[FLAG INVESTORS LOGO]
FLAG
INVESTORS
VALUE
BUILDER
FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o Your Fund achieved excellent performance results for the 1-, 3- and 5-year
periods ended September 30, 1997.
o New and existing shareholders purchased $140 million in Fund shares over the
past 12 months.
o The investment trends have generally remained positive for stocks and bonds
during the past year due to low inflation and interest rates, improving
corporate profitability and strong money flows into equity investments.
o Although equity prices are at relatively high levels, we manage to find
opportunities to purchase well-managed companies at discounts to their
intrinsic values.
o The prices we pay for your Fund's investments are the determinant of value. We
do not forecast the direction of the stock market or the level of interest
rates. Instead, we continue to focus on finding "out-of-favor" companies with
strong excess cash flows, run by shareholder-oriented managements who use
this free cash to generate superior long-term returns.
<PAGE>
FUND PERFORMANCE
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Growth of a $10,000 Investment in Class A Shares*
June 15, 1992-September 30, 1997
$10,000 invested in the Value Builder Fund
Class A Shares at inception on June 15, 1992
was worth $23,928 on September 30, 1997.
[Graph appears here -- see plot points below]
6/92 10,000
12/92 10,776
6/93 11,526
12/93 12,043
6/94 11,666
12/94 11,998
6/95 14,076
12/95 15,927
6/96 17,217
12/96 19,851
6/97 20,038
9/97 23,928
Total Return Performance*
<TABLE>
<CAPTION>
Class A Class B Class D Institutional
For the periods ended 9/30/97 Shares Shares Shares** Shares
- -------------------------------------------------------------------------------------
<S><C>
1 Year 32.2% 31.2% 31.8% 32.6%
- -------------------------------------------------------------------------------------
3 Years (Cumulative) 96.9% -- 94.7% --
- -------------------------------------------------------------------------------------
5 Years (Cumulative) 131.2% -- -- --
- -------------------------------------------------------------------------------------
Since Inception 6/15/92 1/3/95 11/9/92 11/2/95
------- ------ ------- -------
(Cumulative) 139.3% 95.2% 124.8% 56.2%
- -------------------------------------------------------------------------------------
</TABLE>
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. Also, some of the
Fund's fees were waived during the period. If the maximum 4.5% sales charge
were reflected and if there had been no fee waivers, the quoted performance
would be lower. Performance figures for the classes differ because each class
maintains a distinct expense structure. For further details on expense
structures, please refer to the Fund's prospectus. Since investment return and
principal value will fluctuate, an investor's shares may be worth more or less
than their original cost when redeemed. Past performance is not an indicator
of future results. Please review the Additional Performance Information on
page 6.
**The Fund has not sold Class D Shares since November 18, 1994, but existing
shareholders may reinvest their dividends.
1
<PAGE>
LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the period ended
September 30, 1997. We are also very pleased to have celebrated the Fund's
five-year anniversary this past June.
Performance Update
The Flag Investors Value Builder Fund is having an excellent year. For the
first nine months of 1997, the Fund's Class A Shares gained 20.5%. The
combination of above-average earnings gains by portfolio companies and a slight
decline in interest rates helped propel the Fund's share price to new all-time
highs. We are very pleased to report that the Fund's performance continues to
place it in the very top tier of Balanced Funds. According to Lipper Analytical,
the Fund's Class A Shares ranked #8 out of 333 funds, #1 out of 209 funds and #2
out of 94 funds for the 1-, 3-, and 5-year periods ended September 30, 1997,
respectively.(1) In addition, the Class A Shares received an "A" rating from The
Wall Street Journal for the same 1-, 3-, and 5-year periods.(2)
Partly in recognition of this success, Barron's selected the Flag Investors
Value Builder Fund as the highest-ranked Fund in the Balanced category in its
July 21 edition. A copy of a portion of the article has been enclosed. We hope
you find it of interest and that it provides some insight as to how we go about
trying to make your money grow.
Illustrated in the chart on page 1 is the growth of a $10,000 investment in
the Fund's Class A Shares since inception. A full summary of investment returns
for the Fund is also provided on page 1.
The best performing common stocks over the past nine months represent
companies owned in the portfolio for various time periods (see table on page 3).
This clearly demonstrates that long-term core holdings continue to contribute to
the Fund's performance, but it also highlights the fact that we are always
adding new securities that represent good value.
The only meaningful loser during the period was LodgeNet, which was down
25%.
- ---------
(1) The Lipper rankings are based on performance for the periods ended September
30, 1997 relative to other funds in the Balanced Funds category. Performance
figures used in these rankings exclude the impact of any sales charge.
(2) Funds are categorized by The Wall Street Journal based on classifications by
Lipper and are ranked by total return performance relative to other funds in
their respective categories. Unlike the broad Balanced Funds category
described above, The Wall Street Journal's Balanced Funds category is
limited to funds listed by NASDAQ. This ranking indicates that the Fund's
performance placed in the top 20% in the Balanced Funds category for the 1,
3 and 5 years ended September 30, 1997, ranking #8 out of 230 funds, #1 out
of 171 funds and #2 out of 88 funds, respectively.
2
<PAGE>
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Best Performers (12/31/96-9/30/97)
Original
Security Percent Gain Investment Date
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America Online 126.9% 11/96
- --------------------------------------------------------------------------------
Westinghouse Air Brake 83.2% 11/95
- --------------------------------------------------------------------------------
Green Tree Financial(1) 68.9% 4/97
- --------------------------------------------------------------------------------
Eli Lilly 65.8% 7/92
- --------------------------------------------------------------------------------
Autodesk 62.1% 8/96
- --------------------------------------------------------------------------------
EXEL 57.3% 9/93
- --------------------------------------------------------------------------------
ITT Corp.(2) 55.5% 7/92
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Conseco 53.3% 6/92
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Tandy Corp. 52.8% 2/94
- --------------------------------------------------------------------------------
Bristol-Myers Squibb 51.8% 10/92
- --------------------------------------------------------------------------------
- ---------
(1) Security added mid-period.
(2) Security sold mid-period.
Asset Mix
During the past year, the Fund maintained its long-term focus with
approximately 90% of the Fund's assets in stocks and bonds. The pie charts
below reflect the current asset mix as well as the asset mix a year ago.
Asset Mix
[Pie charts appear here -- see plot points below]
9/30/96
Short-term Investments 4.3%
Fixed Income 23.3%
Common Stocks and Convertibles 72.4%
9/30/97
Short-term Investments 10.8%
Fixed Income 26.9%
Common Stocks and Convertibles 62.3%
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
The slight increase in the short-term investment category was primarily due
to the significant purchase of Fund shares by new and existing shareholders.
These purchases totaled more than $140 million, and more than $100 million of
that amount has been invested in stocks and bonds. We very much appreciate this
expression of confidence.
Investment Environment
Investment trends have generally remained positive. Inflation remains at
near-record low levels. This in turn has allowed interest rates to maintain
their moderate levels, with long-term Treasury bond yields in the 6% to 7% range
during the past year. Since your Fund's fixed-income investments are primarily
in corporate bonds, the Fund earns a somewhat higher yield than those available
on Treasury securities with similar maturities.
Corporate profitability remains on the upswing, although earnings per share
gains for some industries and companies are proving to be more of a challenge
than in prior years. However, with the excellent returns provided by the equity
market again in 1997, investors continue to pump large amounts of money into
equity-oriented mutual funds.
It appears that more than $100 billion will be invested in such funds in
1997. This inflow creates additional demand for stocks, which tends to push
equity prices to higher levels. Even within an environment of higher equity
prices or general market volatility, we are presented with numerous
opportunities to purchase well-managed companies at sizable discounts to their
intrinsic values.
We pay very close attention to the price we pay for our investments. Since
the price we pay is the critical element in the equation of determining how
good the value is that we are getting, we do not spend time trying to forecast
the direction of the stock market or the level of interest rates. Rather, our
focus is on finding "out-of-favor" companies with strong excess cash flows,
run by shareholder-oriented managements who will best use this free cash flow to
generate superior long-term returns. We also invest for the long term, which
allows us to look past any temporary difficulties that a company may be having
and concentrate on its full investment potential.
4
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Developments
Since our last report to shareholders, we have remained active in our
pursuit of improving the prospects of your Fund by adding to existing positions
or creating new ones. Our largest purchases in the Fund are listed below.
Largest Purchases (For the six months ended 9/30/97)
<TABLE>
<CAPTION>
Five Largest Common Stock Purchases Five Largest Bond Purchases
- -----------------------------------------------------------------------------------
Security Cost Security Cost
- -----------------------------------------------------------------------------------
<S><C>
Burlington Resources $4,597,000 ICI Wilmington, 6.95%, 9/15/04 $4,999,000
- -----------------------------------------------------------------------------------
UCAR International $3,879,000 Frontier Corp., 7.25%, 5/15/04 $4,997,000
- -----------------------------------------------------------------------------------
RenaissanceRe $3,812,000 Raytheon Co., 6.50%, 7/15/05 $4,847,000
- -----------------------------------------------------------------------------------
The Learning Company $3,762,000 Jefferies Group, 7.50%, 8/15/07 $3,989,000
- -----------------------------------------------------------------------------------
Electronic Data Systems $3,361,000 Argosy Gaming, 13.25%, 6/1/04 $2,997,000
</TABLE>
The Fund's five largest common stock holdings are listed below, along with
the percentage gain for each so far this calendar year.
Five Largest Holdings (As of 9/30/97)
Security Cost Market Value 9-Month Percent Gain
- ------------------------------------------------------------------------------
Conseco $ 5,940,000 $24,204,000 53.3%
- ------------------------------------------------------------------------------
IBM $ 2,755,000 $ 9,110,000 39.9%
- ------------------------------------------------------------------------------
Boeing* $ 2,346,000 $ 8,492,000 7.8%
- ------------------------------------------------------------------------------
Travelers $ 1,984,000 $ 7,781,000 50.6%
- ------------------------------------------------------------------------------
Host Marriott $ 2,919,000 $ 7,374,000 42.2%
- ------------------------------------------------------------------------------
Total $15,944,000 $56,961,000
- ------------------------------------------------------------------------------
- -------
*Exchanged for McDonnell Douglas.
We thank you for your continued interest and support. We look forward to
the ongoing process of building value for you.
Respectfully submitted,
/s/ Hobart C. Buppert, II
- -------------------------
Hobart C. Buppert, II
Portfolio Manager
October 31, 1997
5
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares,
4.00% maximum contingent deferred sales charge for the Fund's Class B Shares and
1.50% maximum sales charge and 1.00% maximum contingent deferred sales charge
for the Fund's Class D Shares.
Average Annual Total Return
For the periods ended 9/30/97 1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Class A Shares 26.22% 17.16% 16.90%
- --------------------------------------------------------------------------------
Class B Shares 27.21% -- 26.70%
- --------------------------------------------------------------------------------
Class D Shares 28.80% -- 17.64%
- --------------------------------------------------------------------------------
Institutional Shares 32.59% -- 26.32%
- --------------------------------------------------------------------------------
*Inception dates: Class A 6/15/92, Class B 1/3/95, Class D 11/9/92,
Institutional 11/2/95.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
COMMON STOCK: 59.0%
Banking: 3.0%
35,000 Citicorp $ 4,687,813
100,000 KeyCorp 6,362,500
13,100 Wells Fargo & Company 3,602,500
-----------
14,652,813
-----------
Basic Industry: 2.7%
105,700 Airgas, Inc.* 1,790,294
30,000 Hercules, Inc. 1,492,500
20,000 Olin Corp. 936,250
44,654 Potash Corp. of Saskatchewan 3,505,339
28,000 Solutia, Inc.* 560,000
100,000 UCAR International, Inc.* 4,775,000
-----------
13,059,383
-----------
Business Services: 1.8%
81,900 First Data Corp. 3,076,369
176,400 SEI Corp. 5,821,200
-----------
8,897,569
-----------
Capital Goods: 1.1%
36,000 Eaton Corp. 3,325,500
96,200 Westinghouse Air Brake Co. 2,224,625
-----------
5,550,125
-----------
Consumer Durables/Non-Durables: 4.4%
230,000 Blyth Industries, Inc.* 6,440,000
33,500 Eastman Kodak Co. 2,175,406
125,000 Ford Motor Company 5,656,250
50,000 Liz Claiborne, Inc. 2,746,875
111,600 Philip Morris Cos., Inc. 4,638,375
-----------
21,656,906
-----------
Consumer Services: 4.3%
92,000 America Online, Inc.* 6,940,250
124,875 CUC International, Inc.* 3,871,125
30,000 Gannett Co. 3,238,125
300,000 The Learning Co., Inc.* 4,425,000
50,000 Times Mirror Co. Class A 2,746,875
-----------
21,221,375
-----------
</TABLE>
7
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
COMMON STOCK (continued)
Defense/Aerospace: 2.4%
156,000 Boeing Co. $ 8,492,250
31,171 Lockheed Martin Corp. 3,323,607
-----------
11,815,857
-----------
Electric Utilities: 0.5%
100,000 Unicom Corp. 2,337,500
-----------
Energy: 1.0%
100,000 Burlington Resources, Inc. 5,131,250
-----------
Entertainment: 1.3%
459,500 LodgeNet Entertainment Corp.* 6,088,375
-----------
Financial Services: 6.8%
83,500 American Express Co. 6,836,563
87,500 Countrywide Credit Industries, Inc. 3,188,281
172,000 Freddie Mac 6,063,000
100,000 Green Tree Financial Corp. 4,700,000
118,125 MBNA Corp. 4,784,062
114,000 Travelers Group, Inc. 7,780,500
-----------
33,352,406
-----------
Health Care: 5.1%
95,000 Amgen, Inc.* 4,554,062
40,000 Baxter International, Inc. 2,090,000
38,000 Bristol-Myers Squibb Co. 3,144,500
54,434 Eli Lilly & Co. 6,569,503
114,000 Johnson & Johnson 6,569,250
60,000 Mallinckrodt, Inc. 2,160,000
-----------
25,087,315
-----------
Hotels/Gaming: 1.2%
200,000 Harrah's Entertainment, Inc.* 4,487,500
40,000 Hilton Hotels Corp. 1,347,500
-----------
5,835,000
-----------
Housing: 2.2%
275,000 Champion Enterprises, Inc.* 5,259,375
118,000 USG Corp.* 5,656,625
-----------
10,916,000
-----------
</TABLE>
8
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
COMMON STOCK (concluded)
Insurance: 8.4%
495,858 Conseco, Inc. $ 24,204,069
80,000 EXEL Limited 4,765,000
32,500 Hartford Financial Services Group 2,797,031
80,000 Mid Ocean Ltd. 5,070,000
100,000 RenaissanceRe Holdings Ltd. 4,393,750
------------
41,229,850
------------
Multi-Industry: 3.2%
42,500 ITT Industries, Inc. 1,410,469
33,400 Loews Corp. 3,772,113
140,000 Monsanto Co. 5,460,000
64,000 United Technologies Corp. 5,184,000
------------
15,826,582
------------
Real Estate: 2.2%
60,200 General Growth Properties, Inc. 2,227,400
324,136 Host Marriott Corp.* 7,374,094
35,000 National Health Investors, Inc. 1,360,625
------------
10,962,119
------------
Retail: 3.0%
124,664 J.C. Penney Company, Inc. 7,261,678
300,000 Kmart Corp.* 4,200,000
90,000 Tandy Corp. 3,026,250
------------
14,487,928
------------
Technology: 3.6%
70,400 Autodesk, Inc. 3,194,400
100,000 Electronic Data Systems Corp. 3,550,000
86,000 International Business Machines Corp. 9,110,625
33,400 Millipore Corp. 1,640,775
------------
17,495,800
------------
Telecommunications: 0.4%
69,000 MCI Communications Corp. 2,026,875
------------
Transportation: 0.4%
17,491 Delta Air Lines, Inc. 1,647,434
------------
Total Common Stock
(Cost $147,036,477) 289,278,462
------------
</TABLE>
9
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Shares/ Market Value
Par (000) (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
CONVERTIBLE PREFERRED STOCK: 2.2%
32,300 Conseco Inc., $4.28 Cvt. Pfd., Series E $ 5,523,300
75,000 Host Marriott Financial Trust 5,100,000
-----------
Total Convertible Preferred Stock
(Cost $5,724,337) 10,623,300
-----------
PREFERRED SECURITIES: 0.5%
100,000 Conseco Financial Trust
(Cost $2,500,000) 2,637,500
-----------
CONVERTIBLE BONDS: 1.1%
$2,000 Capstone Capital Corp., Cvt. Deb.,
6.55%, 3/14/02 1,920,000
339 Richardson Electronics, Cvt. Deb.,
7.25%, 12/15/06 256,793
1,661 Richardson Electronics, Cvt. Deb.,
8.25%, 6/15/06 1,416,003
2,000 Sizeler Property Investors, Cvt. Deb.,
8.00%, 7/15/03 1,965,000
-----------
TOTAL CONVERTIBLE BONDS
(Cost $5,488,413) 5,557,796
-----------
CORPORATE BONDS: 24.0%
1,000 American Life Holding Co., Sr Sub Nt,
11.25%, 9/15/04 1,136,250
3,000 Argosy Gaming, 13.25%, 6/1/04 3,026,250
3,000 Avon Products, Inc., 6.55%, 8/1/07 2,988,750
1,000 Caesar's World, 8.875%, 8/15/02 1,036,250
1,000 Capstar Hotel, 8.75%, 8/15/07 1,010,000
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 983,216
-- Chattem, Inc., 1,000 Warrants, Expiring 6/17/99 56,180
3,000 Circus Circus, 6.75%, 7/15/03 2,958,750
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,153,750
700 CSX Corp., Nt, 7.00%, 9/15/02 715,750
3,000 Eckerd Corp., Nt, 9.25%, 2/15/04 3,232,500
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 303,000
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,065,000
5,000 Frontier Corp., 7.25%, 5/15/04 5,143,750
</TABLE>
10
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Market Value
(000) (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
CORPORATE BONDS (continued)
$1,000 Fund American Enterprise, Nt, 7.75%, 2/1/03 $ 1,022,500
4,500 HMH Properties, Nt, 9.50%, 5/15/05 4,758,750
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 3,172,500
5,000 ICI Wilmington, 6.95%, 9/15/04 5,087,500
2,775 ITT Corp., Nt, 6.25%, 11/15/00 2,768,062
2,000 ITT Corp., Nt, 6.75%, 11/15/03 1,997,500
4,000 Jefferies Group, Inc., 7.50%, 8/15/07 4,025,000
2,000 John Q. Hammons Hotels LP, Nt,
8.875%, 2/15/04 2,030,000
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 5,068,750
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 2,238,500
2,500 Lockheed Martin Corp., Nt, 7.25%, 5/15/06 2,600,000
5,000 LodgeNet Entertainment, Nt, 10.25%, 12/15/06 5,187,500
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,317,125
2,500 Marriott International, 6.75%, 12/15/03 2,487,500
2,100 Marriott International, 7.875%, 4/15/05 2,220,750
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,112,375
1,000 Masco Corp., Nt, 6.125%, 9/15/03 975,000
2,000 McDonnell Douglas Corp., Nt, 6.875%, 11/1/06 2,040,000
2,000 MCI Communications, Nt, 6.25%, 3/23/99 2,010,000
500 MCI Communications, Nt, 7.50%, 8/20/04 528,750
2,100 Millipore Corp., Nt, 7.20%, 4/1/02 2,149,875
2,100 Millipore Corp., Nt, 7.50%, 4/1/07 2,186,625
2,000 Nabisco, Inc., 6.70%, 6/15/02 2,015,000
1,500 Norfolk Southern, 6.95%, 5/1/02 1,535,625
1,500 Norfolk Southern, 7.35%, 5/15/07 1,565,625
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,900,000
4,000 Premier Parks, Nt, 9.75%, 1/15/07 4,235,000
3,000 Raytheon Co., 6.45%, 8/15/02 3,003,750
5,000 Raytheon Co., 6.50%, 7/15/05 4,950,000
2,000 RJR Nabisco, Inc., Nt, 7.625%, 9/15/03 2,017,500
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 1,526,250
3,000 Tandy Corp., 6.95%, 9/1/07 3,022,500
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 1,023,750
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 1,061,250
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 1,000,000
1,000 Union Pacific Co., 6.25%, 3/15/99 1,002,500
</TABLE>
11
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Par Market Value
(000) (Note 1)
- -------------------------------------------------------------------------------------
<S><C>
CORPORATE BONDS (concluded)
$ 2,660 USG Corp., 8.50%, 8/1/05 $ 2,846,200
500 Xerox Corp., Nt, 7.15%, 8/1/04 517,500
------------
Total Corporate Bonds
(Cost $114,533,091) 118,016,408
------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 2.9%
1,000 Federal National Mortgage Assoc., 7.6%, 5/24/06 1,012,190
------------
U.S. Treasury Notes
3,000 5.125%, 2/28/98 2,996,970
3,000 5.875%, 2/28/99 3,005,610
3,000 6.25%, 5/31/00 3,028,170
4,000 6.125%, 12/31/01 4,019,480
------------
13,050,230
------------
Total U.S. Government and Agency Securities
(Cost $13,925,049) 14,062,420
------------
REPURCHASE AGREEMENT: 9.5%
46,727 Goldman Sachs & Co., 6.05%
Dated 9/30/97, to be repurchased on
10/1/97, collateralized by U.S. Treasury
Notes with a market value of $47,662,129.
(Cost $46,727,000) 46,727,000
------------
TOTAL INVESTMENT IN SECURITIES: 99.2%
(Cost $335,934,367)** 486,902,886
OTHER ASSETS IN EXCESS OF LIABILITIES, NET: 0.8% 3,742,926
------------
NET ASSETS: 100.0% $490,645,812
============
</TABLE>
12
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER:
CLASS A SHARE
($374,094,255 / 18,489,756 SHARES OUTSTANDING) $20.23
======
CLASS B SHARE
($38,611,858 / 1,907,874 shares outstanding) $20.24+
======
CLASS D SHARE
($17,709,912 / 876,914 shares outstanding) $20.20++
======
INSTITUTIONAL SHARE
($60,229,787 / 2,955,679 shares outstanding) $20.38
======
MAXIMUM OFFERING PRICE PER:
CLASS A SHARE ($20.23 / 0.955) $21.18
======
CLASS B SHARE $20.24
======
INSTITUTIONAL SHARE $20.38
======
- -----------
*Non-income producing security.
** Also aggregate cost for federal tax purposes.
+ Redemption value is $19.43 following 4% maximum contingent deferred sales
charge.
++ Redemption value is $20.00 following 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the Six
Months Ended
September 30,
- ------------------------------------------------------------------------------------
1997(1)
<S><C>
Investment Income (Note 1):
Interest $ 5,535,899
Dividends 2,115,469
Other income 57,327
-----------
Total income 7,708,695
-----------
Expenses:
Investment advisory fee (Note 2) 1,635,193
Distribution fee (Note 2) 596,392
Transfer agent fee (Note 2) 61,394
Accounting fee (Note 2) 51,604
Registration fees 32,739
Printing and postage 22,423
Legal 20,733
Custodian fee 19,817
Audit 14,245
Miscellaneous 12,131
Directors' fees 7,759
Pricing fee 4,576
Organizational expense (Note 1) 2,597
-----------
Total expenses 2,481,603
-----------
Net investment income 5,227,092
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 2,976,827
Change in unrealized appreciation or depreciation of investments 64,375,056
-----------
Net gain on investments 67,351,883
-----------
Net increase in net assets resulting from operations $72,578,975
===========
</TABLE>
- --------
(1) Unaudited.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
September 30, March 31,
- -----------------------------------------------------------------------------------
1997(1) 1997
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 5,227,092 $ 6,780,634
Net realized gain from security transactions 2,976,827 4,707,093
Change in unrealized appreciation or
depreciation of investments 64,375,056 34,681,754
------------ ------------
Net increase in net assets resulting
from operations 72,578,975 46,169,481
------------ ------------
Distributions to Shareholders from:
Net investment income and net realized
short-term gains:
Class A Shares (3,516,907) (5,070,551)
Class B Shares (191,045) (119,491)
Class D Shares (159,888) (280,846)
Institutional Shares (495,671) (391,368)
Net realized long-term gains:
Class A Shares -- (874,810)
Class B Shares -- (38,817)
Class D Shares -- (53,442)
Institutional Shares -- (71,368)
------------ ------------
Total distributions (4,363,511) (6,900,693)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 92,421,496 100,059,836
Value of shares issued in reinvestment
of dividends 3,736,593 6,063,887
Cost of shares repurchased (19,153,347) (29,688,897)
------------ ------------
Increase in net assets derived from
capital share transactions 77,004,742 76,434,826
------------ ------------
Total increase in net assets 145,220,206 115,703,614
Net Assets:
Beginning of period 345,425,606 229,721,992
------------ ------------
End of period $490,645,812 $345,425,606
============ ============
</TABLE>
- ---------
(1) Unaudited.
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 17.14
--------
Income from Investment Operations:
Net investment income 0.23
Net realized and unrealized gain/(loss) on investments 3.07
--------
Total from Investment Operations 3.30
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.21)
Distributions from net realized long-term gains --
--------
Total distributions (0.21)
--------
Net asset value at end of period $ 20.23
========
Total Return(3) 19.42%
Ratios to Average Daily Net Assets:
Expenses(4) 1.15%(6)
Net investment income(5) 2.52%(6)
Supplemental Data:
Net assets at end of period (000) $374,094
Portfolio turnover rate 6%(6)
Average commissions per share(7) $ 0.057
- ---------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
(7) 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.
16
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
June 15, 1992(2)
through
For the Year Ended March 31, March 31,
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68 $ 12.02 $ 11.23 $ 11.25 $ 10.00
-------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income 0.39 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 investment 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(3) 19.90% 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily Net Assets:
Expenses(4) 1.27% 1.31% 1.35% 1.35% 1.35%(6)
Net investment income(5) 2.51% 2.72% 3.07% 3.14% 2.88%(6)
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(7) $ 0.066 -- -- -- --
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 17.16
-------
Income from Investment Operations:
Net investment income 0.17
Net realized and unrealized gain on investments 3.07
-------
Total from Investment Operations 3.24
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.16)
Distributions from net realized long-term gains --
-------
Total distributions (0.16)
-------
Net asset value at end of period $ 20.24
=======
Total Return(3) 19.01%
Ratios to Average Daily Net Assets:
Expenses(4) 1.90%(6)
Net investment income(5) 1.77%(6)
Supplemental Data:
Net assets at end of period (000) $38,612
Portfolio turnover rate 6%(6)
Average commissions per share(7) $ 0.057
- --------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
(7) 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.
18
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Jan. 3, 1995(2)
through
For the Year Ended March 31, March 31,
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.71 $12.01 $11.14
------- ------ ------
Income from Investment Operations:
Net investment income 0.26 0.21 0.08
Net realized and unrealized gain on investments 2.51 3.05 0.79
------- ------ ------
Total from Investment Operations 2.77 3.26 0.87
------- ------ ------
Less Distributions:
Distributions from net investment 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(3) 19.00% 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses(4) 2.02% 2.06% 2.10%(6)
Net investment income(5) 1.84% 1.97% 2.94%(6)
Supplemental Data:
Net assets at end of period (000) $17,311 $4,178 $ 341
Portfolio turnover rate 13% 15% 18%
Average commissions per share(7) $ 0.066 -- --
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class D Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 17.11
--------
Income from Investment Operations:
Net investment income 0.20
Net realized and unrealized gain/(loss) on investments 3.07
--------
Total from Investment Operations 3.27
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.18)
Distributions from net realized long-term gains --
--------
Total distributions (0.18)
--------
Net asset value at end of period $ 20.20
========
Total Return(3) 19.25%
Ratios to Average Daily Net Assets:
Expenses(4) 1.50%(6)
Net investment income(5) 2.17%(6)
Supplemental Data:
Net assets at end of period (000) $ 17,710
Portfolio turnover rate 6%(6)
Average commissions per share(7) $ 0.057
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
(7) 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.
20
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Nov. 9, 1992(2)
through
For the Year Ended March 31, March 31,
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66 $ 12.01 $ 11.22 $ 11.24 $10.45
------- ------- ------- ------- ------
Income from Investment Operations:
Net investment income 0.35 0.33 0.31 0.36 0.14
Net realized and unrealized gain/(loss) on investments 2.47 3.02 0.80 (0.04) 0.74
------- ------- ------- ------- ------
Total from Investment Operations 2.82 3.35 1.11 0.32 0.88
------- ------- ------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.31) (0.38) (0.31) (0.34) (0.09)
Distributions from net realized long-term gains (0.06) (0.32) (0.01) -- --
------- ------- ------- ------- ------
Total distributions (0.37) (0.70) (0.32) (0.34) (0.09)
------- ------- ------- ------- ------
Net asset value at end of period $ 17.11 $ 14.66 $ 12.01 $ 11.22 $11.24
======= ======= ======= ======= ======
Total Return(3) 19.46% 28.44% 10.18% 2.78% 9.00%
Ratios to Average Daily Net Assets:
Expenses(4) 1.62% 1.66% 1.70% 1.70% 1.70%(6)
Net investment income(5) 2.15% 2.37% 2.72% 2.79% 2.83%(6)
Supplemental Data:
Net assets at end of period (000) $15,213 $13,757 $11,717 $11,051 $6,285
Portfolio turnover rate 13% 15% 18% 8% 8%
Average commissions per share(7) $ 0.066 -- -- -- --
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
September 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 17.27
-------
Income from Investment Operations:
Net investment income 0.26
Net realized and unrealized gain on investments 3.08
-------
Total from Investment Operations 3.34
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.23)
Distributions from net realized long-term gains --
-------
Total distributions (0.23)
-------
Net asset value at end of period $ 20.38
=======
Total Return 19.52%
Ratios to Average Daily Net Assets:
Expenses 0.90%(3)
Net investment income 2.77%(3)
Supplemental Data:
Net assets at end of period (000) $60,230
Portfolio turnover rate 6%(3)
Average commissions per share(4) $ 0.057
- --------
(1) Unaudited.
(2) Commencement of operations.
(3) Annualized.
(4) 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.
22
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Year Nov. 2, 1995(2)
Ended through
March 31, March 31,
- ---------------------------------------------------------------------------------------------------
1997 1996
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.77 $ 13.89
------- -------
Income from Investment Operations:
Net investment income 0.41 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%(3)
Net investment income 2.83% 2.89%(3)
Supplemental Data:
Net assets at end of period (000) $34,771 $11,768
Portfolio turnover rate 13% 15%
Average commissions per share(4) $ 0.066 --
</TABLE>
See Notes to Financial Statements.
23
<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 and commenced operations June 15,
1992, is registered under the Investment Company Act of 1940 as a diversified,
open-end Investment Management Company. The Fund is designed to maximize total
return through a combination of long-term growth of capital and current income.
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.
24
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
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.
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 were amortized on the
straight-line method over a five-year period from the Fund's
commencement of operations.
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust New York Corporation, is the Fund's investment advisor and
25
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2 -- continued
Alex. Brown Investment Management ("ABIM") is the Fund's subadvisor. As
compensation for its advisory services, the Fund pays ICC an annual fee based on
the Fund's average daily net assets. This fee 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 based on the Fund's average daily net assets. This fee 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 six months ended
September 30, 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 $51,604 for accounting services for the six months
ended September 30, 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 $61,394 for
transfer agent services for the six months ended September 30, 1997.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICCDistributors") 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 six months ended September 30, 1997,
distribution fees aggregated $596,392, of which $410,120 was attributable to the
Class A Shares, $136,107 was attributable to the Class B Shares and $50,165 was
attributable to the Class D Shares. The Fund did not pay ICCDistributors any
commissions for the six months ended September 30, 1997. Prior to September 1,
1997, Alex. Brown & Sons Incorporated served as the Fund's distributor for the
same compensation and on substantially the same terms and conditions as
ICC Distributors.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period
26
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
April 1, 1997 through September 30, 1997 was $7,505, and the accrued liability
was $27,274.
NOTE 3 -- Capital Share Transactions
The Fund is authorized to issue up to 75 million shares of $.001 par
value capital stock (40 million Class A, 15 million Class B, 15 million
Institutional, 3 million Class D and 2 million undesignated). Transactions in
shares of the Fund were as follows:
Class A Shares
-----------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1997
-----------------------------------
Shares sold 2,916,118 3,858,982
Shares issued to shareholders on
reinvestment of dividends 171,681 330,808
Shares redeemed (826,556) (1,584,547)
------------ ------------
Net increase in shares outstanding 2,261,243 2,605,243
============ ============
Proceeds from sale of shares $ 54,951,402 $ 64,502,359
Value of reinvested dividends 3,080,532 5,229,071
Cost of shares redeemed (15,657,787) (25,438,783)
------------ ------------
Net increase from capital share transactions $ 42,374,147 $ 44,292,647
============ ============
Class B Shares
-----------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1997
-----------------------------------
Shares sold 907,985 754,825
Shares issued to shareholders on
reinvestment of dividends 9,778 8,887
Shares redeemed (18,711) (38,898)
------------ ------------
Net increase in shares outstanding 899,052 724,814
============ ============
Proceeds from sale of shares $17,172,730 $12,645,227
Value of reinvested dividends 176,433 144,638
Cost of shares redeemed (350,612) (635,497)
------------ ------------
Net increase from capital share transactions $16,998,551 $12,154,368
============ ============
- ------------
*Unaudited.
27
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3 -- concluded
Class D Shares
-----------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1997
-----------------------------------
Shares sold -- --
Shares issued to shareholders on
reinvestment of dividends 8,329 19,676
Shares redeemed (20,564) (68,822)
--------- -----------
Net decrease in shares outstanding (12,235) (49,146)
========= ===========
Proceeds from sale of shares $ -- $ --
Value of reinvested dividends 148,506 311,352
Cost of shares redeemed (394,360) (1,071,231)
--------- -----------
Net decrease from capital share transactions $(245,854) $ (759,879)
========= ===========
Institutional Shares
-----------------------------------
For the Six For the
Months Ended Year Ended
September 30, 1997* March 31, 1997
-----------------------------------
Shares sold 1,063,856 1,343,738
Shares issued to shareholders on
reinvestment of dividends 18,347 23,612
Shares redeemed (140,454) (150,351)
----------- -----------
Net increase in shares outstanding 941,749 1,216,999
=========== ===========
Proceeds from sale of shares $20,297,364 $22,912,250
Value of reinvested dividends 331,122 378,826
Cost of shares redeemed (2,750,588) (2,543,386)
----------- -----------
Net increase from capital share transactions $17,877,898 $20,747,690
=========== ===========
- --------
*Unaudited.
28
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
NOTE 4 -- Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $66,783,883 and sales of investment securities
aggregated $12,253,941 for the six months ended September 30, 1997.
Purchases of U.S. government obligations aggregated $3,953,750, and there were
no sales of U.S. government obligations for the period.
On September 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $151,427,953
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $459,434.
NOTE 5 -- Net Assets
On September 30, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $237,645,010
Class B Shares 32,992,382
Class D Shares 9,202,589
Institutional Shares 49,962,768
Undistributed net investment income 3,040,955
Accumulated net realized gain from security transactions 6,833,589
Unrealized appreciation of investments 150,968,519
------------
$490,645,812
============
NOTE 6 -- Shareholder Meeting
Alex. Brown Incorporated, which was the parent corporation of the Fund's
investment advisor, merged into a subsidiary of Bankers Trust New York
Corporation on September 1, 1997. Due to the change in control of Alex. Brown
Incorporated, the Flag Investors Value Builder Fund held a special meeting for
its shareholders on August 14, 1997. During the meeting, shareholders approved a
new Investment Advisory Agreement between the Fund and ICCand a new Sub-Advisory
Agreement among the Fund, ICC and ABIM. The new agreements are substantially the
same as the former agreements.
29
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE CARL W. VOGT, ESQ.
Director Director
RICHARD T. HALE HARRY WOOLF
Director President
JOHN F. KROEGER AMY M. OLMERT
Director Secretary
Louis E. Levy JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD LAURIE D. COLLIDGE
Director Assistant Secretary
REBECCA W. RIMEL
Director
Investment Objective
A balanced mutual fund designed to maximize total return through a combination
of long-term growth of capital and current income.
30
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
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[FLAG INVESTORS LOGO]
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
EQUITY INCOME
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
BALANCED
Flag Investors Value Builder Fund
INCOME
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
TAX-FREE INCOME
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
CURRENT INCOME
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
