<PAGE>
As Filed With the Securities and Exchange Commission on July 29, 1997
Registration No. 33-46279
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 10 [X]
FLAG INVESTORS VALUE BUILDER FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
--------------
Edward J. Veilleux
One South Street
Baltimore, MD 21202
--------------------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on August 1, 1997 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1) 75 days
_____ after filing pursuant to paragraph (a)(2) on [Date] pursuant
_____ to paragraph (a) of rule 485
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Registrant has elected to maintain registration of an indefinite number of
shares of its Common Stock, $.001 par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its Rule 24f-2 notice for its
fiscal year ended March 31, 1997 on May 15, 1997.
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Class A and Class B Shares)
Cross Reference Sheet
July 29, 1997
Items Required by Form N-1A
<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- -------------------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Fund
Item 8. Redemption or Repurchase How to Redeem Shares; Telephone
Transactions
Item 9. Pending Legal Proceedings **
Information Required in a Statement
Part B of Additional Information
- ------ -----------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Control Persons and
Holders of Securities Principal Holders of
Securities
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent and
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares; Semi-Annual Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
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Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Institutional Shares and Class A & B Shares Prospectuses
dated August 1, 1997
Flag Investors Value Builder Fund, Inc.
(the "Fund")
Each of the above prospectuses is hereby amended and supplemented as
follows:
Alex. Brown Incorporated ("Alex. Brown") has entered into an Agreement
and Plan of Merger with Bankers Trust New York Corporation ("Bankers Trust"),
dated as of April 6, 1997, under which Alex. Brown would merge with and into a
subsidiary of Bankers Trust (the "Merger"). Provided that shareholders of Alex.
Brown approve the Merger at a shareholder meeting to be held on August 13, 1997,
it is currently anticipated that the Merger will be consummated on August 17,
1997. At such time, the Fund's investment advisor, sub-advisor and distributor
will each become affiliates of Bankers Trust.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund. After the Merger
and provided shareholders of the Fund approve new investment advisory and sub-
advisory agreements at a meeting to be held on August 14, 1997, the Fund's
current investment advisor and sub-advisor will continue to provide investment
advisory services to the Fund. The new investment advisory and sub-advisory
agreements (including fees) are substantially the same as the Fund's current
advisory and sub-advisory agreements. Affiliates of Alex. Brown also will
continue to provide services to Fund shareholders who are Alex. Brown customers.
However, as a result of the Merger, individuals affiliated with Alex. Brown will
not be able to hold positions as certain executive officers of the Fund and at
least 75% of the members of the Board of Directors must not be interested
persons of the investment advisor, sub-advisor or Bankers Trust. In addition,
the Fund will be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to comply with the foregoing requirements. Alex. Brown does not believe such
changes will substantially affect the operation of the Fund or the services
received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
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[GRAPHIC OMITTED]
VALUE BUILDER FUND, INC.
(Class A and Class B Shares)
Prospectus & Application -- August 1, 1997
- -----------------------------------------------------------------
This mutual fund (the "Fund") is designed to maximize total return through a
combination of long-term growth of capital and current income.
Shares of the Fund are available through your securities dealer or the Fund's
transfer agent. This Prospectus relates to Flag Investors Class A Shares
("Class A Shares") and Flag Investors Class B Shares ("Class B Shares") of the
Fund. The separate classes provide investors with alternatives as to sales load
and Fund expenses. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated August 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fee Table .............................. 1
Financial Highlights ..................... 2
Investment Program ..................... 3
Investment Restrictions .................. 4
How to Invest in the Fund ............... 5
How to Redeem Shares ..................... 8
Telephone Transactions .................. 9
Dividends and Taxes ..................... 10
Management of the Fund .................. 10
Investment Advisor and Sub-Advisor ...... 11
Distributor .............................. 11
Custodian, Transfer Agent and
Accounting Services .................. 12
Performance Information .................. 12
General Information ..................... 13
Application .............................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
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FEE TABLE
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Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
--------------- -------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .................................... 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) .................................... None None
Maximum Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ........................... 0.50%* 4.00%**
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees ......................................................... 0.82% 0.82%
12b-1 Fees ............................................................... 0.25% 0.75%
Other Expenses (including a .25% shareholder servicing
fee for Class B Shares) ................................................ 0.20% 0.45%***
------- ---------
Total Fund Operating Expenses .......................................... 1.27% 2.02%
======= ========
</TABLE>
- -----------
* Purchases of $1 million or more of Class A Shares by persons not otherwise
eligible for sales load waivers are not subject to an initial sales charge;
however, a contingent deferred sales charge of .50% may be imposed upon
redemption. (See "How to Invest in the Fund--Offering Price.")
** A declining contingent deferred sales charge will be imposed on redemptions
of Class B Shares made within six years of purchase. Class B Shares will
automatically convert to Class A Shares six years after purchase. (See "How
to Invest in the Fund -- Class B Shares.")
*** A portion of the shareholder servicing fee is allocated to member firms of
the National Association of Securities Dealers, Inc. and qualified banks
for services provided and expenses incurred in maintaining shareholders
accounts, responding to shareholder inquiries and providing information on
their investments.
<PAGE>
Example:
- --------
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period: 1 year 3 years 5 years 10 years
------- -------- -------- ----------
Class A Shares .......................................... $57 $83 $112 $191
Class B Shares .......................................... $61 $93 $129 $198*
You would pay the following expenses on the same invest-
ment, assuming no redemption:* 1 year 3 years 5 years 10 years
------- -------- -------- ----------
Class B Shares .......................................... $21 $63 $109 $198*
</TABLE>
- -----------
*Expenses assume that Class B Shares are converted to Class A Shares at the end
of six years. Therefore, the expense figures assume six years of Class B
expenses and four years of Class A expenses.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases shares of either class through a financial institution may
be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund," "Investment Advisor and Sub-Advisor" and "Distributor.")
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges or no sales charge at all. (See "How to Invest in the Fund -- Class A
Shares.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD Rules").
1
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<PAGE>
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FINANCIAL HIGHLIGHTS
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The financial highlights included in the following tables are a part of
the Fund's financial statements for the periods indicated and have been audited
by Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the fiscal year ended March 31, 1997 and the
report thereon of Coopers & Lybrand L.L.P. are included in the Statement of
Additional Information. Additional performance information is contained in the
Fund's Annual Report for the fiscal year ended March 31, 1997, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
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<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------
For the Period
June 15, 1992(1)
For the Year Ended March 31, through
--------------------------------------------------
1997 1996 1995 1994 March 31, 1993
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <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 ......... 0.39 0.36 0.35 0.40 0.18
Net realized and unrealized
gain/(loss) on investments ... 2.49 3.03 0.80 (0.04) 1.18
-------- -------- -------- -------- ----------
Total from Investment
Operations .................. 2.88 3.39 1.15 0.36 1.36
Less Distributions:
Distributions from net invest-
ment income and net
realized short-term gains ... (0.36) (0.41) (0.35) (0.38) (0.11)
Distributions from net realized
long-term gains ............... (0.06) (0.32) (0.01) -- --
-------- -------- -------- -------- ----------
Total Distributions ............ (0.42) (0.73) (0.36) (0.38) (0.11)
-------- -------- -------- -------- ----------
Net asset value at end of
period ........................ $ 17.14 $ 14.68 $ 12.02 $ 11.23 $ 11.25
======== ======== ======== ======== ==========
Total Return(2) ............... 19.90% 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily
Net Assets:
Expenses(3) .................. 1.27% 1.31% 1.35% 1.35% 1.35%(5)
Net investment income(4) ...... 2.51% 2.72% 3.07% 3.14% 2.88%(5)
Supplemental Data:
Net assets at end of period
(000) ........................ $278,130 $200,020 $146,986 $131,097 $ 83,535
Portfolio turnover rate ...... 13% 15% 18% 8% 8%
Average commissions per
share(6) ..................... $ 0.066 -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares
---------------------------------------------
For the Year Ended March For the Period
31, January 3, 1995(1)
------------------------ through
1997 1996 March 31, 1995
----------- ----------- --------------------
<S> <C> <C> <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 ......... 0.26 0.21 0.08
Net realized and unrealized
gain/(loss) on investments ... 2.51 3.05 0.79
------- ------- ----------
Total from Investment
Operations .................. 2.77 3.26 0.87
Less Distributions:
Distributions from net invest-
ment income and net
realized short-term gains ... (0.26) (0.24) --
Distributions from net realized
long-term gains ............... (0.06) (0.32) --
-------- ------- ----------
Total Distributions ............ (0.32) (0.56) --
-------- ------- ----------
Net asset value at end of
period ........................ $ 17.16 $ 14.71 $ 12.01
======== ======= ==========
Total Return(2) ............... 19.00% 27.89% 7.81%
Ratios to Average Daily
Net Assets:
Expenses(3) .................. 2.02% 2.06% 2.10%(5)
Net investment income(4) ...... 1.84% 1.97% 2.94%(5)
Supplemental Data:
Net assets at end of period
(000) ........................ $ 17,311 $ 4,178 $ 341
Portfolio turnover rate ...... 13% 15% 18%
Average commissions per
share(6) ..................... $ 0.066 -- --
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees, 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, March 31, 1994 and the period
ended March 31, 1993, respectively, and 2.17% (annualized) for Class B
Shares for the period ended March 31, 1995.
(4) Without the waiver of advisory fees, 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, March
31, 1994 and the period ended March 31, 1993, respectively, and 2.87%
(annualized) for Class B Shares for the period ended March 31, 1995.
(5) Annualized.
(6) Disclosure is required for the fiscal years beginning after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
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<PAGE>
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INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, Policies and Risk
Considerations
The Fund's investment objective is to maximize total return through a
combination of long-term growth of capital and current income. The Fund seeks
to achieve this objective through a policy of diversified investments in equity
and debt securities, including common stocks, convertible securities and
government and corporate fixed-income obligations. The Fund's investment
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. There can be no assurance, however, that the Fund will
achieve its investment objective.
The Fund's investment advisor (the "Advisor") and the Fund's sub-advisor
(the "Sub-Advisor") (collectively, the "Advisors") are responsible for managing
the Fund's investments. (See "Investment Advisor and Sub-Advisor.") The
Advisors consider both the opportunity for gain and the risk of loss in making
investments, and may alter the relative percentages of assets invested in equity
and fixed-income securities from time to time, depending on the judgment of the
Advisors as to general market and economic conditions, trends in yields and
interest rates and changes in fiscal and monetary policies.
Under normal market conditions, between 40% and 75% of the Fund's total
assets will be invested in common stock and other equity investments
(including preferred stocks, convertible debt, warrants and other securities
convertible into or exchangeable for common stocks). In selecting securities
for the Fund's portfolio, the Advisors expect to apply a "flexible value"
approach to the selection of equity investments. Under this approach, the
Advisors will attempt to identify securities that are undervalued in the
marketplace, but will also consider such factors as current and expected
earnings, dividends, cash flows and asset values in their evaluation of a
security's investment potential.
<PAGE>
In addition, at least 25% of the Fund's total assets will be invested in
fixed-income securities, defined for this purpose to include non-convertible
corporate debt securities, non-convertible preferred stock and government
obligations. The average maturity of these investments will vary from time to
time depending on the Advisors' assessment of the relative yields available on
securities of different maturities. It is currently anticipated that the
average maturity of the fixed-income securities in the Fund's portfolio will be
between two and ten years under normal market conditions. In general,
non-convertible corporate debt obligations held in the Fund's portfolio will be
rated, at the time of purchase, BBB or higher by Standard & Poor's Ratings
Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's")
or, if unrated by S&P or Moody's, determined to be of comparable quality by the
Advisors under criteria approved by the Board of Directors. Investment grade
securities (securities rated BBB or higher by S&P or Baa or higher by
Moody's) are generally thought to provide the highest credit quality and the
smallest risk of default. Securities rated BBB by S&P or Baa by Moody's have
speculative characteristics. Up to 10% of the Fund's assets may be invested in
lower quality debt obligations (securities rated BB or lower by S&P or Ba or
lower by Moody's). Securities that were investment grade at the time of
purchase, but are subsequently downgraded to BB, Ba or lower will be included
in the 10% category. In the event that any security owned by the Fund is
downgraded, the Advisors will review the situation and take appropriate action,
but will not be required automatically to sell any such security. If such a
downgrade causes the 10% limit to be exceeded, the Fund will be precluded from
investing further in below investment grade debt securities. (See "Investments
in Non-Investment Grade Securities" below.)
The Fund may also purchase obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities including certain
mortgage-related debt securities), and may invest in high quality short-
term debt securities such as commercial paper rated A-1 or A-1+ by S&P or P-1
by Moody's.
Investments in Non-Investment Grade
Securities
Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. Securities in the lowest rating
category that the Fund may purchase (securities rated D by S&P or C by
Moody's) may present a particular risk of default, or may be in default and in
arrears in payment of principal and interest. In addition, C- or D-rated
securities may be regarded as having extremely poor prospects of ever
attaining investment standing. Yields and market values of these bonds will
fluctuate over time, reflecting changing interest rates and the market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value,
regardless of prevailing interest rates. Accordingly, adverse economic
developments, including a recession or a substantial period of rising interest
rates, may disrupt the high- yield bond market, affecting both the value and
liquidity of such bonds. The market prices of these securities
3
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<PAGE>
- --------------------------------------------------------------------------------
may fluctuate more than those of higher rated securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates. An economic downturn could adversely affect
the ability of issuers of such bonds to make payments of principal and interest
to a greater extent than issuers of higher rated bonds might be affected. The
ratings categories of S&P and Moody's are described more fully in the Appendix
to the Statement of Additional Information.
The following table provides a summary of ratings assigned by S&P to debt
obligations in the Fund's portfolio. These figures are dollar-weighted averages
of month-end portfolio holdings during the fiscal year ended March 31, 1997,
presented as a percentage of total investments. These percentages are
historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
S&P
Rating Average
--------- --------
AAA 6.72%
AA .53%
A 3.43%
BBB 9.05%
BB 5.4 %
B 2.99%
Unrated 0%
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks or broker-dealers subject to
the seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Investments in Securities of Foreign Issuers
From time to time, the Fund may invest in American Depositary Receipts,
which are interests in securities of foreign companies, and up to 10% of the
Fund's total assets in debt and equity securities of foreign issuers not
publicly traded in the United States when the Advisors believe that such
investments provide good opportunities for achieving income and capital gains
without undue risk. Nevertheless, foreign investments involve different risks
from investments in the United States, including currency market and political
risks. Accordingly, the Advisors intend to seek securities of companies in, and
governments of, developed, stable nations.
<PAGE>
Other Investments
For temporary, defensive purposes the Fund may invest up to 100% of its
assets in high quality short-term money market instruments, and in notes or
bonds issued by the U.S. Treasury Department or by other agencies of the U.S.
Government.
The Fund may write covered call options on common stock that it owns or
has the immediate right to acquire through conversion or exchange of other
securities, provided that any such option is traded on a national securities
exchange. The Fund may also enter into closing transactions with respect to such
options.
In addition, the Fund may invest up to 10% of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, provided that no more than 5% of its total assets may be
invested in restricted securities. Not included within this limitation are
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act, if the securities are determined to
be liquid. The Board of Directors has adopted guidelines and delegated to the
Advisors, subject to the supervision of the Board of Directors, the daily
function of determining and monitoring the liquidity of Rule 144A securities.
Rule 144A securities may become illiquid if qualified institutional buyers are
not interested in acquiring the securities.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations. The
investment restrictions recited below are matters of fundamental policy and may
not be changed without shareholder approval. Accordingly, the Fund will not:
1) Concentrate 25% or more of its total assets in secur-
ities of issuers in any one industry (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an
industry);
4
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<PAGE>
- --------------------------------------------------------------------------------
2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer; or
3) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an
issuer).
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
Class A and Class B Shares may be purchased from the Fund's distributor
(the "Distributor") through any securities dealer that is authorized to service
shareholder accounts ("Participating Dealers") or through any financial
institution that is authorized to service shareholder accounts ("Shareholder
Servicing Agents"). Shares of either class may also be purchased by completing
the Application Form attached to this Prospectus and returning it, together
with payment of the purchase price, to the address shown on the Application
Form. Participating Dealers or Shareholder Servicing Agents and their
investment representatives may receive different levels of compensation
depending on which class of shares they sell.
The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life
of their investment in the Fund, the combination of sales charge and
distribution fee on Class A Shares is more favorable than the combination of
distribution/service fees and contingent deferred sales charge on Class B
Shares. In almost all cases, investors planning to purchase $100,000 or more of
Fund shares will pay lower aggregate charges and expenses by purchasing Class A
Shares. (See "Fee Table.")
The minimum initial investment in shares of either class is $2,000,
except that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
investment must be at least $100 per class, except that the minimum subsequent
investment under the Fund's Automatic Investing Plan is $250 for quarterly
investments and $100 for monthly investments. (See "Purchases Through Automatic
Investing Plan" below.) There is no minimum investment requirement for
qualified retirement plans (i.e., 401(k) plans or pension and profit sharing
plans). IRA accounts are, however, subject to the $2,000 minimum initial
investment requirement. There is no minimum investment requirement for spousal
IRA accounts.
The Fund reserves the right to suspend the sale of shares at any time at
the discretion of the Distributor and the Advisors. Orders for purchases of
shares are accepted on any day on which the New York Stock Exchange is open for
business (a "Business Day"). Purchase orders for shares will be executed at a
per share purchase price equal to the net asset value next determined after
receipt of the purchase order plus any applicable front-end sales charge (the
"Offering Price") on the date such net asset value is determined (the "Purchase
Date"). Purchases made by mail must be accompanied by payment of the Offering
Price. Purchases made through the Distributor or a Participating Dealer or
Shareholder Servicing Agent must be in accordance with such entity's payment
procedures. The Distributor may, in its sole discretion, refuse to accept any
purchase order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities are given their
market value where feasible. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Debt obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors. Because of differences between the
classes of shares in distribution/service fees, the net asset value per share
of the classes differs at times.
Offering Price
Shares may be purchased from the Distributor, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which for Class A Shares
includes a sales charge that is calculated as a percentage of the Offering
Price and for Class B Shares is net asset value.
5
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<PAGE>
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Class A Shares
The sales charge on Class A Shares, which decreases as the amount of
purchase increases, is shown below:
Sales Charge Dealer
as % of Compensation
------------------------ --------------
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- ----------------------------------------------------------------
Less than $ 50,000 ... 4.50% 4.71% 4.00%
$50,000 - $ 99,999 ... 3.50% 3.63% 3.00%
$100,000 - $249,999 ... 2.50% 2.56% 2.00%
$250,000 - $499,999 ... 2.00% 2.04% 1.50%
$500,000 - $999,999 ... 1.50% 1.52% 1.25%
$1,000,000 and over ... None* None* None*
- ----------------------------------------------------------------
* Purchases of $1 million or more may be subject to a contingent deferred sales
charge. (See below.) The Distributor may make payments to Participating
Dealers and Shareholder Servicing Agents in the amount of up to 1.00% of
the Offering Price.
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
accumulation. In addition, an investor may obtain reduced sales charges, as set
forth above, through a right of accumulation of purchases of Class A Shares and
purchases of shares of other Flag Investors funds with the same sales charge
and purchases of Class A shares of Flag Investors Short- Intermediate Income
Fund, Inc. (formerly, Flag Investors Intermediate-Term Income Fund, Inc.) and
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., (the
"Intermediate Funds"). The applicable sales charge will be determined based on
the total of (a) the shareholder's current purchase plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of all Class A
Shares and of all Flag Investors shares described above and any Flag Investors
Class D shares held by the shareholder. To obtain the reduced sales charge
through a right of accumulation, the shareholder must provide the Distributor,
either directly or through a Participating Dealer or Shareholder Servicing
Agent, as applicable, with sufficient information to verify that the
shareholder has such a right. The Fund may amend or terminate this right of
accumulation at any time as to subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21 years
purchasing Class A Shares for their own account.
<PAGE>
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent that states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated on the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The minimum
initial investment under a Letter of Intent is 5% of the full amount. Shares
purchased with the first 5% of the full amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the Class A Shares actually purchased if the
full amount indicated is not invested. Such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrowed shares will be
released. An investor who wishes to enter into a Letter of Intent in
conjunction with an investment in Class A Shares may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge will be imposed on such investments in the event of a redemption within
24 months following the purchase, at the rate of .50% on the lesser of the
value of the Class A Shares redeemed or the total cost of such shares. No
contingent deferred sales charge will be imposed on purchases of $3 million or
more of Class A Shares redeemed within 24 months of purchase if the
Participating Dealer and the Distributor have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales charge
is payable, and, if so, the amount of the charge, it is assumed that Class A
Shares not subject to such charge are the first redeemed followed by other
Class A Shares held for the longest period of time.
The Fund may sell Class A Shares at net asset value (without sales
charge) to the following: (i) banks, bank trust departments, registered
investment advisory companies, financial planners and broker-dealers purchasing
shares on behalf of their fiduciary and advisory clients, provided such clients
have paid an account management fee for these services (investors may be
charged a fee if they effect transactions in Fund shares through a broker or
agent); (ii) qualified retirement plans; (iii) participants in a Flag Investors
fund payroll savings plan program; (iv) investors who have redeemed Class A
Shares, or shares of any other mutual fund in the Flag Investors family of
funds with the same sales charges, or who have redeemed Class A shares of the
Intermediate Funds that they had held for at least 24 months prior to
redemption, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within 90 days
6
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<PAGE>
- --------------------------------------------------------------------------------
after the redemption; and (v) current or retired Directors of the Fund and
directors and employees (and their immediate families) of the Distributor,
Participating Dealers and their respective affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact the
Distributor, a Participating Dealer or Shareholder Servicing Agent.
Class B Shares
No sales charge will be payable at the time of purchase of Class B
Shares. However, a contingent deferred sales charge will be imposed on certain
Class B Shares redeemed within six years of purchase. The charge is assessed on
an amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. In addition, no charge is
assessed on redemptions of Class B Shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first of
any Class B Shares in the shareholder's account that represent reinvested
dividends and distributions and second of Class B Shares held the longest
during the six-year period. The amount of the contingent deferred sales charge,
if any, will vary depending on the number of years from the time of payment for
the purchase of Class B Shares until the redemption of such shares (the
"holding period"). For purposes of determining this holding period, all
payments during a month are aggregated and deemed to have been made on the
first day of the month. The following table sets forth the rates of the
contingent deferred sales charge.
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar
Payment was Made amount subject to charge)
- --------------------------------------------------------------------------
First ................................ 4.0%
Second ............................. 4.0%
Third ................................ 3.0%
Fourth ............................. 3.0%
Fifth ................................ 2.0%
Sixth ................................ 1.0%
Thereafter .......................... None*
- --------------------------------------------------------------------------
*As described more fully below, Class B Shares automatically convert to Class A
Shares six years after the beginning of the calendar month in which the
purchase order is accepted.
<PAGE>
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder; or (ii) to the extent that
the redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2. The waiver with respect to (i) above is only applicable in
cases where the shareholder account is registered (a) in the name of an
individual person, (b) as a joint tenancy with rights of survivorship, (c) as
community property or (d) in the name of a minor child under the Uniform Gifts
or Uniform Transfers to Minors Acts. A shareholder, or his or her
representative, must notify the Fund's transfer agent (the "Transfer Agent")
prior to the time of redemption if such circumstances exist and the shareholder
is eligible for this waiver. For information on the imposition and waiver of
the contingent deferred sales charge, contact the Transfer Agent at (800)
553-8080.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the purchase order for Class B Shares is accepted,
such Class B Shares will automatically convert to Class A Shares and will no
longer be subject to the higher distribution and service fees. Such conversion
will be on the basis of the relative net asset values of the two classes,
without the imposition of any sales load, fee or other charge. The conversion
is not a taxable event to the shareholder.
For purposes of conversion to Class A Shares, shares received as
dividends and other distributions paid on Class B Shares in the shareholder's
account will be considered to be held in a separate sub-account. Each time any
Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class
B Shares in the sub-account will also convert to Class A Shares.
Class B Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact the
Distributor or a Participating Dealer or Shareholder Servicing Agent.
Purchases by Exchange
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Fund shares of the same class with
the same sales load structure. Shares issued pursuant to this offer will not be
subject to the sales charges described above or any other charge. In addition,
shareholders of Class A shares of the Intermediate Funds may exchange into
Class A Shares upon payment of the difference in sales charges, as applicable,
except that the exchange will be
7
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<PAGE>
- --------------------------------------------------------------------------------
made at net asset value if the shares of such funds have been held for more
than 24 months. Shareholders of Flag Investors Cash Reserve Prime Class A
Shares may exchange into Class A Shares upon payment of the difference in sales
charges, as applicable, or into Class B Shares at net asset value, subject
thereafter to any applicable contingent deferred sales charge.
When a shareholder acquires Fund shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the holding
period of the shares acquired in the exchange for purposes of determining what,
if any, contingent deferred sales charge is applicable upon a redemption of any
such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day, provided
that the exchange request is received prior to 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier. Exchange requests
received after 4:00 p.m. (Eastern Time) will be effected on the next Business
Day.
Shareholders of any mutual fund not affiliated with the Fund, who have
paid a sales charge, may exchange shares of such fund for an equal dollar
amount of Class A Shares by submitting to the Distributor or a Participating
Dealer the proceeds of the redemption of such shares, together with evidence of
the payment of a sales charge and the source of such proceeds. Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may
also be exercised by telephone. (See "Telephone Transactions" below.)
The Fund may modify or terminate this offer of exchange at any time on 60
days' prior written notice to shareholders.
Purchases Through Automatic Investing Plan
Shareholders may purchase either Class A Shares or Class B Shares
regularly by means of an Automatic Investing Plan with a pre-authorized check
drawn on their checking accounts. Under this plan, the shareholder may elect to
have a specified amount invested monthly or quarterly in either Class A Shares
or Class B Shares. The amount specified by the shareholder will be withdrawn
from the shareholder's checking account using the pre-authorized check. This
amount will be invested in the class of shares selected by the shareholder at
the applicable Offering Price determined on the date the amount is available
for investment. Participation in the Automatic Investing Plan may be
discontinued either by the Fund or the shareholder upon 30 days' prior written
notice to the other party. A shareholder who wishes to enroll in the Automatic
Investing Plan or who wishes to obtain additional purchase information may
do so by completing the appropriate section of the Application Form attached
to this Prospectus.
<PAGE>
Purchases Through Dividend Reinvestment
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares of the
same class. Unless the shareholder elects otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value, without a sales charge. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent at the address
listed on the inside back cover of this Prospectus, either directly or through
their Participating Dealer or Shareholder Servicing Agent, at least five days
before the next date on which dividends or distributions will be paid.
Alternately, shareholders may have their distributions invested in shares
of other funds in the Flag Investors family of funds. Shareholders who are
interested in this option should call the Transfer Agent for additional
information.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their investments on any Business
Day by transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem shares of either class by
telephone (in any amount up to $50,000). (See "Telephone Transactions" below.)
A redemption order is effected at the net asset value per share (reduced by
any applicable contingent deferred sales charge) next determined after receipt
of the order (or, if stock certificates have been issued for the shares to be
redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset
8
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<PAGE>
- --------------------------------------------------------------------------------
value next determined on the following Business Day. Payment for redeemed
shares will be made by check and will be mailed within seven days after receipt
of a duly authorized telephone redemption request or of a redemption order
fully completed and, as applicable, accompanied by the documents described
below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency or savings
association;
3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of shares will be paid on
the next dividend payable date. If all of the shares in a shareholder's account
have been redeemed on a dividend payable date, the dividend will be remitted by
check to the shareholder.
The Fund has the power, under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 upon 60 days' written notice.
Shares will not be redeemed involuntarily as a result of a decline in account
value due to a decline in net asset value alone.
Systematic Withdrawal Plan
Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed monthly
or quarterly under the Fund's Systematic Withdrawal Plan. Such payments are
drawn from income dividends, and to the extent necessary, from share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because Class A Share purchases include a sales charge
that will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of Class A Shares. In addition, Class B Shares may be subject to a
contingent deferred sales charge upon redemption. (See "How to Invest in the
Fund -- Class B Shares.") A shareholder who wishes to enroll in the Fund's
Systematic Withdrawal Plan may do so by completing the appropriate section
of the Application Form attached to this Prospectus.
<PAGE>
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
$50,000, by notifying the Transfer Agent by telephone on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or
express mail at its address listed on the inside back cover of this Prospectus.
Telephone transaction privileges are automatic. Shareholders may specifically
request that no telephone redemptions or exchanges be accepted for their
accounts. This election may be made on the Application Form or at any time
thereafter by completing and returning appropriate documentation supplied by
the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred sales
charge on redemptions) as next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
telecopied instructions of such transaction requests. If these procedures are
employed, neither the Fund nor the Transfer Agent will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that either of them reasonably believes to be
9
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<PAGE>
- --------------------------------------------------------------------------------
genuine. During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by regular or express mail. Shares held in certificate
form may not be exchanged or redeemed by telephone. (See "How to Invest in the
Fund -- Purchases by Exchange" and "How to Redeem Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The Fund
may distribute to shareholders any taxable net capital gains on an annual basis
or, alternatively, may elect to retain net capital gains and pay tax thereon.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial, or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund qualifies for this tax treatment, it
will be relieved of federal income tax on amounts distributed to shareholders.
Shareholders, unless otherwise exempt, generally will be subject to income tax
on the amounts so distributed regardless of whether such distributions are paid
in cash or reinvested in additional shares.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the shares. All other income distributions will
be taxed to shareholders as ordinary income. Corporate shareholders may be
entitled to the dividends received deduction on a portion of dividends received
from the Fund. Shareholders will be advised annually as to the tax status of
all distributions.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of Fund shares is a taxable event for
the shareholder.
<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, the Advisors and the Distributor. A majority of the
Directors of the Fund have no affiliation with the Advisors or the Distributor.
The Fund's Directors and officers are as follows:
Truman T. Semans Chairman
Richard T. Hale Director
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Rebecca W. Rimel Director
Carl W. Vogt Director
Hobart C. Buppert, II President
J. Dorsey Brown, III Executive Vice President
Lee S. Owen Vice President
Bruce E. Behrens Vice President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Scott J. Liotta Vice President and Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
10
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<PAGE>
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INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the "Sub-
Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $5.5 billion of net assets as
of May 31, 1997. ABIM is a registered investment advisor with approximately
$6.3 billion under management as of May 31, 1997.
Pursuant to the terms of the Investment Advisory Agreement, ICC
supervises and manages all of the Fund's operations. Under the Investment
Advisory and Sub-Advisory Agreements, ICC delegates to ABIM certain of its
duties, provided that ICC continues to supervise the performance of ABIM and
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to the Distributor, provided that compensation to the
Distributor on each transaction is reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
broker-dealers in connection with comparable transactions involving similar
securities during a comparable period of time. In addition, consistent with
NASD Rules, and subject to seeking the most favorable price and execution
available and such other policies as the Board may determine, ABIM may consider
services in connection with the sale of shares as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
As compensation for its services for the fiscal year ended March 31,
1997, ICC received from the Fund a fee equal to .82% of the Fund's average
daily net assets and, for the same period, ICC paid ABIM a fee equal to .60% of
the Fund's average daily net assets.
ICC is an indirect subsidiary of Alex. Brown Incorporated (described
below). ABIM is a limited partnership affiliated with the Distributor. Buppert,
Behrens & Owen, Inc., a company organized and owned by three employees of ABIM,
owns a 49% limited partnership interest and a 1% general partnership interest
in ABIM. The Distributor owns a 1% general partnership interest in ABIM and
Alex. Brown Incorporated owns the remaining 49% limited partnership interest.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
Portfolio Managers
Mr. Hobart C. Buppert, II, the Fund's President, has primary
responsibility for managing the Fund's assets. From the Fund's inception until
July 31, 1997, he shared that responsibility with Messrs. J. Dorsey Brown, III
and Lee S. Owen, who continue to serve as officers of the Fund.
Hobart C. Buppert, II -- 25 Years Investment Experience
Mr. Buppert has been a Vice President of ABIM since 1980. Prior to
joining ABIM, Mr. Buppert worked as a Portfolio Manager for T. Rowe Price
Associates from 1976 to 1980 and as a Portfolio Manager and Research Analyst
for the Equitable Trust Company from 1972 to 1976. Mr. Buppert received his B.A
and M.B.A. degrees from Loyola College in 1970 and 1974, respectively. He is a
member of the Baltimore Security Analysts Society and the Financial Analysts
Federation.
<PAGE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") acts
as distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm that offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned subsidiary
of Alex. Brown Incorporated, which has engaged directly and through
subsidiaries and affiliates in the investment business since 1800. Alex. Brown
is a member of the New York Stock Exchange and other leading securities
exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has offices
throughout the United States and, through subsidiaries, maintains offices in
London, England, Geneva, Switzerland and Tokyo, Japan.
The Fund has adopted two separate Distribution Agreements and related
Plans of Distribution, one with respect to the Class A Shares and one with
respect to the Class B Shares (the "Plans"), pursuant to Rule 12b-1 under the
Investment Company Act. In addition, the Fund may enter into agreements with
certain finan-
11
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<PAGE>
- --------------------------------------------------------------------------------
cial institutions, such as banks, to provide shareholder services, pursuant to
which Alex. Brown will allocate up to all of its distribution fee as
compensation for such financial institutions' ongoing shareholder services.
Such financial institutions may impose separate fees in connection with these
services and investors should review this Prospectus in conjunction with any
such institution's fee schedule.
As compensation for providing distribution services for the Class A
Shares for the fiscal year ended March 31, 1997, Alex. Brown received a fee
equal to .25% of the average daily net assets of the Class A Shares.
As compensation for providing distribution and shareholders service for
the Class B Shares for the fiscal year ended March 31, 1997, Alex. Brown
received a distribution fee equal to .75% of the Class B Shares' average daily
net assets and a shareholder servicing fee equal to .25% of the Class B Shares'
average daily net assets. The distribution fee is used to compensate Alex.
Brown for its services and expenses in distributing the Class B Shares. The
shareholder servicing fee is used to compensate Alex. Brown, Participating
Dealers and Shareholder Servicing Agents for services provided and expenses
incurred in maintaining shareholder accounts, responding to shareholder
inquiries and providing information on their investments.
Payments under the Plans are made as described above regardless of Alex
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution services
to the Fund is less than the payments received, the unexpended portion of the
distribution fees may be retained as profit by Alex. Brown. Alex. Brown will
from time to time and from its own resources pay or allow additional discounts
or promotional incentives in the form of cash or other compensation (including
merchandise or travel) to Participating Dealers.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended March
31, 1997, ICC received a fee equal to .03% of the Fund's average daily net
assets. (See the Statement of Additional Information.) PNC Bank, National
Association acts as custodian of the Fund's assets.
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares redeemed at the end of the specified period covered by the total return
figure, over one-, five- and ten-year periods or, if such periods have not yet
elapsed, shorter periods corresponding to the life of the Fund. Such total
return quotations will be computed by finding average annual compounded rates
of return over such periods that would equate an assumed initial investment of
$1,000 to the ending redeemable value, net of the maximum sales charge and
other fees according to the required standardized calculation. The standardized
calculation is required by the SEC to provide consistency and comparability in
investment company advertising and is not equivalent to a yield calculation. If
the Fund compares its performance to other funds or to relevant indices, the
Fund's performance will be stated in the same terms in which such comparative
data and indices are stated, which is normally total return rather than yield.
For these purposes, the performance of the Fund, as well as the performance of
such investment companies or indices, may not reflect sales charges, which, if
reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, long-term U.S. Treasury bonds, bank certificates of deposit,
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
12
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Performance will fluctuate, and any statement of performance should not
be considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and market
conditions. Any fees charged by banks with respect to customer accounts through
which shares may be purchased, although not included in calculations of
performance, will reduce performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end, diversified management investment company,
organized under the laws of the State of Maryland on March 5, 1992 and is
authorized to issue 75 million shares of capital stock, with a par value of
$.001 per share. Shares of the Fund have equal rights with respect to voting.
Voting rights are not cumulative, so the holders of more than 50% of the
outstanding shares voting together for the election of Directors may elect all
the members of the Board of Directors of the Fund. In the event of liquidation
or dissolution of the Fund, each share is entitled to its pro rata portion of
the Fund's assets after all debts and expenses have been paid.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
Shares offered by this Prospectus have been designated: "Flag Investors Value
Builder Fund Class A Shares" and "Flag Investors Value Builder Fund Class B
Shares." The Board has no present intention of establishing any additional
series of the Fund, but the Fund does have two other classes of shares in
addition to the shares offered hereby: "Flag Investors Value Builder Fund Class
D Shares," which are not currently being offered, and "Flag Investors Value
Builder Fund Institutional Shares." Additional information concerning the
Fund's Institutional Shares may be obtained by calling the Distributor at (800)
767-FLAG. Different classes of the Fund may be offered to certain investors and
holders of such shares may be entitled to certain exchange privileges not
offered to Class A or Class B Shares. All classes of the Fund share a common
investment objective, portfolio of investments and advisory fee, but the
classes may have different distribution/service fees or sales load structures
and, accordingly, the net asset value per share of classes may differ at times.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi-
annual reports containing information about the Fund and its operations,
including a list of investments held in the Fund's portfolio and financial
statements. The annual financial statements are audited by the Fund's
independent accountants, Coopers & Lybrand L.L.P.
Shareholder Inquiries
Shareholders with inquiries concerning their shares should contact the
Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Class A and Class B Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-767-FLAG
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. COOPERS & LYBRAND L.L.P.
One South Street 2400 Eleven Penn Center
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Custodian Fund Counsel
PNC BANK, NATIONAL ASSOCIATION MORGAN, LEWIS & BOCKIUS LLP
Airport Business Park 2000 One Logan Square
200 Stevens Drive Philadelphia, Pennsylvania 19103
Lester, Pennsylvania 19113
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS VALUE BUILDER FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors Value Builder
Fund, Inc." and mail with this Application to:
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Value Builder Fund, Inc.
For assistance in completing this Application please call:
1-800-553-8080, Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 for an IRA information kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of
$___________
[ ] Class B Shares (4.0% maximum contingent deferred sales charge) in the
amount of $___________
The minimum initial purchase for each class of shares is $2,000, except that
the minimum initial purchase for shareholders of any other Flag Investors Fund
or class is $500 and the minimum initial purchase for participants in the
Fund's Automatic Investing Plan is $250 per class. Each subsequent purchase
requires a $100 minimum per class, except that the minimum subsequent purchase
under the Fund's Automatic Investing Plan is $250 for quarterly purchases and
$100 for monthly purchases. The maximum investment in Class B Shares is
$100,000 per account. The Fund reserves the right not to accept checks for more
than $50,000 that are not certified or bank checks.
===============================================================================
Your Account Registration (Please Print)
===============================================================================
Existing Account No., if any: _______________
Individual or Joint Tenant
- -------------------------------------------------------------------------------
First Name Initial Last Name
- -------------------------------------------------------------------------------
Social Security Number
- -------------------------------------------------------------------------------
Joint Tenant Initial Last Name
Corporations, Trusts, Partnerships, etc.
- -------------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- --------------------------------------- ---------------------------------------
Tax ID Number Date of Trust
- -------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -------------------------------------------------------------------------------
For the Benefit of
<PAGE>
Gifts to Minors
- -------------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -------------------------------------------------------------------------------
Minor's Name (only one)
- -------------------------------------------------------------------------------
Social Security Number of Minor
under the ________________________________________ Uniform Gifts to Minors Act
State of Residence
Mailing Address
- -------------------------------------------------------------------------------
Street
- -------------------------------------------------------------------------------
City State Zip
( )
- -------------------------------------------------------------------------------
Daytime Phone
<PAGE>
===============================================================================
Letter of Intent (Class A Shares only) (Optional)
===============================================================================
[ ] I agree to the Letter of Intent and Escrow Arrangement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Value Builder
Fund, Inc., in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
===============================================================================
Right of Accumulation (Optional)
===============================================================================
List the Account numbers of other Flag Investors Funds (except Class B shares)
that you or your immediate family already own that qualify for reduced sales
charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
Distribution Options
===============================================================================
Please check the appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the same class of the
Fund at no sales charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional
shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
- --------------------------------------------------------------------------------
<PAGE>
===============================================================================
Automatic Investing Plan (Optional)
===============================================================================
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_________ in Class A Shares or $__________ in Class B Shares for me, on
a monthly or quarterly basis, on or about the 20th of each month or, if
quarterly, the 20th of January, April, July and October, and to draw a bank
draft in payment of the investment against my checking account. (Bank drafts may
be drawn on commercial banks only.)
=============================
Minimum Initial Investment: $250 per class Please attach a voided check.
[ ] Monthly ($100 minimum per class) =============================
Subsequent Investments (check one):
[ ] Quarterly ($250 minimum per class)
- -------------------------------------------------------------------------------
Bank Name
- -------------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
- -------------------------------------------------------------------------------
Depositor's Signature Date
- -------------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
===============================================================================
Systematic Withdrawal Plan (Optional)
===============================================================================
[ ] Beginning the month of _________, 19__ please send me checks on a monthly
or quarterly basis, as indicated below, in the amount of (complete as
applicable) $________, from Class A Shares and/or $________ from Class B
Shares that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 per class.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April, July and
October)
===============================================================================
Telephone Transactions
===============================================================================
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: / / Telephone exchange privileges
/ / Telephone redemption privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank:_________________________________________________________
Address:______________________________________________________
______________________________________________________
Bank Account No.:_____________________________________________
Bank Account Name:____________________________________________
<PAGE>
===============================================================================
Signature and Taxpayer Certification
===============================================================================
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a
penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080).
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:__________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[End of box]
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
[End of box]
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature (if joint acct., both must sign) Date
|====================|
|For Dealer Use Only |
|====================|
Dealer's Name: __________________________ Dealer Code:_____________________
Dealer's Address:__________________________ Branch Code:_____________________
__________________________
Representative: __________________________ Rep. No.: _____________________
A-2
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Institutional Shares)
Cross Reference Sheet
July 29, 1997
Items Required by Form N-1A
- ---------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Part A Information Required in Prospectus Registration Statement Heading
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Institutional Shares
Item 8. Redemption or Repurchase How to Redeem Institutional
Shares; Telephone Transactions
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Control Persons and
Holders of Securities Principal Holders of
Securities
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent and
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares; Semi-Annual Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
Supplement dated August 1, 1997 to the
Institutional Shares and Class A & B Shares Prospectuses
dated August 1, 1997
Flag Investors Value Builder Fund, Inc.
(the "Fund")
Each of the above prospectuses is hereby amended and supplemented as
follows:
Alex. Brown Incorporated ("Alex. Brown") is the parent corporation of
Alex. Brown & Sons Incorporated, which serves as the Fund's distributor; the
indirect parent Investment Company Capital Corp. ("ICC"), which serves as the
Fund's investment advisor; and a general partner of Alex. Brown Investment
Management ("ABIM"), which serves as the Fund's investment sub-advisor. Alex.
Brown has entered into an Agreement and Plan of Merger with Bankers Trust New
York Corporation ("Bankers Trust"), dated as of April 6, 1997, under which Alex.
Brown would merge with and into a subsidiary of Bankers Trust (the "Merger").
Provided that shareholders of Alex. Brown approve the Merger at a shareholder
meeting to be held on August 13, 1997, it is currently anticipated that the
Merger will close on August 17, 1997.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund. After the Merger
and provided shareholders of the Fund approve new investment advisory and sub-
advisory agreements with ICC and ABIM, respectively, at a meeting to be held on
August 14, 1997, ICC and ABIM are premitted under the BHCA to continue to
provide investment advisory services to the Fund. Affiliates of Alex. Brown also
will be premitted under the BHCA to continue to provide services to Fund
shareholders who are Alex. Brown customers. However, as a result of the Merger,
individuals affiliated with Alex. Brown will not be able to hold positions as
certain executive officers or as directors of the Fund. In addition, the Fund
will be required to engage an independent distributor.
The Fund is currently taking steps to engage an independent distributor
and to ensure that, following the Merger, the Fund will be in compliance with
the additional requirements imposed as a result of the Merger. Alex. Brown does
not believe such changes will substantially affect the operation of the Fund or
the services received by shareholders.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
VALUE BUILDER FUND, INC.
(Institutional Shares)
Prospectus & Application -- August 1, 1997
- -----------------------------------------------------------------
This mutual fund (the "Fund") is designed to maximize total return through a
combination of long-term growth of capital and current income.
Flag Investors Institutional Shares of the Fund ("Institutional Shares") are
available through your securities dealer or the Fund's transfer agent and may
be purchased only by eligible institutions or by clients of investment advisory
affiliates of Alex. Brown & Sons Incorporated. (See "How to Invest in
Institutional Shares.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated August 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fee Table ................................. 1
Financial Highlights ........................ 2
Investment Program ........................ 3
Investment Restrictions ..................... 5
How to Invest in Institutional Shares ...... 5
How to Redeem Institutional Shares ......... 6
Telephone Transactions ..................... 6
Dividends and Taxes ........................ 7
Management of the Fund ..................... 8
Investment Advisor and Sub-Advisor ......... 8
Distributor ................................. 9
Custodian, Transfer Agent and
Accounting Services ..................... 9
Performance Information ..................... 9
General Information ........................ 10
Application ................................. A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- -----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ......... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) ................................................ None
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees .......................................................................... 0.82%
12b-1 Fees ............................................................................. None
Other Expenses .......................................................................... 0.20%
----
Total Fund Operating Expenses ........................................................... 1.02%
=====
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period: ........................... $10 $32 $56 $125
</TABLE>
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Institutional Shares through a financial institution may
be charged separate fees by that institution. (For more complete descriptions
of the various costs and expenses, see "How to Invest in Institutional Shares,"
"Investment Advisor and Sub-Advisor" and "Distributor.")
1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in the following table are a part of the
Fund's financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended March 31, 1997 and the report
thereon of Coopers & Lybrand L.L.P. are included in the Statement of Additional
Information. Additional performance information is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1997, which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Shares
-------------------------------------
For the Period
For the Year November 2, 1995(1)
Ended March through
31, 1997 March 31, 1996
-------------- --------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 14.77 $ 13.89
------- ----------
Income from Investment Operations:
Net investment income ................................. 0.41 0.13
Net realized and unrealized gain on investments ...... 2.53 1.17
------- ----------
Total from Investment Operations ..................... 2.94 1.30
Less Distributions:
Distributions from net investment income and
net realized short-term gains ........................ (0.38) (0.10)
Distributions from net realized long-term gains ...... (0.06) (0.32)
-------- ----------
Total distributions .................................... (0.44) (0.42)
-------- ----------
Net asset value at end of period $ 17.27 $ 14.77
======== ==========
Total Return .......................................... 20.24% 21.12%(2)
Ratios to Average Daily Net Assets:
Expenses ............................................. 1.02% 1.03%(2)
Net investment income ................................. 2.83% 2.89%(2)
Supplemental Data:
Net assets at end of period (000) ..................... $ 34,771 $ 11,768
Portfolio turnover rate .............................. 13% 15%
Average commissions per share(3) ..................... $ 0.066 --
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Annualized.
(3) Disclosure is required for the fiscal years beginning after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, Policies and Risk
Considerations
The Fund's investment objective is to maximize total return through a
combination of long-term growth of capital and current income. The Fund seeks
to achieve this objective through a policy of diversified investments in equity
and debt securities, including common stocks, convertible securities and
government and corporate fixed-income obligations. The Fund's investment
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. There can be no assurance, however, that the Fund will
achieve its investment objective.
The Fund's investment advisor (the "Advisor") and the Fund's sub-advisor
(the "Sub-Advisor") (collectively, the "Advisors") are responsible for managing
the Fund's investments. (See "Investment Advisor and Sub-Advisor.") The
Advisors consider both the opportunity for gain and the risk of loss in making
investments, and may alter the relative percentages of assets invested in equity
and fixed-income securities from time to time, depending on the judgment of the
Advisors as to general market and economic conditions, trends in yields and
interest rates and changes in fiscal and monetary policies.
Under normal market conditions, between 40% and 75% of the Fund's total
assets will be invested in common stock and other equity investments (including
preferred stocks, convertible debt, warrants and other securities convertible
into or exchangeable for common stocks). In selecting securities for the Fund's
portfolio, the Advisors expect to apply a "flexible value" approach to the
selection of equity investments. Under this approach, the Advisors will attempt
to identify securities that are undervalued in the marketplace, but will also
consider such factors as current and expected earnings, dividends, cash flows
and asset values in their evaluation of a security's investment potential.
In addition, at least 25% of the Fund's total assets will be invested in
fixed-income securities, defined for this purpose to include non-convertible
corporate debt securities, non-convertible preferred stock and government
obligations. The average maturity of these investments will vary from time to
time depending on the Advisors' assessment of the relative yields available on
securities of different maturities. It is currently anticipated that the average
maturity of the fixed-income securities in the Fund's portfolio will be between
two and ten years under normal market conditions. In general, non-convertible
corporate debt obligations held in the Fund's portfolio will be rated, at the
time of purchase, BBB or higher by Standard & Poor's Ratings Group ("S&P") or
Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated by
S&P or Moody's, determined to be of comparable quality by the Advisors under
criteria approved by the Board of Directors. Investment grade securities
(securities rated BBB or higher by S&P or Baa or higher by Moody's) are
generally thought to provide the highest credit quality and the smallest risk of
default. Securities rated BBB by S&P or Baa by Moody's have speculative
characteristics. Up to 10% of the Fund's assets may be invested in lower quality
debt obligations (securities rated BB or lower by S&P or Ba or lower by
Moody's). Securities that were investment grade at the time of purchase, but are
subsequently downgraded to BB, Ba or lower will be included in the 10% category.
In the event that any security owned by the Fund is downgraded, the Advisors
will review the situation and take appropriate action, but will not be required
automatically to sell any such security. If such a downgrade causes the 10%
limit to be exceeded, the Fund will be precluded from investing further in below
investment grade debt securities. (See "Investments in Non-Investment Grade
Securities" below.)
The Fund may also purchase obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities including certain purchase
mortgage-related debt securities), and may invest in high quality short-term
debt securities such as commercial paper rated A-1 or A-1+ by S&P or P-1 by
Moody's.
Investments in Non-Investment Grade
Securities
Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. Securities in the lowest rating
category that the Fund may purchase (securities rated D by S&P or C by Moody's)
may present a particular risk of default, or may be in default and in arrears in
payment of principal and interest. In addition, C- or D-rated securities may be
regarded as having extremely poor prospects of ever attaining investment
standing. Yields and market values of these bonds will fluctuate over time,
reflecting changing interest rates and the market's perception of credit quality
and the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated bonds may decline in value, regardless of prevailing
interest rates. Accordingly, adverse economic developments, including a
recession or a substantial period of rising interest rates, may disrupt the
high-yield bond market, affecting both the value and liquidity of such bonds.
The market prices of these securities
3
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may fluctuate more than those of higher rated securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates. An economic downturn could adversely affect
the ability of issuers of such bonds to make payments of principal and interest
to a greater extent than issuers of higher rated bonds might be affected. The
ratings categories of S&P and Moody's are described more fully in the Appendix
to the Statement of Additional Information.
The following table provides a summary of ratings assigned by S&P to debt
obligations in the Fund's portfolio. These figures are dollar-weighted averages
of month-end portfolio holdings during the fiscal year ended March 31, 1997,
presented as a percentage of total investments. These percentages are
historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
S&P
Rating Average
--------- --------
AAA 6.72%
AA .54%
A 3.43%
BBB 9.05%
BB .54%
B 2.99%
Unrated 0%
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks or broker-dealers, subject
to the seller's agreement to repurchase the securities at an established time
and price. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Investments in Securities of Foreign Issuers
From time to time, the Fund may invest in American Depositary Receipts,
which are interests in securities of foreign companies, and up to 10% of the
Fund's total assets in debt and equity securities of foreign issuers not
publicly traded in the United States when the Advisors believe that such
investments provide good opportunities for achieving income and capital gains
without undue risk. Nevertheless, foreign investments involve different risks
from investments in the United States, including currency market and political
risks. Accordingly, the Advisors intend to seek securities of companies in, and
governments of, developed, stable nations, but there exists the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation that could adversely affect the investments of the Fund
in such foreign country.
Other Investments
For temporary, defensive purposes the Fund may invest up to 100% of its
assets in high quality short-term money market instruments, and in notes or
bonds issued by the U.S. Treasury Department or by other agencies of the U.S.
Government.
The Fund may write covered call options on common stock that it owns or
has the immediate right to acquire through conversion or exchange of other
securities, provided that any such option is traded on a national securities
exchange. The Fund may also enter into closing transactions with respect to
such options.
In addition, the Fund may invest up to 10% of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, provided that no more than 5% of its total assets may be
invested in restricted securities. Not included within this limitation are
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act, if the securities are determined to
be liquid. The Board of Directors has adopted guidelines and delegated to the
Advisors, subject to the supervision of the Board of Directors, the daily
function of determining and monitoring the liquidity of Rule 144A securities.
Rule 144A securities may become illiquid if qualified institutional buyers are
not interested in acquiring the securities.
4
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations. The
investment restrictions recited below are matters of fundamental policy and may
not be changed without shareholder approval. Accordingly, the Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an industry); 2) Invest in the
securities of any single issuer if, as a result, the Fund would hold more
than 10% of the outstanding voting securities of such issuer; or
3) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an
issuer).
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
HOW TO INVEST IN INSTITUTIONAL SHARES
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Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counselors, pension funds,
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of Alex.
Brown & Sons Incorporated (the "Distributor") may purchase Institutional Shares
through the Distributor, through any securities dealer that is authorized to
distribute Institutional Shares ("Participating Dealers"), or by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $500,000,
except that the minimum initial investment is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of the Distributor or for subsequent investments. The Fund reserves
the right to suspend the sale of Institutional Shares at any time at the
discretion of the Distributor and the Advisors.
Orders for purchases of Institutional Shares are accepted on any day on
which the New York Stock Exchange is open for business (a "Business Day").
Purchase orders for Institutional Shares will be executed at a per share
purchase price equal to the net asset value next determined after receipt of
the purchase order. Purchases made through the Distributor or a Participating
Dealer must be in accordance with such entity's payment procedures. The
Distributor may, in its sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing its share of the Fund's assets, deducting all liabilities attributable
to that class, and dividing the resulting amount by the number of then
outstanding shares of the class. For this purpose, portfolio securities are
given their market value where feasible. Securities or other assets for which
market quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Debt obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors.
Purchases by Exchange
Shareholders of other Flag Investors funds that offer Institutional
shares may exchange their Institutional shares of those funds for an equal
dollar amount of Institutional Shares. The net asset value of shares purchased
and redeemed in an exchange request received on a Business Day will be
determined on the same day, provided that the exchange request is received
prior to 4:00 p.m. (Eastern Time) or the close of the New York Stock Exchange,
whichever is earlier. Exchange requests received after 4:00 p.m. (Eastern Time)
will be effected on the next Business Day.
5
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The exchange privilege may be exercised by notifying the Fund's transfer
agent (the "Transfer Agent") by telephone on any Business Day between the hours
of 8:30 a.m. and 5:30 p.m. (Eastern Time) (See "Telephone Transactions" below)
or by regular or express mail at its address listed on the inside back cover of
this Prospectus.
The Fund may modify or terminate this offer of exchange at any time on 60
days' prior written notice to shareholders.
Other Information
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued. All purchases of Institutional Shares are confirmed and
credited to the shareholder's account on the Fund's books maintained by the
Transfer Agent or its agents. Shareholders will have the same rights and
ownership with respect to such shares as if certificates had been issued.
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through the Distributor or a
Participating Dealer, or by regular or express mail to the Transfer Agent at
its address listed on the inside back cover of this Prospectus. Shareholders
may also redeem Institutional Shares by telephone (in amounts up to $500,000).
(See "Telephone Transactions" below.) A redemption request is effected at the
net asset value per share next determined after receipt of the order in proper
form. Redemption orders received after 4:00 p.m. (Eastern Time) or the close of
the New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. Payment for redeemed
Institutional Shares will be made by wire transfer of funds to the
shareholder's bank, or to a Participating Dealer, as appropriate, upon receipt
of a duly authorized redemption request as promptly as feasible and, under most
circumstances, within three Business Days.
Dividends payable up to the date of redemption of Institutional Shares
will be paid on the next dividend payable date. If all of the Institutional
Shares in an account have been redeemed on a dividend payment date, the
dividend will be remitted by wire to the shareholder's bank or to a
Participating Dealer, as appropriate.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 upon 60 days' written notice.
Institutional Shares will not be redeemed involuntarily as a result of a
decline in account value due to a decline in net asset value alone.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Institutional Shares in amounts up to $500,000,
by notifying the Transfer Agent by telephone on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail
at its address listed on the inside back cover of this Prospectus. Telephone
transaction privileges are automatic. Shareholders may specifically request
that no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value as next determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide
additional telecopied instructions of such transaction requests. If these
procedures are employed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be
6
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genuine. During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by express mail or facsimile. (See "How to Invest in
Institutional Shares -- Purchases by Exchange" and "How to Redeem Institutional
Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The Fund
may distribute to shareholders any taxable net capital gains on an annual basis
or, alternatively, may elect to retain net capital gains and pay tax thereon.
Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Institutional Shares at net
asset value. Shareholders may elect to terminate automatic reinvestment by
giving written notice to the Transfer Agent at its address listed on the inside
back cover of this Prospectus, either directly or through Alex. Brown or a
Participating Dealer, at least five days before the next date on which
dividends or distributions will be paid.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning. Accordingly, shareholders are advised to
consult their tax advisors regarding specific questions as to federal, state
and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Sub-chapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund qualifies for this tax treatment, it
will be relieved of federal income tax on that part of its net investment income
that is distributed to shareholders. Shareholders, unless otherwise exempt,
generally will be subject to income tax on the amounts so distributed regardless
of whether such distributions are paid in cash or reinvested in additional
shares.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the Institutional Shares. All other income
distributions will be taxed to shareholders as ordinary income. Corporate
shareholders may be entitled to the dividends received deduction on a portion
of dividends received from the Fund. Shareholders will be advised annually as
to the tax status of all distributions.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Institutional Shares is a taxable
event for the shareholder.
7
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Advisors and the Distributor. A majority of
Directors of the Fund have no affiliation with the Advisors or the Distributor.
The Fund's Directors and officers are as follows:
Truman T. Semans Chairman
Richard T. Hale Director
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Rebecca W. Rimel Director
Carl W. Vogt Director
Hobart C. Buppert, II President
J. Dorsey Brown, III Executive Vice President
Lee S. Owen Vice President
Bruce E. Behrens Vice President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Scott J. Liotta Vice President and Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the "Sub-
Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $5.5 billion of net assets as
of May 31, 1997. ABIM is a registered investment advisor with approximately
$6.3 billion under management as of May 31, 1997.
Pursuant to the terms of the Investment Advisory Agreement, ICC
supervises and manages all of the Fund's operations. Under the Investment
Advisory and Sub-Advisory Agreements, ICC delegates to ABIM certain of its
duties, provided that ICC continues to supervise the performance of ABIM and
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to the Distributor, provided that compensation to the
Distributor on each transaction is reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
broker-dealers in connection with comparable transactions involving similar
securities during a comparable period of time. In addition, consistent with
National Association of Securities Dealers, Inc. ("NASD") Rules, and subject
to seeking the most favorable price and execution available and such other
policies as the Board may determine, ABIM may consider services in connection
with the sale of shares as a factor in the selection of broker-dealers to
execute portfolio transactions for the Fund.
As compensation for its services for the fiscal year ended March 31,
1997, ICC received from the Fund a fee equal to .82% of the Fund's average
daily net assets and, for the same period, ICC paid ABIM a fee equal to .60% of
the Fund's average daily net assets.
ICC is an indirect subsidiary of Alex. Brown Incorporated (described
below). ABIM is a limited partnership affiliated with the Distributor. Buppert,
Behrens & Owen, Inc., a company organized and owned by three employees of ABIM,
owns a 49% limited partnership interest and a 1% general partnership interest
in ABIM. The Distributor owns a 1% general partnership interest in ABIM and
Alex. Brown Incorporated owns the remaining 49% limited partnership interest.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
8
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Portfolio Managers
Mr. Hobart C. Buppert, II, the Fund's President, has primary
responsibility for managing the Fund's assets. From the Fund's inception until
July 31, 1997, he shared that responsibility with Messrs. J. Dorsey Brown, III
and Lee S. Owen, who continue to serve as officers of the Fund.
Hobart C. Buppert, II -- 25 Years Investment Experience
Mr. Buppert has been a Vice President of ABIM since 1980. Prior to
joining ABIM, Mr. Buppert worked as a Portfolio Manager for T. Rowe Price
Associates from 1976 to 1980 and as a Portfolio Manager and Research Analyst
for the Equitable Trust Company from 1972 to 1976. Mr. Buppert received his B.A
and M.B.A. degrees from Loyola College in 1970 and 1974, respectively. He is a
member of the Baltimore Security Analysts Society and the Financial Analysts
Federation.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ( "Alex. Brown" or the "Distributor"),
acts as distributor of each class of the Fund's shares. Alex. Brown is an
investment banking firm that offers a broad range of investment services to
individual, institutional, corporate and municipal clients. It is a
wholly-owned subsidiary of Alex. Brown Incorporated, which has engaged directly
and through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the Institutional Shares.
Alex. Brown bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to individuals and entities other than Fund shareholders.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp., is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended March
31, 1997, ICC received a fee equal to .03% of the Fund's average daily net
assets. (See the Statement of Additional Information.) PNC Bank, National
Association acts as custodian of the Fund's assets.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one-, five- and ten-year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value according to the
required standardized calculation. The standardized calculation is required by
the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund compares
its performance to other funds or to relevant indices, the Fund's performance
will be stated in the same terms in which such comparative data and indices are
stated, which is normally total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, long-term U.S. Treasury bonds, bank certificates of deposit,
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national
9
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financial and industry publications that monitor the performance of mutual
funds: Money Magazine, Forbes, Business Week, Barron's, Investor's Daily,
IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Performance will fluctuate, and any statement of performance should not
be considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and market
conditions. Any fees charged by financial institutions with respect to customer
accounts through which Institutional Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end, diversified management investment company,
organized under the laws of the State of Maryland on March 5, 1992 and is
authorized to issue 75 million shares of capital stock, with a par value of
$.001 per share. Shares have equal rights with respect to voting. Voting rights
are not cumulative, so the holders of more than 50% of the outstanding shares
voting together for the election of Directors may elect all the members of the
Board of Directors of the Fund. In the event of liquidation or dissolution of
the Fund, each share is entitled to its pro rata portion of the Fund's assets
after all debts and expenses have been paid.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated: "Flag Investors Value
Builder Fund Institutional Shares." The Board has no present intention of
establishing any additional series of the Fund, but the Fund does have three
other classes of shares in addition to the shares offered hereby: "Flag
Investors Value Builder Fund Class A Shares" and "Flag Investors Value Builder
Fund Class B Shares," which are offered by a separate prospectus and "Flag
Investors Value Builder Fund Class D Shares," which are not currently being
offered. Additional information concerning the Fund's Class A Shares and Class
B Shares may be obtained by calling Alex. Brown at (800) 767-FLAG. Different
classes of the Fund may be offered to certain investors and holders of such
shares may be entitled to certain exchange privileges not offered to
Institutional Shares. All classes of the Fund share a common investment
objective, portfolio of investments and advisory fee, but the classes may have
different distribution fees or sales load structures and the net asset value
per share of the classes may differ at times.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not expect
to hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants, Coopers & Lybrand
L.L.P.
Shareholder Inquiries
Shareholders with inquiries concerning their Institutional Shares should
contact the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080 or a
Participating Dealer, as appropriate.
10
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<PAGE>
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FLAG INVESTORS VALUE BUILDER FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ALEX. BROWN & SONS INCORPORATED
One South Street One South Street
Baltimore, Maryland 21202 Baltimore, Maryland 21202
1-800-767-FLAG
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. COOPERS & LYBRAND L.L.P.
One South Street 2400 Eleven Penn Center
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Custodian Fund Counsel
PNC BANK, NATIONAL ASSOCIATION MORGAN, LEWIS & BOCKIUS LLP
Airport Business Park 2000 One Logan Square
200 Stevens Drive Philadelphia, Pennsylvania 19103
Lester, Pennsylvania 19113
11
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<PAGE>
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FLAG INVESTORS VALUE BUILDER FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Send completed Application by overnight carrier to:
Flag Investors Funds
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Value Builder Fund, Inc.
For assistance in completing this Application please call: 1-800-553-Flag
Investors Funds 8080, Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern
Time).
If you are paying by check, make check payable to "Flag Investors Value Builder
Fund, Inc." and mail with this Application. If you are paying by wire, see
instructions below.
- --------------------------------------------------------------------------------
Your Account Registration (Please Print)
Name on Account
________________________________________________________
Name of Corporation, Trust or Partnership
________________________________________________________
Tax ID Number
[ ] Corporation [ ] Partnership [ ] Trust
[ ] Non-Profit or Charitable Organization [ ] Other________
If a Trust, please provide the following:
________________________________________________________
Date of Trust For the Benefit of
________________________________________________________
Name of Trustees (If to be included in the Registration)
Mailing Address
________________________________________________________
Name of Individual to Receive
________________________________________________________
Street
________________________________________________________
City State Zip
( )
________________________________________________________
Daytime Phone
Initial Investment
The minimum initial purchase for the Institutional Shares of the Fund is
$500,000, except that the minimum initial purchase is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of Alex. Brown or for subsequent investments.
Indicate the amount to be invested and the method of payment:
__ A. By Mail: Enclosed is a check in the amount of $__________ payable to Flag
Investors Value Builder Fund, Inc.
__ B. By Wire: A bank wire in the amount of $_________ has been sent
from ______________________ _________________________
Name of Bank Wire Control Number
<PAGE>
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:
o Send completed Application by overnight carrier to Alex. Brown & Sons
Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary
Trust Company ("IFTC"), as follows:
IFTC
a/c Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7528167
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Value Builder Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to ___________________________________."
(Investor's Fund Account Number)
- --------------------------------------------------------------------------------
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- --------------------------------------------------------------------------------
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want: [ ] Telephone redemption privileges [ ] Telephone exchange
privileges
Redemptions effected by telephone will be wired to the bank
account designated below.
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Bank Account Designation
(This Section Must Be Completed)
Please attach a blank, voided check to provide account and bank routing
information.
_______________________________________________________________________________
Name of Bank Branch
_______________________________________________________________________________
Bank Address City/State/Zip
_______________________________________________________________________________
Name(s) on Account
_______________________________________________________________________________
Account Number A.B.A. Number
A-1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Acknowledgment, Certificate and Signature
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the
correct Tax ID Number and (2) I am not subject to any backup
withholding either because (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding.
[ ] If no Tax ID Number has been provided above, I have applied, or intend
to apply, to the IRS for a Tax ID Number, and I understand that if I
do not provide such number to the Transfer Agent within 60 days of the
date of this Application or if I fail to furnish my correct Tax ID
Number, I may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide your Tax ID
Number on IRS Form W-9. You may request such form by calling the
Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax purposes:
____________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[End of box]
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
[End of box]
________________________________________________________________________________
Signature of Corporate Officer, General Partner, Trustee, etc. Date
_______________________________________________________________________________
Signature of Corporate Officer, General Partner, Trustee, etc. Date
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
______ * of the Authorized Person(s) is, by lawful and appropriate action of the
investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
_____________________________ __________________________________
Name/Title Signature Date
_____________________________ __________________________________
Name/Title Signature Date
_____________________________ __________________________________
Name/Title Signature Date
_____________________________ __________________________________
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that person's
signature. Investment Company Capital Corp. ("ICC") may, without inquiry, act
upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.
- --------------------------------------------------------------------------------
Certificate of Authority
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I ______________________, Secretary of the above-named investor, do hereby
certify that at a meeting on __________, at which a quorum was present
throughout, the Board of Directors (Board of Trustees) of the investor duly
adopted a resolution which is in full force and effect and in accordance with
the investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do
so on behalf of the investor; (2) empowered the above-named Authorized Person(s)
to effect securities transactions for the investor on the terms described above;
(3) authorized the Secretary to certify, from time to time, the names and titles
of the officers of the investor and to notify ICC when changes in officers
occur; and (4) authorized the Secretary to certify that such a resolution has
been duly adopted and will remain in full force and effect until ICC receives a
duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
This ___ day of __________, 199__ Secretary________________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
________________________________________________________________________________
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).
________________________________________________________________________________
Signature and title Date
________________________________________________________________________________
Signature and title Date
A-2
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------
FLAG INVESTORS VALUE BUILDER FUND, INC.
One South Street
Baltimore, Maryland 21202
----------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH A PROSPECTUS WHICH MAY BE OBTAINED FROM YOUR PARTICIPATING
DEALER OR SHAREHOLDER SERVICING AGENT OR BY WRITING OR CALLING ALEX. BROWN &
SONS INCORPORATED, ONE SOUTH STREET, BALTIMORE, MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated:
August 1, 1997
Relating to the Prospectuses Dated:
August 1, 1997, relating to the Class A, Class B and
Institutional Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History................................ 1
2. Investment Objective, Policies and Risk Considerations......... 1
3. Valuation of Shares and Redemption............................. 8
4. Federal Tax Treatment of Dividends and
Distributions................................................ 8
5. Management of the Fund......................................... 11
6. Investment Advisory and Other Services......................... 17
7. Distribution of Fund Shares.................................... 18
8. Brokerage...................................................... 22
9. Capital Stock.................................................. 24
10. Semi-Annual Reports............................................ 25
11. Custodian, Transfer Agent and Accounting Services.............. 25
12. Independent Accountants........................................ 25
13. Performance Information........................................ 26
14. Control Persons and Principal Holders of
Securities................................................... 27
15. Financial Statements........................................... 28
Appendix....................................................... A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Value Builder Fund, Inc. (the "Fund") is an
open-end management investment company, or mutual fund. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), all mutual
funds are required to furnish prospective investors with certain information
concerning the activities of the company being considered for investment. The
Fund currently offers three classes of shares: Flag Investors Value Builder Fund
Class A Shares (the "Class A Shares"), Flag Investors Value Builder Fund Class B
Shares (the "Class B Shares") and Flag Investors Value Builder Fund
Institutional Shares (the "Institutional Shares") (collectively, the "Shares").
As used herein, the "Fund" refers to Flag Investors Value Builder Fund, Inc. and
specific references to any class of the Fund's Shares will be made using the
name of such class.
Important information concerning the Fund is included in the
Fund's Prospectuses which may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer Shares
to prospective investors. Prospectuses for the Class A Shares and the Class B
Shares may also be obtained from Shareholder Servicing Agents. Some of the
information required to be in this Statement of Additional Information is also
included in the Fund's current Prospectuses. To avoid unnecessary repetition,
references are made to related sections of the Prospectuses. In addition, the
Prospectuses and this Statement of Additional Information omit certain
information about the Fund and its business that is contained in the
Registration Statement respecting the Fund and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including such omitted items, may
be obtained from the SEC by paying the charges prescribed under its rules and
regulations.
The Fund was incorporated under the laws of the State of Maryland
on March 5, 1992. The Fund filed a registration statement with the SEC
registering itself as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended, and commenced
operations on June 15, 1992. The Fund commenced offering the Class B Shares on
January 3, 1995 and the Institutional Shares on November 2, 1995.
For the period from November 9, 1992 through November 18, 1994,
the Fund offered another class of shares: Flag Investors Value Builder Fund
Class D Shares, which were known at the time as Flag Investors Value Builder
Fund Class B Shares and reclassified as Flag Investors Value Builder Fund Class
D Shares on November 18, 1994. Shares of that class are not currently being
offered, although some Class D Shares remain outstanding.
Under a license agreement dated June 15, 1992 between the Fund
and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the
"Flag Investors" name and logo but retains the rights to the name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to maximize total return
through a combination of long-term capital appreciation and current income. The
Fund seeks to achieve this objective through a policy of diversified investments
in equity and debt securities (including common stocks, convertible securities
and government and corporate fixed-income obligations). Under normal market
conditions, between 40% and 75% of the Fund's total assets will be invested in
equity securities and at least 25%
1
<PAGE>
of the Fund's total assets will be invested in fixed-income securities, all as
more fully described in the Prospectus. In addition, the Fund may invest in
other types of securities, which are also described in the Prospectus. There can
be no assurance that the Fund's investment objective will be achieved.
In addition to the Fund's investments in corporate and government
fixed-income obligations rated, at the time of purchase, BBB or higher by
Standard & Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors
Service, Inc. ("Moody's"), the Fund may purchase a limited amount, up to 10% of
its total assets, of non-convertible corporate debt obligations that are rated
below investment grade by S&P or Moody's or are unrated by S&P or Moody's and of
similar quality. A description of the rating categories of S&P and Moody's is
set forth in the Appendix to this Statement of Additional Information. The Fund
may also invest up to 5% of its net assets in covered call options as described
below, and an additional 10% of its total assets in the aggregate in equity and
debt securities issued by foreign governments or corporations and not traded in
the United States.
Additional information about certain of the Fund's investment
policies and practices are described below.
Covered Call Options
As a means of protecting the Fund's assets against market
declines, the Fund may, to a limited extent, write covered call option contracts
on certain of its securities which it owns or has the immediate right to
acquire, provided that the aggregate value of such options does not exceed 5% of
the value of the Fund's net assets as of the time such options are entered into
by the Fund. If, however, the securities on which the calls have been written
appreciate, more than 5% of the Fund's assets may be subject to the call. The
Fund may also purchase call options for the purpose of terminating its
outstanding obligations with respect to securities upon which call option
contracts have been written.
When the Fund writes a call option on securities which it owns,
it gives the purchaser of the option the right, but not the obligation, to buy
the securities at the price specified in the option (the "Exercise Price") at
any time prior to the expiration of the option. In call options written by the
Fund, the Exercise Price, plus the option premium paid by the purchaser, will
almost always be greater than the market price of the underlying security at the
time a call option is written. If any option is exercised, the Fund will realize
the long-term or short-term gain or loss from the sale of the underlying
security and the proceeds of the sale will be increased by the net premium
originally received. By writing a covered option, the Fund may forego, in
exchange for the net premium, the opportunity to profit from an increase in
value of the underlying security above the Exercise Price. Thus, options will be
written when the Fund's investment advisor (the "Advisor"), or the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors"), as appropriate,
believe the security should be held for the long-term but expects no
appreciation or only moderate appreciation within the option period. The Fund
also may write covered options on securities that have a current value above the
original purchase price but which, if then sold, would not normally qualify for
a long-term capital gains treatment. Such activities will normally take place
during periods when market volatility is expected to be high.
Only call options which are traded on a national securities
exchange will be written. Currently, call options may be traded on the Chicago
Board Options Exchange and the American, Pacific, Philadelphia and New York
Stock Exchanges. Call options are issued by The Options Clearing Corporation,
which also serves as the clearing house for transactions with respect to
options. The price of a call option is paid to the writer without refund on
expiration or exercise, and no portion of the price
2
<PAGE>
is retained by The Options Clearing Corporation or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
Call options may be purchased by the Fund, but only to terminate
an obligation as a writer of a call option. This is accomplished by making a
closing purchase transaction, that is, the purchase of a call option on the same
security with the same Exercise Price and expiration date as specified in the
call option which had been written previously. A closing purchase transaction
with respect to calls traded on a national securities exchange has the effect of
extinguishing the obligation of a writer. Although the cost to the Fund of such
a transaction may be greater than the net premium received by the Fund upon
writing the original option, the Directors believe that it is appropriate for
the Fund to have the ability to make closing purchase transactions in order to
prevent its portfolio securities from being purchased pursuant to the exercise
of a call. The Advisors may also permit the call option to be exercised. A
profit or loss from a closing purchase transaction or exercise of a call option
will be realized depending on whether the amount paid to purchase a call to
close a position, or the price at which the option is exercised, is less or more
than the amount received from writing the call. In the event that the Advisors
are incorrect in their forecasts regarding market values, interest rates and
other applicable factors, the Fund would be in a worse position than if the call
option had not been written.
Positions in options on stocks may be closed before expiration
only by a closing transaction, which may be made only on an exchange which
provides a liquid secondary market for such options. Although the Fund will
write options only when the Advisors believe a liquid secondary market will
exist on an exchange for options of the same series, there can be no assurance
that a liquid secondary market will exist for any particular stock option.
Possible reasons for the absence of a liquid secondary market on an exchange for
an option include the following: (a) insufficient trading interest in certain
options; (b) restrictions on transactions imposed by an exchange; (c) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (d) inadequacy of the
facilities of an exchange or The Options Clearing Corporation to handle trading
volume; or (e) a decision by one or more exchanges to discontinue the trading of
options or to impose restrictions on types of orders. Although The Options
Clearing Corporation has stated that it believes (based on forecasts provided by
the exchanges on which options are traded) that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and although
each exchange has advised The Options Clearing Corporation that it believes that
its facilities will also be adequate to handle reasonably anticipated volume,
there can be no assurance that higher than anticipated trading activity or order
flow or other unforeseen events might not at times render certain of these
facilities inadequate and thereby result in the institution of special trading
procedures or restrictions.
Certain provisions of Subchapter M of the Internal Revenue Code
of 1986, as amended, will restrict the use of covered call options. (See
"Federal Tax Treatment of Dividends and Distributions" below.)
Convertible Securities
As described in the Prospectus, the Fund may invest in
convertible securities. In general, the market value of a convertible security
is at least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., the value of the
underlying shares of common stock if the security is converted). A convertible
security tends to increase in market value when interest rates decline and tends
to decrease in value when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock.
3
<PAGE>
Thus, the price of a convertible security tends to increase as the market value
of the underlying common stock increases, whereas it tends to decrease as the
market value of the underlying stock declines. Investments in convertible
securities generally entail less risk than investment in common stock of the
same issuer.
Below Investment Grade Corporate Bonds
The Fund may purchase non-convertible corporate bonds that carry
ratings lower than those assigned to investment grade bonds by S&P or Moody's,
or that are unrated by S&P or Moody's if such bonds, in the Advisors' judgment,
meet the quality criteria established by the Board of Directors. These bonds
generally are known as "junk bonds." These securities may trade at substantial
discounts from their face values. Accordingly, if the Fund is successful in
meeting its objectives, investors may receive a total return consisting not only
of income dividends but, to a lesser extent, capital gain distributions.
Appendix A to this Statement of Additional Information sets forth a description
of the S&P and Moody's rating categories, which indicate the rating agency's
opinion as to the probability of timely payment of interest and principal. These
ratings range in descending order of quality from AAA to D, in the case of S&P,
and from Aaa to C, in the case of Moody's. Generally, securities that are rated
lower than BBB by S&P or Baa by Moody's are described as below investment grade.
Securities rated lower than investment grade may be of a predominately
speculative character and their future cannot be considered well-assured. The
issuer's ability to make timely payments of principal and interest may be
subject to material contingencies. Securities in the lowest rating categories
may be unable to make timely interest or principal payments and may be in
default and in arrears in interest and principal payments.
Ratings of S&P and Moody's represent their opinions of the
quality of bonds and other debt securities they undertake to rate at the time of
issuance. However, these ratings are not absolute standards of quality and may
not reflect changes in an issuer's creditworthiness. Accordingly, the Advisors
do not rely exclusively on ratings issued by S&P or Moody's in selecting
portfolio securities, but supplement such ratings with independent and ongoing
review of credit quality. In addition, the total return the Fund may earn from
investments in high-yield securities will be significantly affected not only by
credit quality but by fluctuations in the markets in which such securities are
traded. Accordingly, selection and supervision by the Advisors of investments in
lower rated securities involves continuous analysis of individual issuers,
general business conditions, activities in the high-yield bond market and other
factors. The analysis of issuers may include, among other things, historic and
current financial conditions, strength of management, responsiveness to business
conditions, credit standing and current and anticipated results of operations.
Analysis of general business conditions and other factors may include
anticipated changes in economic activity in interest rates, the availability of
new investment opportunities and the economic outlook for specific industries.
Investing in higher yield, lower rated bonds entails
substantially greater risk than investing in investment grade bonds, including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of high-yield bonds will fluctuate over
time, reflecting not only changing interest rates but also the bond market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value
due to heightened concern over credit quality, regardless of prevailing interest
rates. In adverse economic conditions, the liquidity of the secondary market for
junk bonds may be significantly reduced. In addition, adverse economic
developments could disrupt the high-yield market, affecting both price and
liquidity, and could also affect the ability of issuers to repay principal and
interest, thereby leading to a default rate higher than has been the case
historically. Even under normal conditions, the market for lower rated bonds may
be less liquid than the market for investment grade
4
<PAGE>
corporate bonds. There are fewer securities dealers in the high-yield market and
purchasers of high-yield bonds are concentrated among a smaller group of
securities dealers and institutional investors. In periods of reduced market
liquidity, the market for lower rated bonds may become more volatile and there
may be significant disparities in the prices quoted for high-yield securities by
various dealers. Under conditions of increased volatility and reduced liquidity,
it would become more difficult for the Fund to value its portfolio securities
accurately because there might be less reliable, objective data available.
Finally, prices for high-yield bonds may be affected by
legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high-yield bonds.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic banks
or broker-dealers deemed to be creditworthy by the Advisors, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. The value of
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. The Fund makes payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of a custodian or bank acting as agent. The underlying
securities, which in the case of the Fund are securities of the U.S. Government
only, may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible sub-normal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
Foreign Investment Risk Considerations
From time to time, the Advisors may invest up to 10% of the
Fund's assets in American Depository Receipts, which are traded in the United
States and represent interests in foreign issuers. The Advisors may also invest
in securities of foreign companies, and in debt and equity securities issued by
foreign corporate and government issuers when the Advisors believe that such
investments provide good opportunities for achieving income and capital gains
without undue risk. Foreign investments involve substantial and different risks
which should be carefully considered by any potential investor. Such investments
are usually not denominated in dollars so changes in the relative values of the
dollar and other currencies will affect the value of foreign investments. In
general, less information is publicly available about foreign companies than is
available about companies in the United States. Most foreign companies are not
subject to uniform audit and financial reporting standards, practices and
requirements comparable to those in the United States. In most foreign markets
volume and liquidity are less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed commissions
on foreign stock exchanges are generally higher than the negotiated commissions
on United States exchanges. There is generally less government supervision and
regulation of foreign stock exchanges, brokers, and companies in the
5
<PAGE>
United States. The settlement periods for foreign securities, which are often
longer than those for securities of U.S. issuers, may affect portfolio
liquidity. Portfolio securities held by the Fund which are listed on foreign
exchanges may be traded on days that the Fund does not value its securities,
such as Saturdays and the customary United States business holidays on which the
New York Stock Exchange is closed. As a result, the net asset value of Shares
may be significantly affected on days when shareholders do not have access to
the Fund.
Although the Fund intends to invest in securities of companies
and governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries. The dividends and interest payable on certain of the
Fund's foreign portfolio securities may be subject to foreign withholding taxes,
thus reducing the net amount available for distribution to the Fund's
shareholders. The expense ratio of the Fund can be expected to be higher than
those of investment companies investing in domestic securities due to the
additional cost of custody of foreign securities.
Mortgage Securities
The Fund may purchase mortgage-backed debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Mortgage-backed securities represent an ownership interest in a pool of
residential and commercial mortgage loans. Generally, these securities are
designed to provide monthly payments of interest and principal to the investor.
The mortgagee's monthly payments to his/her lending institution are passed
through to investors such as the Fund. Most issuers or poolers provide
guarantees of payments, regardless of whether the mortgagor actually makes the
payment. The guarantees made by issuers or poolers are supported by various
forms of credit, collateral, guarantees or insurance, including individual loan,
title, pool and hazard insurance purchased by the issuer. The pools are
assembled by various Governmental and Government-related organizations. The Fund
may invest in securities issued or guaranteed by the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),
Federal National Mortgage Association (FNMA) and other government agencies.
Mortgage-backed securities are subject to certain risks that are
different from those associated with other debt securities. Due to the
possibility that prepayments on home mortgages will alter cash flow on mortgage
securities, it is not possible to determine in advance the actual final maturity
date or average life. Like debt securities in general, mortgage-backed
securities will generally decline in price when interest rates rise. Rising
interest rates also tend to discourage refinancings of home mortgages, with the
result that the average life of mortgage securities held by the Fund may be
lengthened. This extension of average life causes the market price of the
securities to decrease further than if their average lives were fixed. However,
when interest rates fall, mortgages may not enjoy as large a gain in market
value due to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security.
Investment Restrictions
6
<PAGE>
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
regulatory limitations. The investment restrictions recited below are in
addition to those described in the Fund's Prospectuses, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. Accordingly, the Fund will not:
1. Borrow money except as a temporary measure for extraordinary
or emergency purposes and then only from banks and in an amount not exceeding
10% of the value of the total assets of the Fund at the time of such borrowing,
provided, that while borrowings by the Fund equaling 5% or more of the Fund's
total assets are outstanding, the Fund will not purchase securities;
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts,
including financial futures contracts;
4. Act as an underwriter of securities within the meaning of the
U.S. federal securities laws, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
5. Issue senior securities;
6. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in accordance with its
investment objectives and policies;
7. Effect short sales of securities;
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
9. Purchase participations or other direct interests in oil, gas
or other mineral leases or exploration or development programs; or
10. Invest more than 10% of the value of its net assets in
illiquid securities (as defined under federal or state securities laws),
including repurchase agreements with remaining maturities in excess of seven
days, provided, however, that the Fund shall not invest more than 5% of its
total assets in securities that the Fund is restricted from selling to the
public without registration under the Securities Act of 1933, as amended
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, that have been determined to be liquid
by the Fund's Board of Directors based upon the trading markets for such
securities).
The following investment restriction may be changed by a vote of
the majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered
under the Investment Company Act, except as permitted by federal law.
The percentage limitations contained in these restrictions apply
at the time of purchase of securities.
7
<PAGE>
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close
of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time)
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Redemption
The Fund may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Class A Shares
and Class B Shares by check, and Institutional Shares by wire transfer of funds,
as described in the Prospectuses relating to such Shares. However, if the Board
of Directors determines that it would be in the best interests of the remaining
shareholders of the Fund to make payment of the redemption price in whole or in
part by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash, in conformity with applicable rules of
the SEC, the Fund will make such distributions in kind. If Shares are redeemed
in kind, the redeeming shareholder will incur brokerage costs in later
converting the assets into cash. The method of valuing portfolio securities is
described under "Valuation of Shares" and such valuation will be made as of the
same time the redemption price is determined. The Fund, however, has elected to
be governed by Rule 18f-1 under the Investment Company Act pursuant to which the
Fund is obligated to redeem Shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders and the
discussion here and in the Fund's Prospectuses is not intended as a substitute
for careful tax planning.
8
<PAGE>
Qualification as a Regulated Investment Company
The Fund has elected to be, and has been, taxed as a regulated
investment company ("RIC") under Subchapter M of the Code. However, in order to
qualify as a RIC for any taxable year, the Fund generally must (1) derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies and other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or currencies (the "Income
Requirement"), and (2) derive less than 30% of its gross income (exclusive of
certain gains from designated hedging transactions that are offset by realized
or unrealized losses on offsetting positions) from gains on the sale or other
disposition of the following investments if such investments are held for less
than three months (the "Short-Short Gain Test"): (a) securities (as defined in
Section 2(a)(36) of the Investment Company Act; (b) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currencies); and (c) foreign currencies (or options, futures or forward
contracts on foreign currencies) but only if such currencies (or options,
futures or forward contracts) are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities).
To the extent that the Fund is able and chooses to identify and
designate offsetting positions (e.g., options that the Fund has written and the
securities covered by such options) as "hedges", increases and decreases in the
value of such positions will be netted for the purposes of determining whether
the Short-Short Gain Test has been satisfied. The Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is
disregarded.
In addition, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must consist of cash and
cash items, U.S. government securities, securities of other RICs and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of its total assets in securities of any such issuer and as to which the
Fund does not hold more than 10% of the outstanding voting securities of any
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other RICs), or in two or more issuers which the
Fund controls and which are engaged in the same or similar trades or businesses
or related trades or businesses (the "Asset Diversification Test"). The Fund
will not lose its status as a RIC if it fails to meet the Asset Diversification
Test solely as a result of a fluctuation in value of portfolio assets not
attributable to a purchase. The Fund may curtail its investments in certain
securities where the application thereto of the Asset Diversification Test is
uncertain.
Under Subchapter M of the Code, the Fund is exempt from federal
income tax on its net investment income and capital gains which it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) for the year (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. Distributions of investment company taxable income made during the
taxable year or, under certain specified circumstances, within twelve months
after the close of the taxable year will satisfy the Distribution Requirement.
The Distribution Requirement for any year may be waived if a RIC establishes to
the satisfaction of the Internal Revenue Service that it is unable to satisfy
the Distribution Requirement by reason of distributions previously made for the
purpose of avoiding liability for federal excise tax.
9
<PAGE>
Although the Fund intends to distribute substantially all of its
net investment income and capital gains for any taxable year, the Fund will be
subject to federal income taxation to the extent any such income or gains are
not distributed.
If for any taxable year, the Fund does not qualify as a RIC, all
of its taxable income will be subject to tax at regular corporate income tax
rates without any deduction for distributions to shareholders, and all such
distributions generally will be taxable to shareholders as ordinary dividends to
the extent of the Fund's current and accumulated earnings and profits. Such
distributions generally will be eligible for the 70% dividends received
deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income, generally,
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in additional Shares. The Fund
anticipates that it will distribute substantially all of its investment company
taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains") for each taxable year. If such gains are distributed as a
capital gains distribution, they are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has held Shares,
whether or not such gains were recognized by the Fund prior to the date on which
a shareholder acquired Shares and whether or not the distribution was paid in
cash or reinvested in Shares. Conversely, if the Fund elects to retain its net
capital gains, it will be taxed thereon (except to the extent of any available
capital loss carryovers) at the applicable corporate capital gains tax rate. In
this event, it is expected that the Fund also will elect to have shareholders
treated as having received a distribution of such gains, with the result that
shareholders will be required to report such gains on their returns as long-term
capital gains, will receive a tax credit for their allocable share of capital
gains tax paid by the Fund on the gains, and will increase the tax basis for
their Shares by an amount equal to 65% of such gains.
In the case of corporate shareholders, Fund distributions (other
than capital gains distributions) generally qualify for the 70% dividends
received deduction to the extent of the gross amount of certain qualifying
dividends received by the Fund for the year. Generally, a dividend will be
treated as a qualifying dividend if it has been received from a domestic
corporation. For purposes of the alternative minimum tax and the environmental
tax, corporate shareholders generally will be required to take the full amount
of any dividend received from the Fund into account in determining their
adjusted current earnings for purposes of computing "alternative minimum taxable
income."
Generally, gain or loss on the sale or exchange of a Share will
be capital gain or loss which will be long-term if the Share has been held for
more than one year and otherwise will be short-term. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a Share held for six
months or less and has previously received a capital gains distribution with
respect to the Share (or has included in income any undistributed net capital
gains of the Fund with respect to such Share), the shareholder must treat the
loss as a long-term capital loss to the extent of the amount of the prior
capital gains distribution (or any undistributed net capital gains of the Fund
with respect to such Share which have been included in the shareholder's
income). In addition, any loss realized on a sale or other disposition of Shares
will be disallowed to the extent an investor repurchases (or enters into a
contract or option to repurchase) Shares within a period of 61 days (beginning
30 days before and ending 30 days after the disposition of the Shares). This
loss disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
10
<PAGE>
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase may have reflected the amount of such
forthcoming dividend or distribution.
The Fund will be required in certain cases to withhold and remit
to the United States Treasury 31% of distributions payable to any shareholder
who (1) has provided either an incorrect taxpayer identification number or no
number at all, (2) is subject to backup withholding by the Internal Revenue
Service for failure to properly report receipt of interest or dividends, or (3)
who has failed to certify to the Fund that such shareholder is not subject to
backup withholding.
The Fund will provide a statement annually to shareholders as to
the federal income tax status of distributions paid (or deemed to be paid) by
the Fund during the year, including the amount of dividends eligible for the
corporate dividends received deduction.
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% federal excise tax on RICs
that do not distribute in each calendar year an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period (the excess of long- and short-term capital gain over
long- and short-term capital loss) ending on October 31 of such calendar year.
The excise tax is imposed on the undistributed part of this required
distribution. In addition, the balance of such income must be distributed during
the next calendar year to avoid liability for the excise tax in that year. For
the foregoing purposes, an investment company is treated as having distributed
any amount on which it is subject to income tax for any taxable year ending in
such calendar year. Because the Fund intends to distribute all of its income
currently (or to retain, at most its net capital gains and pay tax thereon), the
Fund does not anticipate incurring any liability for this excise tax. However,
the Fund may, in certain circumstances, be required to liquidate portfolio
investments in order to make sufficient distributions to avoid excise tax
liability and the liquidation of such investments in such circumstances may
affect the ability of the Fund to satisfy the Short-Short Gain Test.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director, Investment
Company Capital Corp. (registered investment advisor). Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated.
11
<PAGE>
*CHARLES W. COLE, JR., Director (11/11/35)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Chairman, Investment Company Capital Corp.
(registered investment advisor); Director, Provident Bankshares
Corporation and Provident Bank of Maryland. Formerly, President and
Chief Executive Officer, Chief Administrative Officer, and Director,
First Maryland Bancorp, The First National Bank of Maryland and First
Omni Bank; Director, York Bank and Trust Company.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present. Formerly, Senior
Vice President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993; and Director, The Arch Fund (registered investment
company).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered investment
advisor); Chartered Financial Analyst.
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies). Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm); General Manager, Shell Oil
Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants.
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care); Director, Central Carolina Bank & Trust
(banking), Key Funds (registered investment companies), and AMBAC
Treasurers Trust (registered investment company) and DP Mann Holdings
(insurance).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, PA 19103-7017. President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice
President, The Glenmede Trust Company. Formerly, Executive Director, The
Pew Charitable Trusts.
CARL W. VOGT, Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking). Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak); Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
12
<PAGE>
HOBART C. BUPPERT, President (8/1/46)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor), 1984-Present; President, Buppert,
Behrens & Owen, Inc. (investments), 1987-Present.
J. DORSEY BROWN, III, Executive Vice President (8/26/39)
Managing Director, Alex. Brown & Sons Incorporated; Currently, Chief
Executive Officer and formerly, General Partner, Alex. Brown Investment
Management (registered investment advisor).
BRUCE E. BEHRENS, Vice President (4/20/44)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Treasurer, Buppert,
Behrens & Owen, Inc. (investments), 1987-Present.
LEE S. OWEN, Vice President (10/27/47)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Secretary, Buppert,
Behrens & Owen, Inc. (investments), 1987-Present.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Vice President, Armata
Financial Corp. (registered broker-dealer); Executive Vice President,
Investment Company Capital Corp. (registered investment advisor).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated; Manager, Private
Client Marketing, Alex. Brown & Sons Incorporated.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65)
Manager, Fund Administration, Alex. Brown & Sons Incorporated, July
1996-Present. Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 1994.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September 1995-Present.
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company, Inc., 1980-1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated.
- ---------------------
* A Director who is an "interested person", as defined in the Investment Company
Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by Alex. Brown or its affiliates. There are currently 12
funds in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc.
fund complex (the "Fund Complex"). Mr. Semans serves as Chairman of five funds
and
13
<PAGE>
as a Director of five other funds in the Fund Complex. Messrs. Cunnane, Kroeger,
Levy and McDonald serve as Directors of each fund in the Fund Complex. Mr. Hale
serves as Chairman of three funds, as President and Director of one fund and as
a Director of each of the other funds in the Fund Complex. Mr. Cole serves as
Chairman of one fund and as a Director of seven other funds in the Fund Complex.
Ms. Rimel serves as a Director of ten funds in the Fund Complex. Mr. Vogt serves
as a Director of nine funds in the Fund Complex. Mr. Behrens serves as President
of one fund and Vice President of two funds in the Fund Complex. Mr. Brown
serves as Executive Vice President of three funds in the Fund Complex. Mr.
Buppert serves as President of one fund and as Vice President of two funds in
the Fund Complex. Mr. Owen serves as President of one fund and Vice President of
two funds in the Fund Complex. Mr. Fearnow serves as Vice President of 10 funds
in the Fund Complex. Mr. Veilleux serves as Executive Vice President of one fund
and as Vice President of each of the other funds in the Fund Complex. Mr. Liotta
serves as Vice President and Secretary, Mr. Finelli serves as Treasurer and Ms.
Collidge serves as Assistant Secretary, respectively, of each of the funds in
the Fund Complex.
Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with, Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of Alex. Brown may be considered to have received remuneration
indirectly. As compensation for his services, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested Director") receives an aggregate annual fee (plus reimbursement
for reasonable out-of-pocket expenses incurred in connection with his or her
attendance at board and committee meetings) from each fund in the Fund Complex
for which he or she serves. In addition, the Chairman of the Fund Complex's
Audit Committee receives an aggregate annual fee from the Fund Complex. Payment
of such fees and expenses are allocated among all such funds described above in
proportion to their relative net assets. For the fiscal year ended March 31,
1997, Non-Interested Directors' fees attributable to the assets of the Fund
totalled approximately $19,242.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund and the Fund
Complex, respectively, and pension or retirement benefits accrued as part of
Fund expenses in the fiscal year ended March 31, 1997.
14
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation From Pension or Retirement Total Compensation from the Fund and
Position the Fund Payable to Directors Benefits Accrued as Part of Fund Complex Payable to Directors for
for the Fiscal Year Ended Fund Expenses the Fiscal Year Ended March 31, 1997
March 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman
W. James Price(1, 2) $0 $0 $0
Director
Richard T. Hale(1) $0 $0 $0
Director
Charles W. Cole, Jr.(1) $0 $0 $0
Director
James J. Cunnane $1,860(3) $ (4) $39,000 for service
Director on 12 Boards
John F. Kroeger $2,337(3) $ (4) $49,000 for service
Director on 12 Boards
Louis E. Levy $1,860(3) $ (4) $39,000 for service
Director on 12 Boards
Eugene J. McDonald $1,860(3) $ (4) $39,000 for service
Director on 12 Boards
Rebecca W. Rimel $ 552(3) $ (4) $39,000 for service
Director on 10 Boards(4, 5)
Carl W. Vogt $ 557(3) $ (4) $39,000 for service
Director on 9 Boards(4, 5)
Harry Woolf(2) $1,321(3) $ (4) $29,250 for service
Director on 12 Boards(4)
</TABLE>
- --------------------------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Retired, effective December 31, 1996.
(3) Of amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald, Vogt and
Woolf and Ms. Rimel $1,860, $0, $0, $1,860, $557, $1,321 and $552,
respectively, was deferred pursuant to a deferred compensation plan.
(4) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the year ended
March 31, 1997 was approximately $10,628.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from each
fund for which they serve.
The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of six years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which the Participant serves. The Retirement Plan is
unfunded and unvested. Mr. Kroeger has qualified but has not yet received
benefits. The Fund has two Participants, a Director who retired effective
December 31, 1994 and a Director who retired effective December 31, 1996, who
have qualified for the Retirement Plan by serving thirteen and fourteen years,
respectively, as Directors in the Fund Complex and each of whom will be paid a
15
<PAGE>
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Another
participant, who retired on January 31, 1996 and died on June 2, 1996, was paid
fees of $8,090 by the Fund Complex under the Retirement Plan in the period ended
December 31, 1996. Such fees are allocated to each fund in the Fund Complex
based upon the relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his or her last
year of service, as described above. The approximate credited years of service
at March 31, 1997 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; for Ms. Rimel, 1 year;
and for Mr. Vogt, 1 year.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and Vogt
and Ms. Rimel have each executed a Deferred Compensation Agreement. Currently,
the deferring Directors may select various Flag Investors and Alex. Brown Cash
Reserve Funds in which all or part of their deferral account shall be deemed to
be invested. Distributions from the deferring Directors' deferral accounts will
be paid in cash, in generally quarterly installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors and the Distributor. As described below, the Code of Ethics
imposes additional restrictions on the Advisors' investment personnel, including
the portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that covered employees of the
Advisors, certain directors or officers of the Distributor, and all Fund
Directors who are "interested persons", preclear personal securities investments
(with certain exceptions, such as non-volitional purchases or purchases which
are part of an automatic dividend reinvestment plan). The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring any
securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and special preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides for
trading "blackout periods" that prohibit trading by investment personnel and
certain other employees within periods of trading by the Fund in the same
security. Officers, directors and employees
16
<PAGE>
of the Advisors and the Distributor may comply with codes instituted by those
entities so long as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On March 13, 1992, the Board of Directors of the Fund, including
a majority of the Non-Interested Directors, approved an Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. ("ICC" or the
"Advisor") and a Sub-Advisory Agreement among the Fund, ICC and Alex. Brown
Investment Management ("ABIM" or the "Sub-Advisor"), both of which contracts are
described in greater detail below. The Investment Advisory Agreement and the
Sub-Advisory Agreement were approved by the sole shareholder of the Fund on June
5, 1992. ICC, the investment advisor, is a wholly-owned subsidiary of Alex.
Brown Financial Corporation and an indirect subsidiary of Alex. Brown
Incorporated. ICC is also the investment advisor to Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc. (formerly Flag Investors
Intermediate-Term Income Fund, Inc.), Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc. and
Flag Investors Equity Partners Fund, Inc., which, are distributed by Alex.
Brown, the Fund's distributor.
ABIM is a limited partnership affiliated with Alex. Brown.
Buppert, Behrens & Owens, Inc., a company organized and owned by three employees
of ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. Alex. Brown & Sons Incorporated ("Alex Brown") owns a 1%
general partnership interest in ABIM and Alex. Brown Incorporated owns the
remaining 49% limited partnership interest. ABIM, also the sub-advisor to Flag
Investors Telephone Income Fund, Inc. and Flag Investors Equity Partners Fund,
Inc. is a registered investment advisor with approximately $6.3 billion under
management as of May 31, 1997.
Under the Investment Advisory Agreement, ICC obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. ICC has delegated this
responsibility to ABIM, provided that ICC continues to supervise the performance
of ABIM and report thereon to the Fund's Board of Directors. Any investment
program undertaken by ICC or ABIM will at all times be subject to policies and
control of the Fund's Board of Directors. ICC will provide the Fund with office
space for managing its affairs, with the services of required executive
personnel and with certain clerical and bookkeeping services and facilities.
These services are provided by ICC without reimbursement by the Fund for any
costs. Neither ICC nor ABIM shall be liable to the Fund or its shareholders for
any act or omission by ICC or ABIM or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABIM to the
Fund are not exclusive and ICC and ABIM are free to render similar services to
others.
As compensation for its services, ICC is entitled to receive a
fee from the Fund, 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, .85% of
the Fund's average daily net assets in excess of $50 million but not exceeding
$100 million, .80% of the Fund's average daily net assets in excess of $100
million but not exceeding $200 million, and .70% of the Fund's average daily net
assets in excess of $200 million. As compensation for its services, ABIM is
entitled to receive a fee from ICC, payable from its advisory fee, calculated
daily and payable monthly, at the annual rate of .75% of the first $50 million
of the Fund's average daily net assets, .60% of the Fund's average daily net
assets in excess of $50 million but not exceeding $200 million, and .50% of the
Fund's average daily net assets in excess of $200 million.
ICC has voluntarily agreed to waive a portion of its fee from
time to time so that the Fund's total operating expenses do not exceed 1.35% of
the Class A Shares' average daily net assets, 2.10% of the Class B Shares'
average daily net assets and 1.10% of the Institutional Shares' average daily
net assets.
17
<PAGE>
The Investment Advisory Agreement and the Sub-Advisory Agreement
will continue in effect from year to year if such continuance is specifically
approved at least annually by the Fund's Board of Directors, including a
majority of the Non-Interested Directors who have no direct or indirect
financial interest in such agreements, by votes cast in person at a meeting
called for such purpose, or by a vote of a majority of the outstanding Shares
(as defined under "Capital Stock"). The Investment Advisory Agreement and the
Sub-Advisory Agreement were most recently approved for continuance by the Board
of Directors on September 30, 1996. The Fund or ICC may terminate the Investment
Advisory Agreement on sixty days' written notice without penalty. The Investment
Advisory Agreement will terminate automatically in the event of assignment (as
defined in the Investment Company Act). The Sub-Advisory Agreement has similar
termination provisions.
Advisory fees paid by the Fund to ICC and sub-advisory fees paid
by ICC to ABIM for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Fees Paid to: 1997 1996 1995
- ------------- ---- ---- ----
<S> <C> <C> <C>
ICC $2,227,355 $ 1,651,971 $ 1,248,666*
ABIM $1,633,167 $ 1,225,064 $ 967,323
</TABLE>
- ----------------
* Net of fee waivers. Absent such fee waivers for the fiscal year ended March
31, 1995, the Class A Shares' Total Operating Expenses would have been
1.40% of its average daily net assets. Absent fee waivers for the fiscal
period from January 3, 1995 (commencement of operations) through March 31,
1995, the Class B Shares' Total Operating Expenses would have been 2.17%
(annualized) of its average daily net assets. Absent fee waivers for the
fiscal year ended March 31, 1995, the Class D Shares' Total Operating
Expenses would have been 1.74% of its average daily net assets.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. (See "Custodian, Transfer
Agent and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
Alex. Brown serves as the exclusive distributor of the Fund's
Shares pursuant to three separate Distribution Agreements, one for each class of
the Fund's Shares.
The Class A Shares and the Class B Shares
The Distribution Agreements for the Class A Shares and the Class
B Shares (collectively, the "Class A and Class B Distribution Agreements")
provide that Alex. Brown has the exclusive right to distribute the related
classes of Flag Investors Value Builder Fund Shares either directly or through
other broker-dealers and further provide that Alex. Brown will: (a) solicit and
receive orders for the purchase of Shares; (b) accept or reject such orders on
behalf of the Fund in accordance with the Fund's currently effective Prospectus
and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible; (c) receive requests for redemptions and transmit such
redemption requests to the Fund's transfer agent as promptly as possible; and
(d) respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Alex. Brown has not undertaken to sell
any specific number of Shares. The Class A and Class B Distribution Agreements
further provide that, in connection with the distribution of Shares, Alex. Brown
will be responsible for the promotional expenses. The services provided by Alex.
Brown to the Fund are not exclusive, and Alex. Brown is free to provide similar
services to others. Alex. Brown shall not be liable to the
18
<PAGE>
Fund or its shareholders for any act or omission by Alex. Brown or any losses
sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such broker-dealers
have agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.
As compensation for providing distribution services as described
above for the Class A Shares, Alex. Brown receives an annual fee, paid monthly
equal to .25% of the average daily net assets of the Class A Shares. As
compensation for providing distribution services as described above for the
Class B Shares, Alex. Brown receives an annual fee, paid monthly, equal to .75%
of the average daily net assets of the Class B Shares. With respect to Class A
Shares, Alex. Brown expects to allocate most of its annual distribution fee to
its investment representatives and up to all of its fee to broker-dealers who
enter into Sub-Distribution Agreements with Alex. Brown.
In addition, with respect to the Class B Shares, the Fund will
pay Alex. Brown a shareholder servicing fee at an annual rate of .25% of the
average daily net assets of the Class B Shares. (See the Prospectus.)
As compensation for providing distribution and shareholder
services to the Fund for the last three fiscal years, Alex. Brown received fees
in the following amounts:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Class 1997 1996 1995
----- ---- ---- ----
<S> <C> <C> <C>
Class A 12b-1 $575,090 $435,163 $342,916
Class B 12b-1 $ 64,138 $ 14,685 $ 305*
Class B Shareholder $ 21,379 $ 4,895 $ 101*
Servicing Fee
Class D 12b-1 $ 86,879 $ 77,244 $ 69,979
</TABLE>
*for the period from January 3, 1995 through March 31,1995
Pursuant to Rule 12b-1 under the Investment Company Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's board of
directors and approved by its shareholders, the Fund has adopted a Plan of
Distribution for each of its classes of Shares (except the Institutional Shares
class) (the "Plans"). Under the Plans, the Fund pays a fee to Alex. Brown for
distribution and other shareholder servicing assistance as set forth in the
Class A and Class B Distribution Agreements, and Alex. Brown is authorized to
make payments out of its fee to its investment representatives and to
participating broker-dealers. Each of the Class A and Class B Distribution
Agreements has an initial term of two years. The Class A and Class B
Distribution Agreements and the Plans encompassed therein will remain in effect
from year to year thereafter, as specifically approved (a) at least annually by
the Fund's Board of Directors and (b) by the affirmative vote of a majority of
the Non-Interested Directors, by votes cast in person at a meeting called for
such purpose. The Class A and Class B Distribution Agreements including the
Plans and forms of Sub-Distribution Agreements, were most recently approved by
the Fund's Board of Directors, including a majority of the Non-Interested
Directors on September 30, 1996.
19
<PAGE>
In approving the Plans, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreements without the approval of the shareholders of the
Fund. The Plans may be terminated at any time and the Class A and Class B
Distribution Agreements may be terminated at any time upon sixty days' notice,
in either case without penalty, by the vote of a majority of the Fund's Non-
Interested Directors or by a vote of a majority of the Fund's outstanding Shares
(as defined under "Capital Stock"). Any Sub-Distribution Agreement may be
terminated in the same manner at any time. The Class A and Class B Distribution
Agreements and any Sub-Distribution Agreement shall automatically terminate in
the event of assignment.
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plan to Alex. Brown pursuant to
the Class A and Class B Distribution Agreements and to broker-dealers pursuant
to any Sub-Distribution Agreements Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Non-Interested Directors shall
be committed to the discretion of the Non-Interested Directors then in office.
In return for payments received pursuant to the Plans in the
fiscal years ended March 31, 1997, March 31, 1996 and March 31, 1995, Alex.
Brown paid the distribution-related expenses of the Fund including one or more
of the following: advertising expenses; printing and mailing of prospectuses to
other than current shareholders; compensation to dealers and sales personnel;
and interest, carrying or other financing charges.
In addition, with respect to the Class A and Class B Shares, the
Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, such as banks, to act as Shareholder Servicing Agents, pursuant to
which Alex. Brown will allocate a portion of its distribution fee as
compensation for such financial institutions' ongoing shareholder services.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Fund, according to interpretations by
various bank regulatory authorities, financial institutions are not prohibited
from acting in other capacities for investment companies, such as the
shareholder servicing capacities described above. Should future legislative,
judicial or administrative action prohibit or restrict the activities of the
Shareholder Servicing Agents in connection with the Shareholder Servicing
Agreements, the Fund may be required to alter materially or discontinue its
arrangements with the Shareholder Servicing Agents. Such financial institutions
may impose separate fees in connection with these services and investors should
review the Prospectuses and this Statement of Additional Information in
conjunction with any such institution's fee schedule.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Plans. Payments under the Plans are made as described above regardless of
Alex. Brown's actual cost of providing distribution services and may be used to
pay Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Class A Shares is less than .25% of the Class A Shares' average
daily net assets for any period or if the cost of providing distribution
services to Class B Shares is less than .75% of the Class B Shares' average
daily net assets for any period, the unexpended portion of the distribution fees
may be retained by Alex. Brown. The Plans do not provide for any charges to the
Fund for excess amounts expended by Alex. Brown and, if either of the Plans is
terminated in accordance with its terms, the obligation of the Fund to make
payments to Alex. Brown pursuant to such Plan will cease and the Fund will not
be required to make any payments past the date the related Distribution
Agreement terminates.
The Institutional Shares
The Institutional Distribution Agreement provides that Alex.
Brown has the exclusive right to distribute the Institutional Shares, either
directly or through other broker-dealers and further provides that Alex. Brown
will solicit and receive orders for the purchase of Institutional Shares, accept
or reject such orders on behalf of the Fund in
20
<PAGE>
accordance with the Fund's currently effective Prospectus for the Institutional
Shares and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible, receive requests for redemption and transmit such
redemption requests to the Fund's transfer agent as promptly as possible,
respond to inquiries from the Fund's shareholders concerning the status of their
accounts with the Fund, maintain such accounts, books and records as may be
required by law or be deemed appropriate by the Fund's Board of Directors, and
take all actions deemed necessary to carry into effect the distribution of the
Institutional Shares. Alex. Brown has not undertaken to sell any specific number
of Institutional Shares. The Institutional Distribution Agreement further
provides that, in connection with the distribution of Institutional Shares,
Alex. Brown will be responsible for all of the promotional expenses. The
services provided by Alex. Brown to the Fund are not exclusive, and Alex. Brown
is free to provide similar services to others. Alex. Brown shall not be liable
to the Fund or its shareholders for any act or omission by Alex. Brown or any
losses sustained by the Fund or its shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
Alex. Brown receives no compensation for distributing the
Institutional Shares.
Alex. Brown and Participating Dealers have entered into
Sub-Distribution Agreements under which such Participating Dealers have agreed
to process investor purchase and redemption orders and respond to inquiries from
shareholders concerning the status of their accounts and the operations of the
Fund.
The Institutional Distribution Agreement was approved by the
Fund's Board of Directors on September 25, 1995 and by the sole shareholder of
the class on October 31, 1995. It has an initial term of two years and will
remain in effect from year to year thereafter, if specifically approved at least
annually by the Fund's Board of Directors and by the affirmative vote of a
majority of the Non-Interested Directors by votes cast at a meeting called for
such purpose. It may be terminated at any time upon sixty days' written notice,
without penalty, by the vote of a majority of the Fund's Non-Interested
Directors or by a vote of a majority of the outstanding Institutional Shares (as
defined under Capital Stock). The Institutional Distribution Agreement and any
Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
Class D Shares
For the period from November 9, 1992 through November 18, 1994
the Fund offered the Flag Investors Value Builder Fund Class D Shares (which
were known at that time as the Flag Investors Value Builder Fund Class B
Shares). Although Class D Shares are no longer offered, some Class D Shares
remain issued and outstanding. Alex. Brown received commissions on the sale of
Class D Shares in the following amounts:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Class D 1997 1996 1995
------- ---- ---- ----
<S> <C> <C> <C>
Commissions $0 $1,548 $69,979
Paid to Investment $0 $1,246 $36,600
Representatives
Paid to Participating $0 $ 302 $ 2,106
Dealers
</TABLE>
21
<PAGE>
General Information
Alex. Brown received commissions on the sale of Class A Shares
and contingent deferred sales loads on the Class B Shares, of which only a
portion of these amounts was retained by Alex. Brown, in the following amounts.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Class Paid Retained Paid Retained Paid Retained
----- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Class A
Commissions $937,641 $868,899 $431,884 $430,833 $225,285 $204,552
Class B $483,596 $350,485 $133,944 $126,571 $ 34,265* $ 33,025*
Contingent
Deferred Sales
Charge
</TABLE>
*for the period from January 3, 1995 through March 31,1995
Except as described elsewhere, the Fund pays or causes to be paid
all continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing Shares; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its Shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and travel expenses
of Directors and Director members of any advisory board or committee; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Shares; fees and expenses of legal counsel,
including counsel to the Non-Interested Directors, and of independent auditors,
in connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by Alex. Brown, ICC or ABIM.
The address of Alex. Brown is One South Street, Baltimore,
Maryland 21202.
22
<PAGE>
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for
the Fund, for the broker-dealer selection and for negotiation of commission
rates, subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a commission
for their services. Brokerage commissions are subject to negotiation between
ABIM and the broker-dealers. ABIM may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with
a principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.
If Alex. Brown is participating in an underwriting or selling
group, the Fund may not buy portfolio securities from the group except in
accordance with rules of the SEC. The Fund believes that the limitation will not
affect its ability to carry out its present investment objective.
ABIM's primary consideration in effecting securities transactions
is to obtain best price and execution of orders on an overall basis. As
described below, however, ABIM may, in its discretion, effect transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by ABIM to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ABIM with clients other than the Fund. Similarly, any research services received
by ABIM through placement of portfolio transactions of other clients may be of
value to ABIM in fulfilling its obligations to the Fund. No specific value can
be determined for research and statistical services furnished without cost to
ABIM by a broker-dealer. ABIM is of the opinion that because the material must
be analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ABIM's research and analysis.
Therefore, it may tend to benefit the Fund by improving ABIM's investment
advice. In over-the-counter transactions, ABIM will not pay any commission or
other remuneration for research services. ABIM's policy is to pay a
broker-dealer higher commissions effected on an agency (but not on a principal)
basis for particular transactions than might be charged if a different
broker-dealer had been chosen when, in ABIM's opinion, this policy furthers the
overall objective of obtaining best price and execution. Subject to periodic
review by the Fund's Board of Directors, ABIM is also authorized to pay
broker-dealers other than Alex. Brown higher commissions on brokerage
transactions for the Fund in order to secure research and investment services
described above. The allocation of orders among broker-dealers and the
commission rates paid by the Fund will be reviewed periodically by the Board.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization, the Board adopted
certain policies and procedures incorporating the standards of Rule 17e-1 under
the Investment Company Act which requires that the commissions paid Alex. Brown
must be "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time." Rule 17e-1 also contains requirements for the review of such
transactions by the Board of Directors and requires ICC and ABIM to furnish
reports and to maintain records in connection with such reviews. The
Distribution Agreements between Alex. Brown and the Fund do not provide for any
reduction in the distribution fee to be received by Alex. Brown from the Fund as
a result of profits from brokerage commissions on transactions of the Fund
effected through Alex. Brown.
23
<PAGE>
ABIM manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ABIM. ABIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
During the fiscal years ended March 31, 1997, March 31, 1996 and
March 31, 1995, Alex. Brown directed $38,947,268, $31,958,910 and $38,044,707,
respectively, of transactions to broker-dealers and paid $111,113, $78,634 and
$89,162, respectively, to broker-dealers in related commissions because of
research services provided. Alex. Brown received no brokerage commissions from
the Fund in any such year. The Fund is required to identify any securities of
its "regular brokers or dealers" (as such term is defined in the 1940 Act) which
the Fund has acquired during its most recent fiscal year. As of March 31, 1997,
the Fund held a 6.25% repurchase agreement issued by Goldman Sachs & Co. valued
at $23,392,000. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
As of March 31, 1997, the Fund held a $1,500,000 note issued by Salomon, Inc.
valued at $1,507,500. Salomon, Inc. is a "regular broker or dealer" of the Fund.
9. CAPITAL STOCK
The Fund is authorized to issue seventy-five million Shares of
common stock, par value $.001 per share. The Board of Directors may increase or
decrease the number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of Shares by the Directors
at any time without shareholder approval. The Fund currently has one Series and
the Board has designated four classes of Shares: Flag Investors Value Builder
Fund Class A Shares, Flag Investors Value Builder Fund Class B Shares, Flag
Investors Value Builder Fund Institutional Shares and Flag Investors Value
Builder Fund Class D Shares. The Flag Investors Value Builder Fund Institutional
Shares are offered only to certain eligible institutions and to clients of
investment advisory affiliates of Alex. Brown. The Flag Investors Value Builder
Fund Class D Shares are not currently being offered. In the event separate
series or classes are established, all Shares of the Fund, regardless of series
or class would have equal rights with respect to voting, except that with
respect to any matter affecting the rights of the holders of a particular series
or class, the holders of each series or class would vote separately. In general,
each such series would be managed separately and shareholders of each series
would have an undivided interest in the net assets of that series. For tax
purposes, the series would be treated as separate entities. Generally, each
class of Shares issued by a particular series would be identical to every other
class and expenses of the Fund (other than 12b-1 and any applicable service
fees) are prorated between all classes of a series based upon the relative net
assets of each class. Any matters affecting any class exclusively will be voted
on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
There are no preemptive, conversion or exchange rights applicable
to any of the Shares. The issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund,
24
<PAGE>
each Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of Shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67% or
more of the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, has been retained to act as
custodian of the Fund's investments. PNC Bank receives such compensation from
the Fund for its services as Custodian as may be agreed to from time to time by
PNC Bank and the Fund. Investment Company Capital Corp. One South Street,
Baltimore, Maryland 21202, has been retained to act as transfer and dividend
disbursing agent. As compensation for providing these services, the Fund pays
ICC up to $15.00 per account per year, plus reimbursement for out-of-pocket
expenses incurred in connection therewith. For the fiscal year ended March 31,
1997 such fees totalled $105,449.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
- ------------------ ---------------------------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 .100%
$20,000,000 - $30,000,000 .080%
$30,000,000 - $40,000,000 .060%
$40,000,000 - $50,000,000 .050%
$50,000,000 - $60,000,000 .040%
$60,000,000 - $70,000,000 .030%
$70,000,000 - $100,000,000 .020%
$100,000,000 - $500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following out of
pocket expenses incurred in connection with ICC's performance of its services
under the Master Services Agreement: express delivery service, independent
pricing and storage.
For the fiscal year ended March 31, 1997, ICC received accounting
fees of $80,766.
ICC also serves as the Fund's investment advisor.
25
<PAGE>
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by
Coopers & Lybrand L.L.P., whose report thereon appears elsewhere herein, and
have been included herein in reliance upon the report of such firm of
accountants given on their authority as experts in accounting and auditing.
Coopers & Lybrand L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund
to that of other open-end diversified management investment companies and to
stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1-, 5- or 10-)
ERV = ending redeemable value at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date of the Fund (or
the later commencement of operations of a Series or class) commenced operations
(provided such date is subsequent to the date the registration statement became
effective). In calculating the ending redeemable value for the Class A Shares,
the maximum sales load (4.5%) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Prospectuses on the reinvestment dates
during the period. In calculating the performance of the Class B Shares, the
applicable contingent deferred sales charge (4.0% for the one-year period, 2.0%
for the five-year period and no sales charge thereafter) is deducted from the
ending redeemable value and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. "T" in the formula above
is calculated by finding the average annual compounded rate of return over the
period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund.
26
<PAGE>
Calculated according to SEC rules, the ending redeemable value and average
annual total return of a hypothetical $1,000 payment for the periods ended
March 31, 1997 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended
March 31, 1997 Since Inception
--------------------- ---------------------------------
Ending Average Ending Average
Redeemable Annual Total Redeemable Annual Total
Class Value Return Value Return
- ----- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Class A
June 15, 1992* $1145.00 14.50% $2003.77 14.49%
Class B
January 3, 1995* $1149.80 14.98% $1600.43 23.35%
Class D
November 9, 1992* $1166.85 16.69% $1846.66 14.99%
Institutional
November 2, 1995* $1202.40 20.24% $1307.13 20.95%
</TABLE>
- -----------
* Inception Date
The Fund may also from time to time include in such advertising
total return figures that are not calculated according to the formula set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc. or CDA Investment Technologies
Inc., or with the performance of the Lehman Government Corporate Bond Index, the
Consumer Price Index, the return on 90-day U.S. Treasury bills, the Standard and
Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund calculates
its aggregate and average annual total return for the specified periods of time
by assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000 invested in
Shares is net of all sales charges (as distinguished from the computation
required by the SEC where the $1,000 payment is reduced by sales charges before
being invested in Shares). The Fund will, however, disclose the maximum sales
charges and will also disclose that the performance data do not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
Such alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules, and all
advertisements containing performance data will include a legend disclosing that
such performance data represent past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding U.S. Government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. For the
fiscal years ended March 31, 1997 and March 31, 1996, the Fund's portfolio
turnover rate was 13% and 15%, respectively.
27
<PAGE>
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons held
beneficially or of record 5% or more of the Fund's outstanding Shares of any
class, as of July 23, 1997:
T. Rowe Price, Trustee 7.49%
Plan 100460
Flag Investors Value Builder
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21297-0354
As of July 23, 1997, Directors and officers as a group
beneficially owned an aggregate of 1.76% of the Fund's total outstanding shares.
15. FINANCIAL STATEMENTS
See next page.
28
<PAGE>
Alex Brown FI Value Builder AR Form N-30D
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 60.0%
Banking: 3.3%
35,000 Citicorp $ 3,788,750
100,000 KeyCorp 4,875,000
10,000 Wells Fargo & Company 2,841,250
-----------
11,505,000
-----------
Basic Industry: 3.8%
70,077 Agrium, Inc. 893,482
20,000 Georgia-Pacific Corp. 1,450,000
30,000 Hercules, Inc. 1,267,500
32,232 Martin Marietta Materials, Inc. 829,974
140,000 Monsanto Co. 5,355,000
44,654 Potash Corp. of Saskatchewan 3,393,766
-----------
13,189,722
-----------
Business Services: 1.7%
81,900 First Data Corp. 2,774,363
151,100 SEI Corp. 3,173,100
-----------
5,947,463
-----------
Capital Goods: 1.2%
36,000 Eaton Corp. 2,551,500
110,300 Westinghouse Air Brake Co. 1,433,900
-----------
3,985,400
-----------
Consumer Durables/Non-Durables: 5.1%
140,000 Blyth Industries, Inc.* 5,057,500
33,500 Eastman Kodak Co. 2,541,812
110,000 Ford Motor Company 3,451,250
50,000 Liz Claiborne, Inc. 2,181,250
37,200 Philip Morris Cos., Inc. 4,245,450
-----------
17,477,262
-----------
Consumer Services: 3.5%
92,000 America Online, Inc.* 3,898,500
124,875 CUC International, Inc.* 2,809,688
30,000 Gannett Co. 2,576,250
50,000 Times Mirror Co. Class A 2,731,250
-----------
12,015,688
-----------
29
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
Defense/Aerospace: 2.9%
31,171 Lockheed Martin Corp. $ 2,618,364
120,000 McDonnell Douglas Corp. 7,320,000
-----------
9,938,364
-----------
Electric Utilities: 0.6%
100,000 Unicom Corp. 1,950,000
-----------
Energy: 0.6%
71,600 MAPCO, Inc. 2,219,600
-----------
Entertainment: 0.9%
300,000 LodgeNet Entertainment Corp.* 3,150,000
-----------
Financial Services: 6.0%
83,500 American Express Co. 4,999,562
87,500 Countrywide Credit Industries, Inc. 2,165,625
172,000 Federal Home Loan Mortgage Corp. 4,687,000
118,125 MBNA Corp. 3,292,734
114,000 Travelers Group, Inc. 5,457,750
-----------
20,602,671
-----------
Health Care: 5.7%
50,000 Amgen, Inc.* 2,793,750
40,000 Baxter International, Inc. 1,725,000
38,000 Bristol-Myers Squibb 2,242,000
54,434 Eli Lilly & Co. 4,477,196
114,000 Johnson & Johnson 6,027,750
60,000 Mallinckrodt Group 2,467,500
-----------
19,733,196
-----------
Hotels/Gaming: 1.8%
200,000 Harrah's Entertainment, Inc.* 3,425,000
40,000 Hilton Hotels Corp. 970,000
32,500 ITT Corp.* 1,913,438
-----------
6,308,438
-----------
Housing: 1.8%
200,000 Champion Enterprises, Inc.* 2,975,000
108,000 USG Corp.* 3,388,500
-----------
6,363,500
-----------
30
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (concluded)
Insurance: 8.8%
495,858 Conseco, Inc. $ 17,664,941
80,000 EXEL Limited 3,380,000
135,000 GCR Holding Limited 3,088,125
32,500 ITT Hartford Group, Inc. 2,344,063
80,000 Mid Ocean Ltd. 3,820,000
-----------
30,297,129
-----------
Multi-Industry: 2.5%
42,500 ITT Industries, Inc. 950,937
33,400 Loews Corp. 2,968,425
64,000 United Technologies Corp. 4,816,000
-----------
8,735,362
-----------
Real Estate: 2.5%
60,200 General Growth Properties, Inc. 1,911,350
324,136 Host Marriott Corp.* 5,510,312
35,000 National Health Investors, Inc. 1,299,375
-----------
8,721,037
-----------
Retail: 3.4%
124,664 J.C. Penney Company, Inc. 5,937,123
300,000 Kmart Corp.* 3,637,500
45,000 Tandy Corp. 2,255,625
-----------
11,830,248
-----------
Technology: 2.8%
70,400 Autodesk, Inc. 2,182,400
43,000 International Business Machines Corp. 5,907,125
33,400 Millipore Corp. 1,415,325
-----------
9,504,850
-----------
Telecommunications: 0.7%
69,000 MCI Communications 2,458,125
-----------
Transportation: 0.4%
17,491 Delta Air Lines, Inc. 1,471,430
-----------
Total Common Stock
(Cost $123,460,459) 207,404,485
-----------
31
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1997
Shares/ Market Value
Par(000) (Note 1)
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 2.4%
32,300 Conseco Inc., $4.28 Cvt. Pfd., Series E $ 4,089,988
75,000 Host Marriott Financial Trust 4,237,500
-----------
Total Convertible Preferred Stock
(Cost $5,724,337) 8,327,488
-----------
PREFERRED SECURITIES: 0.7%
100,000 Conseco Financial Trust
(Cost $2,500,000) 2,512,500
-----------
CONVERTIBLE BONDS: 1.6%
$2,000 Capstone Capital Corp., Cvt. Deb.,
6.55%, 3/14/02 1,830,000
339 Richardson Electronics, Cvt. Deb.,
7.25%, 12/15/06 276,285
1,661 Richardson Electronics, Cvt. Deb.,
8.25%, 6/15/06 1,422,231
2,000 Sizeler Property Investors, Cvt. Deb.,
8.00%, 7/15/03 1,840,000
-----------
Total Convertible Bonds
(Cost $5,461,496) 5,368,516
-----------
CORPORATE BONDS: 23.4%
1,000 American Life Holding Co., Sr Sub Nt,
11.25%, 9/15/04 1,131,250
1,000 Caesar's World, 8.875%, 8/15/02 1,040,000
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 953,753
-- Chattem, Inc., 1,000 Warrants, Expiring 6/17/99 8,900
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,048,750
700 CSX Corp., Nt, 7.00%, 9/15/02 695,625
575 Dillard Dept. Stores, Nt, 7.15%, 9/1/02 571,406
3,000 Eckerd Corp., Nt, 9.25%, 2/15/04 3,187,500
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 298,875
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,050,000
1,000 Fund America Enterprise, Nt, 7.75%, 2/1/03 990,000
4,500 HMH Properties, Nt, 9.50%, 5/15/05 4,590,000
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 3,060,000
32
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS (concluded)
$2,775 ITT Corp., Nt, 6.25%, 11/15/00 $ 2,684,813
2,000 ITT Corp., Nt, 6.75%, 11/15/03 1,905,000
2,000 John Q. Hammons Hotels LP, Nt,
8.875%, 2/15/04 1,982,500
2,000 Jordan Industries, Nt, 10.375%, 8/1/03 1,982,500
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 4,831,250
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 2,180,750
2,500 Lockheed Martin Corp., Nt, 7.25%, 5/15/06 2,471,875
5,000 LodgeNet Entertainment, Nt, 10.25%, 12/15/06 4,925,000
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,270,544
2,500 Marriott International, 6.75%, 12/15/03 2,396,875
2,100 Marriott International, 7.875%, 4/15/05 2,121,000
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,095,875
1,000 Masco Corp., Nt, 6.125%, 9/15/03 938,750
2,000 McDonnell Douglas Corp., Nt, 6.875%, 11/1/06 1,927,500
2,000 MCI Communications, Nt, 6.25%, 3/23/99 1,985,000
500 MCI Communications, Nt, 7.50%, 8/20/04 509,375
2,100 Millipore Corp., Nt, 7.20%, 4/1/02 2,089,500
2,100 Millipore Corp., Nt, 7.50%, 4/1/07 2,085,468
2,000 Nabisco, Inc., 6.70%, 6/15/02 1,945,000
500 New England Telephone & Telegraph, Nt,
6.15%, 9/1/99 494,375
1,000 Noble Drilling Company, Nt, 9.25%, 10/1/03 1,053,750
500 PepsiCo, Inc., Nt, 6.25%, 9/1/99 495,625
325 Petroleum Heat & Power, Nt, 12.25%, 2/1/05 354,656
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,897,500
4,000 Premier Parks, Nt, 9.75%, 1/15/07 4,130,000
2,000 RJR Nabisco Inc., Nt, 7.625%, 9/15/03 1,905,000
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 1,507,500
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 990,000
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 1,035,000
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 970,000
1,000 Union Pacific Co., 6.25%, 3/15/99 988,750
1,660 USG Corp., 8.50%, 8/1/05 1,678,675
500 Xerox Corp., Nt, 7.15%, 8/1/04 496,250
----------
Total Corporate Bonds
(Cost $80,723,099) 80,951,715
----------
33
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) March 31, 1997
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 4.0%
$1,000 Federal National Mortgage Assoc., 7.6%, 5/24/06 $ 985,940
----------
U.S. Treasury Notes
3,000 5.125%, 2/28/98 2,975,880
3,000 5.875%, 2/28/99 2,972,400
3,000 6.25%, 5/31/00 2,969,220
4,000 6.125%, 12/31/01 3,900,840
----------
12,818,340
----------
Total U.S. Government Securities
(Cost $13,906,131) 13,804,280
----------
REPURCHASE AGREEMENT: 6.8%
23,392 Goldman Sachs & Co., 6.25%
Dated 3/31/97, to be repurchased on 4/1/97, collateralized by
U.S. Treasury Notes with a market value of $23,860,630.
(Cost $23,392,000) $ 23,392,000
------------
Total Investment In Securities: 98.9%
(Cost $255,167,522)** 341,760,984
Other Assets in Excess of Liabilities, Net: 1.1% 3,664,622
------------
Net Assets: 100.0% $345,425,606
============
34
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Market Value
(Note 1)
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($278,130,436 / 16,228,513 shares outstanding) $17.14
======
Class B Share
($17,311,481 / 1,008,822 shares outstanding) $17.16+
======
Class D Share
($15,212,749 / 889,149 shares outstanding) $17.11++
======
Institutional Share
($34,770,940 / 2,013,930 shares outstanding) $17.27
======
Maximum Offering Price Per:
Class A Share ($17.14 / .955) $17.95
======
Class B Share $17.16
======
Institutional Share $17.27
======
- ------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
+ Redemption value is $16.47 following 4% maximum contingent deferred sales
charge.
++ Redemption value is $16.94 following 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
35
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $ 6,100,648
Dividends 4,215,000
-----------
Total income 10,315,648
-----------
Expenses:
Investment advisory fee (Note 2) 2,227,355
Distribution fee (Note 2) 747,486
Transfer agent fee (Note 2) 105,449
Registration fees 85,812
Accounting fee (Note 2) 80,766
Miscellaneous 68,067
Printing and postage 53,700
Legal 51,314
Custodian fee 42,540
Audit 32,040
Director's fees 19,242
Pricing fee 11,041
Organizational expense (Note 1) 10,202
-----------
Total expenses 3,535,014
-----------
Net investment income 6,780,634
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 4,707,093
Change in unrealized appreciation or depreciation of
investments 34,681,754
-----------
Net gain on investments 39,388,847
-----------
Net increase in net assets resulting from operations $46,169,481
===========
See Notes to Financial Statements.
36
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended March 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 6,780,634 $ 5,157,897
Net realized gain from security transactions 4,707,093 4,755,355
Change in unrealized appreciation or
depreciation of investments 34,681,754 37,398,630
------------ ------------
Net increase in net assets resulting
from operations 46,169,481 47,311,882
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (5,070,551) (4,710,084)
Class B Shares (119,491) (25,557)
Class D Shares (280,846) (319,956)
Institutional Shares (391,368) (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 (874,810) (4,012,860)
Class B Shares (38,817) (52,673)
Class D Shares (53,442) (298,195)
Institutional Shares (71,368) (76,965)
------------ ------------
Total distributions (6,900,693) (10,091,207)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 100,059,836 51,325,277
Value of shares issued in reinvestment
of dividends 6,063,887 9,094,751
Cost of shares repurchased (29,688,897) (26,963,230)
------------ ------------
Increase in net assets derived from
capital share transactions 76,434,826 33,456,798
------------ ------------
Total increase in net assets 115,703,614 70,677,473
Net Assets:
Beginning of year 229,721,992 159,044,519
------------ ------------
End of year $345,425,606 $229,721,992
============ ============
See Notes to Financial Statements.
37
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68
--------
Income from Investment Operations:
Net investment income 0.39
Net realized and unrealized gain/(loss)
on investments 2.49
--------
Total from Investment Operations 2.88
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.36)
Distributions from net realized
long-term gains (0.06)
--------
Total distributions (0.42)
--------
Net asset value at end of period $ 17.14
========
Total Return(2) 19.90%
Ratios to Average Daily Net Assets:
Expenses(3) 1.27%
Net investment income(4) 2.51%
Supplemental Data:
Net assets at end of period (000) $278,130
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.40%, 1.38% and 1.70%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), 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.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
38
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the Period
June 15, 1992(1)
through
For the Year Ended March 31, March 31,
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.02 $ 11.23 $ 11.25 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.36 0.35 0.40 0.18
Net realized and unrealized gain/(loss)
on investments 3.03 0.80 (0.04) 1.18
------- ------- ------- -------
Total from Investment Operations 3.39 1.15 0.36 1.36
------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.41) (0.35) (0.38) (0.11)
Distributions from net realized
long-term gains (0.32) (0.01) -- --
------- ------- ------- -------
Total distributions (0.73) (0.36) (0.38) (0.11)
------- ------- ------- -------
Net asset value at end of period $ 14.68 $ 12.02 $ 11.23 $ 11.25
======= ======= ======= =======
Total Return(2) 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily Net Assets:
Expenses(3) 1.31% 1.35% 1.35% 1.35%(5)
Net investment income(4) 2.72% 3.07% 3.14% 2.88%(5)
Supplemental Data:
Net assets at end of period (000) $200,020 $146,986 $131,097 $83,535
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
For the Year
Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.71
-------
Income from Investment Operations:
Net investment income 0.26
Net realized and unrealized gain
on investments 2.51
-------
Total from Investment Operations 2.77
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.26)
Distributions from net realized long-term gains (0.06)
-------
Total distributions (0.32)
-------
Net asset value at end of period $ 17.16
=======
Total Return(2) 19.00%
Ratios to Average Daily Net Assets:
Expenses(3) 2.02%
Net investment income(4) 1.84%
Supplemental Data:
Net assets at end of period (000) $17,311
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.17% (annualized) for the period
ended March 31, 1995.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.87% (annualized) for
the period ended March 31, 1995.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
40
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
For the Period
For the Year Jan. 3, 1995(1)
Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $12.01 $11.14
------ ------
Income from Investment Operations:
Net investment income 0.21 0.08
Net realized and unrealized gain
on investments 3.05 0.79
------ ------
Total from Investment Operations 3.26 0.87
------ ------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.24) --
Distributions from net realized
long-term gains (0.32) --
------ ------
Total distributions (0.56) --
------ ------
Net asset value at end of period $14.71 $12.01
====== ======
Total Return(2) 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses(3) 2.06% 2.10%(5)
Net investment income(4) 1.97% 2.94%(5)
Supplemental Data:
Net assets at end of period (000) $4,178 $ 341
Portfolio turnover rate 15% 18%
Average commissions per share -- --
See Notes to Financial Statements.
41
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class D Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- -------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66
--------
Income from Investment Operations:
Net investment income 0.35
Net realized and unrealized gain/
(loss) on investments 2.47
--------
Total from Investment Operations 2.82
--------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.31)
Distributions from net realized long-term
gains (0.06)
--------
Total distributions (0.37)
--------
Net asset value at end of period $ 17.11
========
Total Return(2) 19.46%
Ratios to Average Daily Net Assets:
Expenses(3) 1.62%
Net investment income(4) 2.15%
Supplemental Data:
Net assets at end of period (000) $ 15,213
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.74%, 1.73% and 1.93%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), 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.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
42
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Nov. 9, 1992(1)
through
For the Year Ended March 31, March 31,
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.01 $ 11.22 $ 11.24 $10.45
------- ------- ------- ------
Income from Investment Operations:
Net investment income 0.33 0.31 0.36 0.14
Net realized and unrealized gain/(loss)
on investments 3.02 0.80 (0.04) 0.74
------- ------- ------- ------
Total from Investment Operations 3.35 1.11 0.32 0.88
------- ------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.31) (0.34) (0.09)
Distributions from net realized long-term gains (0.32) (0.01) -- --
------- ------- ------- ------
Total distributions (0.70) (0.32) (0.34) (0.09)
------- ------- ------- ------
Net asset value at end of period $ 14.66 $ 12.01 $ 11.22 $11.24
======= ======= ======= ======
Total Return(2) 28.44% 10.18% 2.78% 9.00%
Ratios to Average Daily Net Assets:
Expenses(3) 1.66% 1.70% 1.70% 1.70%(5)
Net investment income(4) 2.37% 2.72% 2.79% 2.83%(5)
Supplemental Data:
Net assets at end of period (000) $ 13,757 $11,717 $11,051 $6,285
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
For the Period
For the Nov. 2, 1995(1)
Year Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1997 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 14.77 $ 13.89
------- -------
Income from Investment Operations:
Net investment income 0.41 0.13
Net realized and unrealized gain
on investments 2.53 1.17
------- -------
Total from Investment Operations 2.94 1.30
------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.10)
Distributions from net realized
long-term gains (0.06) (0.32)
------- -------
Total distributions (0.44) (0.42)
------- -------
Net asset value at end of period $ 17.27 $ 14.77
======= =======
Total Return 20.24% 21.12%
Ratios to Average Daily Net Assets:
Expenses 1.02% 1.03%(2)
Net investment income 2.83% 2.89%(2)
Supplemental Data:
Net assets at end of period (000) $34,771 $11,768
Portfolio turnover rate 13% 15%
Average commissions per share $ 0.066(3) --
- ------------
(1) Commencement of operations.
(2) Annualized.
(3) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
44
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Value Builder Fund, Inc. ("the Fund"), which was organized
as a Maryland Corporation on March 5, 1992, commenced operations June 15, 1992.
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. Its objective is to seek
long-term growth of capital and current income through diversified investments
in a professionally managed balanced portfolio of equity and debt securities.
The Fund consists of four share classes: Class A Shares, which commenced
June 15, 1992; Class D Shares (formerly Class B Shares), which commenced
November 9, 1992; Class B Shares, which commenced January 3, 1995; and
Institutional Shares, which commenced November 2, 1995. The Fund has not sold
Class D Shares since November 18, 1994, but existing shareholders may reinvest
their dividends.
The Class A, Class B and Class D Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge, the Class B Shares
have a contingent deferred sales charge and the Class D Shares have both a
front-end sales charge and a contingent deferred sales charge. The Institutional
Shares do not have a front-end sales charge or a contingent deferred sales
charge. In addition, each class has a different distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. If there are no sales or the security is not
traded on a listed exchange, the Fund values the security at the
average of the last bid and asked prices in the over-the-counter
market. When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors
establishes and monitors. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost.
45
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
D. Securities Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of investments
sold or redeemed. Interest income is recorded on an accrual basis and
includes the pro rata scientific method for amortization of premiums
and accretion of discounts when appropriate. Income and common
expenses are allocated to each class based on its respective average
net assets. Class specific expenses are charged directly to each
class. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. The Fund has deferred the costs incurred by
its organization and the initial public offering of shares. These
costs are being amortized on the straight-line method over a five-year
period from the Fund's commencement of operations.
46
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
NOTE 2--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 compensation for its advisory
services, the Fund pays ICC an annual fee. This fee is based on the Fund's
average daily net assets and is calculated daily and paid monthly at the
following annual rates: 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 the amount over $200
million.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee. This fee is based on the Fund's average daily net assets and is
calculated daily and paid monthly at the following annual rates: 0.75% of the
first $50 million, 0.60% of the next $150 million and 0.50% of the amount over
$200 million.
ICC has agreed to reduce its aggregate fees so that ordinary Fund expenses
for any fiscal year do not exceed 1.35% of the Class A Shares' average daily net
assets, 2.10% of the Class B Shares' average daily net assets, 1.70% of the
Class D Shares' average daily net assets and 1.10% of the Institutional Shares'
average daily net assets. No fees were reduced for the year ended March 31,
1997.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $80,766 for accounting services for the year ended
March 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $105,449 for
transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the Class
A Shares' average daily net assets, 1.00% (includes 0.25% shareholder servicing
fee) of the Class B Shares' average daily net assets and 0.60% of the Class D
Shares' average daily net assets. For the year ended March 31, 1997,
distribution fees aggregated $747,486, of which $575,090 was attributable to the
Class A Shares, $85,517 was attributable to the Class B Shares and $86,879 was
attributable to the Class D Shares. The Fund did not pay Alex. Brown any
commissions for the year ended March 31, 1997.
47
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
March 31, 1997 was $10,628, and the accrued liability was $25,784.
NOTE 3--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 For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 3,858,982 2,645,585
Shares issued to shareholders on
reinvestment of dividends.................. 330,808 611,385
Shares redeemed............................... (1,584,547) (1,862,910)
------------ ------------
Net increase in shares outstanding............ 2,605,243 1,394,060
============ ============
Proceeds from sale of shares.................. $ 64,502,359 $ 36,567,203
Value of reinvested dividends................. 5,229,071 8,303,476
Cost of shares redeemed....................... (25,438,783) (25,776,184)
------------ ------------
Net increase from capital share transactions.. $ 44,292,647 $ 19,094,495
============ ============
Class B Shares
---------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
----------------- --------------
Shares sold................................... 754,825 252,563
Shares issued to shareholders on
reinvestment of dividends.................. 8,887 5,788
Shares redeemed............................... (38,898) (2,754)
----------- ----------
Net increase in shares outstanding............ 724,814 255,597
=========== ==========
Proceeds from sale of shares.................. $12,645,227 $3,471,865
Value of reinvested dividends................. 144,638 79,812
Cost of shares redeemed....................... (635,497) (39,242)
----------- ----------
Net increase from capital share transactions.. $12,154,368 $3,512,435
=========== ==========
48
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Class D Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold.................................... -- --
Shares issued to shareholders on
reinvestment of dividends................... 19,676 45,398
Shares redeemed................................ (68,822) (82,585)
----------- ------------
Net decrease in shares outstanding............. (49,146) (37,187)
=========== ============
Proceeds from sale of shares................... $ -- $ --
Value of reinvested dividends.................. 311,352 616,247
Cost of shares redeemed........................ (1,071,231) (1,105,221)
----------- ------------
Net decrease from capital share transactions... $ (759,879) $ (488,974)
=========== ============
Institutional Shares
-------------------------------
For the Period
For the Nov. 2, 1995*
Year Ended through
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 1,343,738 793,108
Shares issued to shareholders on
reinvestment of dividends.................. 23,612 6,860
Shares redeemed............................... (150,351) (3,037)
----------- -----------
Net increase in shares outstanding............ 1,216,999 796,931
=========== ===========
Proceeds from sale of shares.................. $22,912,250 $11,286,209
Value of reinvested dividends................. 378,826 95,216
Cost of shares redeemed....................... (2,543,386) (42,583)
----------- -----------
Net increase from capital share transactions.. $20,747,690 $11,338,842
=========== ===========
- -------------
*Commencement of operations.
49
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $79,767,274 and sales of investment
securities aggregated $28,149,581 for the year ended March 31, 1997.
Purchases of U.S. government obligations aggregated $10,920,000 and sales of
U.S. government obligations aggregated $4,994,843 for the period.
On March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $89,444,695
and aggregate gross unrealized depreciation of all securities in which there is
an excess of tax cost over value was $2,851,233.
NOTE 5--Net Assets
On March 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares............................................... $195,270,863
Class B Shares............................................... 15,993,831
Class D Shares............................................... 9,448,443
Institutional Shares......................................... 32,084,870
Accumulated net realized gain from security transactions........ 3,856,762
Unrealized appreciation of investments.......................... 86,593,462
Undistributed net investment income............................. 2,177,375
------------
$345,425,606
============
NOTE 6--Shareholder Meeting
On March 7, 1997, the Flag Investors Value Builder Fund held a special
meeting for its shareholders. During the meeting, shareholders elected the
following Directors: Truman T. Semans, Charles W. Cole, Jr., James J. Cunnane,
Richard T. Hale, John F. Kroeger, Louis E. Levy, Eugene J. McDonald, Rebecca W.
Rimel and Carl W. Vogt.
NOTE 7--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
50
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
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, 1997 and the related statement 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, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1997, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 2, 1997
51
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Moody's Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P-2 or P-3.
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, and CC and C -- Regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
A-1
<PAGE>
D -- In default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or the
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
-- Financial Highlights for the periods ended March 31, 1993,
March 31, 1994, March 31, 1995, March 31, 1996 and March 31,
1997
-- Statement of Net Assets at March 31, 1997
-- Statement of Operations for the fiscal year ended March 31,
1997
-- Statement of Changes in Net Assets for the periods ended
March 31, 1996 and March 31, 1997
-- Notes to Financial Statements
-- Report of Independent Accountants
(2) All required financial statements are included in Parts A and B
hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation and Certificate of Correction;(1)
(b) Amended Articles of Incorporation dated May 1, 1992;(1)
(c) Articles Supplementary dated December 27, 1993;(1)
(d) Articles Supplementary dated November 18, 1994;(1)
(e) Articles Supplementary dated October 6, 1995;(3)
(f) Articles Supplementary dated June 17, 1997, filed herewith.
(2) By-Laws, as amended through December 19, 1996, filed herewith;
(3) None;
(4) (a) Specimen Security for Class A Shares;(2)
(b) Specimen Security for Class D Shares;(2)
(c) Specimen Security for Class B Shares;(2)
(5) (a) Investment Advisory Agreement between Registrant and Flag
Investors Management Corp (now known as Investment Company
Capital Corp.);(1)
1
<PAGE>
(b) Sub-Advisory Agreement among Registrant, Flag Investors
Management Corp. (now known as Investment Company Capital
Corp.) and Alex. Brown Investment Management;(1)
(6) (a) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated;(1)
(b) Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Broker-Dealers, filed
herewith;
(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents;(1)
(d) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Class D Shares;(1)
(e) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Class B Shares;(1)
(f) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Institutional Shares;(3)
(7) None;
(8) Custodian Agreement between Registrant and Provident National
Bank (now known as PNC Bank);(1)
(9) Master Services Agreement (including Accounting and Transfer
Agency Services Appendices) between Registrant and Investment
Company Capital Corp.;(3)
(10) Opinion of Counsel;(1)
(11) Consent of Coopers & Lybrand L.L.P., filed herewith;
(12) None;
(13) Subscription Agreement re: initial $100,000 capital;(1)
(14) None;
(15)(a) Distribution Plan;(1)
2
<PAGE>
(b) Distribution Plan with respect to Flag Investors Class D
Shares;(1)
(c) Distribution Plan with respect to Flag Investors Class B
Shares;(1)
(16) Schedule of Computation of Performance Quotations;(1)
(18) (a) Registrant's Rule 18f-3 Plan;(3)
(a) Registrant's Rule 18f-3 Plan, as amended through March 26,
1997, filed herewith;
(24) Powers of Attorney, filed herewith;
(27) Financial Data Schedule, filed herewith.
- ---------------------
(1) Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 26, 1995.
(2) Incorporated by reference to Exhibit (1)(a) Articles of Incorporation and
Exhibit (2) By-Laws
(3) Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission on July 29, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
The following information is given as of July 23, 1997
Title of Class Number of Record Holders
---------------- --------------------------
Shares of Capital Stock
Class A 6334
Class B 1336
Class D 479
Institutional 77
3
<PAGE>
Item 27. Indemnification
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further
extent as is consistent with law. The Board of Directors of the
Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation law.
Section 3. No provision of this Article VIII shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
4
<PAGE>
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, and no partner of
Alex. Brown Investment Management, the Registrant's sub- advisor, has engaged in
any other business, profession, vocation or employment of a substantial nature
other than that of the business of investment management and, through
affiliates, investment banking.
Item 29. Principal Underwriters
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., Flag Investors Total Return U.S.
Treasury Fund Shares, Flag Investors Managed Municipal Fund Shares,
Flag Investors Short-Intermediate Income Fund, Inc., Flag Investors
Value Builder Fund, Inc., Flag Investors Maryland Intermediate Tax
Free Income Fund, Inc., Flag Investors Real Estate Securities Fund,
Inc. and Flag Investors Equity Partners Fund, Inc., all registered
open-end management investment companies.
(b) Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------- --------------- ------------
Alvin B. Krongard Chief Executive None
Officer, Chairman
and Director
Benjamin Howell Griswold, IV Director None
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer None
and Treasurer
Robert F. Price Secretary and None
General Counsel
- ----------------------
* One South Street, Baltimore, MD 21202
(c) Not applicable.
Item 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the names and
address of each person maintaining physical possession of each such account,
book or other document.
Investment Company Capital Corp., Registrant's investment advisor,
transfer agent and dividend disbursing agent, One South Street, Baltimore,
Maryland 21202, maintains physical possession of each such account, book or
other document of the Fund, except for those maintained by the Registrant's
sub-advisor ABIM,
5
<PAGE>
One South Street, Baltimore, MD 21202, by the Registrant's custodian, PNC Bank,
Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania 19113.
Item 31. Management Services
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
See Exhibit 8.
Item 32. Undertakings
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable
(c) A copy of the Registrant's latest Annual Report to Shareholders will be
furnished upon request and without charge, by contacting the Registrant at
(800) 767-3524.
6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 8 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 29th day of July, 1997.
FLAG INVESTORS VALUE BUILDER
FUND, INC.
By: /s/ Hobart C. Buppert, II
--------------------------
Hobart C. Buppert, II,
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
* Director July 29, 1997
- -------------------------- -----------------
Truman T. Semans Date
* Director July 29, 1997
- -------------------------- -----------------
Charles W. Cole, Jr. Date
* Director July 29, 1997
- -------------------------- -----------------
James J. Cunnane Date
* Director July 29, 1997
- -------------------------- -----------------
Richard T. Hale Date
* Director July 29, 1997
- -------------------------- -----------------
John F. Kroeger Date
* Director July 29, 1997
- -------------------------- -----------------
Louis E. Levy Date
* Director July 29, 1997
- -------------------------- -----------------
Eugene J. McDonald Date
* Director July 29, 1997
- -------------------------- -----------------
Rebecca W. Rimel Date
* Director July 29, 1997
- -------------------------- -----------------
Carl W. Vogt Date
/s/ Hobart C. Buppert, II President July 29, 1997
- -------------------------- -----------------
Hobart C. Buppert, II Date
/s/ Joseph A. Finelli Chief Financial July 29, 1997
- -------------------------- and Accounting -----------------
Joseph A. Finelli Officer Date
* By: /s/ Scott J. Liotta
---------------------
Scott J. Liotta
Attorney-In-Fact
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit
Number Document
---------------------------------------------
(1) (a) Articles of Incorporation and Certificate of Correction.(1)
(b) Amended Articles of Incorporation dated May 1, 1992.(1)
(c) Articles Supplementary dated December 27, 1993.(1)
(d) Articles Supplementary dated November 18, 1994.(1)
(e) Articles Supplementary dated October 6, 1995.(3)
EX-99.B (f) Articles Supplementary dated June 17, 1997, filed herewith.
EX-99.B (2) Registrant's By-Laws, as amended through December 19, 1996,
filed herewith.
(4) (a) Registrant's Specimen Security for Class A Shares.(2)
(b) Specimen Security for Class D Shares.(2)
(c) Specimen Security for Class B Shares.(2)
(5) (a) Investment Advisory Agreement between Registrant and Flag
Investors Management Corp. (now known as Investment Company
Capital Corp.).(1)
(b) Sub-Advisory Agreement between Registrant, Flag Investors
Management Corp. (now known as Investment Company Capital
Corp.) and Alex. Brown Investment Management.(1)
(6) (a) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated.(1)
EX-99.B (b) Form of Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Broker-Dealers, filed herewith.
(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents.(1)
(d) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Class D Shares.(1)
(e) Form of Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Class B Shares.(1)
<PAGE>
(f) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to Institutional Shares.(3)
(8) Custodian Agreement between Registrant and Provident National
Bank (now known as PNC Bank).(1)
(9) Master Services Agreement (including Accounting and Transfer
Agency Services Appendices) between Registrant and Investment
Company Capital Corp.(3)
(10) Opinion of Counsel.
EX-99.B (11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(13) Subscription Agreement with respect to the initial
capitalization of the Fund.(1)
(15) (a) Distribution Plan.(1)
(b) Distribution Plan with respect to Flag Investors Class D
Shares.(1)
(c) Distribution Plan with respect to Flag Investors Class B
Shares.(1)
(16) Schedule of Computation of Performance Quotations.(1)
(18) (a) Registrant's Rule 18f-3 Plan.(3)
EX-99.B (b) Registrant's 18f-3 Plan, as amended through March 26,
1997, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
- ---------------------
(1) Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 26, 1995.
(2) Incorporated by reference to Exhibit (1)(a) Articles of Incorporation and
Exhibit (2) By- Laws
(3) Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission on July 29, 1996.
<PAGE>
EX-99.B(1)(e)
FLAG INVESTORS VALUE BUILDER FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS VALUE BUILDER FUND, INC. (the "Corporation"), having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to seventy-five million (75,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of seventy-five thousand dollars ($75,000), all of which
shares are designated as follows: forty million (40,000,000) shares are
designated "Flag Investors Value Builder Fund Class A Shares," fifteen million
(15,000,000) shares are designated "Flag Investors Value Builder Fund Class B
Shares," three million (3,000,000) shares are designated "Flag Investors Value
Builder Fund Class D Shares," fifteen million (15,000,000) shares are designated
"Flag Investors Value Builder Fund Institutional Shares" and two million
(2,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty-five million (35,000,000) shares of Common Stock, of
the par value of 1 mil ($.001) per share and of the aggregate par value of
thirty-five thousand dollars ($35,000), all of which shares were designated as
follows: twenty million (20,000,000) shares were designated "Flag Investors
Value Builder Fund Class A Shares," five million (5,000,000) shares were
designated "Flag Investors Value Builder Fund Class B Shares," three million
(3,000,000) shares were designated "Flag Investors Value Builder Fund Class D
Shares," five million (5,000,000) shares were designated "Flag Investors Value
Builder Fund Institutional Shares" and two million (2,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Value Builder Fund, Inc.
has caused these Articles Supplementary to be executed by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary on
this 17th day of June, 1997.
[CORPORATE SEAL]
FLAG INVESTORS VALUE BUILDER FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Vice President
Attest: /s/ Scott J. Liotta
---------------------------
Scott J. Liotta
Vice President and Secretary
The undersigned, Vice President of FLAG INVESTORS VALUE
BUILDER FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
By: /s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Vice President
<PAGE>
EX-99.B(2)
As Amended Through
December 18, 1996
BY-LAWS
OF
FLAG INVESTORS VALUE BUILDER FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the
shareholders of the Corporation shall not be required to be held in any year in
which shareholders are not required to elect directors under the Investment
Company Act of 1940, as amended (the "1940 Act") even if the Corporation is
holding a meeting of the shareholders for a purpose other than the election of
directors. If the Corporation is required by the 1940 Act to hold a meeting to
elect directors, the meeting shall be designated as the Annual Meeting of
shareholders for that year and shall be held within 120 days after the
occurrence of an event requiring the election of directors. The Board of
Directors may, in its discretion, hold a meeting to be designated as the Annual
Meeting of shareholders on a date within the month of March, in any year where
an election of directors by shareholders is not required under the 1940 Act. The
date of an Annual Meeting shall be set by appropriate resolution of the Board of
Directors, and shareholders shall vote on the election of directors and transact
any other business as may properly be brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter or the
Corporation may be called for any purpose or purposes by a majority of the Board
of Directors or the President, and shall be called by the
<PAGE>
President or Secretary on the written request of the shareholders as provided by
the Maryland General Corporation Law. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at it;
provided, however, that unless requested by shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the shareholders held during the
preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less then ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of shareholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of shareholders shall be
deemed waived by any shareholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a signed waiver
of notice which is filed with the records of the meeting. A meeting of
shareholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting of
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock
- 2 -
<PAGE>
standing in his name on the record of shareholders of the Corporation as of the
record date determined pursuant to Section 5 of Article VI hereof or if such
record date shall not have been so fixed, then at the later of (i) the close of
business on the day on which notice of the meeting is mailed or (ii) the
thirtieth (30) day before the meeting. In all elections for directors, each
share of stock may be voted for as many individuals as there are directors to be
elected and for whose election the share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting
of shareholders may authorize another person or persons to act for him by a
proxy signed by such shareholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is permitted by law.
Except as otherwise provided by statute, the Charter or the Corporation or these
By-Laws, any corporate action to be taken by vote of the shareholders shall be
authorized by a majority of the total votes cast at a meeting of shareholders at
which a quorum is present by the holders of shares present in person or
represented by proxy and entitled to vote on such action, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of
- 3 -
<PAGE>
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice and
without a vote, if the following are filed with the records of shareholders'
meetings: (i) a unanimous written consent which sets forth the action and is
signed by each shareholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each shareholder entitled to notice of
the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease.
Directors need not be shareholders.
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
- 4 -
<PAGE>
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may
be held with notice at such times and places as may be determined by the Board
of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to
- 5 -
<PAGE>
constitute a quorum for the transaction of business at such meeting, and except
as otherwise expressly required by statute, the Charter of the Corporation,
these By-Laws, the 1940 Act or other applicable statute, the act of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board; provided, however, that the approval of any contract with
an investment adviser or principal underwriter, as such terms are defined in the
1940 Act, which the Corporation enters into or any renewal or amendment thereof,
the approval of the fidelity bond required by the 1940 Act, and the selection of
the Corporation's independent public accountants shall each require the
affirmative vote of a majority of the Directors who are not interested persons,
as defined in the 1940 Act, of the Corporation. In the absence of a quorum at
any meeting of the Board, a majority of the Directors present thereat may
adjourn the meeting from time to time, but not for a period greater than thirty
(30) days at any one time, to another time and place until a quorum shall
attend. Notice of the time and place of any adjourned meeting shall be given to
the Directors who were not present at the time of the adjournment and, unless
such time and place were announced at the meeting at which the adjournment was
taken, to the other Directors. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that for so
long as the Corporation is registered as an investment
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company under the 1940 Act, this Section shall be inapplicable to the approval
of any investment advisory agreement, sub-advisory agreement or any plan (or
agreement containing a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
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(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or issue
capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require shareholder approval.
Section 4. General. One-third, but not less than two members,
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board
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may from time to time elect or appoint, or delegate to the President the power
to appoint, such other officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such other officers and agents shall have such duties and
shall hold their offices for such terms as may be prescribed by the Board or by
the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer. Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of,
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and be subject to all the restrictions upon, the President; provided, however,
that no Vice President shall act as a member of or as chairman of any committee
of which the President is a member or chairman by designation of ex-officio,
except when designated by the Board. Each Vice President shall perform such
other duties as from time to time may be conferred upon or assigned to him by
the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
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(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
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Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof
), receive a dividend, or be allotted or exercise other rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
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Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Leaders. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of March in each year.
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ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
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ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall
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determine, or cause to be determined, in a manner consistent with the Maryland
General Corporation Law, the 1933 Act and the 1940 Act, as such statutes are now
or hereafter in force, whether the standards required by this Article XIII have
been met.
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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EX-99.B6(b)
FLAG INVESTORS FAMILY OF FUNDS
One South Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
<PAGE>
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the Prospectus and provisions of the
Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where
<PAGE>
registration or qualification is required. We will inform you as to the states
or other jurisdictions in which we believe the Shares have been qualified for
sale under, or are exempt from the requirements of, the respective securities
laws of such states. You agree that you will offer Shares to your customers only
in those states where such Shares have been registered, qualified, or an
exemption is available. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at the address specified by you below.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
________________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated May 2, 1997 on our audit
of the financial statements and financial highlights of Flag Investors Value
Builder Fund, Inc. in the Statement of Additional Information with respect to
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A (No.
33-46279) under the Securities Act of 1933 of Flag Investors Value Builder Fund,
Inc. We also consent to the the references to our Firm under the headings
"Financial Highlights" and "General Information" in the Prospectus and
"Independent Accountants" in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 28, 1997
<PAGE>
EX-99.B(18)(b)
Flag Investors Value Builder Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B
and Institutional Class Shares
Adopted December 13, 1995
Amended through March 26, 1997
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Value Builder
Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who
are not "interested persons" of the Fund (the "Independent Directors") pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and
Institutional) and future classes of Fund shares. The Flag Investors Class A
Shares have been offered since the Fund's inception on June 15, 1992, the Flag
Investors Class B Shares have been offered since January 3, 1995 and the
Institutional Shares have been offered since November 2, 1995. The Flag
Investors Class D Shares are no longer being offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. For each additional class of shares approved by the Fund's
Board of Directors after the date hereof, the appropriate officers of the Fund
will attest the resolutions approving such class as an exhibit hereto. Before
any material
<PAGE>
amendment of the Plan, the Fund is required to obtain a finding by a majority of
the Board, and a majority of the Independent Directors, that the Plan as
proposed to be amended, including the expense allocations, is in the best
interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's
<PAGE>
operation that are directly attributable to such class ("Class Expenses")1/; and
(v) each class may have conversion features unique to such class, permitting
conversion of shares of such class to shares of another class, subject to the
requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
- --------
1/ Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-95-000312) on July 26, 1995 are incorporated herein by
reference.
2. Articles Supplementary are filed as Exhibit (1)(e) to this Registration
Statement on Form N-1A (Registration No. 33-46279) and are incorporated herein
by reference.
3. By-Laws, as amended through December 18, 1996, are filed as Exhibit (2) to
this Registration Statement on Form N-1A (Registration No. 33-46279) and are
incorporated herein by reference.
4. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
relating to Flag Investors Class A Shares filed as Exhibit (6)(a) to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-95-000312) on July 26, 1995 is
incorporated herein by reference.
5. Form of Sub-Distribution Agreement is filed as Exhibit (6)(b) to this
Registration Statement on Form N-1A (Registration No. 33-46279) and is
incorporated herein by reference.
6. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
relating to Flag Investors Class B Shares filed as Exhibit (6)(e) to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-95-000312) on July 26, 1995 is
incorporated herein by reference.
7. Distribution Agreement between Registrant and Alex. Brown & Sons Incorporated
relating to Flag Investors Institutional Shares filed as Exhibit (6)(f) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96- 000687) on July 29, 1996 is
incorporated herein by reference.
8. Distribution Plan relating to Flag Investors Class A Shares filed as Exhibit
(15)(a) to Post- Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-95-000312) on July
26, 1995 is incorporated herein by reference.
9. Distribution Plan relating to Flag Investors Class B Shares filed as Exhibit
(15)(c) to Post- Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-95-000312) on July
26, 1995 are incorporated herein by reference.
<PAGE>
10. Prospectus relating to Flag Investors Class A and Class B Shares is filed as
part of this Registration Statement on Form N-1A (Registration No. 33-46279)
and, as amended from time to time, is incorporated herein by reference.
11. Prospectus relating to Flag Investors Institutional Shares is filed as part
of this Registration Statement on Form N-1A (Registration No. 33-46279) and, as
amended from time to time, is incorporated herein by reference.
<PAGE>
BOARD APPROVALS
Date Approved: March 1992
Resolutions Approving Distribution Agreement and
Plan of Distribution for Flag Investors Shares
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, and that the appropriate officers of the Fund
be, and they hereby are, authorized and directed to enter into and execute such
Distribution Agreement with such modifications as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
is determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Plan are
comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
of the Fund be, and the same hereby is, approved.
<PAGE>
Date Approved: November 1992
Resolutions Renaming Flag Investors Fund Shares and
Creating Flag Investors Class B Shares
WHEREAS, the Board of Directors of Flag Investors Value Builder Fund,
Inc. has previously designated one class of the Fund's shares: "Flag Investors
Value Builder Fund Shares";
NOW THEREFORE BE IT RESOLVED, that such shares be, and they hereby are,
further designated and classified as the Fund's Class A Shares;
FURTHER RESOLVED, that in accordance with the authority granted to the
Board of Directors of the Fund pursuant to Article VI, Section 4 of the Fund's
Articles of Incorporation, a second class of the Fund's 30,000,000 authorized
shares of common stock, par value$.001, be, and hereby is, classified and
designated as the Fund's "Flag Investors Class B Shares" (the "Class B Shares");
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund to
make all appropriate filings with the Commission with respect to the
establishment of such new class of shares, the related Distribution Agreement
and Plan of Distribution under Rule 12b-1 under the 1940 Act approved by the
Board of Directors, including, if they deem it necessary or appropriate, the
filing of supplements and post-effective amendments under the 1933 Act and under
the 1940 Act to the Fund's Registration Statement on Form N-1A (Registration No.
33-46279), and all necessary exhibits and other instruments relating thereto
(collectively, the "Registration Statement"), procuring all other necessary
signatures thereon, and filing the appropriate exhibits thereto with the
Commission under the 1933 Act and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to appear, together with legal counsel, on
behalf of the Fund before the Commission in connection with any matter relating
to the Registration Statement and to take such other actions, including Blue Sky
filings, as may be required in connection with the establishment of such Class;
and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund, to
take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the Class B
Shares of the Fund, the taking of any such action to establish conclusively such
officer's authority therefore and the approval and ratification thereof by the
Fund.
<PAGE>
Date Approved: November 1992
Resolutions Approving Distribution Agreement and
Plan of Distribution for Flag Investors Class B Shares
WHEREAS, the Board of Directors of Flag Investors Value Builder Fund,
Inc. at a meeting held on March 31, 1992, approved the Distribution Agreement,
including the form of Sub-Distribution Agreement annexed as Exhibit A thereto,
dated as of June 15, 1992 between the Fund and Alex. Brown & Sons Incorporated
("Alex. Brown"); and
WHEREAS, such Agreement contemplates the creation of additional series
and classes and provides that the appointment of Alex. Brown effected thereby
shall constitute appointment for the distribution of such additional series and
classes unless the parties shall otherwise agree in writing; and
WHEREAS, it is the desire of the Board of Directors that Alex. Brown
serve as the distributor for the Fund's Flag Investors Class B Shares (the
"Class B Shares");
NOW THEREFORE BE IT RESOLVED, that the Fund's Distribution Agreement,
as previously adopted by this Board of Directors, is deemed to encompass the
Class B Shares and is hereby adopted as the Distribution Agreement for such
Shares;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
for the Class B Shares is determined to be reasonably likely to benefit the Fund
and its shareholders and that, based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for other similar plans;
FURTHER RESOLVED, that the Plan be, and hereby is, approved.
<PAGE>
Date Approved: September 1994
Resolutions of Board Reclassifying Old Class B Shares and
Creating New Class B Shares
RESOLVED, that all issued and outstanding Class B Shares of Flag
Investors Value Builder Fund, Inc. be, and they hereby are, reclassified as
Class D Shares upon later date;
FURTHER RESOLVED, that the Board of Directors of Flag Investors Value
Builder Fund, Inc., having considered the growth in class assets, outlook for
further growth and other relevant considerations, have determined that the
offering of the Class D Shares of the such Fund should be terminated, such
termination to be effective as of November 18, 1994;
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed in the name and on behalf of the Fund,
to take any action that the officer so acting may deem necessary or appropriate,
to effect the termination of the offering of the Class D Shares;
FURTHER RESOLVED, that an additional class of shares of the Fund be,
and hereby is, classified and designated as the "Flag Investors Class B Shares"
(the "Class B Shares") and that unissued shares of common stock, par value $.001
per share of the Fund be, and the same hereby are, reclassified as follows:
Total # of Class A Class B Class D Unclassified
- ---------- ------- ------- ------- ------------
Shares
- ------
30,000,000 20,000,00 5,000,000 3,000,000 2,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares of the Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
<PAGE>
Approved: September 1995
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Value Builder Fund, Inc. is
authorized to issue is hereby increased from thirty million (30,000,000) to
thirty-five million (35,000,000) and that from such amount, five million
(5,000,000) authorized and unissued shares be, and hereby are, designated and
classified as the "Flag Investors Value Builder Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and
each of them hereby is, authorized and directed to file Articles Supplementary
to the Fund's Articles of Incorporation to effectuate the increase in authorized
shares and to designate and classify the new class;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund
to make all appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new class of shares and
the related Distribution Agreement approved at this meeting of this Board of
Directors, including, the filing of a post-effective amendment under the
Securities Act of 1933 (the "1933 Act") and under the Investment Company Act of
1940 (the "1940 Act") to the Fund's Registration Statement on Form N-1A, and all
necessary exhibits and other instruments relating thereto (collectively, the
"Registration Statement"), procuring all other necessary signatures thereon, and
filing the appropriate exhibits thereto with the Commission under the 1933 Act
and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed to appear, together with legal counsel,
on behalf of the Fund, before the Commission in connection with any matter
relating to the Registration Statement and to take such other actions, including
Blue Sky filings as may be required in connection with the establishment of the
new class; and
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund,
to take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the new
class, the taking of any such action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund;
FURTHER RESOLVED, that any filings previously made and any
actions previously taken by the appropriate officers of each Fund in connection
with the establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
<PAGE>
Approved: September 1995
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Value Builder Fund, Inc. and Alex. Brown & Sons Incorporated for the
Flag Investors Institutional Shares of said Fund be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proper officers of Flag Investors
Value Builder Fund, Inc. be, and each of them hereby is, authorized and directed
to enter into and execute the Distribution Agreement on behalf of the Fund, and
to take all other actions that such officer deems necessary or appropriate in
connection with the execution of such agreement, the taking of any action to
establish conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
Date Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of
Directors of Flag Investors Value Builder Fund, Inc. (the "Fund"), that the
Directors, including a majority of the Directors who are not "interested
persons" of the Fund, have determined that the Fund's amended Rule 18f-3 Plan,
including the expense allocations described therein, is in the best interests of
the fund and each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 Plan for the
Fund be, and hereby is, approved, in substantially the form presented to this
meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed to take any and all actions necessary
or appropriate to cause the amended Rule 18f-3 Plan to be filed with the
Securities and Exchange Commission.
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
----------------------------------
Truman T. Semans
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
----------------------------------
Richard T. Hale
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
----------------------------------
John F. Kroeger
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
----------------------------------
Eugene J. McDonald
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Hobart C. Buppert, II, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Hobart C. Buppert, II
----------------------------------
Hobart C. Buppert, II
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
----------------------------------
Louis E. Levy
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
----------------------------------
James J. Cunnane
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
----------------------------------
Joseph A. Finelli
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles W. Cole, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles W. Cole, Jr.
----------------------------------
Charles W. Cole, Jr.
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Scott
J. Liotta, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Value Builder Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
----------------------------------
Carl W. Vogt
Date: June 17, 1997
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Value Builder
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
----------------------------------
Rebecca W. Rimel
Date: June 17, 1997
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<NAME> VALUE BUILDER A
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<NAME> VALUE BUILDER A
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<DIVIDEND-INCOME> 4,215,000
<INTEREST-INCOME> 6,100,648
<OTHER-INCOME> 0
<EXPENSES-NET> 3,535,014
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<DISTRIBUTIONS-OF-INCOME> 5,070,551
<DISTRIBUTIONS-OF-GAINS> 874,810
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<ACCUMULATED-GAINS-PRIOR> 110,857
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,227,355
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,535,014
<AVERAGE-NET-ASSETS> 230,167,663
<PER-SHARE-NAV-BEGIN> 14.68
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 2.49
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885111
<NAME> VALUE BUILDER B
<SERIES>
<NUMBER> 002
<NAME> VALUE BUILDER B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 255,167,522
<INVESTMENTS-AT-VALUE> 341,760,984
<RECEIVABLES> 8,940,999
<ASSETS-OTHER> 57,394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 350,759,378
<PAYABLE-FOR-SECURITIES> 4,183,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,150,572
<TOTAL-LIABILITIES> 5,333,772
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,993,831
<SHARES-COMMON-STOCK> 1,008,822
<SHARES-COMMON-PRIOR> 284,008
<ACCUMULATED-NII-CURRENT> 2,177,375
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,856,762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,593,462
<NET-ASSETS> 17,311,481
<DIVIDEND-INCOME> 4,215,000
<INTEREST-INCOME> 6,100,648
<OTHER-INCOME> 0
<EXPENSES-NET> 3,535,014
<NET-INVESTMENT-INCOME> 6,780,634
<REALIZED-GAINS-CURRENT> 4,707,093
<APPREC-INCREASE-CURRENT> 34,681,754
<NET-CHANGE-FROM-OPS> 46,169,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 119,491
<DISTRIBUTIONS-OF-GAINS> 38,817
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 754,825
<NUMBER-OF-SHARES-REDEEMED> 38,898
<SHARES-REINVESTED> 8,887
<NET-CHANGE-IN-ASSETS> 115,703,614
<ACCUMULATED-NII-PRIOR> 1,319,621
<ACCUMULATED-GAINS-PRIOR> 110,857
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,227,355
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,535,014
<AVERAGE-NET-ASSETS> 8,578,990
<PER-SHARE-NAV-BEGIN> 14.71
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 2.51
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.16
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000885111
<NAME> VALUE BUILDER D
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<NUMBER> 003
<NAME> VALUE BUILDER D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 255,167,522
<INVESTMENTS-AT-VALUE> 341,760,984
<RECEIVABLES> 8,940,999
<ASSETS-OTHER> 57,394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 350,759,378
<PAYABLE-FOR-SECURITIES> 4,183,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,150,572
<TOTAL-LIABILITIES> 5,333,772
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,448,443
<SHARES-COMMON-STOCK> 889,149
<SHARES-COMMON-PRIOR> 938,295
<ACCUMULATED-NII-CURRENT> 2,177,375
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,856,762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,593,462
<NET-ASSETS> 15,212,749
<DIVIDEND-INCOME> 4,215,000
<INTEREST-INCOME> 6,100,648
<OTHER-INCOME> 0
<EXPENSES-NET> 3,535,014
<NET-INVESTMENT-INCOME> 6,780,634
<REALIZED-GAINS-CURRENT> 4,707,093
<APPREC-INCREASE-CURRENT> 34,681,754
<NET-CHANGE-FROM-OPS> 46,169,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 280,846
<DISTRIBUTIONS-OF-GAINS> 53,442
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 68,822
<SHARES-REINVESTED> 19,676
<NET-CHANGE-IN-ASSETS> 115,703,614
<ACCUMULATED-NII-PRIOR> 1,319,621
<ACCUMULATED-GAINS-PRIOR> 110,857
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,227,355
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,535,014
<AVERAGE-NET-ASSETS> 14,482,477
<PER-SHARE-NAV-BEGIN> 14.66
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 2.47
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0.06
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<PER-SHARE-NAV-END> 17.11
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000885111
<NAME> VALUE BUILDER INST
<SERIES>
<NUMBER> 004
<NAME> VALUE BUILDER INST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 255,167,522
<INVESTMENTS-AT-VALUE> 341,760,984
<RECEIVABLES> 8,940,999
<ASSETS-OTHER> 57,394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 350,759,378
<PAYABLE-FOR-SECURITIES> 4,183,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,150,572
<TOTAL-LIABILITIES> 5,333,772
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,084,870
<SHARES-COMMON-STOCK> 2,013,930
<SHARES-COMMON-PRIOR> 796,931
<ACCUMULATED-NII-CURRENT> 2,177,375
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,856,762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,593,462
<NET-ASSETS> 34,770,940
<DIVIDEND-INCOME> 4,215,000
<INTEREST-INCOME> 6,100,648
<OTHER-INCOME> 0
<EXPENSES-NET> 3,535,014
<NET-INVESTMENT-INCOME> 6,780,634
<REALIZED-GAINS-CURRENT> 4,707,093
<APPREC-INCREASE-CURRENT> 34,681,754
<NET-CHANGE-FROM-OPS> 46,169,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 391,368
<DISTRIBUTIONS-OF-GAINS> 71,368
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,343,738
<NUMBER-OF-SHARES-REDEEMED> 150,351
<SHARES-REINVESTED> 23,612
<NET-CHANGE-IN-ASSETS> 115,703,614
<ACCUMULATED-NII-PRIOR> 1,319,621
<ACCUMULATED-GAINS-PRIOR> 110,857
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,535,014
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<PER-SHARE-NAV-BEGIN> 14.77
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 2.53
<PER-SHARE-DIVIDEND> 0.38
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