEARS HERE)
DECEMBER 31, 1999
Mortgage-
Backed Corporate
24% 38%
Treasury
and Agency
10%
Cash &
Other Assets Asset-Backed
11% 17%
DECEMBER 31, 1998
Mortgage-
Backed Corporate
28% 39%
Treasury
and Agency
11%
Cash &
Other Assets Asset-Backed
1% 21%
Outlook and Portfolio Considerations
As evidenced by the positive return of your fund, short and
intermediate investment grade bonds performed appreciably better than the
bellwether thirty year Treasury bond. This can be attributed in part to the
inherent safety of shorter maturities and in part to the extraordinary yield
spread levels of non-Treasury securities, helping to cushion price declines with
large income flows. Our mortgage and asset backed positions were the best
examples of this phenomenon. Prior to the end of the year, we had accumulated
cash to prepare for potential liquidity disruptions. With yields having returned
to multi-year highs recently, we intend to deploy some of that cash in high
quality issues, particularly Treasuries and U.S. Agencies. Taking advantage of
diminishing corporate bond risk premiums, we have selectively reduced our
exposure to this sector, remaining overweighted, however, until liquidity and
credit concerns become less overblown.
Sincerely,
/s/ M. Elliott Randolph, Jr. /s/ Paul D. Corbin
M. Elliott Randolph, Jr. Paul D. Corbin
Portfolio Manager Portfolio Manager
January 31, 2000
3
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Additional Performance Information
The shareholder letter included in this report contains statistics
designed to help you evaluate the performance of your Fund's management. To
further assist in this evaluation, the Securities and Exchange Commission (SEC)
requires that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on May 13,
1991 through the most recent fiscal year-end and must reflect the impact of the
Fund's total expenses and the currently effective 1.50% maximum sales charge for
the Fund's Class A Shares.
While the following chart is required by SEC rules, such comparisons
are of limited utility since the indices shown are not adjusted for sales
charges and ongoing management, distribution and operating expenses applicable
to the Fund. An investor who wished to replicate the total return of these
indices would have had to own the securities that they represent. Acquiring
these securities would require a considerable amount of money and would incur
expenses that are not reflected in the index results.
The SEC also requires that we report the Fund's total return, according
to a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
4
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Change in Value of a $10,000 Investment in Class A Shares(1)
May 13, 1991-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors Lehman Brothers Merrill Lynch
Short-Intermediate Intermediate Govt./ 1-3 Year
Income Fund Corp. Bond Index Treasury Index
$16,673 $17,711 16,618
5/91 9,850 10,000 10,000
12/91 10,815 10,993 10,759
12/92 11,429 11,780 11,436
12/93 12,455 12,815 12,057
12/94 12,042 12,569 12,125
12/95 13,909 14,497 13,458
12/96 14,471 15,084 14,129
12/97 15,503 16,271 15,070
12/98 16,558 17,654 16,125
12/99 16,673 17,711 16,618
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Class A Shares (0.81)% 6.40% 6.10%
In addition to the Lehman Brothers Intermediate Government/Corporate Bond
Index, we have begun comparing the Fund's performance to the Merrill Lynch 1-3
Year Treasury Index because we believe its shorter average maturity also makes
it an appropriate benchmark for the Fund.
- ----------
(1) Past performance is not an indicator of future results. Investment return
and principle value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. These figures
assume the reinvestment of dividends and capital gain distributions and
include the Class A Shares 1.50% maximum sales charge. 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.
(2) May 13, 1991.
5
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares(1)
November 2, 1995-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors Lehman Brothers Merrill Lynch
Short-Intermediate Intermediate Govt./ 1-3 Year
Income Fund Corp Bond Index Treasury Index
$12,349 $12,508 $12,552
11/95 10,000 10,000 10,000
12/95 10,202 10,105 10,077
10,174 10,083 10,212
12/96 10,630 10,514 10,578
10,922 10,812 10,883
12/97 11,417 11,342 11,282
11,791 11,736 11,623
12/98 12,224 12,299 12,072
12,212 12,387 12,322
12/99 12,349 12,508 12,552
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Institutional Shares 1.02% -- 5.20%
- ----------
(1) Past performance is not an indicator of future results. Investment return
and principle value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. These figures
assume the reinvestment of dividends and capital gain distributions. 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.
(2) November 2, 1995.
6
<PAGE>
This page intentionally left blank.
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Statement of Net Assets December 31, 1999
S&P Par
Security Rating* (000) Market Value
- --------------------------------------------------------------------------------
CORPORATE NOTES -- 37.5%
AT&T Corp.
5.625%, 3/15/04 AA- $2,000 $ 1,895,000
Atlantic City Electric
6.00%, 1/15/03 A- 2,000 1,925,000
Baltimore Gas & Electric
6.75%, 6/5/12 A 1,000 925,000
Block Financial Corp.
6.75%, 11/1/04 A 2,000 1,942,500
Computer Associates International
6.375%, 4/15/05 BBB+ 2,000 1,855,000
Countrywide Home Loan
7.26%, 5/10/04 A 2,900 2,881,875
First Maryland Bancorp
7.20%, 7/1/07 A- 2,600 2,522,000
Ford Motor Credit
7.375%, 10/28/09 A+ 1,000 990,000
General Motors Acceptance Corp.
5.625%, 2/15/01 A 1,000 987,500
Goldman Sachs Group****
6.25%, 2/1/03 A+ 2,000 1,937,500
International Lease Finance
6.43%, 9/15/00 A+ 2,000 1,993,600
MCI Worldcom, Inc.
6.40%, 8/15/05 A- 2,000 1,920,000
New York Telephone
7.375%, 12/15/11 A+ 1,700 1,621,375
Pacific Gas & Electric
6.25%, 3/1/04 AA- 2,000 1,922,500
Tyco International Corp.
5.875%, 11/1/04 A- 2,000 1,845,000
Wal-Mart Stores, Inc.
6.55%, 8/10/04 AA 2,000 1,965,000
Wilmington Trust Corp.
6.625%, 5/1/08 A- 2,200 2,021,250
------------
Total Corporate Notes
(Cost $32,423,569) 31,150,100
------------
8
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
S&P Par
Security Rating* (000) Market Value
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 34.2%
Federal Home Loan Mortgage Corp. -- 2.1%
Debentures
FHLMC
5.125%, 10/15/08 AAA $2,000 $ 1,754,400
-----------
Federal National Mortgage Assn. -- 7.0%
Debentures
FNMA-Govt. Agency
6.375%, 6/15/09 AAA 3,000 2,863,830
6.25%, 7/15/04 AAA 3,000 2,932,500
-----------
5,796,330
Mortgage Backed Securities -- 24.3%
FHLMC Pool #G50334
6.50%, 2/1/01 AAA 699 687,432
FHLMC Pool #G10049
8.00%, 10/1/07 AAA 377 384,586
FHLMC Pool #E20099
6.50%, 5/1/09 AAA 2,881 2,797,189
FHLMC Pool #G10543
6.00%, 6/1/11 AAA 1,889 1,795,306
FHLMC Pool #G10690
7.00%, 7/1/12 AAA 2,341 2,316,631
FHLMC Pool #C00210
8.00%, 1/1/23 AAA 374 378,309
FHLMC T-5 A3
7.15%, 1/25/12 AAA 2,500 2,496,550
FNGL Pool #409589
9.50%, 11/1/15 AAA 1,037 1,096,755
FNMA Pool #362537
6.50%, 10/1/03 AAA 1,699 1,664,682
FNMA Pool #326570
7.00%, 2/1/08 AAA 1,902 1,881,795
FNMA Pool #433646
6.00%, 10/1/13 AAA 5,004 4,752,341
-----------
20,251,576
9
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Statement of Net Assets (concluded) December 31, 1999
S&P Par
Security Rating* (000) Market Value
- -------------------------------------------------------------------------------
Guaranteed Export Trust -- 0.8%
Guaranteed Export Trust, 94-F-A
8.187%, 12/15/04 AAA $ 614 $ 632,391
---------
Total U.S. Government Agency Securities
(Cost $29,430,403) 28,434,697
----------
ASSET BACKED SECURITIES -- 17.2%
Chemical Master Credit Card Trust
6.23%, 4/15/05 AAA 3,500 3,425,030
CPS Auto Trust, 1998-2-A
6.09%, 11/15/03 AAA 2,173 2,155,605
Green Tree Financial Corp., 1994-6-A5
8.25%, 1/15/20 NR** 3,000 3,060,120
IMC Home Equity Loan Trust
6.69%, 2/25/21 AAA 2,850 2,769,317
Metris Master Trust, 97-1- A
6.87%, 10/20/05 AAA 3,000 2,958,240
----------
Total Asset Backed Securities
(Cost $14,588,705) 14,368,312
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.1%
FNMA Series 1988-18B
9.40%, 7/25/03
(Cost $50,463) AAA 50 50,883
----------
REPURCHASE AGREEMENT -- 10.3%
Goldman Sachs & Co., dated 12/31/99,
2.00%, principal and interest
in the amount of $8,557,926,
due 1/3/2000, collateralized by
U.S. Treasury Bonds, par value
of $8,389,000, coupon rates from
6.375% to 7.25%, due from 9/30/01
to 8/15/04, market value of
$8,728,354. NR 8,557 8,556,500
----------
10
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Market Value
------------
Total Investments -- 99.3%
(Cost $85,049,640)*** $82,560,492
Other Assets in Excess of Liabilities-- 0.7% 615,883
-----------
Total Net Assets-- 100.0% $83,176,375
===========
Net Asset Value and Redemption Price Per:
Class A Share
($42,559,010 / 4,275,958 shares outstanding) $ 9.95
======
Institutional Share
($40,617,365 / 4,028,198 shares outstanding) $10.08
======
Maximum Offering Price Per:
Class A Share ($9.95 / 0.985) $10.10
======
Institutional Share $10.08
======
- ----------
*The Standard & Poor's rating indicated is believed to be the most recent
rating available as of December 31, 1999. The U. S. Government Agency
Securities and U. S. Treasury Securities are assumed to have AAA ratings
because they are backed by the full faith and credit of the U. S.
government. These ratings have not been audited by PricewaterhouseCoopers
LLP.
**Although this holding is not rated by S&P, it is rated Aaa By Moody's and
AAA by Fitch.
***Also, aggregate cost for federal tax purposes.
****Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers--total of such securities at period-end amounts to
2.33% of net assets.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
December 31,
------------
1999
<S><C>
Investment Income:
Interest $ 5,734,420
-----------
Expenses:
Investment advisory fee 317,059
Distribution fee 113,276
Professional fees 87,444
Accounting fee 62,427
Registration fees 41,599
Custodian fee 36,813
Printing and postage 30,844
Transfer agent fee 27,452
Directors 5,997
Servicing fee 5,384
Miscellaneous 4,704
-----------
Total expenses 732,999
Less: Fees waived (212,106)
-----------
Net expenses 520,893
-----------
Net investment income 5,213,527
-----------
Realized and unrealized loss on investments:
Net realized loss from security transactions (573,383)
Change in unrealized appreciation/depreciation of investments (3,830,413)
-----------
Net loss on investments (4,403,796)
-----------
Net increase in net assets resulting from operations $ 809,731
===========
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
Dec. 31, Dec. 31,
---------- -----------
1999 1998
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 5,213,527 $ 5,239,442
Net realized gain/(loss)
from security transactions (573,383) 626,662
Change in unrealized appreciation/
depreciation of investments (3,830,413) 281,972
------------ ------------
Net increase in net assets resulting
from operations 809,731 6,148,076
------------ ------------
Dividends to Shareholders from:
Net investment income:
Class A Shares (2,593,071) (2,783,314)
Institutional Shares (2,649,696) (2,456,128)
Distributions in excess of net investment income:
Class A Shares -- (84,080)
Institutional Shares -- (74,196)
Return of Capital:
Class A Shares (61,264) --
Institutional Shares (62,601) --
------------ ------------
Total distributions (5,366,632) (5,397,718)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares 27,968,218 46,758,290
Value of shares issued in reinvestment of
dividends 2,313,240 2,730,265
Cost of shares repurchased (34,766,661) (35,645,932)
------------ ------------
Increase/(Decrease) in net assets derived from
capital share transactions (4,485,203) 13,842,623
------------ ------------
Total increase/(decrease) in net assets (9,042,104) 14,592,981
Net Assets:
Beginning of year 92,218,479 77,625,498
------------ ------------
End of year (Including distributions in excess of
net investment income of $250,738 and
$214,138, respectively). $ 83,176,375 $ 92,218,479
============ ============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Financial Highlights -- Class A
Shares (For a share outstanding throughout each year)
For the
Year Ended
December 31,
- -----------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of year $ 10.48
--------
Income from Investment Operations:
Net investment income 0.57
Net realized and unrealized gain/(loss) on investments (0.50)
--------
Total from Investment Operations 0.07
Less Distributions:
Distributions from net investment income (0.59)
Distributions in excess of net investment income --
Return of capital (0.01)
--------
Total distributions (0.60)
--------
Net asset value at end of year $ 9.95
========
Total Return(1) 0.70%
Ratios to Average Daily Net Assets:
Expenses before waivers 0.93%
Expenses after waivers 0.70%
Net investment income 5.63%
Supplemental Data:
Net assets at end of year (000) $42,559
Portfolio turnover rate 47%
- ----------
(1) Total return excludes the effect of sales charge.
14
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
For the Years Ended December 31,
- ----------------------------------------------------------------------------
1998 1997 1996 1995
$ 10.39 $ 10.28 $ 10.48 $ 9.62
------- ------- ------- -------
0.58 0.61 0.63 0.62
0.11 0.10 (0.23) 0.84
------- ------- ------- -------
0.69 0.71 0.40 1.46
(0.58) (0.60) (0.60) (0.60)
(0.02) -- -- --
-- -- -- --
------- ------- ------- -------
(0.60) (0.60) (0.60) (0.60)
------- ------- ------- -------
$ 10.48 $ 10.39 $ 10.28 $ 10.48
======= ======= ======= =======
6.81% 7.13% 4.04% 15.43%
0.93% 0.96% 0.99% 0.93%
0.70% 0.70% 0.70% 0.70%
5.57% 5.92% 6.11% 6.00%
$47,107 $45,569 $58,584 $67,116
40% 65% 42% 46%
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
For the
Year Ended
December 31,
- --------------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of period $ 10.60
-------
Income from Investment Operations:
Net investment income 0.61
Net realized and unrealized gain/(loss) on investments (0.51)
-------
Total from Investment Operations 0.10
Less Distributions:
Distributions from net investment income (0.60)
Distributions in excess of net investment income --
Return of capital (0.02)
-------
Total distributions (0.62)
-------
Net asset value at end of period $ 10.08
=======
Total Return 1.02%
Ratios to Average Daily Net Assets:
Expenses before waivers 0.68%
Expenses after waivers 0.45%
Net investment income 5.88%
Supplemental Data:
Net assets at end of period (000) $40,617
Portfolio turnover rate 47%
- ----------
(1) Commencement of operations.
(2) Annualized.
16
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
For the Period
November 2, 1995(1)
For the Years Ended December 31, through December 31,
- -----------------------------------------------------------------------------
1998 1997 1996 1995
$ 10.50 $ 10.38 $ 10.58 $10.42
------- ------- ------- ------
0.61 0.61 0.59 0.09
0.11 0.13 (0.17) 0.12
------- ------- ------- ------
0.72 0.74 0.42 0.21
(0.61) (0.62) (0.62) (0.05)
(0.01) -- -- --
-- -- -- --
------- ------- ------- ------
(0.62) (0.62) (0.62) (0.05)
------- ------- ------- ------
$ 10.60 $ 10.50 $ 10.38 $10.58
======= ======= ======= ======
7.07% 7.40% 4.20% 12.47%
0.67% 0.72% 0.76% 0.72%
0.45% 0.45% 0.45% 0.45%(2)
5.81% 6.17% 6.35% 6.52%(2)
$45,112 $32,056 $17,507 $2,186
40% 65% 42% 46%
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Short-Intermediate Income Fund, Inc. (the "Fund"), was
organized as a Maryland Corporation on April 16, 1990 and began operations May
13, 1991. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end investment management company. The Fund seeks a high level
of current income consistent with preservation of principal within an
intermediate-term maturity structure.
The Fund consists of two active share classes: Class A Shares, which
began operations on May 13, 1991, and Institutional Shares, which began
operations on November 2, 1995.
The Class A Shares have a 1.50% maximum front-end sales charge and a
0.25% distribution fee. The Institutional Shares have neither a front-end sales
charge nor a distribution fee.
When preparing the Fund's financial statements, management makes
estimates and assumptions in accordance with generally accepted accounting
principles. These estimates affect 1) the assets and liabilities that we report
at the date of the financial statements; 2) the contingent assets and
liabilities that we disclose at the date of the financial statements; and 3) the
revenues and expenses that we report for the period. Our estimates could be
different from the actual results. The Fund's significant accounting policies
are:
A. Security Valuation--The Fund values debt securities based on
quotations provided by a pricing service, which uses transactions on
bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities
to determine value. The Fund values portfolio securities that are
primarily traded on a national exchange by using the last sale price
reported for the day. When a market quotation is unavailable, the
Investment Advisor determines a fair value using procedures that the
Board of Directors establishes and monitors. At December 31, 1999
there were no Board valued securities. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and
price. The third party, which is the broker's custodial bank, holds
18
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
NOTE 1--concluded
the collateral in a separate account until the repurchase agreement
matures. The agreement requires that the collateral's market value,
including any accrued interest, exceeds the broker's repurchase
obligation. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral
declines or if the broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions
according to income tax regulations, which may be different from
generally accepted accounting principles. As a result, the Fund
occasionally makes reclassifications within its capital accounts to
reflect income and gains that are available for distribution under
income tax regulations.
The Fund is organized as a regulated investment
company. As long as it maintains this status and distributes to its
shareholders substantially all of its taxable net investment income
and net realized capital gains, it will be exempt from most, if not
all, federal income and excise taxes. As a result, the Fund has made
no provisions for income taxes.
D. Security Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of
investments sold or redeemed. Interest income is recorded on an
accrual basis and includes amortization of premiums and accretion of
discounts when appropriate. Income, gains and common expenses are
allocated to each class based on its respective average net assets.
Class specific expenses are charged directly to each class.
Dividends from net investment income are declared and paid monthly.
Distributions of capital gains are recorded on the ex-dividend
dates. Distributions in excess of net investment income occur when
taxable income exceeds income under generally accepted accounting
principles.
NOTE 2--Investment Advisory Fee, Transactions with Affiliates and
Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Deutsche Bank AG, is the Fund's investment advisor. On June 4, 1999, Bankers
Trust Corporation, then the parent company of ICC, was acquired by Deutsche Bank
AG. As a result, ICC became an indirect wholly owned subsidiary of Deutsche
Bank.
19
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Notes to Financial Statements (continued)
NOTE 2--continued
As compensation for its advisory services, the Fund pays ICC an annual
fee, based on the Fund's average daily net assets which is calculated daily and
paid monthly at the following annual rates: 0.35% of the first $1 billion, 0.30%
of the next $500 million and 0.25% of the amount over $1.5 billion. For the year
ended December 31, 1999, ICC's advisory fees amounted to $317,059, of which
$25,093 was payable at the end of the year.
ICC has agreed to waive its fees and reimburse expenses of the Fund to
the extent necessary to limit Fund expenses to 0.70% of the Class A Shares'
average daily net assets and 0.45% of the Institutional Shares' average daily
net assets. For the year ended December 31, 1999, ICC waived fees of $212,106.
Brown Investment Advisory & Trust Company ("Brown Trust") is the Fund's
Sub-advisor. As compensation for providing sub-advisory services, Brown Trust is
entitled to receive a fee from ICC, calculated daily and payable monthly, at the
annual rate of 0.23% of the first $1 billion of the Fund's average daily net
assets, 0.20% of the next $500 million of the Fund's average daily net assets
and 0.16% of that portion of the Fund's average daily net assets in excess of
$1.5 billion. Brown Trust has voluntarily agreed to waive its fees in proportion
to any fee waivers by ICC.
ICC also provides accounting services to the Fund for which the Fund
pays ICC an annual fee that is calculated daily and paid monthly from the Fund's
average daily net assets. For the year ended December 31, 1999, ICC's fees were
$62,427, of which $5,230 was payable at the end of the year.
ICC also provides transfer agent services to the Fund for which the
Fund pays ICC a per account fee that is calculated and paid monthly. For the
year ended December 31, 1999, ICC's fees were $27,452, of which $508 was
payable at the end of the year.
Certain officers and directors of the Fund are also officers or
directors of ICC.
ICC Distributors, Inc., provides distribution services to the Fund for
which the Fund pays ICC Distributors an annual fee, pursuant to rule 12b-1, that
is calculated daily and paid monthly at an annual rate equal to 0.25% of the
Class A Shares' average daily net assets. For the year ended December 31, 1999,
ICC distribution fee was $113,276, of which $9,147 was payable at the end of the
year.
Bankers Trust Company, an affiliate of the advisor, is the Fund's
custodian. For the year ended December 31, 1999, Bankers Trust's fees were
$36,813, of which $3,251 was payable at the end of the year.
20
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
NOTE 2--concluded
The Fund participates along with other Flag Investor Funds in a
retirement plan for eligible Directors. The actuarially computed pension
expense allocated to the Fund for the year ended December 31, 1999 was
approximately $2,351 and the accrued liability was approximately $13,681.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 85 million shares of $.001 par
value capital stock (50 million Class A, 2 million Class B, 15 million Class C,
15 million Institutional Class and 3 million undesignated). Transactions in
shares of the Fund are listed below.
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
<S><C>
Shares sold 836,919 1,491,889
Shares issued on reinvestment of dividends 190,496 203,462
Shares redeemed (1,247,488) (1,585,950)
------------- -------------
Net increase/(decrease) in shares outstanding (220,073) 109,401
============= =============
Proceeds from sale of shares $ 8,585,408 $ 15,616,738
Value of shares issued in reinvestment of
dividends 1,936,452 2,128,706
Cost of shares redeemed (12,765,823) (16,609,172)
------------- -------------
Net increase/(decrease) from capital share
transactions $ (2,243,963) $ 1,136,272
============= =============
<CAPTION>
Institutional Shares
------------------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Shares sold 1,865,686 2,941,098
Shares issued on reinvestment of dividends 36,539 56,983
Shares redeemed (2,128,476) (1,796,192)
------------- -------------
Net increase/(decrease) in shares outstanding (226,251) 1,201,889
============= =============
Proceeds from sale of shares $ 19,382,810 $ 31,141,552
Value of reinvested dividends 376,788 601,559
Cost of shares redeemed (22,000,838) (19,036,760)
------------- -------------
Net increase/(decrease) from capital share
transactions $ (2,241,240) $ 12,706,351
============= =============
</TABLE>
21
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term and U.S. obligations, purchases of investment
securities aggregated $39,816,916 and sales of investment securities aggregated
$46,610,944 for the year ended December 31, 1999.
At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $16,922, and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $2,506,070.
NOTE 5--Net Assets
At December 31, 1999, net assets consisted of:
Paid-in Capital:
Flag Investors Class A Shares $47,143,360
Flag Investors Institutional Shares 42,122,445
Distributions in excess of net investment income (250,738)
Accumulated net realized loss from security transactions (3,349,544)
Net unrealized depreciation of investments (2,489,148)
-----------
$83,176,375
===========
NOTE 6--Federal Income Tax Information
At December 31, 1999, there was a tax capital loss carryforward of
$3,034,791, of which $2,711,626 expires in 2003, $35,124 expires in 2004 and
$288,041 expires in 2007. This carryforward will be used to offset future net
capital gains, if any. In addition, the Fund has deferred post-October Capital
losses of $314,753 to next year.
NOTE 7--Change in Independent Accountants
On December 15, 1999, the Audit and Compliance Committee and the
Board of Directors of the Fund participated in and approved the decision to
change the Fund's independent accountants 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
22
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
NOTE 7--concluded
accounting principle. In connection with the Fund's audits for the two most
recent fiscal years and through December 13, 1999, there were 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.
23
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Report of Independent Accountants
To the Board of Directors and Shareholders of
Flag Investors Short-Intermediate Income Fund, Inc.
In our opinion, the accompanying statement of net assets and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Flag Investors Short-Intermediate Income Fund, Inc. (the "Fund') at December 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above. The financial statements of the Fund for the fiscal
periods presented prior to the year ended December 31, 1999, were audited by
other independent accountants whose report dated February 2, 1999, expressed an
unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 11, 2000
24
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Tax Information (Unaudited)
For the Tax Year Ended December 31, 1999
Of the ordinary distributions made during the fiscal year ended
December 31, 1999, 14.13% were derived from investments in U.S. Government and
Agency Obligations. All or a portion of the distributions from this income may
be exempt from taxation at the state level. Consult your tax advisor for state
specific information.
25
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Special Meeting (Unaudited)
A Special Meeting of Shareholders (the "Special Meeting") was held on
October 7, 1999, at which time shareholders voted to approve a new investment
advisory agreement with ICC and a new Investment Sub-Advisory Agreement among
ICC, Brown Trust and the Fund. Additionally, shareholders elected the Board of
Directors and voted to eliminate or modify certain fundamental investment
restrictions of the Fund.
The results of the shareholder voting at the Special Meeting are as
follows:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Non-Votes
- ------------------------------------------------------------------------------------------------------
<S><C>
Elect Richard T. Hale 7,869,195 22,936
Elect Richard R. Burt 7,869,195 22,936
Elect Joseph R. Hardiman 7,869,195 22,936
Elect Louis E. Levy 7,869,195 22,936
Elect Eugene J. McDonald 7,869,195 22,936
Elect Rebecca W. Rimel 7,869,195 22,936
Elect Truman T. Semans 7,869,107 23,024
Elect Robert H. Wadsworth 7,869,195 22,936
Investment Advisory Agreement
with ICC 7,835,063 20,801 36,258
Sub-Advisory Agreement with ICC
and Brown Investment Advisory
& Trust Company 7,842,148 13,421 36,562
Eliminate policy concerning
short sales 4,912,472 87,642 39,656 2,852,361
Eliminate policy concerning purchase
of securities on margin 4,915,794 83,492 40,485 2,852,360
Eliminate policy regarding purchases
of oil, gas or mineral interests 4,922,134 81,444 36,193 2,852,360
Modify policy regarding commodities 4,920,701 86,574 32,496 2,852,360
Modify policy regarding borrowing 4,917,569 82,884 39,317 2,852,361
Modify policy regarding loans 4,966,063 41,544 32,164 2,852,360
Modify policy regarding illiquid
securities 4,969,830 37,077 32,863 2,852,361
</TABLE>
26
<PAGE>
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND
Directors and Officers
RICHARD T. HALE
Chairman
RICHARD R. BURT ROBERT H.WADSWORTH
Director Director
JOSEPH R. HARDIMAN CARL W. VOGT, ESQ.
Director President
LOUIS E. LEVY CHARLES A. RIZZO
Director Treasurer
EUGENE J. MCDONALD Amy M. Olmert
Director Secretary
REBECCA W. RIMEL DANIEL O. HIRSCH
Director Assistant Secretary
TRUMAN T. SEMANS
Director
Investment Objective
An open-end mutual fund that seeks a high level of current income
consistent with preservation of principal within an intermediate-term maturity
structure.
27
<PAGE>
This page intentionally left blank.
<PAGE>
This report is prepared for the general
information of shareholders. It is authorized
for distribution to prospective investors
only when preceded or accompanied by an
effective prospectus.
For more complete information regarding any
of the Flag Investors Funds, including charges
and expenses, obtain a prospectus from your
investment representative or directly from the
Fund at 1-800-767-FLAG. Read it carefully before
you invest.
<PAGE>
(GRAPHIC APPEARS HERE)
Balanced
Value Builder Fund
Growth
Equity Partners Fund
Emerging Growth Fund
Specialty
Communications Fund
Real Estate Securities Fund
International
International Fund
European Mid-Cap Fund
Japanese Equity Fund
Top 50 Strategy
Top 50 World
Top 50 Europe
Top 50 Asia
Top 50 U.S.
Fixed Income
Total Return U.S. Treasury Fund Shares
Short-Intermediate Income Fund
Tax-Free Income
Managed Municipal Fund Shares
Money Market
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
ICC Distributors, Inc.
SHORTANN (2/00)
