[Logo]
FLAG INVESTORS
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
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN &SONS
INCORPORATED
[Logo]
Flag
Investors
Value
Builder
Fund
Semi-Annual Report
September 30, 1996
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Report Highlights
(bullet) Your Fund achieved excellent results over the last 3-, 6- and 9-month
periods, comparing favorably against other balanced funds. The Fund
outperformed the S&P 500 and the Lehman Brothers Government/Corporate
Bond Index, two industry benchmarks.
(bullet) The Fund's asset mix has not changed materially in the last six months
with the equity portion currently at 72.4%. New and existing
shareholders added $12 million to the Fund over the period.
(bullet) Overall investment trends generally remained positive except for the
rise in interest rates since the beginning of the year. Inflation is at
very modest levels. Signs of slowing corporate profitability suggest
that the inflationary outlook will remain favorable.
(bullet) For your Fund's new investments, we continue to focus on finding
"out-of-favor" companies with strong, excess cash flow, run by
shareholder-oriented managements who will best use this free cash to
generate superior long-term returns.
Fund Highlights
- -------------------------------------------------------------------------------
Growth of a $10,000 Investment
in Class A Shares*
June 15, 1992 - September 30, 1996
[graph appears here--see plot points below]
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 15,744
6/96 17,217
9/96 18,105
$10,000 invested in the Value Builder Fund's Class A Shares at inception on
June 15, 1992 was worth $18,105 on September 30, 1996.
- -------------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
were reflected, the quoted performance would be lower. Since investment return
and principal value will fluctuate, an investor's shares may be worth more or
less than their original cost when redeemed. Past performance is not an
indicator of future results.
1
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Fellow Shareholders:
We are pleased to report on the progress of your Fund for the period ended
September 30, 1996.
Performance Update
The Value Builder Fund continues to post excellent returns. For the past
3-, 6-, and 9-month periods, the Fund's Class AShares have increased 5.2%, 8.3%
and 13.7%, respectively. The primary reasons for the Fund's strong performance
have been above-average earnings gains of portfolio companies and improving
valuations. It is interesting to note that these gains have been achieved even
though interest rates for long-term bonds have risen almost a full percentage
point since the beginning of the year.
Your Fund's results compare very favorably with a broad stock market index,
the S&P 500, as well as with a fixed-income benchmark, the Lehman Brothers
Government/Corporate Bond Index.
- -----------------------------------------------------------------
Total Return Comparisons(1)
For periods ended 9/30/96: 3 Months 6 Months 9 Months
- -----------------------------------------------------------------
Flag Investors Value Builder
Fund Class A Shares 5.2% 8.3% 13.7%
- -----------------------------------------------------------------
S&P 500 3.1% 7.7% 13.5%
- -----------------------------------------------------------------
Lehman Brothers Gov't/
Corp. Bond Index 1.8% 2.2% -0.2%
- -----------------------------------------------------------------
In addition to excellent results versus the above indices, we are
especially pleased to report that the Fund's performance continues to rank very
high among its peers, placing 13th out of 265 funds and 4th out of 141 funds for
the 1- and 3-year periods ended September 30, 1996, respectively, in Lipper
Analytical's Balanced Funds category.(2) The Fund has also received an "A"
designation for the same periods from The Wall Street Journal,(3) and has earned
a 4-star overall rating from Morningstar.(4)
Illustrated in the chart on page 1 is the growth of a $10,000 investment in
the Fund's Class A Shares since inception. A full summary of investment returns
for the Fund is provided in the charts on page 5.
The best performers over the past nine months represent common stocks owned
in the portfolio over various time periods (see chart, page 3). This clearly
demonstrates that our long-term core holdings continue to contribute to the
Fund's performance, but it also highlights the fact that we are always adding
new securities that represent good value.
- ----------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. The unmanaged
indices shown are widely recognized as indicators of performance in their
respective sectors. Past performance is not an indicator of future results.
Please review the Additional Performance Information on page 5.
(2) The Lipper rankings are based on performance for the periods ended September
30, 1996 relative to other funds in the category. Performance figures used
in these rankings exclude the impact of any sales charge.
(3) Funds are categorized by The Wall Street Journal based on classifications by
Lipper 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 387 and 249 funds,
respectively, in the Blended Funds category.
(4) Morningstar's rating system of one (lowest) to five (highest) stars is based
on risk and return ratios for 3-, 5- and 10-year periods and considers all
sales charges and fees. Ratings are based on performance within the entire
equity fund universe. Ten percent of funds in an investment category receive
five stars and 22.5% receive four stars.
2
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- -------------------------------------------------------
Best Performers
(12/31/95-9/30/96)
- -------------------------------------------------------
Original
Percent Investment
Security Gain Date
Conseco +57.3% 6/92
Monsanto +49.0 11/94
MBNA +41.4 3/93
Hilton Hotels* +37.1 2/96
IBM +36.3 11/93
Liz Claiborne +35.5 7/93
Citicorp +34.8 6/95
Times Mirror +31.4 5/95
Autodesk* +31.0 8/96
LodgeNet Entertainment +28.9 8/94
- -------------------------------------------------------
*Security added during the period.
The only meaningful loser during the period was Unicom, which declined 23%.
Asset Mix
Your Fund remains essentially fully invested with more than 95% of the
Fund's assets in stocks and bonds. The equity portion increased slightly during
the past six months, reflecting the strong performance of this category and the
net purchase of shares. In addition, the Fund received more than $12 million
from new and existing shareholders over the period. We appreciate this
expression of confidence.
Asset Mix
March 31, 1996
[Pie chart appears here -- plot points are listed below]
3.6% Short-Term Investments
25.5% Fixed-Income
70.9% Common Stocks and Convertibles
September 30, 1996
[Pie chart appears here -- plot points are listed below]
4.3% Short-Term Investments
23.3% Fixed-Income
72.4% Common Stocks and Convertibles
Investment Environment
With the exception of the rise in interest rates from 6% to 6.9% for
long-term bonds since the beginning of the year, overall investment trends have
generally remained in positive territory. Inflation continues to come in at very
modest levels, and even with the pending increases in the minimum wage, we do
not expect any significant changes in the inflationary outlook. Corporate
profitability remains on the upswing although earnings per share gains for some
industries and companies is proving to be a little more difficult than in prior
years.
As noted in our previous communications, we try to use market volatility to
our advantage by acquiring shares of companies at larger discounts to intrinsic
value than would otherwise be possible. We pay very close attention to the price
we pay for our investments. Since price is the critical element in the equation
of determining how good the value is that we are getting, we don't spend time
forecasting the direction of the stock market or the level of
3
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
interest rates. Rather, our focus is on finding "out-of-favor" companies with
strong, excess cash flow, run by shareholder-oriented managements who will best
use this free cash to generate superior long-term returns.
What is particularly interesting to us today is that even though the equity
investment markets have been quite generous for the past several years, there is
no real shortage of investment opportunities being created regularly in the
common stock arena. Part of the reason for this phenomenon seems to be the
short-term focus of many investors whereupon any shortfall in a company's
expected progress results in significant selling pressure on the shares. Because
our investment horizon is typically years, not months, these temporary price
pressures are often "opportunities knocking."
Portfolio Developments
Since our last report to shareholders, we have remained active in our
pursuit of improving the prospects of your Fund by adding to positions or
creating new ones. Our largest common stock purchases are listed below.
Our three largest common stock sales, Fleetwood, Reebok and Albemarle, were
eliminations all as the result of Dutch tenders, i.e. large repurchase of
shares, initiated by each company to increase value for their shareholders.
- ---------------------------------------------------
Five Largest Purchases
- ---------------------------------------------------
Security Cost
GCRHoldings Limited $2,210,937
Kmart Corp. 2,044,375
Wells Fargo 1,924,410
Autodesk 1,390,400
Baxter 1,303,350
- ---------------------------------------------------
The Fund's five largest common stock holdings in the chart below all
contributed to the Fund's performance in the past six months.
- ------------------------------------------------------
Five Largest Common Stock Holdings
(as of September 30, 1996)
- ------------------------------------------------------
Market Six Month
Cost Value % Change
---------- ---------- ---------
Conseco $ 5,940,048 $12,210,405 36.1%
McDonnell
Douglas 2,346,273 6,300,000 14.9
Arcadian 4,115,444 6,271,037 25.9
Johnson&
Johnson 2,336,865 5,842,500 11.1
Monsanto 2,042,340 5,110,000 18.9
$16,780,970 $35,733,942
- ------------------------------------------------------
We thank you for your continuing interest and support and look forward to
the ongoing process of building value for you.
Respectfully submitted,
/s/ Hobart C. Buppert, II /s/ J. Dorsey Brown III
- ------------------------- -------------------------
Hobart C. Buppert, II J. Dorsey Brown, III
President Executive Vice President
October 25, 1996
4
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Fund Performance
- -----------------------------------------------------------
TOTAL RETURN PERFORMANCE*
Class A Class B Class D
Periods ended 9/30/96: Shares Shares Shares**
- -----------------------------------------------------------
3 Months 5.2% 4.9% 5.0%
- -----------------------------------------------------------
12 Months 18.5% 17.7% 18.1%
- -----------------------------------------------------------
Since Inception: 6/15/92 1/3/95 11/9/92
------- ------ -------
(Cumulative) 81.0% 48.8% 70.6%
- -----------------------------------------------------------
*These figures assume the reinvestment of all dividends and capital
gains distributions but exclude the impact of any sales charge.
Performance figures for 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.
**As of November 18, 1994, Class D Shares are no longer available for sale;
however, existing shareholders may reinvest their dividends.
Additional Performance Information
The shareholder letter included in this report contains
statistics designed to help you evaluate the performance of your Fund's
management. The Securities and Exchange Commission (SEC) requires that when we
report such figures, we also include 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 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 and 1.00%
maximum contingent deferred sales charge for the Fund's Class D Shares.
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
Class A Class B Class D Institutional
Periods ended 9/30/96: Shares Shares Shares Shares
- --------------------------------------------------------------------
One Year 13.19% 14.50% 15.62% --
- --------------------------------------------------------------------
Since Inception* 13.59% 23.66% 14.09% 19.54%**
- --------------------------------------------------------------------
* Inception dates: Class A Shares 6/15/92;Class B Shares 1/3/95; Class D Shares
11/9/92; Institutional Shares 11/2/95.
** Annualized.
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.
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.
5
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1996
(Unaudited)
Market Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK: 68.7%
Banking: 3.7%
35,000 Citicorp $ 3,171,875
100,000 KeyCorp 4,400,000
8,000 Wells Fargo & Company 2,080,000
- --------------------------------------------------------------------------------
9,651,875
Basic Industry: 5.6%
252,102 Arcadian Corp. 6,271,037
20,000 Georgia-Pacific Corp. 1,582,500
30,000 Hercules, Inc. 1,642,500
140,000 Monsanto Co. 5,110,000
- --------------------------------------------------------------------------------
14,606,037
Business Services: 1.4%
151,100 SEI Corp. 3,513,075
- --------------------------------------------------------------------------------
Capital Goods: 1.7%
36,000 Eaton Corp. 2,173,500
42,500 ITT Industries, Inc. 1,025,313
110,300 Westinghouse Air Brake Co. 1,240,875
- --------------------------------------------------------------------------------
4,439,688
Consumer Durables/Non-Durables: 5.5%
20,000 Blyth Industries, Inc.(1) 970,000
97,400 Collins & Aikman Co.(1) 645,275
33,500 Eastman Kodak Co. 2,629,750
90,000 Ford Motor Company 2,812,500
50,000 Liz Claiborne, Inc. 1,862,500
37,200 Philip Morris Cos., Inc. 3,338,700
70,000 Unifi, Inc. 1,925,000
- --------------------------------------------------------------------------------
14,183,725
Consumer Services: 3.0%
83,250 CUC International, Inc.(1) 3,319,594
30,000 Gannett Co. 2,111,250
50,000 Times Mirror Co. Class A 2,225,000
- --------------------------------------------------------------------------------
7,655,844
Defense/Aerospace: 5.2%
38,000 Lockheed Martin Corp. 3,424,750
120,000 McDonnell Douglas Corp. 6,300,000
32,000 United Technologies Corp. 3,844,000
- --------------------------------------------------------------------------------
13,568,750
6
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Market Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
Electric Utilities: 1.0%
100,000 Unicom Corp. $ 2,512,500
- --------------------------------------------------------------------------------
Energy: 1.3%
27,500 Burlington Resources, Inc. 1,220,312
35,800 MAPCO, Inc. 2,134,575
- --------------------------------------------------------------------------------
3,354,887
Entertainment: 1.4%
288,500 LodgeNet Entertainment Corp.(1) 3,534,125
- --------------------------------------------------------------------------------
Financial Services: 6.7%
83,500 American Express Co. 3,861,875
87,500 Countrywide Credit Industries, Inc. 2,242,188
43,000 Federal Home Loan Mortgage Corp. 4,208,625
78,750 MBNA Corp. 2,736,562
85,500 Travelers Group, Inc. 4,200,188
- --------------------------------------------------------------------------------
17,249,438
Health Care: 6.8%
40,000 Amgen, Inc.(1) 2,525,000
30,000 Baxter International, Inc. 1,402,500
19,000 Bristol-Myers Squibb 1,831,125
54,434 Eli Lilly & Co. 3,510,996
114,000 Johnson & Johnson 5,842,500
60,000 Mallinckrodt Group 2,497,500
- --------------------------------------------------------------------------------
17,609,621
Hotels/Lodging: 1.0%
40,000 Hilton Hotels Corp. 1,135,000
32,500 ITT Corp.(1) 1,417,812
- --------------------------------------------------------------------------------
2,552,812
Housing: 1.5%
55,000 Ryland Group, Inc. 818,125
108,000 USG Corp.(1) 3,199,500
- --------------------------------------------------------------------------------
4,017,625
7
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Market Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
Insurance: 9.4%
125,000 Alexander & Alexander Services, Inc. $ 2,078,125
247,927 Conseco, Inc. 12,210,405
80,000 EXEL Limited 2,780,000
100,000 GCR Holdings Limited 2,412,500
32,500 ITT Hartford Group, Inc. 1,917,500
70,500 Mid Ocean Ltd. 3,005,062
- --------------------------------------------------------------------------------
24,403,592
Multi-Industry: 1.0%
33,400 Loews Corp. 2,584,325
- --------------------------------------------------------------------------------
Real Estate: 3.1%
60,200 General Growth Properties, Inc. 1,497,475
324,136 Host Marriott Corp.(1) 4,699,977
25,000 Liberty Property Trust 543,750
35,000 National Health Investors, Inc. 1,168,125
- --------------------------------------------------------------------------------
7,909,327
Retail: 3.6%
160,000 Eckerd Corp.(1) 4,480,000
200,000 Kmart Corp.(1) 2,050,000
19,000 J.C. Penney Company, Inc. 1,028,375
45,000 Tandy Corp. 1,816,875
- --------------------------------------------------------------------------------
9,375,250
Technology: 3.0%
70,400 Autodesk, Inc. 1,821,600
38,000 International Business Machines Corp. 4,731,000
33,400 Millipore Corp. 1,319,300
- --------------------------------------------------------------------------------
7,871,900
Telecommunications: 1.4%
69,000 MCI Communications 1,768,125
57,000 Telefonos de Mexico SA Class L ADR 1,831,125
- --------------------------------------------------------------------------------
3,599,250
Transportation: 1.4%
33,200 Conrail, Inc. 2,402,850
17,491 Delta Air Lines, Inc. 1,259,352
- --------------------------------------------------------------------------------
3,662,202
Total Common Stock (Cost $113,391,040) 177,855,848
8
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Shares/ Market Value
Par (000) (Note A)
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 2.4%
50,000 American Express Co., $2.30 DECS $ 3,350,000
32,300 Conseco Inc., $4.28 Cvt. Pfd, Series E 2,866,625
- --------------------------------------------------------------------------------
Total Convertible Preferred Stock (Cost $3,827,813) 6,216,625
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 1.3%
$2,000 Richardson Electronics, Cvt. Deb,
7.25%, 12/15/06 1,637,500
2,000 Sizeler Property Investors, Cvt. Deb,
8.00%, 7/15/03 1,800,000
- --------------------------------------------------------------------------------
Total Convertible Bonds (Cost $3,643,671) 3,437,500
- --------------------------------------------------------------------------------
CORPORATE BONDS: 21.0%
1,000 American Life Holding Co., Sr Sub Nt,
11.25%, 9/15/04 1,142,500
3,000 Arcadian Partners LP, Nt, 10.75%, 5/1/05 3,307,500
1,000 Caesar's World, 8.875%, 8/15/02 1,043,750
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 915,559
1,000 Chattem, Inc., Warrants, Expiring 6/17/99 15,853
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,045,000
700 CSX Corp., Nt, 7.00%, 9/15/02 705,250
575 Dillard Dept. Stores, Nt, 7.15%, 9/1/02 580,031
2,000 Eckerd Corp., Nt, 9.25%, 2/15/04 2,085,000
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 300,000
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,067,500
1,000 Fund American Enterprise, Nt, 7.75%, 2/1/03 991,250
3,800 HMH Properties, Nt, 9.50%, 5/15/05 3,800,000
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 3,015,000
2,775 ITT Corp., 6.25%, 11/15/00 2,705,625
2,000 John Q. Hammons Hotels LP, Nt, 8.875%, 2/15/04 1,925,000
2,000 Jordan Industries, Nt, 10.375%, 8/1/03 1,970,000
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,281,788
2,100 Marriott International, 7.875%, 4/15/05 2,144,625
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,097,250
2,000 MCI Communications, Nt, 6.25%, 3/23/99 1,987,500
500 MCI Communications, Nt, 7.50%, 8/20/04 511,875
2,000 Nabisco, Inc., 6.70%, 6/15/02 1,945,000
500 New England Telephone & Telegraph, Nt,
6.15%, 9/1/99 493,125
1,000 Noble Drilling Company, Nt, 9.25%, 10/1/03 1,042,500
500 PepsiCo, Inc., Nt, 6.25%, 9/1/99 495,625
325 Petroleum Heat & Power, Nt, 12.25%, 2/1/05 362,375
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,910,000
9
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1996
(Unaudited)
Par Market Value
(000) (Note A)
- --------------------------------------------------------------------------------
CORPORATE BONDS (concluded)
$2,000 RJR Nabisco, Inc., Nt, 7.625%, 9/15/03 $ 1,897,500
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 2,039,145
1,000 Tenneco, Inc., Nt, 7.875%, 10/1/02 1,035,000
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 973,750
1,000 Union Pacific Co., 6.25%, 3/15/99 991,250
1,660 USG Corp., 8.50%, 8/1/05 1,657,925
500 Xerox Corp., Nt, 7.15%, 8/1/04 496,250
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $53,592,318) 54,483,551
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 3.1%
1,000 Federal National Mortgage Assoc.,
7.6%, 5/24/06 997,810
- --------------------------------------------------------------------------------
U.S. Treasury Notes
3,000 5.125%, 2/28/98 2,966,040
2,000 5.25%, 12/31/97 1,984,820
2,000 5.625%, 6/30/97 2,000,160
- --------------------------------------------------------------------------------
6,951,020
Total U.S. Government Securities (Cost $7,961,066) 7,948,830
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 2.8%
7,106 Goldman Sachs & Co., 5.65% Dated 9/30/96, to be
repurchased on 10/1/96, collateralized by U.S.
Treasury Notes with a market value of $7,195,611.
(Cost $7,106,000) 7,106,000
- --------------------------------------------------------------------------------
Total Investment in Securities: 99.3%
(Cost $189,521,908)(2) 257,048,354
Other Assets in Excess of Liabilities, Net: 0.7% 1,869,866
- --------------------------------------------------------------------------------
Net Assets: 100.0% $258,918,220
================================================================================
10
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) September 30, 1996
(Unaudited)
Market Value
(Note A)
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($221,476,126 / 14,083,494 shares outstanding) $15.73
======
Class B Share
($6,941,366 / 440,542 shares outstanding) $15.76(3)
======
Class D Share
($14,165,449 / 901,810 shares outstanding) $15.71(4)
======
Institutional Share
($16,335,279 / 1,031,796 shares outstanding) $15.83
======
Maximum Offering Price Per:
Class A Share
($15.73 / .955) $16.47
======
Class B Share $15.76
======
Institutional Share $15.83
======
(1) Non-income producing security.
(2) ALSO AGGREGATE COST FOR FEDERAL TAX PURPOSES.
(3) Redemption value is $15.13 following 4.00% maximum contingent deferred sales
charge.
(4) Redemption value is $15.55 following 1.00% contingent deferred sales charge.
See accompanying Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Operations For the Six Months Ended September 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE A):
Interest $ 2,774,128
Dividends 1,763,296
-----------
Total income 4,537,424
-----------
EXPENSES:
Investment advisory fee (Note B) 1,003,894
Distribution fee (Note B) 326,684
Transfer agent fee (Note B) 40,000
Accounting fee (Note B) 38,076
Legal 25,000
Printing and postage 23,001
Custodian fee 17,500
Registration fees 16,499
Audit 12,501
Miscellaneous 5,501
Organizational expense (Note A) 5,115
Directors' fees 4,500
Insurance 2,835
-----------
Total expenses 1,521,106
-----------
Net investment income 3,016,318
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 938,072
Change in unrealized appreciation or depreciation
of investments 15,614,738
-----------
Net gain on investments 16,552,810
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,569,128
===========
- -------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year
September 30, 1996 Ended
(Unaudited) March 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 3,016,318 $ 5,157,897
Net realized gain from security transactions 938,072 4,755,355
Change in unrealized appreciation or depreciation of
investments 15,614,738 37,398,630
----------- -----------
Net increase in net assets resulting from operations 19,569,128 47,311,882
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (2,193,598) (4,710,084)
Class B Shares (34,400) (25,557)
Class D Shares (119,790) (319,956)
Institutional Shares (143,877) (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)
Class B Shares -- (52,673)
Class D Shares -- (298,195)
Institutional Shares -- (76,965)
---------- -----------
Total distributions (2,491,665) (10,091,207)
---------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 22,317,960 51,325,277
Value of shares issued in reinvestment of dividends 2,157,852 9,094,751
Cost of shares repurchased (12,357,047) (26,963,230)
----------- -----------
Increase in net assets derived from capital share
transactions 12,118,765 33,456,798
----------- -----------
Total increase in net assets 29,196,228 70,677,473
----------- -----------
NET ASSETS:
Beginning of period 229,721,992 159,044,519
------------ ------------
End of period $258,918,220 $229,721,992
============ ============
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Year Ended For the Period
Six Months Ended March 31, June 15, 1992(1)
Sept. 30, 1996 ------------------------------ through
(Unaudited) 1996 1995 1994 March 31, 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68 $ 12.02 $ 11.23 $ 11.25 $ 10.00
------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.19 0.36 0.35 0.40 0.18
Net realized and unrealized gain/
(loss) on investments 1.02 3.03 0.80 (0.04) 1.18
------------------------------------------------------------
Total from Investment Operations 1.21 3.39 1.15 0.36 1.36
Less Distributions:
Dividends from net investment income
and short-term gains (0.16) (0.41) (0.35) (0.38) (0.11)
Distributions from net realized
long-term gains -- (0.32) (0.01) -- --
------------------------------------------------------------
Total distributions (0.16) (0.73) (0.36) (0.38) (0.11)
------------------------------------------------------------
Net asset value at end of period $ 15.73 $ 14.68 $ 12.02 $ 11.23 $ 11.25
============================================================
Total Return(2) 8.33% 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily Net Assets:
Expenses 1.25%(3) 1.31% 1.35%(4) 1.35%(4) 1.35%(3,4)
Net investment income 2.54%(3) 2.72% 3.07%(5) 3.14%(5) 2.88%(3,5)
Supplemental Data:
Net assets at end of period (000) $221,476 $200,020 $146,986 $131,097 $83,535
Portfolio turnover rate 6% 15% 18% 8% 8%
Average commissions per share $ 0.056 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) 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 the years ended March 31, 1995, 1994 and the period ended March 31,
1993, respectively.
(5) 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 the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively. See accompanying Notes to Financial
Statements.
14
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the For the Period
Six Months Ended Year Ended Jan. 3, 1995(1)
Sept. 30, 1996 March 31, through
(Unaudited) 1996 March 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $14.71 $12.01 $11.14
------ ------ ------
Income from Investment Operations:
Net investment income 0.12 0.21 0.08
Net realized and unrealized gain on investments 1.04 3.05 0.79
------ ------ ------
Total from Investment Operations 1.16 3.26 0.87
Less Distributions:
Dividends from net investment income and short-term gains (0.11) (0.24) --
Distributions from net realized long-term gains -- (0.32) --
------ ------ ------
Total distributions (0.11) (0.56) --
------ ------ ------
Net asset value at end of period $15.76 $14.71 $12.01
====== ====== ======
Total Return(2) 7.91% 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses 2.00%(3) 2.06% 2.10%(3,4)
Net investment income 1.79%(3) 1.97% 2.94%(3,5)
Supplemental Data:
Net assets at end of period (000) $6,941 $4,178 $ 341
Portfolio turnover rate 6% 15% 18%
Average commissions per share $0.056 -- --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(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
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 the period ended March 31, 1995.
See accompanying Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class D Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Year Ended For the Period
Six Months Ended March 31, Nov. 9, 1992(1)
Sept. 30, 1996 ------------------------------- through
(Unaudited) 1996 1995 1994 March 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66 $ 12.01 $ 11.22 $ 11.24 $10.45
------- -------- ------- ------- ------
Income from Investment Operations:
Net investment income 0.17 0.33 0.31 0.36 0.14
Net realized and unrealized gain/
(loss) on investments 1.01 3.02 0.80 (0.04) 0.74
------- -------- ------- ------- ------
Total from Investment Operations 1.18 3.35 1.11 0.32 0.88
Less Distributions:
Dividends from net investment income
and short-term gains (0.13) (0.38) (0.31) (0.34) (0.09)
Distributions from net realized long-term gains -- (0.32) (0.01) -- --
------- ------- ------- ------- ------
Total distributions (0.13) (0.70) (0.32) (0.34) (0.09)
------- ------- ------- ------- ------
Net asset value at end of period $ 15.71 $ 14.66 $ 12.01 $ 11.22 $11.24
======= ======= ======= ======= ======
Total Return(2) 8.12% 28.44% 10.18% 2.78% 9.00%
Ratios to Average Daily Net Assets:
Expenses 1.60%(3) 1.66% 1.70%(4) 1.70%(4) 1.70%(3,4)
Net investment income 2.19%(3) 2.37% 2.72%(5) 2.79%(5) 2.83%(3,5)
Supplemental Data:
Net assets at end of period (000) $14,165 $13,757 $11,717 $11,051 $6,285
Portfolio turnover rate 6% 15% 18% 8% 8%
Average commissions per share $ 0.056 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) 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 the years ended March 31, 1995, 1994 and the period
ended March 31, 1993, respectively.
(5) 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 the years ended March 31, 1995,
1994 and the period ended March 31, 1993, respectively.
See accompanying Notes to Financial Statements.
16
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Period
Six Months Ended Nov. 1, 1995(1)
Sept. 30, 1996 through
(Unaudited) March 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.77 $ 13.89
------- -------
Income from Investment Operations:
Net investment income 0.20 0.13
Net realized and unrealized gain on investments 1.02 1.17
------- -------
Total from Investment Operations 1.22 1.30
Less Distributions:
Dividends from net investment income and short-term gains (0.16) (0.10)
Distributions from net realized long-term gains -- (0.32)
------- -------
Total distributions (0.16) (0.42)
------- -------
Net asset value at end of period $ 15.83 $ 14.77
======= =======
Total Return 8.39% 21.12%(2)
Ratios to Average Daily Net Assets:
Expenses 1.00%(2) 1.03%(2)
Net investment income 2.79%(2) 2.89%(2)
Supplemental Data:
Net assets at end of period (000) $16,335 $11,768
Portfolio turnover rate 6% 15%
Average commissions per share $ 0.056 --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Annualized.
See accompanying Notes to Financial Statements.
17
<PAGE>
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), and on January 3, 1995,
the Fund began offering Class B Shares. The Class A, Class B and
Class D Shares have different sales charges and distribution fees,
and both the Class B and Class D Shares have a contingent deferred
sales charge. As of November 18, 1994, Class D Shares are no longer
available for sale; however, existing shareholders may reinvest
their dividends. On November 2, 1995, the Fund began offering
Institutional Shares, which are not subject to a front-end sales
charge, a distribution fee or a contingent deferred sales charge.
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 ("ABIM") is the Fund's subadvisor.
As compensa-
18
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
tion for its advisory services, ICC receives from the Fund an annual fee,
calculated daily and paid monthly, at the following annual rates based upon
the Fund's average daily net assets: 1.00% of the first $50 million, 0.85%
of the next $50 million, 0.80% of the next $100 million and 0.70% of that
portion in excess of $200 million.
As compensation for its subadvisory services, ABIM receives a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly, at the
following annual rates based upon the Fund's average daily net assets: 0.75%
of the first $50 million, 0.60% of the next $150 million and 0.50% of that
portion 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 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 $38,076 for accounting services for the six months
ended September 30, 1996.
As compensation for its transfer agent services, ICCreceives from the Fund a
per account fee, calculated and paid monthly. ICC received $40,000 for
transfer agent services for the six months ended September 30, 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
six months ended September 30, 1996, distribution fees aggregated $326,684,
of which $258,448 was attributable to the Class A Shares, $27,000 was
attributable to the Class B Shares and $41,236 was attributable to the Class
D Shares. Alex. Brown received no commissions from the Fund for the six
months ended September 30, 1996.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated
to the Fund for the period January 1, 1996 through September 30, 1996 was
approximately $4,000, and the accrued liability was approximately $20,500.
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 in shares of the Fund were as
follows:
Class A Shares
---------------------------
For the Six For the
Months Ended Year
September 30, Ended
1996 March 31,
(Unaudited) 1996
------------- ---------
Shares sold 1,098,145 2,645,585
Shares issued to share-
holders on reinvest-
ment of dividends 130,528 611,385
Shares redeemed (768,449) (1,862,910)
--------- ----------
Net increase in shares
outstanding 460,224 1,394,060
========== ==========
Proceeds from sale
of shares $ 16,323,620 $ 36,567,203
Value of reinvested
dividends 1,900,564 8,303,476
Cost of shares
redeemed (11,362,262) (25,776,184)
----------- -----------
Net increase from
capital share
transactions $ 6,861,922 $ 19,094,495
=========== ============
19
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
Class B Shares
---------------------------
For the Six For the
Months Ended Year
September 30, Ended
1996 March 31,
(Unaudited) 1996
------------- ---------
Shares sold 166,309 252,563
Shares issued to share-
holders on reinvest-
ment of dividends 2,113 5,788
Shares redeemed (11,888) (2,754)
---------- ----------
Net increase in shares
outstanding 156,534 255,597
========== ==========
Proceeds from sale
of shares $2,486,563 $3,471,865
Value of reinvested
dividends. 30,957 79,812
Cost of shares
redeemed (176,290) (39,242)
---------- ----------
Net increase from
capital share
transactions $2,341,230 $3,512,435
========== ==========
Class D Shares
---------------------------
For the Six For the
Months Ended Year
September 30, Ended
1996 March 31,
(Unaudited) 1996
------------- ---------
Shares sold -- --
Shares issued to share-
holders on reinvest-
ment of dividends 7,553 45,398
Shares redeemed (44,037) (82,585)
--------- -----------
Net decrease in shares
outstanding (36,484) (37,187)
========= ===========
Proceeds from sale
of shares $ -- $ --
Value of reinvested
dividends 109,981 616,247
Cost of shares
redeemed (657,368) (1,105,221)
--------- -----------
Net decrease from
capital share
transactions $(547,387) $ (488,974)
========= ===========
Institutional Shares
------------------------------
For the Six For the
Months Ended Period
September 30, Nov. 2, 1995(1)
1996 to March 31,
(Unaudited) 1996
------------- ---------------
Shares sold 237,481 793,108
Shares issued to share-
holders on reinvest-
ment of dividends 7,939 6,860
Shares redeemed (10,555) (3,037)
---------- -----------
Net increase in shares
outstanding 234,865 796,931
========== ===========
Proceeds from sale
of shares $3,507,777 $11,286,209
Value of reinvested
dividends 116,350 95,216
Cost of shares
redeemed (161,127) (42,583)
---------- -----------
Net increase from
capital share
transactions $3,463,000 $11,338,842
========== ===========
- -----------------------------------------------------------------------------
(1) Commencement of operations.
D. Investment Transactions - Purchases and sales of investment
securities, other than short-term and U.S. government obligations,
aggregated $17,869,465 and $5,868,879, respectively, for the six
months ended September 30, 1996. Purchases of U.S. government
obligations aggregated $1,000,000 and sales of U.S. government
obligations aggregated $1,000,000 for the period.
At September 30, 1996, aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost
was $69,589,451 and aggregate gross unrealized depreciation of all
securities in which there is an excess of tax cost over value was
$2,063,005.
20
<PAGE>
FLAG INVESTORS
VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
E. Net Assets - At September 30, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $157,853,534
Flag Investors Class B Shares 6,181,526
Flag Investors Class D Shares 9,661,669
Flag Investors Institutional
Shares 14,801,842
Undistributed net
investment income 1,844,274
Accumulated net realized gain
from security transactions 1,048,929
Unrealized appreciation of
investments 67,526,446
------------
$258,918,220
============
Directors and Officers
Truman T. Semans
Chairman
James J. Cunnane
Director
Richard T. Hale
Director
John F. Kroeger
Director
Louis E. Levy
Director
Eugene J. McDonald
Director
W. James Price
Director
Harry Woolf
Director
Hobart C. Buppert, II
President
J. Dorsey Brown, III
Executive Vice President
Lee S. Owen
Executive Vice President
Bruce E. Behrens
Vice President
Gary V. Fearnow
Vice President
Edward J. Veilleux
Vice President
Scott J. Liotta
Vice President
Joseph A. Finelli
Treasurer
Edward J. Stoken
Secretary
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.
21
