[LOGO]
FLAG INVESTORS
FLAG
INVESTORS
VALUE
BUILDER
FUND
ANNUAL REPORT
MARCH 31, 1998
<PAGE>
REPORT HIGHLIGHTS
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bullet Your Fund achieved excellent performance results for the 1- ,3- and
5-year periods ended March 31, 1998 comparing very favorably against
other balanced funds. Your Fund's 3- and 5-year period ranking is
especially noteworthy.
bullet New and existing shareholders purchased more than $210 million in Fund
shares over the past 12 months.
bullet The investment environment has been "As Good As It Gets." Shareholders
have benefited by doubling their investment over the last 3 years.
bullet Although we caution investors that such returns can't continue, we
attempt to create wealth regardless of market values by purchasing
securities of well-managed companies at a significant discount to
intrinsic value.
bullet The returns of the Fund's largest holdings and best performers
illustrate our philosophy of buying good value and having the patience
for such value to be fully recognized in the investment marketplace.
<PAGE>
FUND PERFORMANCE
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GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES*
JUNE 15, 1992-MARCH 31, 1998
$10,000 invested in the Value Builder Fund Class A Shares at inception on June
15, 1992 was worth $26,815 on March 31, 1998.
[PLOT POINTS BELOW]
6/15/92 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
3/97 20,038
6/97 22,132
9/97 23,928
12/97 24,351
3/98 26,815
TOTAL RETURN PERFORMANCE*
<TABLE>
<CAPTION>
Class A Class B Class D Institutional
Periods ended 3/31/98 Shares Shares Shares** Shares
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<S><C>
1 Year 33.8% 32.8% 33.3% 34.1%
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3 Years (Cumulative) 106.8% 102.1% 104.6% --
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SINCE INCEPTION 6/15/92 1/3/95 11/9/92 11/2/95
------- ------ ------- -------
(Cumulative) 168.1% 117.9% 151.3% 75.3%
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</TABLE>
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
were reflected, the quoted performance would be lower. 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 year ended
March 31, 1998.
The Value Builder Fund had an excellent year with a gain of 33.8% for the
Class A shares. For the 3- and 5-year periods your Fund shares have gained
106.8% and 135.8%, respectively. The Fund's strong equity performance was due
primarily to the earnings progress of the portfolio companies and efforts of
their management to build shareholder value. The Fund's bond positions did very
well with most posting double-digit gains for the year.
We are especially pleased to report that the Fund's performance continues
to place it in the very top tier of Lipper Analytical's Balanced Funds category
with rankings of 39th out of 367 funds, 1st out of 249 funds and 1st out of 114
funds, for the 1- , 3- and 5-year periods ended March 31, 1998(1). The 1st place
ranking for the 3- and 5-year period is a very special accomplishment for our
shareholders. 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.
ASSET MIX
During the past year, we have maintained the Fund's long-term focus with
90% of the assets in stocks and bonds and the remaining 10% in short-term
investments. The pie charts below reflect the current asset mix as well as the
asset mix a year ago. The slight increase in the short-term investments category
over the past year is primarily due to the purchase of Value Builder shares by
new and existing shareholders. These purchases totaled more than $210 million,
and of that amount almost $170 million has been invested in stocks and
[PIE CHART APPEARS BELOW-SEE PLOT POINTS]
3/31/97 3/31/98
Short-Term Short-Term
Investments 8.7% Investments 9.3%
Fixed-Income Fixed-Income
27.3% 28.8%
Common Stocks And Common Stocks And
Convertibles 64.0% Convertibles 61.9%
(1)The Lipper rankings are based on performance for the periods ended March
31, 1998 relative to other funds in the category. Performance figures used
in these rankings exclude the impact of any sales charge.
2
<PAGE>
bonds. As we have said in the past, we very much appreciate this expression of
confidence and we will certainly make every effort to see that it is well
deserved. The Fund's total net assets were $678 million at March 31, 1998.
INVESTMENT ENVIRONMENT--AS GOOD AS IT GETS
Without the sardonic humor of the movie that won Jack Nicholson his recent
Academy Award, the stock market really has been "As Good As It Gets". Inflation
is tame, unemployment and interest rates are low, personal income is rising at a
good pace, corporate profits are at a high level and a balanced budget is in
sight. Investors, aware of these favorable trends and encouraged by success to
date, continued to pour money into the equity market. Over $100 billion was
invested in equity mutual funds in the last 12 months.
No one really knows how long these optimal conditions will continue,
however, we can say with confidence that investment returns in coming years will
be more moderate than they have been in the recent past. Very simply, it is not
realistic to see shareholders double their money every three years, which is
just what has occurred over the past three years. We make this point because we
believe it important to keep shareholder expectations in touch with reality.
Despite this cautionary note, we remain quite confident that our long-term
view toward wealth creation is sound. Regardless of the economic environment or
market levels, we attempt to take advantage of a multitude of opportunities to
purchase securities of well-managed companies at a significant discount to
intrinsic value. In our view, there are investment opportunities being created
every day. If we are successful in finding several of these investments each
year we will deliver superior results to our shareholders.
One such opportunity was America Online. Shareholders may recall that in
the latter part of 1996, America Online received considerable attention because
it shifted its pricing from a usage rate to a flat rate (regardless of usage).
With the new pricing, demand for the company's services skyrocketed. So much so
that complaints were heard from almost everyone regarding the difficulty of
access due to clogged telephone lines. Even though the company explained that
this was a very solvable problem though it might take 3 to 6 months, short-term
investors and many on Wall Street sold the stock as if the company was on the
verge of collapse, taking the shares from over $60 to less than $30 (pre-split)
in several months time.
Upon closer examination and a conversation with management, we wondered
"what were we missing?" Here was a company, a leader in its industry, reasonably
valued, capable management, growing at a very fast rate, with low variable costs
and demand for its services exceeding capacity. It sure seemed
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
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like a standout value to us, so we bought shares. Interesting, now that the
shares have appreciated over 400%, investors and Wall Street are falling all
over themselves to buy the shares. What were we missing? Nothing except a
short-term focus, which is what often creates opportunity for the true long-term
investor.
PORTFOLIO DEVELOPMENTS
In past shareholder reports we have stated quite clearly that we intend to
periodically make candid reports to you highlighting our successes and our
failures. In many respects such a "scorecard" allows shareholders the
opportunity to see just how well we have executed our game plan of buying good
value. Listed below are our five largest holdings with costs and market values,
as well as the percentage changes over the past 12 months.
FIVE LARGEST HOLDINGS
<TABLE>
<CAPTION>
Market Value Performance
Cost as of 3/31/98 3/31/97-3/31/98
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<S><C>
Conseco $ 5,940,051 $28,077,959 58.9%
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Green Tree Financial(1) 11,561,657 12,796,875 10.7%
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America Online 2,717,910 12,569,500 221.5%
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SEI Corp 3,646,321 12,039,300 225.0%
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Blyth Industries 8,584,171 11,356,800 41.7%
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</TABLE>
- --------
(1) Added mid-period.
Four of the five names are new to the above list, but all of the prior
year's top five holdings remain in the portfolio contributing to the Fund's
success. The change in the top five holdings occurred because of strong
appreciation of more than 200% by America Online and SEI Corp. Also, with the
growth in the overall size of the Fund, the size of stock positions being
purchased for the Fund are now considerably larger, such as with Green Tree
Financial and Blyth Industries.
In an effort to complete the scorecard, we have also provided a list of the
biggest gainers in the portfolio over the past 12 months. Hopefully, this
scorecard reinforces what we have emphasized in previous letters about buying
"good value" and allowing sufficient time for such value to be recognized in the
investment marketplace.
4
<PAGE>
TEN BEST PERFORMERS (3/31/97-3/31/98)
SECURITY PERCENT CHANGE
- ---------------------------------------
SEI Corp 225.0%
- ---------------------------------------
America Online 221.5
- ---------------------------------------
Westinghouse Airbrake 126.9
- ---------------------------------------
Countrywide Credit 114.9
- ---------------------------------------
Ford Motor 106.6
- ---------------------------------------
MBNA 92.7
- ---------------------------------------
Tandy Corp 87.5
- ---------------------------------------
Travelers 87.5
- ---------------------------------------
The Learning Co.(1) 84.4
- ---------------------------------------
Exel 83.4
- ---------------------------------------
THREE WORST PERFORMERS (3/31/97-3/31/98)
Security Percent Change
- ---------------------------------------
Millipore -18.0%
- ---------------------------------------
Eastman Kodak -14.6
- ---------------------------------------
Mallinckrodt(2) -6.7
- -------
(1) Added mid-period.
(2) Sold mid-period.
As much as we would like to have nothing but successes, we know from
experience that we cannot make a hit every time we swing the bat. Occasionally
we will misjudge the pitch and take a strike. During the past year we misjudged
several pitches (companies) and we have listed them below.
Our disappointment is not so much with our own assessment of the
underlying intrinsic value but rather with management's inability to generate
adequate returns on their owner's capital. If we decide the prospects for
improving overall profitability are not likely to occur, then we would expect to
move our shareholder's capital to more fertile ground.
REMINDERS
In our annual report to shareholders, we like to remind you that while we
are advisors to your Fund we prefer to think of ourselves as your partners. We
say this because we are all meaningful shareholders of the Fund just like you,
and we do not intend to do anything with your money that we would not do with
our own.
We look forward to the challenge of increasing the Fund's value in the
coming years and we hope you share our enthusiasm and long-term perspective.
Sincerely,
/s/ Hobart C. Buppert, II
_________________________
Hobart C. Buppert, II
Portfolio Manager
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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on June
15, 1992 through the most recent fiscal year-end and reflects the impact of the
Fund's total expenses and the currently effective 4.50% maximum sales charge for
the Fund's Class A Shares. The graph reflects a 3.00% contingent deferred sales
charge for the Fund's Class B Shares, which is the applicable sales charge for
the represented time period, and a 1.50% maximum sales charge for the Fund's
Class D Shares. The Class D Shares' 1.00% maximum contingent deferred sales
charge is not reflected in the graph since it is not applicable to shares held
for more than four years, which is the represented time period.
While the following charts are required by SEC rules, such comparisons are
of limited utility since the indices shown are not adjusted for sales charges
and ongoing management, distribution and operating expenses applicable to the
Fund. An investor who wished to replicate the total return of these indices
would have had to own the securities that they represent. Acquiring these
securities would require a considerable amount of money and would incur expenses
that are not reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective 4.50% maximum sales
charge for the Fund's Class A Shares, 4.00% maximum contingent deferred sales
charge for the Fund's Class B Shares and 1.50% maximum sales charge for the
Fund's Class D Shares. In addition, the SECtotal return calculation for the
Class D Shares reflects the impact of a 1.00% maximum contingent deferred sales
charge. These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES*
JUNE 15, 1992-MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
Flag Investors S&P 500 91-Day U.S.
Value Builder Fund Composite Treasury Bill
$25,608 $31,069 $13,039
------------------ --------- -------------
6/92 9,550 10,000 10,000
9/92 9,884 10,315 10,101
12/92 10,291 10,835 10,179
3/93 10,861 11,308 10,258
6/93 11,007 11,364 10,338
9/93 11,526 11,657 10,422
12/93 11,501 11,927 10,504
3/94 11,202 11,475 10,584
6/94 11,141 11,524 10,686
9/94 11,607 12,087 10,801
12/94 11,458 12,085 10,944
3/95 12,385 13,262 11,108
6/95 13,442 14,528 11,275
9/95 14,588 15,683 11,436
12/95 15,210 16,627 11,604
3/96 15,960 17,520 11,747
6/96 16,442 18,307 11,898
9/96 17,290 18,872 12,062
12/96 18,957 20,445 12,220
3/97 19,136 20,992 12,375
6/97 21,136 24,660 12,544
9/97 22,851 26,504 12,712
12/97 23,255 27,265 12,871
3/98 25,608 31,069 13,039
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
- ---------------------------------------------------------------------------
Class A Shares 27.80% 17.63% 17.63%
- ---------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results. The
indices listed above are unmanaged and are widely recognized as indicators
of the performance in their respective sectors. The S&P 500 Composite is an
indicator of general market performance and the 91-Day U.S. Treasury Bill is
a measure of short-term bond market performance.
**June 15, 1992.
7
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS B SHARES*
JANUARY 3, 1995-MARCH 31, 1998
[GRAPH APPEARS HERE- SEE PLOT POINTS BELOW]
Flag Investors S&P 500 91-Day
Value Builder Fund Composite U.S. Treasury Bill
$21,491 $25,058 $11,854
------------------ --------- ------------------
1/95 10,000 10,000 10,000
3/95 10,781 10,696 10,099
6/95 11,686 11,717 10,251
9/95 12,645 12,649 10,397
12/95 13,160 13,410 10,550
3/96 13,788 14,131 10,680
6/96 14,179 14,765 10,817
9/96 14,878 15,221 10,967
12/96 16,280 16,489 11,110
3/97 16,404 16,931 11,251
6/97 18,086 19,889 11,404
9/97 19,522 21,377 11,557
12/97 19,827 21,990 11,702
3/98 21,491 25,058 11,854
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class B Shares 28.84% -- 26.65%
- --------------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**January 3, 1995.
8
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS D SHARES*
NOVEMBER 9, 1992-MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
Flag Investors S&P 500 91-Day
Value Builder Fund Composite U.S. Treasury Bill
$24,754 $29,027 $12,849
------------------ --------- ------------------
11/92 9,850 10,000 10,000
12/92 10,134 10,123 10,031
3/93 10,685 10,565 10,109
6/93 10,819 10,617 10,187
9/93 11,320 10,891 10,270
12/93 11,285 11,144 10,351
3/94 10,982 10,721 10,430
6/94 1,0913 10,766 10,530
9/94 11,369 11,293 10,644
12/94 11,203 11,291 10,785
3/95 12,100 12,390 10,946
6/95 13,122 13,574 11,111
9/95 14,231 14,653 11,269
12/95 14,820 15,535 11,435
3/96 15,541 16,369 11,576
6/96 15,999 17,104 11,725
9/96 16,803 17,633 11,887
12/96 18,413 19,101 12,042
3/97 18,565 19,613 12,195
6/97 20,486 23,040 12,361
9/97 22,140 24,763 12,527
12/97 22,497 25,474 12,684
3/98 24,754 29,027 12,849
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
- -------------------------------------------------------------------------------
CLASS D SHARES 30.35% 17.94% 18.32%
- -------------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**November 9, 1992.
9
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN INSTITUTIONAL SHARES*
NOVEMBER 2, 1995-MARCH 31, 1998
[GRAPH APPEARS HERE-SEE PLOT POINTS BELOW]
Flag Investors S&P 500 91-Day
Value Builder Fund Composite U.S. Treasury Bill
$17,526 $19,046 $11,298
------------------ --------- ------------------
11/95 10,000 10,000 10,000
12/95 10,349 10,193 10,055
3/96 10,871 10,740 10,178
6/96 11,205 11,223 10,309
9/96 11,783 11,569 10,452
12/96 12,935 12,533 10,588
3/97 13,071 12,869 10,723
6/97 14,436 15,117 10,869
9/97 15,622 16,248 11,015
12/97 15,904 16,714 11,153
3/98 17,526 19,046 11,298
AVERAGE ANNUAL TOTAL RETURN*
Periods Ended 3/31/98 1 Year 5 Years Since Inception**
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Institutional Shares 34.08% -- 26.24%
- --------------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
**November 2, 1995.
10
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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STATEMENT OF NET ASSETS MARCH 31, 1998
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCKS: 56.9%
BANKING: 2.5%
35,000 Citicorp $ 4,970,000
200,000 KeyCorp 7,562,500
13,100 Wells Fargo & Company 4,339,375
-----------
16,871,875
-----------
BASIC INDUSTRY: 2.9%
400,000 Airgas, Inc.* 6,900,000
30,000 Hercules, Inc. 1,481,250
140,000 International Paper Company 6,553,750
44,654 Potash Corp. of Saskatchewan 4,057,932
28,000 Solutia, Inc. 833,000
-----------
19,825,932
-----------
BUSINESS SERVICES: 3.0%
244,700 First Data Corp. 7,952,750
176,400 SEI Corp. 12,039,300
-----------
19,992,050
-----------
CAPITAL GOODS: 0.9%
36,000 Eaton Corp. 3,426,750
96,200 Westinghouse Air Brake Co. 2,855,938
-----------
6,282,688
-----------
CONSUMER DURABLES/NON-DURABLES: 4.6%
332,800 Blyth Industries, Inc.* 11,356,800
5,857 Chattem Inc.* 147,889
33,500 Eastman Kodak Co. 2,173,313
140,000 Ford Motor Company 9,073,750
50,000 Liz Claiborne, Inc. 2,493,750
111,600 Philip Morris Cos., Inc. 4,652,325
31,700 Polaroid Corp. 1,394,800
-----------
31,292,627
-----------
CONSUMER SERVICES: 4.7%
184,000 America Online, Inc.* 12,569,500
124,875 Cendant Corp.* 4,948,172
60,000 Gannett Co. 4,312,500
300,000 The Learning Co., Inc.* 6,937,500
50,000 Times Mirror Co. Class A 3,168,750
-----------
31,936,422
-----------
11
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
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STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1998
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
DEFENSE/AEROSPACE: 1.7%
156,000 Boeing Co. $ 8,131,500
31,171 Lockheed Martin Corp. 3,506,738
-----------
11,638,238
-----------
ELECTRIC UTILITIES: 0.5%
100,000 Unicom Corp. 3,500,000
-----------
ENERGY: 0.9%
125,000 Burlington Resources, Inc. 5,992,187
-----------
ENTERTAINMENT: 1.1%
652,000 LodgeNet Entertainment Corp.* 7,599,875
-----------
FINANCIAL SERVICES: 7.4%
83,500 American Express Co. 7,666,344
87,500 Countrywide Credit Industries, Inc. 4,653,906
172,000 Freddie Mac 8,159,250
450,000 Green Tree Financial Corp. 12,796,875
177,187 MBNA Corp. 6,345,509
171,000 Travelers Group, Inc. 10,260,000
-----------
49,881,884
-----------
HEALTH CARE: 3.9%
95,000 Amgen, Inc.* 5,783,125
40,000 Baxter International, Inc. 2,205,000
38,000 Bristol-Myers Squibb Co. 3,963,875
108,868 Eli Lilly & Co. 6,491,255
114,000 Johnson & Johnson 8,357,625
-----------
26,800,880
-----------
HOTELS/GAMING: 0.7%
200,000 Harrah's Entertainment, Inc.* 4,912,500
-----------
HOUSING: 2.0%
275,000 Champion Enterprises, Inc.* 7,339,063
118,000 USG Corp.* 6,394,125
-----------
13,733,188
-----------
INSURANCE: 7.6%
495,858 Conseco, Inc. 28,077,959
80,000 EXEL Limited 6,200,000
32,500 Hartford Financial Services Group 3,526,250
12
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCKS (concluded)
INSURANCE (CONCLUDED)
80,000 Mid Ocean Ltd. $ 6,200,000
150,000 RenaissanceRe Holdings Ltd. 7,500,000
-----------
51,504,209
-----------
MULTI-INDUSTRY: 2.5%
33,400 Loews Corp. 3,481,950
140,000 Monsanto Co. 7,280,000
64,000 United Technologies Corp. 5,908,000
-----------
16,669,950
-----------
REAL ESTATE: 1.6%
60,200 General Growth Properties, Inc. 2,219,875
324,136 Host Marriott Corp.* 6,138,325
35,000 National Health Investors, Inc. 1,395,625
28,500 U.S. Restaurant Properties, Inc. 780,188
-----------
10,534,013
-----------
RETAIL: 3.0%
124,664 J.C. Penney Company, Inc. 9,435,506
400,000 Kmart Corp.* 6,675,000
90,000 Tandy Corp. 4,230,000
-----------
20,340,506
-----------
TECHNOLOGY: 4.0%
70,400 Autodesk, Inc. 3,036,000
143,200 Cognex Corp. 3,060,900
125,000 Electronic Data Systems Corp. 5,734,375
86,000 International Business Machines Corp. 8,933,250
33,400 Millipore Corp. 1,160,650
500,000 Novell, Inc.* 5,359,375
-----------
27,284,550
-----------
TELECOMMUNICATIONS: 1.1%
153,300 MCI Communications Corp. 7,588,350
-----------
TRANSPORTATION: 0.3%
17,491 Delta Air Lines, Inc. 2,068,311
-----------
Total Common Stock
(Cost $186,513,717) 386,250,235
-----------
13
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FLAG INVESTORS VALUE BUILDER FUND
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STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1998
Shares/
Par (000) Market Value
- -------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 3.6%
32,300 Conseco Inc., $4.28, 7% Cvt. Pfd., Series E $ 6,254,087
40,000 Fleetwood Capital Trust, 6% 2,350,000
100,000 Host Marriott Financial Trust, 6.75% 5,700,000
383,600 U.S. Restaurant Properties, Series A, 7.72% 10,596,950
-----------
Total Convertible Preferred Stock
(Cost $18,793,259) 24,901,037
-----------
PREFERRED STOCK: 0.4%
100,000 Conseco Financial Trust
(Cost $2,500,000) 2,606,250
-----------
CONVERTIBLE BONDS: 1.0%
$2,000 Capstone Capital Corp., Cvt. Deb.,
6.55%, 3/14/02 2,017,500
339 Richardson Electronics, Cvt. Deb.,
7.25%, 12/15/06 280,099
1,661 Richardson Electronics, Cvt. Deb.,
8.25%, 6/15/06 1,503,205
3,000 Softkey International, Cvt. Deb.,
5.50%, 11/01/00 2,760,000
-----------
Total Convertible Bonds
(Cost $6,232,766) 6,560,804
-----------
CORPORATE BONDS: 25.9%
3,000 Argosy Gaming, 13.25%, 6/1/04 3,315,000
3,000 Avon Products, Inc., 6.55%, 8/1/07 3,022,500
1,000 Caesar's World, 8.875%, 8/15/02 1,033,750
5,000 Calenergy Co., Inc., 7.625%, 10/15/07 5,012,500
3,000 Campbell Soup Co., 6.15%, 12/1/02 3,026,250
1,000 Capstar Hotel, 8.75%, 8/15/07 1,040,000
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 989,764
3,000 Circus Circus, 6.75%, 7/15/03 2,988,750
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,180,000
700 CSX Corp., Nt, 7.00%, 9/15/02 720,125
5,000 Cytec Industries, Inc., 6.50%, 3/15/03 4,981,250
5,000 Cytec Industries, Inc., 6.75%, 3/15/08 4,950,000
14
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Par
(000) Market Value
- --------------------------------------------------------------------------------
CORPORATE BONDS (continued)
$3,000 Eckerd Corp., Nt, 9.25%, 2/15/04 $ 3,232,500
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 302,004
2,150 First Tennessee Bank, 6.40%, 4/1/08 2,136,562
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,045,000
5,000 Frontier Corp., 7.25%, 5/15/04 5,225,000
1,000 Fund American Enterprise, Nt, 7.75%, 2/1/03 1,035,000
4,500 Furon Co., Nt, 8.125%, 3/1/08 4,539,375
4,500 HMH Properties, Nt, 9.50%, 5/15/05 4,792,500
3,000 Host Marriott Travel Plaza, Nt, 9.5%, 5/15/05 3,191,250
5,000 HVIDE Marine, Inc., 8.375%, 2/15/08 4,887,500
5,000 ICI, 6.95%, 9/15/04 5,162,500
2,000 ITT Corp., Nt, 6.75%, 11/15/03 1,965,000
2,775 ITT Corp., Nt, 6.25%, 11/15/00 2,747,250
2,000 John Q. Hammons Hotels LP, Nt, 8.875%, 2/15/04 2,035,000
4,000 Jefferies Group, Inc., 7.50%, 8/15/07 4,145,000
3,000 Knight-Ridder, Inc., 6.625%, 11/1/07 3,026,250
5,000 Lilly Industries, Inc., 7.75%, 12/1/07 5,025,000
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 2,246,750
2,500 Lockheed Martin Corp., Nt, 7.25%, 5/15/06 2,640,625
5,000 LodgeNet Entertainment, Nt, 10.25%, 12/15/06 5,200,000
1,285 Markel Corp., Nt, 7.25%,11/1/03 1,331,581
2,500 Marriott International, 6.75%, 12/15/03 2,600,000
2,100 Marriott International, 7.875%, 4/15/05 2,323,125
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,111,000
1,000 Masco Corp., Nt, 6.125%, 9/15/03 991,250
2,000 McDonnell Douglas Corp., Nt, 6.875%, 11/1/06 2,097,500
2,000 MCI Communications, Nt, 6.25%, 3/23/99 2,002,500
500 MCI Communications, Nt, 7.50%, 8/20/04 528,125
2,100 Millipore Corp., Nt, 7.2%, 4/1/02 2,160,375
2,100 Millipore Corp., Nt, 7.5%, 4/1/07 2,231,250
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 5,112,500
4,000 Morgan Guaranty Trust Co., Nt, 5.75%, 10/8/99 3,985,000
2,000 Nabisco, Inc., 6.70%, 6/15/02 2,030,000
1,500 Norfolk Southern, 6.95%, 5/1/02 1,545,000
1,500 Norfolk Southern, 7.35%, 5/15/07 1,597,500
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,845,000
4,700 Premier Parks, Nt, 9.25%, 4/1/06 4,817,500
4,000 Premier Parks, Nt, 9.75%, 1/15/07 4,325,000
15
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) MARCH 31, 1998
Par
(000) Market Value
- -------------------------------------------------------------------------------
CORPORATE BONDS (concluded)
$2,000 RJR Nabisco, Inc., Nt, 7.625%, 9/15/03 $ 2,027,500
5,000 Raytheon Co., 6.50%, 7/15/05 5,056,250
3,000 Raytheon Co., 6.45%, 8/15/02 3,030,000
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 1,521,420
5,500 Solutia Inc., 6.50%, 10/15/02 5,534,375
3,000 Tandy Corp., 6.95%, 9/1/07 3,090,000
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 1,036,250
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 1,065,000
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 1,003,750
1,000 Union Pacific Co., 6.25%, 3/15/99 1,002,500
2,660 USG Corp., 8.50%, 8/1/05 2,862,825
5,000 United Defense Inds, Inc., 8.75%, 11/15/07 5,125,000
500 Xerox Corp., Nt, 7.15%, 8/1/04 525,000
------------
Total Corporate Bonds
(Cost $114,533,091) 175,354,031
------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 3.0%
1,000 Federal National Mortgage Assoc., 7.6%, 5/24/06 1,015,940
------------
U.S. Treasury Notes
3,000 5.875%, 2/28/99 3,008,850
4,000 5.625%, 10/31/99 3,997,500
4,000 5.75%, 10/31/00 4,011,880
4,000 6.25%, 5/31/00 4,051,960
4,000 6.125%, 12/31/01 4,058,880
------------
19,129,070
------------
Total U.S. Government Securities
(Cost $19,958,395) 20,145,010
------------
REPURCHASE AGREEMENT: 9.3%
62,984 Goldman Sachs & Co., 5.75%
Dated 3/31/98, to be repurchased on
4/1/98, collateralized by U.S. Treasury
Notes with a market value of $63,773,564.
(Cost $62,984,000) 62,984,000
------------
16
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENT IN SECURITIES: 100.1%
(Cost $467,419,906)** $678,801,367
OTHER ASSETS IN EXCESS OF LIABILITIES, NET: (0.1)% (432,595)
------------
NET ASSETS: 100.0% $678,368,772
============
NET ASSET VALUE AND REDEMPTION PRICE PER:
Class A Share
($491,575,295 / 22,256,003 shares outstanding) $22.09
======
CLASS B SHARE
($64,497,962 / 2,921,374 shares outstanding) $22.08(1)
======
CLASS D SHARE
($18,478,093 / 837,940 shares outstanding) $22.05(2)
======
INSTITUTIONAL CLASS SHARE
($103,817,422 / 4,664,355 shares outstanding) $22.26
======
MAXIMUM OFFERING PRICE PER:
CLASS A SHARE ($22.09 / .955) $23.13
======
CLASS B SHARE $22.08
======
INSTITUTIONAL SHARE $22.26
======
- ---------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
(1) Redemption value is $21.20 following 4.00% maximum contingent deferred sales
charge.
(2) Redemption value is $20.00 following 1.00% maximum contingent deferred sales
charge.
See accompanying Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1998
Investment Income:
Interest $ 13,132,204
Dividends 4,758,389
------------
Total income 17,890,593
------------
Expenses:
Investment advisory fee 3,769,264
Distribution fees 1,414,559
Transfer agent fees 150,057
Accounting fee 110,551
Registration fees 103,691
Printing and postage 52,873
Custodian fee 45,741
Directors' fees 19,733
Miscellaneous 134,349
------------
Total expenses 5,800,818
------------
Net investment income 12,089,775
------------
Realized and unrealized gain on investments:
Net realized gain from security transactions 4,718,485
Change in unrealized appreciation of investments 124,787,999
------------
Net gain on investments 129,506,484
------------
Net increase in net assets resulting from operations $141,596,259
============
See accompanying Notes to Financial Statements.
18
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended March 31,
- --------------------------------------------------------------------------------
1998 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 12,089,775 $ 6,780,634
Net realized gain from security transactions 4,718,485 4,707,093
Change in unrealized appreciation/
depreciation of investments 124,787,999 34,681,754
------------ -----------
Net increase in net assets resulting
from operations 141,596,259 46,169,481
------------ -----------
Distributions to Shareholders from:
Net investment income and short-term
capital gains:
Class A Shares (8,528,277) (5,070,551)
Class B Shares (625,533) (119,491)
Class D Shares (351,052) (280,846)
Institutional Shares (1,539,023) (391,368)
Net realized mid-term and long-term capital gains:
Class A Shares (5,136,333) (874,810)
Class B Shares (601,637) (38,817)
Class D Shares (224,735) (53,442)
Institutional Shares (1,098,467) (71,368)
------------ -----------
Total distributions (18,105,057) (6,900,693)
------------ -----------
Capital Share Transactions:
Proceeds from sale of shares 233,685,893 100,059,836
Value of shares issued in reinvestment
of dividends 16,203,251 6,063,887
Cost of shares repurchased (40,437,180) (29,688,897)
------------ -----------
Increase in net assets derived from
capital share transactions 209,451,964 76,434,826
------------ -----------
Total increase in net assets 332,943,166 115,703,614
------------ -----------
Net Assets:
Beginning of period 345,425,606 229,721,992
------------ -----------
End of period $678,368,772 $345,425,606
============ ============
See accompanying Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended
March 31,
- -----------------------------------------------------------------------------------
1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 17.14
--------
Income from Investment Operations:
Net investment income 0.47
Net realized and unrealized gain/(loss)
on investments 5.21
--------
Total from Investment Operations 5.68
--------
Less Distributions:
Net investment income and short-term gains (0.47)
Net realized mid-term and long-term capital gains (0.26)
--------
Total distributions (0.73)
--------
Net asset value at end of period $ 22.09
========
Total Return 33.82%
Ratios to Average Net Assets:
Expenses 1.14%
Net investment income 2.49%
Supplemental Data:
Net assets at end of period (000) $491,575
Portfolio turnover rate 7%
Average Commissions Per Share $ 0.062
</TABLE>
- ------------
(1) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average net assets would have been 1.40%, and 1.38% for Class A Shares for
the years ended March 31, 1995, and 1994, respectively.
(2) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average net assets would have been 3.02%, and 3.11% for Class A
Shares for the years ended March 31, 1995, and 1994, respectively. See
accompanying Notes to Financial Statements.
20
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended March 31,
- -------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68 $ 12.02 $ 11.23 $ 11.25
-------- ------- -------- --------
Income from Investment Operations:
Net investment income 0.39 0.36 0.35 0.40
Net realized and unrealized gain/(loss)
on investments 2.49 3.03 0.80 (0.04)
-------- ------- -------- --------
Total from Investment Operations 2.88 3.39 1.15 0.36
-------- ------- -------- --------
Less Distributions:
Net investment income and short-term gains (0.36) (0.41) (0.35) (0.38)
Net realized mid-term and long-term capital gains (0.06) (0.32) (0.01) --
-------- ------- -------- --------
Total distributions (0.42) (0.73) (0.36) (0.38)
-------- ------- -------- --------
Net asset value at end of period $ 17.14 $ 14.68 $ 12.02 $ 11.23
======== ======= ======== ========
Total Return 19.90% 28.86% 10.57% 3.14%
Ratios to Average Net Assets:
Expenses 1.27% 1.31% 1.35%(1) 1.35%(1)
Net investment income 2.51% 2.72% 3.07%(2) 3.14%(2)
Supplemental Data:
Net assets at end of period (000) $278,130 $200,020 $146,986 $131,097
Portfolio turnover rate 13% 15% 18% 8%
Average Commissions Per Share $ 0.066 -- -- --
</TABLE>
See accompanying Notes to Financial Statements.
21
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year
Ended
March 31,
- ------------------------------------------------------------------------------------------
1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 17.16
-------
Income from Investment Operations:
Net investment income 0.34
Net realized and unrealized gain
on investments 5.20
-------
Total from Investment Operations 5.54
-------
Less Distributions:
Net investment income and short-term gains (0.36)
Net realized mid-term and long-term gains (0.26)
-------
Total distributions (0.62)
-------
Net asset value at end of period $ 22.08
=======
Total Return 32.84%
Ratios to Average Net Assets:
Expenses 1.89%
Net investment income 1.75%
Supplemental Data:
Net assets at end of period (000) $64,498
Portfolio turnover rate 7%
Average Commissions Per Share $ 0.062
</TABLE>
- ---------------------------
* Commencement of operations.
(1) Annualized.
(2) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average net assets would have been 2.17% (annualized) for Class B Shares for
the period ended March 31, 1995.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average net assets would have been 2.87% (annualized) for Class B
Shares for the period ended March 31, 1995.
22
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Jan. 3, 1995*
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:
Net investment income and short-term gains (0.26) (0.24) --
Net realized mid-term and 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 19.00% 27.89% 7.81%
Ratios to Average Net Assets:
Expenses 2.02% 2.06% 2.10%(1,2)
Net investment income 1.84% 1.97% 2.94%(1,3)
Supplemental Data:
Net assets at end of period (000) $17,311 $ 4,178 $ 341
Portfolio turnover rate 13% 15% 18%
Average Commissions Per Share $ 0.066 -- --
</TABLE>
See accompanying Notes to Financial Statements.
23
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS D SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended
March 31,
- ------------------------------------------------------------------------------------------
1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 17.11
-------
Income from Investment Operations:
Net investment income 0.43
Net realized and unrealized gain/(loss)
on investments 5.17
-------
Total from Investment Operations 5.60
-------
Less Distributions:
Net investment income and short-term gains (0.40)
Net realized mid-term and long-term gains (0.26)
-------
Total distributions (0.66)
-------
Net asset value at end of period $ 22.05
=======
Total Return 33.33%
Ratios to Average Net Assets:
Expenses 1.49%
Net investment income 2.14%
Supplemental Data:
Net assets at end of period (000) $18,478
Portfolio turnover rate 7%
Average Commissions Per Share $ 0.062
</TABLE>
- ---------
(1) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average net assets would have been 1.74%, and 1.73% for Class D Shares for
the years ended March 31, 1995, and 1994, respectively.
(2) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average net assets would have been 2.68% and 2.76% for Class D
shares for the years ended March 31, 1995, and 1994, respectively.
24
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended March 31,
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66 $ 12.01 $ 11.22 $ 11.24
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.35 0.33 0.31 0.36
Net realized and unrealized gain/(loss)
on investments 2.47 3.02 0.80 (0.04)
------- ------- ------- -------
Total from Investment Operations 2.82 3.35 1.11 0.32
------- ------- ------- -------
Less Distributions:
Net investment income and short-term gains (0.31) (0.38) (0.31) (0.34)
Net realized mid-term and long-term gains (0.06) (0.32) (0.01) --
------- ------- ------- -------
Total distributions (0.37) (0.70) (0.32) (0.34)
------- ------- ------- -------
Net asset value at end of period $ 17.11 $ 14.66 $ 12.01 $ 11.22
======= ======= ======= =======
Total Return 19.46% 28.44% 10.18% 2.78%
Ratios to Average Net Assets:
Expenses 1.62% 1.66% 1.70%(1) 1.70%(1)
Net investment income 2.15% 2.37% 2.72%(2) 2.79%(2)
Supplemental Data:
Net assets at end of period (000) $15,213 $13,757 $11,717 $11,051
Portfolio turnover rate 13% 15% 18% 8%
Average Commissions Per Share $ 0.066 -- -- --
</TABLE>
See accompanying Notes to Financial Statements.
25
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
Nov. 1, 1995*
through
For the Year Ended March 31, March 31,
- --------------------------------------------------------------------------------------
1998 1997 1996
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 17.27 $ 14.77 $ 13.89
------- ------- -------
Income from Investment Operations:
Net investment income 0.51 0.41 0.13
Net realized and unrealized gain
on investments 5.25 2.53 1.17
------- ------- -------
Total from Investment Operations 5.76 2.94 1.30
------- ------- -------
Less Distributions:
Net investment income and
short-term gains (0.51) (0.38) (0.10)
Net realized mid-term and
long-term gains (0.26) (0.06) (0.32)
------- ------- -------
Total distributions (0.77) (0.44) (0.42)
------- ------- -------
Net asset value at end of period $ 22.26 $ 17.27 $ 14.77
======= ======= =======
Total Return 34.08% 20.24% 21.12%
Ratios to Average Net Assets:
Expenses 0.89% 1.02% 1.03%(1)
Net investment income 2.75% 2.83% 2.89%(1)
Supplemental Data:
Net assets at end of period (000) $103,817 $34,771 $11,768
Portfolio turnover rate 7% 13% 15%
Average Commissions Per Share $ 0.062 $ 0.066 --
</TABLE>
- ---------
* Commencement of operations.
(1) Annualized.
See accompanying Notes to Financial Statements.
26
<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. In addition each
of the other classes has a different distribution fee. The Institutional Shares
do not have a front-end sales charge, a contingent deferred sales charge or a
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.
27
<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. Expenses are recorded as
incurred. 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.
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, 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
aver-
28
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
age 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,
1998.
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 $110,551 for accounting services for the year ended
March 31, 1998.
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 $150,057 for
transfer agent services for the year ended March 31, 1998.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997 PNCBank served as the Fund's custodian.
From September 22, 1997 to March 31, 1998, the Fund paid $26,014 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors") 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, 1998,
distribution fees aggregated $1,414,559, of which $927,293 was attributable to
the Class A Shares, $384,100 was attributable to the Class B Shares and $103,166
was attributable to the Class D Shares. The Fund did not pay Alex. Brown any
commissions for the year ended March 31, 1998. Prior to September 1, 1997 Alex.
Brown &Sons, Inc. served as the Fund's distributor for the same rate of
compensation and on substantially the same terms as ICC Distributors and earned
$335,760 for Class A Shares, $106,442, for Class B Shares, and $41,545 for Class
D Shares.
29
<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, 1998 was $14,969, and the accrued liability was $23,649.
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:
<TABLE>
<CAPTION>
Class A Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S><C>
Shares sold 7,042,839 3,858,982
Shares issued to shareholders on
reinvestment of dividends 641,162 330,808
Shares redeemed (1,656,511) (1,584,547)
------------ ------------
Net increase in shares outstanding 6,027,490 2,605,243
============ ============
Proceeds from sale of shares $140,113,104 $ 64,502,359
Value of reinvested dividends 12,406,231 5,229,071
Cost of shares redeemed (32,747,372) (25,438,783)
------------ ------------
Net increase from capital share transactions $119,771,963 $ 44,292,647
============ ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S><C>
Shares sold 1,916,773 754,825
Shares issued to shareholders on
reinvestment of dividends 58,431 8,887
Shares redeemed (62,652) (38,898)
------------ ------------
Net increase in shares outstanding 1,912,552 724,814
============ ============
Proceeds from sale of shares $37,749,769 $12,645,227
Value of reinvested dividends 1,143,662 144,638
Cost of shares redeemed (1,250,962) (635,497)
------------ ------------
Net increase from capital share transactions $37,642,469 $12,154,368
============ ============
</TABLE>
30
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class D Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S><C>
Shares sold -- --
Shares issued to shareholders on
reinvestment of dividends 26,051 19,676
Shares redeemed (77,261) (68,822)
------------ ------------
Net decrease in shares outstanding (51,210) (49,146)
============ ============
Proceeds from sale of shares $ -- $ --
Value of reinvested dividends 500,413 311,352
Cost of shares redeemed (1,566,659) (1,071,231)
------------ ------------
Net decrease from capital share transactions $(1,066,246) $ (759,879)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Institutional Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S><C>
Shares sold 2,782,404 1,343,738
Shares issued to shareholders on
reinvestment of dividends 109,243 23,612
Shares redeemed (241,221) (150,351)
------------ ------------
Net increase in shares outstanding 2,650,426 1,216,999
============ ============
Proceeds from sale of shares $ 55,823,020 $ 22,912,250
Value of reinvested dividends 2,152,945 378,826
Cost of shares redeemed (4,872,187) (2,543,386)
------------ ------------
Net increase from capital share transactions $ 53,103,778 $ 20,747,690
============ ============
</TABLE>
31
<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 $186,927,340 and sales of investment securities
aggregated $29,226,279 for the year ended March 31, 1998. Purchases of U.S.
government obligations aggregated $11,956,250, and there were no sales of U.S.
government obligations for the period.
On March 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $211,917,936
and aggregate gross unrealized depreciation of all securities in which there is
an excess of tax cost over value was $536,475.
NOTE 5 -- Net Assets
On March 31, 1998, net assets consisted of:
Paid-in capital:
Class A Shares $315,042,826
Class B Shares 53,636,300
Class D Shares 8,382,197
Institutional Shares 85,188,649
Accumulated net realized gain from security transactions 970,908
Unrealized appreciation of investments 211,381,461
Undistributed net investment income 3,766,431
------------
$678,368,772
============
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 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 ICC and a new Sub-Advisory Agreement
among the Fund, ICC and ABIM. The new agreements are substantially the same as
the former agreements.
NOTE 7 -- Federal Tax Information (unaudited)
39.07% of the net investment income dividends paid by the Fund during the
tax year ended March 31, 1998 qualified for the Dividends Received Deduction.
32
<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, 1998 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, 1998 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, 1998, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended 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 1, 1998
33
<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 SCOTT J. LIOTTA
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.
34
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<PAGE>
-------------------------------------------------
This report is prepared for the general
information of shareholders. It is authorized for
distribution to prospective investors only when
preceded or accompanied by an effective
prospectus.
For more complete information regarding
any of the Flag Investors Funds, including
charges and expenses, obtain a prospectus from
your investment representative or directly from
the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
-------------------------------------------------
<PAGE>
FLAG INVESTORS
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
EQUITY INCOME
Flag Investors Real Estate Securities Fund
Flag Investors Communications Fund
(formerly 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.
