[FLAG INVESTORS LOGO]
FLAG INVESTORS
FAMILY OF FUNDS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Intermediate-Term Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate
Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares [FLAG INVESTORS LOGO]
FLAG
INVESTORS
P.O. Box 515 VALUE
Baltimore, Maryland 21203 BUILDER
800-767-FLAG FUND
Distributed by:
ALEX. BROWN & SONS Annual Report
INCORPORATED March 31, 1996
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Directors and Officers
Truman T. Semans J. Dorsey Brown, III
Chairman President
James J. Cunnane Hobart C. Buppert, II
Director Executive Vice President
Richard T. Hale Lee S. Owen
Director Executive Vice President
John F. Kroeger Bruce E. Behrens
Director Vice President
Louis E. Levy Gary V. Fearnow
Director Vice President
Eugene J. McDonald Edward J. Veilleux
Director Vice President
W. James Price Brian C. Nelson
Director Vice President and Secretary
Harry Woolf Joseph A. Finelli
Director Treasurer
Laurie D. DePrine
Assistant Secretary
Investment Objective
A balanced mutual fund designed to maximize total return through a combination
of long-term growth of capital and current income.
Investment Advisor
Investment Company Capital Corp.
135 East Baltimore Street
Baltimore, MD 21202
(800) 553-8080
Custodian
PNC Bank, N.A.
Transfer Agent
Investment Company Capital Corp.
Legal Counsel
Morgan, Lewis & Bockius LLP
Independent Auditors
Coopers & Lybrand L.L.P.
Fund Performance
GROWTH OF A $10,000 INVESTMENT
IN CLASS A SHARES*
June 15, 1992 - March 31, 1996
[Graph appears here]
6/92 $10,000
12/92 10,776
6/93 11,526
12/93 12,043
6/94 11,666
12/94 11,998
6/95 14,076
12/95 15,927
3/96 16,712
$10,000 invested in the Value Builder Fund's Class A Shares at inception on June
15, 1992 was worth $16,712 on March 31, 1996.
- --------------------------------------------------------------------------------
Total Return Performance*
- --------------------------------------------------------------------------------
Class A Class B Class D
Periods ended 3/31/96: Shares Shares Shares(1)
- --------------------------------------------------------------------------------
3 Months 4.9% 4.8% 4.9%
- --------------------------------------------------------------------------------
12 Months 28.9% 27.9% 28.4%
- --------------------------------------------------------------------------------
Since Inception: 6/15/92 1/3/95 11/9/92
(Cumulative) 67.1% 37.9% 57.8%
- --------------------------------------------------------------------------------
* These figures assume the reinvestment of dividends and capital
gains distributions and exclude the impact of any sales charge. If the
sales charge was reflected, the quoted performance would be lower. The
performance of the classes differ because each class maintains a distinct
expense structure and each has a different inception date. For further
details on expense structures, please refer to the Fund's prospectus.
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. Please review the
Additional Performance Information on page 5.
(1) As of November 18, 1994, Class D Shares are no longer available for sale;
however, existing shareholders may reinvest their dividends.
1
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Fellow Shareholders:
We are pleased to report on the progress of your Fund for the year ended
March 31, 1996.
Performance Update
The Fund had an excellent year with a gain of 28.9% for the Class A Shares.
Much of this gain was driven by the earnings progress of our portfolio
companies and the generally favorable interest rate environment, which benefited
both the stocks and bonds held in the portfolio.
We are especially pleased to report that the Fund's performance continues
to rank very high among its peers and has received, for the second year in a
row, an "A" rating by The Wall Street Journal for the one year ended March 31,
1996. In addition, the Fund also received an "A" rating for the three years
ended March 31, 1996.* The Fund ranked #7 out of 234 funds and #5 out of 104
funds for the one- and three-year periods ended March 31, 1996, respectively, in
Lipper Analytical's Balanced Funds category.
Asset Mix
During the past year, the Fund's asset structure has maintained its
long-term focus with 96% of the assets in stocks and bonds and only 4% in
short-term investments. The pie charts to the right reflect this commitment. In
addition, the Fund received net inflows of more than $32 million from new and
existing shareholders. Total net assets of the Fund were $229.7 million at March
31, 1996. We appreciate this vote of confidence and will certainly make every
effort to see that it is well deserved.
- --------------
*Funds are grouped according to investment objective and are ranked by total
return performance relative to other funds in their respective categories. This
ranking indicates that the Fund's 1- and 3-year total returns placed in the top
20% of 347 and 202 funds, respectively, in the Blended Funds category and is
based on Lipper Analytical's ranking of the Fund's 1- and 3-year total returns.
Performance figures used in these rankings do not include the impact of any
sales charge. Past performance is not an indicator of future results.
ASSET MIX
[Pie Chart appears here]
March 31, 1995 March 31, 1996
Short-Term Investments 3.0% 3.6%
Fixed Income 25.7% 25.5%
Common Stocks and Convertible Securities 71.3% 70.9%
Investment Environment
The past year has been an especially good one for the investment markets.
Inflation, interest rates, corporate profitability and money flows all
contributed to the positive environment for stocks and bonds.
On the inflation front, the past year witnessed some of the lowest levels
in more than two decades. While there are several specific reasons for this, the
Federal Reserve clearly deserves much of the credit for the success in reducing
inflationary levels and creating a more stable overall environment.
With the modest inflation levels and economic activity in recent quarters,
the Federal Reserve has used its influence to take a more accommodating stance
regarding interest rates. This has allowed both short- and long-term rates to
decline modestly over the past year and provided a boost to both bond and stock
prices.
2
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Overall corporate profitability continued to advance over the past year.
This was due to respectable gains in economic activity as well as ongoing
improvement by many company managements in controlling costs relative to revenue
growth.
Last, but certainly not least, as we reflect on the past year, there has
been an enormous flow of money into the stock market via net additions to equity
mutual funds. While precise numbers are somewhat elusive, it would appear that
shareholders invested something close to $150 billion in domestic equity mutual
funds during the past twelve months. This, in combination with the reduction in
stock available due to share repurchases, has clearly helped share prices.
Although the current year may not have the full benefit of the factors that
impacted the past year, it seems to us that most of them will continue to work
in our favor.
Whenever the market experiences above-average gains such as the past year,
there seems to be no shortage of predictions that a "market correction" must be
in order. Well, since a "stopped clock is right twice a day," we can say with
considerable confidence that most any such prediction will eventually come true.
However, you should understand that the focus of our investment work is not on
short-term market movements, but rather long-term wealth creation by investing
in specific companies with good profitability that are run by capable, honest
managers where the price of ownership is reasonable. We welcome market
volatility as this is one important way in which the investment marketplace
gives us the opportunity to acquire shares at even larger discounts to intrinsic
value than would otherwise be possible. Perhaps Ben Graham (considered the
father of security analysis) said it best: "In the short run, the market is a
voting machine--reflecting a voter registration test that requires only money,
not intelligence or emotional stability--but in the long run the market is a
weighing machine."
Portfolio Developments
In past shareholder reports, we have stated quite clearly that we intend to
periodically make candid reports to you highlighting our successes and our
failures. In many respects, such a "scorecard" allows shareholders the
opportunity to see just how well we have been executing our game plan of buying
good value; a batting average of sorts.
Listed below are our five largest holdings with cost and market values as
well as the percent change over the past 12 months.
- --------------------------------------------------------------------------------
Five Largest Common Stock Holdings
(as of March 31, 1996)
- --------------------------------------------------------------------------------
% Change in
last 12
Issuer Cost Market Value Months
McDonnell
Douglas Corp. $2,346,273 $5,497,500 64%
Johnson & Johnson 2,336,865 5,258,250 55%
Conseco Inc. 2,591,305 5,225,475 82%
Host Marriott Corp. 2,918,691 4,375,841 27%
Monsanto Co. 2,042,340 4,298,000 91%
- --------------------------------------------------------------------------------
Perhaps the most interesting aspect of our largest holdings is that they
were all purchased when their prices were depressed due to temporary disfavor on
Wall Street. In effect, you might say the stock market was having a "sale" on
these particular shares as they fell into disfavor. Since each company's
fundamentals seemed to be very much intact, we viewed this price action as an
especially attractive opportunity to capture "good value" in the Fund. We would
also note that four out of these five companies have been active repurchasers of
their shares. As you may recall from our earlier letters, we believe there is no
single action a management can take that says more about their commitment to
building shareholder value than repurchasing shares.
In an effort to complete the scorecard, we have also provided the biggest
gainers in the portfolio over the past 12 months (see p. 4).
3
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Best Performers
(3/31/95-3/31/96)
- --------------------------------------------------------------------------------
Security Percent Change
Liz Claiborne Inc. 93%
Monsanto Co. 91%
Times Mirror Co. 90%(1)
Conseco Inc. 82%
Eli Lilly & Co. 78%
LodgeNet Entertainment Corp. 73%
Amgen, Inc. 73%
Travelers Group Inc. 71%
McDonnell Douglas Corp. 64%
Eckerd Corp. 64%
- --------------------------------------------------------------------------------
(1) Security added mid-period.
- --------------------------------------------------------------------------------
Hopefully, this scorecard reinforces what we discussed earlier about buying
"good value" and allowing ample time for such value to be recognized in the
investment marketplace.
As much as we would like to have all of our stocks rise in value, we know
from experience this simply will not happen. Having a few losers (at least on a
short-term basis) is part of the investment process. During the past year, we
had three stocks that declined by more than 10%.
Worst Performers
(3/31/95-3/31/96)
- --------------------------------------------------------------------------------
Security Percent Change
Collins & Aikman Co. -22%
Alexander & Alexander Services Inc. -20%
Reebok International Ltd. -20%(1)
- --------------------------------------------------------------------------------
(1) Security added mid-period.
In the case of Collins & Aikman, we may have made an unforced error. With
Alexander & Alexander as well as Reebok, we believe that our assessment of value
is still intact but our timing was clearly off the mark.
We would also like to point out an important investment lesson.
Interestingly, our greatest investment failures will not be the losses that we
report to you each year, but rather the successful investments we sell too soon.
One such transaction occurred this year with the sale of Guidant, a medical
device company that we received as a spin out from Eli Lilly. After it doubled
in value, as best as we could tell, it seemed fully priced at more than 20 times
earnings. Well, the stock is now 50% higher than when we sold it, and the
company's prospects are better than ever. When a somewhat premature sale of
shares such as this occurs, it often reminds us of one of Peter Lynch's (former
manager of the Magellan Fund) sayings that selling your winners is akin to
"cutting the flowers and watering the weeds."
Reminders
In our annual report to shareholders, we like to remind you that while we
are the advisors of your Fund, we prefer to think of ourselves as your partners.
We say this because we are all meaningful shareholders of the Fund just like you
are, and we do not intend to do anything with your money that we would not do
with our own.
We look forward to the challenge of increasing the Fund's value in the
coming years, and we hope you share our enthusiasm and long-term perspective.
Respectfully submitted,
/s/ J. Dorsey Brown, III /s/ Hobart C. Buppert, II
J. Dorsey Brown, III Hobart C. Buppert, II
President Executive Vice President
/s/ Lee S. Owen
Lee S. Owen
Executive Vice President
April 26, 1996
4
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER 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
initial public offering through the most recent fiscal year-end and must
reflect the impact of the Fund's total expenses and its currently effective
4.50% maximum sales charge for the Fund's Class A Shares, 4.00% maximum
contingent deferred sales charge for the Fund's Class B Shares and 1.50%
maximum sales charge for the Fund's Class D Shares. In addition, the SEC
calculation for the Class D Shares reflects the impact of a 1.00% maximum
contingent deferred sales charge since the represented time period is less
than four years.
While the following tables are 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 Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN--CLASS A*
% Return With
Periods ended 3/31/96: Sales Charge(1)
- --------------------------------------------------------------------------------
One Year 23.06%
- --------------------------------------------------------------------------------
Since Inception (6/15/92) 13.11%
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT*
CLASS A SHARES
(June 15, 1992 - March 31, 1996)
[Graph appears here]
FLAG INVESTORS
S&P 500 91-DAY VALUE BUILDER
COMPOSITE U.S. TREASURY BILL FUND
6/92 $10,000 $10,000 $ 9,550
12/92 10,835 10,178 10,291
6/93 11,363 10,335 11,007
12/93 11,926 10,500 11,501
6/94 11,520 10,681 11,141
12/94 12,077 10,936 11,458
6/95 14,515 11,263 13,442
12/95 16,601 11,588 15,210
3/96 17,494 11,730 15,960
(1) Assumes maximum sales charge of 4.50%.
* These figures assume the reinvestment of dividends and capital gains
distributions. The indices listed above are unmanaged and are widely
recognized as indicators of the performance in their respective sectors. The
S&P 500 Composite is an indicator of general market performance and the
91-Day U.S. Treasury Bill is a measure of short-term bond market
performance. Past performance is not an indicator of future results.
5
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Additional Performance Information (continued)
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN--CLASS B*
% Return With
Periods ended 3/31/96: CDSC(1)
-------------------------------------------------------------------------------
One Year 23.89%
-------------------------------------------------------------------------------
Since Inception (1/3/95) 26.50%
-------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT*
CLASS B SHARES
(January 3, 1995 - March 31, 1996)
[Graph appears here]
FLAG INVESTORS
S&P 500 91-DAY VALUE BUILDER
COMPOSITE U.S. TREASURY BILL FUND
1/95 $10,000 $10,000 $10,000
3/95 10,691 10,099 10,781
6/95 11,706 10,251 11,686
9/95 12,628 10,397 12,645
12/95 13,387 10,550 13,160
3/96 14,107 10,680 13,388
(1) Assumes maximum contingent deferred sales charge of 4.00%.
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN--CLASS D*
% Return With
Periods ended 3/31/96: Sales Charge and CDSC(2)
-------------------------------------------------------------------------------
One Year 25.53%
-------------------------------------------------------------------------------
Since Inception (11/9/92) 13.67%
-------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT*
CLASS D SHARES
(November 9, 1992 - March 31, 1996)
[Graph appears here]
FLAG INVESTORS
S&P 500 91-DAY VALUE BUILDER
COMPOSITE U.S. TREASURY BILL FUND
11/92 $10,000 $10,000 $ 9,850
12/92 10,126 10,031 10,134
6/93 10,619 10,186 10,819
12/93 11,146 10,349 11,285
6/94 10,766 10,527 10,913
12/94 11,287 10,779 11,203
6/95 13,566 11,101 13,122
12/95 15,515 11,420 14,820
3/96 16,350 11,561 15,441
(2) Assumes maximum sales charge of 1.50% and maximum contingent deferred
sales charge of 1.00%.
* These figures assume the reinvestment of dividends and capital gains
distributions. The indices listed above are unmanaged and are widely
recognized as indicators of the performance in their respective sectors.
The S&P 500 Composite is an indicator of general market performance and the
91-Day U.S. Treasury Bill is a measure of short-term bond market
performance. Past performance is not an indicator of future results.
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.
6
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Statement of Net Assets March 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares (Note A)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK: 64.1%
Banking: 2.9%
35,000 Citicorp $ 2,800,000
100,000 KeyCorp 3,862,500
- ---------------------------------------------------------------------------------------------------------
6,662,500
Basic Industry: 5.0%
25,000 Albemarle Corp. 559,375
168,700 Arcadian Corp. 3,331,825
20,000 Georgia-Pacific Corp. 1,387,500
30,000 Hercules, Inc. 1,860,000
28,000 Monsanto Co. 4,298,000
- ---------------------------------------------------------------------------------------------------------
11,436,700
Capital Goods: 1.8%
36,000 Eaton Corp. 2,169,000
32,500 ITT Industries Inc. 828,750
110,300 Westinghouse Air Brake Co. 1,185,725
- ---------------------------------------------------------------------------------------------------------
4,183,475
Consumer Durables/Non-Durables: 6.1%
109,100 Collins & Aikman Co.* 681,875
33,500 Eastman Kodak Co. 2,378,500
90,000 Ford Motor Company 3,093,750
50,000 Liz Claiborne Inc. 1,712,500
37,200 Philip Morris Cos., Inc. 3,264,300
40,400 Reebok International Ltd. 1,116,050
70,000 Unifi, Inc. 1,723,750
- ---------------------------------------------------------------------------------------------------------
13,970,725
Consumer Services/Retail: 5.7%
83,250 CUC International Inc.* 2,435,063
80,000 Eckerd Corp.* 3,850,000
20,000 Gannett Co. 1,345,000
52,827 Host Marriott Services Corp.* 369,789
19,000 J. C. Penney Company, Inc. 945,250
45,000 Tandy Corp. 2,081,250
50,000 Times Mirror Co. Class A 1,968,750
- ---------------------------------------------------------------------------------------------------------
12,995,102
Defense/Aerospace: 5.2%
38,000 Lockheed Martin Corp. 2,883,250
60,000 McDonnell Douglas Corp. 5,497,500
32,000 United Technologies Corp. 3,592,000
- ---------------------------------------------------------------------------------------------------------
11,972,750
</TABLE>
7
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
STATEMENT OF NET ASSETS (continued) March 31, 1996
<TABLE>
<CAPTION> Market Value
Shares (Note A)
<C> <S> <C>
COMMON STOCK (continued)
Electric Utilities: 1.2%
100,000 Unicom Corp. $ 2,700,000
- ---------------------------------------------------------------------------------------------------------
Energy: 1.3%
27,500 Burlington Resources Inc. 1,020,937
35,800 MAPCO Inc. 2,000,325
- ---------------------------------------------------------------------------------------------------------
3,021,262
Entertainment: 1.1%
200,000 LodgeNet Entertainment Corp.* 2,600,000
- ---------------------------------------------------------------------------------------------------------
Financial Services: 6.9%
83,500 American Express Co. 4,122,813
87,500 Countrywide Credit Industries, Inc. 1,935,937
43,000 Federal Home Loan Mortgage Corp. 3,665,750
78,750 MBNA Corp. 2,332,968
57,000 Travelers Group Inc. 3,762,000
- ---------------------------------------------------------------------------------------------------------
15,819,468
Health Care: 6.5%
40,000 Amgen, Inc.* 2,325,000
19,000 Bristol-Myers Squibb 1,626,875
54,434 Eli Lilly & Co. 3,538,213
57,000 Johnson & Johnson 5,258,250
60,000 Mallinckrodt Group 2,257,500
- ---------------------------------------------------------------------------------------------------------
15,005,838
Hotels/Lodging: 1.3%
10,000 Hilton Hotels Corp. 940,000
32,500 ITT Corp. 1,950,000
- ---------------------------------------------------------------------------------------------------------
2,890,000
Housing: 2.2%
60,000 Fleetwood Enterprises 1,485,000
55,000 Ryland Group Inc. 886,875
108,000 USG Corp.* 2,740,500
- ---------------------------------------------------------------------------------------------------------
5,112,375
Insurance: 6.4%
125,000 Alexander & Alexander Services Inc. 2,359,375
72,200 Conseco Inc. 5,225,475
40,000 EXEL Limited 2,760,000
32,500 ITT Hartford Group, Inc. 1,592,500
70,500 Mid Ocean Ltd.* 2,723,063
- ---------------------------------------------------------------------------------------------------------
14,660,413
</TABLE>
8
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
STATEMENT OF NET ASSETS (continued) March 31, 1996
<TABLE>
<CAPTION>
Shares/ Market Value
Par (000) (Note A)
<C> <S> <C>
COMMON STOCK (concluded)
Multi-Industry: 1.1%
33,400 Loews Corp. $ 2,525,875
- ---------------------------------------------------------------------------------------------------------
Real Estate: 3.4%
60,200 General Growth Properties, Inc. 1,414,700
324,136 Host Marriott Corp.* 4,375,841
25,000 Liberty Property Trust 515,625
35,000 National Health Investors Inc. 1,137,500
26,500 Town & Country Trust 374,313
- ---------------------------------------------------------------------------------------------------------
7,817,979
Technology: 3.3%
38,000 International Business Machines Corp. 4,222,750
23,500 Millipore Corp. 898,875
109,100 SEI Corp. 2,454,750
- ---------------------------------------------------------------------------------------------------------
7,576,375
Telecommunications: 1.7%
69,000 MCI Communications 2,087,250
57,000 Telefonos de Mexico SA ADS 1,873,875
3,961,125
Transportation: 1.0%
33,200 Conrail Inc. 2,377,950
- ---------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $98,058,836) 147,289,912
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 5.3%
50,000 American Express Co., $2.30 DECS 2,950,000
83,402 Arcadian Corp., $1.47 Cvt Pfd 1,678,465
66,000 Conseco Inc., $3.25 Cvt Pfd 3,828,000
32,300 Conseco Inc., $4.28 Cvt Pfd 2,301,375
23,000 Delta Air Lines Inc., $3.50 Cvt Pfd 1,405,875
- ---------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Cost $9,782,099) 12,163,715
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS: 1.5%
$2,000 Richardson Electronics, Cvt Deb, 7.25%, 12/15/06 1,740,000
2,000 Sizeler Property Investors, Cvt Deb, 8.00%, 7/15/03 1,655,000
- ---------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $3,633,784) 3,395,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
STATEMENT OF NET ASSETS (continued) March 31, 1996
<TABLE>
<CAPTION>
Par Market Value
(000) (Note A)
<C> <S> <C>
CORPORATE BONDS: 22.0%
$1,000 American Life Holding Co., Sr Sub Nt, 11.25%, 9/15/04 $ 1,033,750
3,000 Arcadian Partners LP, Nt, 10.75%, 5/1/05 3,270,000
1,000 Caesar's World, 8.875%, 8/15/02 1,035,000
873 Chattem Inc., Sr Sub Deb, 12.75%, 6/15/04 848,992
-- Chattem Inc., 1,000 Warrants, Expiring 6/17/99 3,000
3,000 Conseco Inc., Nt, 8.125%, 2/15/03 3,060,000
700 CSX Corp., Nt, 7.00%, 9/15/02 714,875
575 Dillard Dept. Stores, Nt, 7.15%, 9/1/02 585,781
1,000 Eckerd Corp., Nt, 9.25%, 2/15/04 1,055,000
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 302,250
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,095,000
1,000 Fund American Enterprise, Nt, 7.75%, 2/1/03 1,000,000
3,600 HMH Properties, Nt, 9.50%, 5/15/05 3,546,000
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 2,917,500
1,875 ITT Corp., 6.25%, 11/15/00 1,849,219
2,000 John Q. Hammons Hotels LP, Nt, 8.875%, 2/15/04 1,945,000
2,000 Jordan Industries, Nt, 10.375%, 8/1/03 1,845,000
2,100 Marriott International, 7.875%, 4/15/05 2,202,375
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,243,237
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,105,500
2,000 MCI Communications, Nt, 6.25%, 3/23/99 2,002,500
500 MCI Communications, Nt, 7.50%, 8/20/04 521,875
2,000 Nabisco Inc., 6.70%, 6/15/02 1,965,000
500 New England Telephone & Telegraph, Nt, 6.15%, 9/1/99 495,625
1,000 Noble Drilling Company, Nt, 9.25%, 10/1/03 1,037,500
500 PepsiCo Inc., Nt, 6.25%, 9/1/99 499,375
700 Pet Incorporated, Nt, 5.75%, 7/1/98 689,500
325 Petroleum Heat & Power, Nt, 12.25%, 2/1/05 359,938
2,000 RJR Nabisco Inc., Nt, 7.625%, 9/15/03 1,867,500
1,500 Salomon Inc., Nt, 7.125%, 8/1/99 1,507,500
1,000 Tektronix Inc., Nt, 7.50%, 8/1/03 998,750
2,029 Teledyne Inc., Series C, Deb, 10.00%, 6/1/04 2,046,754
1,000 Tenneco Inc., Nt, 7.875%, 10/1/02 1,051,250
1,000 Travelers Group Inc., Nt, 6.125%, 6/15/00 980,000
1,000 Union Pacific, Nt, 6.25%, 3/15/99 996,250
850 USG Corp., 8.50%, 8/1/05 870,188
500 Wal-Mart Stores, Nt, 5.50%, 9/15/97 496,250
500 Xerox Corp., Nt, 7.15%, 8/1/04 505,625
- ---------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $50,013,736) 50,548,859
</TABLE>
10
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
STATEMENT OF NET ASSETS (concluded) March 31, 1996
<TABLE>
<CAPTION>
Par Market Value
(000) (Note A)
<C> <S> <C>
U.S. GOVERNMENT SECURITIES: 3.5%
U.S. Treasury Notes
$1,000 4.25%, 5/15/96 $ 998,880
3,000 5.125%, 2/28/98 2,965,860
2,000 5.25%, 12/31/97 1,983,700
2,000 5.625%, 6/30/97 2,000,860
- ---------------------------------------------------------------------------------------------------------
Total U.S. Government Securities (Cost $7,946,623) 7,949,300
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 3.9%
8,966 Goldman Sachs & Co., 5.30%
Dated 3/29/96, to be repurchased
on 4/1/96, collateralized by
U.S. Treasury Bonds with a
market value of $6,054,866
and U.S. Treasury Bills with a
market value of $3,090,805.
(Cost $8,966,000) 8,966,000
- ---------------------------------------------------------------------------------------------------------
Total Investment In Securities: 100.3%
(Cost $178,401,078) ** 230,312,786
Liabilities in Excess of Other Assets, Net: (0.3)% (590,794)
- ---------------------------------------------------------------------------------------------------------
Net Assets: 100.00% $229,721,992
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($200,019,962 / 13,623,270 shares outstanding) $14.68
Class B Share
($4,177,764 / 284,008 shares outstanding) $14.71(1)
Class D Share
($13,756,589 / 938,295 shares outstanding) $14.66(2)
Institutional Share
($11,767,677 / 796,931 shares outstanding) $14.77
Maximum Offering Price Per:
Class A Share
($14.68 / .955) $15.37
Class B Share $14.71
Institutional Share $14.77
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
(1) Redemption value is $14.12 following 4.00% maximum contingent deferred
sales charge.
(2) Redemption value is $14.51 following 1.00% contingent deferred sales
charge.
See accompanying Notes to Financial Statements.
11
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Statement of Operations For the Year Ended March 31, 1996
INVESTMENT INCOME (NOTE A):
Interest $ 4,669,072
Dividends 3,012,005
Other income 34,625
Total income 7,715,702
EXPENSES:
Investment advisory fee (Note B) 1,651,971
Distribution fees (Note B) 531,987
Transfer agent fees (Note B) 98,872
Accounting fee (Note B) 68,731
Printing and postage 53,045
Legal 41,628
Audit 37,180
Custodian fees 26,661
Miscellaneous 15,526
Directors' fees 11,092
Organizational expense (Note A) 10,230
Insurance 5,882
Registration fees 5,000
Total expenses 2,557,805
Net investment income 5,157,897
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 4,755,355
Change in unrealized appreciation of investments 37,398,630
Net gain on investments 42,153,985
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,311,882
- --------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
12
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Statement of Changes in Net Assets
<TABLE>
CAPTION>
For the Year For the Year
Ended Ended
March 31, 1996 March 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 5,157,897 $ 4,527,978
Net realized gain from security transactions 4,755,355 295,501
Change in unrealized appreciation of investments 37,398,630 10,180,720
Net increase in net assets resulting from operations 47,311,882 15,004,199
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (4,710,084) (4,153,376)
Class B Shares (25,557) --
Class D Shares (319,956) (313,209)
Institutional Shares (19,252) --
Net realized short-term gains:
Class A Shares (517,708) --
Class B Shares (7,307) --
Class D Shares (37,816) --
Institutional Shares (12,834) --
Net realized long-term gains:
Class A Shares (4,012,860) (183,928)
Class B Shares (52,673) --
Class D Shares (298,195) (15,454)
Institutional Shares (76,965) --
Total distributions (10,091,207) (4,665,967)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 51,325,277 24,574,387
Value of shares issued in reinvestment of dividends 9,094,751 4,064,365
Cost of shares repurchased (26,963,230) (22,079,629)
Increase in net assets derived from capital share transactions 33,456,798 6,559,123
Total increase in net assets 70,677,473 16,897,355
NET ASSETS:
Beginning of year 159,044,519 142,147,164
End of year $229,721,992 $159,044,519
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------------------ --------------------------
For the For the
Period For the Period
June 15, 1992* Year Jan. 3, 1995*
For the Year Ended March 31, through Ended through
------------------------------- March 31, March 31, March 31,
1996 1995 1994 1993 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.02 $ 11.23 $ 11.25 $ 10.00 $12.01 $11.14
Income from Investment Operations:
Net investment income 0.36 0.35 0.40 0.18 0.21 0.08
Net realized and unrealized gain/(loss)
on investments 3.03 0.80 (0.04) 1.18 3.05 0.79
Total from Investment Operations 3.39 1.15 0.36 1.36 3.26 0.87
Less Distributions:
Dividends from net investment income
and short-term gains (0.41) (0.35) (0.38) (0.11) (0.24) --
Distributions from net realized
long-term gains (0.32) (0.01) -- -- (0.32) --
Total distributions (0.73) (0.36) (0.38) (0.11) (0.56) --
Net asset value at end of period $ 14.68 $ 12.02 $ 11.23 $ 11.25 $14.71 $12.01
Total Return** 28.86% 10.57% 3.14% 13.73% 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses 1.31% 1.35%(2) 1.35%(2) 1.35%(1,2) 2.06% 2.10%(1,4)
Net investment income 2.72% 3.07%(3) 3.14%(3) 2.88%(1,3) 1.97% 2.94%(1,5)
Supplemental Data:
Net assets at end of period (000) $200,020 $146,986 $131,097 $ 83,535 $4,178 $341
Portfolio turnover rate 15% 18% 8% 8% 15% 18%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Total return excludes the effect of sales loads.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.40%, 1.38% and 1.70% (annualized)
for Class A Shares for the years ended March 31, 1995, 1994 and for the
period ended March 31, 1993, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 3.02%, 3.11% and 2.53%
(annualized) for Class A Shares for the years ended March 31, 1995, 1994
and for the period ended March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 2.17% (annualized) for Class
B Shares for the period ended March 31, 1995.
(5) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 2.87% (annualized)
for Class B Shares for the period ended March 31, 1995.
See accompanying Notes to Financial Statements.
14
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Financial Highlights (continued)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Institutional
Class D Shares Shares
------------------------------------------------------ -------------
For the For the
Period Period
Nov. 9, 1992* Nov. 2, 1995*
For the Year Ended March 31, through through
----------------------------------- March 31, March 31,
1996 1995 1994 1993 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.01 $ 11.22 $ 11.24 $10.45 $ 13.89
Income from Investment Operations:
Net investment income 0.33 0.31 0.36 0.14 0.13
Net realized and unrealized gain/(loss)
on investments 3.02 0.80 (0.04) 0.74 1.17
Total from Investment Operations 3.35 1.11 0.32 0.88 1.30
Less Distributions:
Dividends from net investment income
and short-term gains (0.38) (0.31) (0.34) (0.09) (0.10)
Distributions from net realized
long-term gains (0.32) (0.01) -- -- (0.32)
Total distributions (0.70) (0.32) (0.34) (0.09) (0.42)
Net asset value at end of period $ 14.66 $ 12.01 $ 11.22 $11.24 $ 14.77
Total Return** 28.44% 10.18% 2.78% 9.00% 21.12%(1)
Ratios to Average Daily Net Assets:
Expenses 1.66% 1.70%(2) 1.70%(2) 1.70%(1,2) 1.03%(1)
Net investment income 2.37% 2.72%(3) 2.79%(3) 2.83%(1,3) 2.89%(1)
Supplemental Data:
Net assets at end of period (000) $13,757 $11,717 $11,051 $6,285 $11,768
Portfolio turnover rate 15% 18% 8% 8% 15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Total return excludes the effect of sales loads.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.74%, 1.73% and 1.93% (annualized)
for Class D Shares for the years ended March 31, 1995, 1994 and for the
period ended March 31, 1993, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 2.68%, 2.76% and 2.60%
(annualized) for Class D Shares for the years ended March 31, 1995, 1994
and for the period ended March 31, 1993, respectively.
See accompanying Notes to Financial Statements.
15
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Notes to Financial Statements
A. Significant Accounting Policies - Flag Investors Value Builder Fund, Inc.
("the Fund") was organized as a Maryland Corporation on March 5, 1992
and commenced operations June 15, 1992. The Fund is registered under the
Investment Company Act of 1940 as a diversified, open-end Management
Investment Company seeking long-term growth of capital and current
income through diversified investments in a professionally managed
balanced portfolio of equity and debt securities. On November 9, 1992,
the Fund began offering Class D Shares (formerly Class B Shares). The
Class A and Class D Shares each have different sales loads and
distribution fees. As of November 18, 1994, Class D Shares are no longer
available for sale; however, existing shareholders may reinvest their
dividends. On January 3, 1995, the Fund began offering Class B Shares.
Class B Shares have no initial sales charge but are subject to a different
distribution fee and a contingent deferred sales charge. On November 2,
1995, the Fund began offering Institutional Shares, which are not subject to
a front-end sales charge or a distribution fee.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Security Valuation - Portfolio securities that are listed on a National
Securities Exchange are valued on the basis of their last price or in the
absence of recorded sales, at the average of readily available closing bid
and asked prices. Unlisted securities held by the Fund are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost.
Repurchase Agreements - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will
be required on a daily basis to maintain as collateral the value of the
securities subject to the agreement at not less than the repurchase price.
The agreement is conditioned upon the collateral being deposited under the
Federal Reserve book-entry system.
Federal Income Taxes - No provision is made for federal income taxes as it
is the Fund's intention to continue to qualify as a regulated investment
company and to continue to make requisite distributions to the shareholders
that will be sufficient to relieve it from all or substantially all federal
income and excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes, when
applicable, the pro rata amortization of premiums and accretion of
discounts. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Costs incurred by the Fund in connection with its
organization and the initial public offering of shares have been deferred
and are being amortized on the straight-line method over a five-year period
beginning on the date on which the Fund commenced its investment activities.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor and Alex. Brown
Investment Management
16
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Notes to Financial Statements (continued)
("ABIM") is the Fund's subadvisor. As compensation for its advisory
services, ICC receives from the Fund an annual fee, calculated daily and
paid monthly, at the annual rate of 1.00% of the first $50 million of the
Fund's average daily net assets; 0.85% of the next $50 million of the
Fund's average daily net assets; 0.80% of the next $100 million of the
Fund's average daily net assets; and 0.70% of the Fund's average daily net
assets in excess of $200 million.
As compensation for its subadvisory services, ABIMreceives a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly, at an
annual rate of 0.75% of the first $50 million of the Fund's average daily
net assets; 0.60% of the next $150 million of the Fund's average daily net
assets; and 0.50% of the Fund's average daily net assets in excess of $200
million.
ICC has agreed to reduce its aggregate fees so that ordinary expenses of the
Fund for any fiscal year do not exceed 1.35% of the average daily net assets
of Class A Shares, 2.10% of the average daily net assets of Class B Shares,
1.70% of the average daily net assets of Class D Shares and 1.10% of the
average daily net assets of the Institutional Shares.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily
net assets. ICC received $68,731 for accounting services for the year ended
March 31, 1996.
As compensation for its transfer agent services, ICCreceives from the Fund a
per account fee, calculated and paid monthly. ICC received $98,872 for
transfer agent services for the year ended March 31, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated ("Alex. Brown") receives from the Fund an annual fee,
calculated daily and paid monthly, at an annual rate equal to 0.25% of the
average daily net assets of Class A Shares, 1.00% (includes 0.25%
shareholder servicing fee) of the average daily net assets of Class B
Shares, and 0.60% of the average daily net assets of Class D Shares. For the
year ended March 31, 1996, distribution fees, aggregated $531,987 of which
$435,163, was attributable to Flag Investors Class A Shares, $19,580 was
attributable to Flag Investors Class B Shares and $77,244 was attributable
to Flag Investors Class D Shares. Alex. Brown received no commissions
from the Fund for the year ended March 31, 1996.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense for the
year ended March 31, 1996 was approximately $7,000.
C. Capital Share Transactions - The Fund is authorized to issue up to 35
million shares of $.001 par value capital stock (20 million Class A, 5
million Class B, 5 million Institutional, 3 million Class D and 2 million
undesignated). Transactions of the Fund were as follows:
Class A Shares
For the Year For the Year
Ended Ended
March 31, March 31,
1996 1995
Shares sold 2,645,585 2,019,949
Shares issued to share-
holders on reinvest-
ment of dividends 611,385 340,078
Shares redeemed (1,862,910) (1,802,800)
Net increase in shares
outstanding 1,394,060 557,227
Proceeds from sale
of shares $ 36,567,203 $ 23,014,817
Reinvested dividends 8,303,476 3,755,243
Net asset value of
shares redeemed (25,776,184) (20,417,857)
Net increase from
capital share
transactions $ 19,094,495 $ 6,352,203
17
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Notes to Financial Statements (continued)
Class B Shares
For the Year For the Period
Ended January 3, 1995*
March 31, to March 31,
1996 1995
Shares sold 252,563 28,411
Shares issued to share-
holders on reinvest-
ment of dividends 5,788 --
Shares redeemed (2,754) --
Net increase in shares
outstanding 255,597 28,411
Proceeds from sale
of shares $3,471,865 $327,879
Reinvested dividends. 79,812 --
Net asset value of
shares redeemed (39,242) --
Net increase from
capital share
transactions $3,512,435 $327,879
Class D Shares
For the Year For the Year
Ended Ended
March 31, March 31,
1996 1995
Shares sold 0 110,073
Shares issued to share-
holders on reinvest-
ment of dividends 45,398 28,011
Shares redeemed (82,585) (147,152)
Net decrease in shares
outstanding (37,187) (9,068)
Proceeds from sale
of shares $ 0 $ 1,231,691
Reinvested dividends 616,247 309,122
Net asset value of
shares redeemed (1,105,221) (1,661,772)
Net decrease from
capital share
transactions $ (488,974) $ (120,959)
Institutional Shares
For the Period
November 2, 1995* to
March 31, 1996
Shares sold 793,108
Shares issued to share-
holders on reinvest-
ment of dividends 6,860
Shares redeemed (3,037)
Net increase in shares
outstanding 796,931
Proceeds from sale
of shares $11,286,209
Reinvested dividends 95,216
Net asset value of
shares redeemed (42,583)
Net increase from
capital share
transactions $11,338,842
- --------------------------------------------------------------------------------
* Commencement of operations.
D. Investment Transactions - Purchases and sales of investment securities,
other than short-term and U.S. government obligations, aggregated
$43,995,097 and $27,187,948, respectively, for the year ended March 31,
1996. Purchases of U.S. government obligations aggregated $6,947,340, and
there were no sales of U.S. government obligations for the year.
At March 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was
$54,252,907 and aggregate gross unrealized depreciation of all securities in
which there is an excess of tax cost over value was $2,341,199.
18
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
VALUE BUILDER FUND
Notes to Financial Statements (concluded)
E. Net Assets - At March 31, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $150,991,612
Flag Investors Class B Shares 3,840,296
Flag Investors Class D Shares 10,209,056
Flag Investors Institutional Shares 11,338,842
Undistributed net
investment income 1,319,621
Accumulated net realized gain
from security transactions 110,857
Unrealized appreciation of
investments 51,911,708
------------
$229,721,992
============
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Value Builder Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors Value
Builder Fund, Inc. as of March 31, 1996, and the related statements of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1996, by correspondence with the custo-dian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the over all financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Value Builder Fund, Inc. as of March 31, 1996, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 10, 1996
19
