<PAGE>
As Filed With the Securities and Exchange Commission on March 10, 1998
Registration No. 33-46279
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 11 [X]
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
One South Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on August 1, 1997 pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on [Date] pursuant to paragraph (a) of rule 485
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<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Class A, Class B and Class C Shares)
Cross Reference Sheet
March 10, 1998
Items Required by Form N-1A
<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights(except Class C
Shares)
Item 4. General Description of Registrant Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered The Fund's Net Asset Value;
How to Buy Shares; How to
Choose the Class of Shares
That Is Right for You;
Dealer Compensation
Item 8. Redemption or Repurchase How to Redeem Shares; Telephone
Transactions
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Control Persons and
Holders of Securities Principal Holders of
Securities
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent and
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares; Semi-Annual Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements(except Class C
Shares)
Part C Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
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[LOGO]
VALUE BUILDER FUND, INC.
(Class A, Class B and Class C Shares)
Prospectus & Application -- , 1998
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This mutual fund (the "Fund") is designed to maximize total return through a
combination of long-term growth of capital and current income.
Shares of the Fund are available through your securities dealer or the Fund's
transfer agent. This Prospectus relates to Flag Investors Class A Shares
("Class A Shares"), Flag Investors Class B Shares ("Class B Shares") and Flag
Investors Class C Shares ("Class C Shares") of the Fund. The separate classes
provide you with alternatives as to sales load and Fund expenses. (See "How to
Buy Shares.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A
Statement of Additional Information dated August 1, 1997, as supplemented
through ______, 1998, has been filed with the Securities and Exchange Commission
(the "SEC") and is hereby incorporated by reference. It is available upon
request and without charge by calling the Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fee Table .................................. 1
Financial Highlights ....................... 2
Investment Program ......................... 3
Investment Restrictions .................... 4
The Fund's Net Asset Value ................. 5
How to Buy Shares .......................... 5
How to Redeem Shares ....................... 7
Telephone Transactions ..................... 8
How to Choose the Class
That Is Right For You ................... 9
Dealer Compensation ........................ 9
Dividends and Taxes ........................ 9
Management of the Fund ..................... 10
Investment Advisor and Sub-Advisor ......... 10
Distributor ................................ 11
Custodian, Transfer Agent and
Accounting Services ..................... 12
Performance Information .................... 12
General Information ........................ 12
Application ................................ A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
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FEE TABLE
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Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Class A
Shares
Initial Sales
Charge
Alternative
---------------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................ 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends ................ None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is lower) ......... 0.50%*
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees ..................................................... 0.82%
12b-1 Fees .......................................................... 0.25%
Other Expenses (including a .25% shareholder servicing
fee for Class B and Class C Shares) ................................ 0.20%
------
Total Fund Operating Expenses ....................................... 1.27%
======
Class B Class C
Shares Shares
Deferred Level
Sales Charge Sales Charge
Alternative Alternative
--------------------- ---------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................ None None
Maximum Sales Charge Imposed on Reinvested Dividends ................ None None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is lower) ......... 4.00%** 1.00%***
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees ..................................................... 0.82% 0.82%
12b-1 Fees .......................................................... 0.75% 0.75%
Other Expenses (including a .25% shareholder servicing
fee for Class B and Class C Shares) ................................ 0.45%**** 0.45%****
Total Fund Operating Expenses ....................................... 2.02% 2.02%
======= =======
</TABLE>
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* If you purchase $1 million or more of Class A Shares, you will not have
to pay an initial sales charge. You may, however, be required to pay a
contingent deferred sales charge when you redeem your shares. (See "How
to Buy Shares" and "How to Redeem Shares.")
** You will be required to pay a contingent deferred sales charge if you
redeem your Class B Shares within six years of purchase. The amount of
the charge declines in relation to the time you hold your shares. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Redeem Shares.")
*** You will be required to pay a contingent deferred sales charge if you
redeem your Class C Shares within one year after purchase. (See "How to
Redeem Shares.")
**** A portion of the shareholder servicing fee is allocated to your
securities dealer and qualified banks for services provided and expenses
incurred in maintaining your account, responding to your inquiries and
providing you with information about your investment.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
Class A Shares ......................................... $57 $83 $112 $191
Class B Shares* ........................................ $61 $93 $129 $198*
Class C Shares ......................................... $31 $63 N/A N/A
You would pay the following expenses on the same
investment, assuming no redemption:
Class B Shares* ........................................ $21 $63 $109 $198*
Class C Shares ......................................... $21 $63 N/A N/A
</TABLE>
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*Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class B
expenses and four years of Class A expenses.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear directly and indirectly when you invest in the
Fund. If you purchase shares of any class through a financial institution, you
may be charged separate fees by that institution. (For more complete
descriptions of the various costs and expenses, see "How to Buy Shares,"
"Investment Advisor and Sub-Advisor" and "Distributor.") The Expenses and
Example for the Class C Shares, which have not been offered prior to the date
of this Prospectus, are expected to be the same as those incurred by the Class
B Shares.
The rules of the SEC require that the maximum sales charge be reflected
in the above table. However, you may qualify for reduced sales charges or no
sales charge at all. (See "How to Buy Shares -- Purchases at Net Asset
Value.") Due to the continuous nature of Rule 12b-1 fees, you may pay more
than the equivalent of the maximum sales charges permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc. ("NASD Rules")
if you hold your shares for a long time.
1
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<PAGE>
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FINANCIAL HIGHLIGHTS
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The financial highlights included in the following tables are a part of
the Fund's financial statements for the Class A and Class B Shares for the
periods indicated and, except for the unaudited financial statements for the
six-month period ended September 30, 1997, have been audited by Coopers &
Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended March 31, 1997 and the report
thereon of Coopers & Lybrand L.L.P. and the unaudited financial statements and
financial highlights for the six-month period ended September 30, 1997 are
included in the Statement of Additional Information. Additional performance
information for the Class A and Class B Shares is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1997 and its Semi-Annual
Report for the six-month period ended September 30, 1997, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG. The Class C
Shares were not offered prior to the date of this Prospectus.
(For a share outstanding throughout each period)
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<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------
For the Six
Months Ended For the Year Ended March 31,
September 30, 1997 ------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
-------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ........... $ 17.14 $ 14.68 $ 12.02 $ 11.23 $ 11.25
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .......... 0.23 0.39 0.36 0.35 0.40
Net realized and unrealized
gain/(loss) on investments .... 3.07 2.49 3.03 0.80 (0.04)
------- ------- ------- ------- -------
Total from Investment
Operations .................... 3.30 2.88 3.39 1.15 0.36
Less Distributions:
Distributions from net
investment income and
net realized short-term
gains ......................... (0.21) (0.36) (0.41) (0.35) (0.38)
Distributions from net realized
long-term gains ............... -- (0.06) (0.32) (0.01) --
------- ------- ------- ------- -------
Total distributions ............ (0.21) (0.42) (0.73) (0.36) (0.38)
------- ------- ------- ------- -------
Net asset value at end of
period ........................ $ 20.23 $ 17.14 $ 14.68 $ 12.02 $ 11.23
======= ======= ======= ======= =======
Total Return(2) ................. 19.42% 19.90% 28.86% 10.57% 3.14%
Ratios to Average Daily
Net Assets:
Expenses(3) .................... 1.15%(4) 1.27% 1.31% 1.35% 1.35%
Net investment income(5) ....... 2.52%(4) 2.51% 2.72% 3.07% 3.14%
Supplemental Data:
Net assets at end of period
(000) ......................... $374,094 $278,130 $200,020 $146,986 $131,097
Portfolio turnover rate ........ 6%(4) 13% 15% 18% 8%
Average commissions per
share(6) ...................... $ 0.057 $ 0.066 -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
------------------ For the Period
For the Period For the Six Class B Shares January 3, 1995(1)
June 15, 1992(1) Months Ended For the Year Ended March 31,
through September 30, 1997 ------------------------- through
March 31, 1993 (Unaudited) 1997 1996 March 31, 1995
------------------ -------------------- ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ........... $ 10.00 $ 17.16 $ 14.71 $ 12.01 $ 11.14
--------- ------- ------- -------- ----------
Income from Investment
Operations:
Net investment income .......... 0.18 0.17 0.26 0.21 0.08
Net realized and unrealized
gain/(loss) on investments .... 1.18 3.07 2.51 3.05 0.79
--------- ------- ------- -------- ----------
Total from Investment
Operations .................... 1.36 3.24 2.77 3.26 0.87
Less Distributions:
Distributions from net
investment income and
net realized short-term
gains ......................... (0.11) (0.16) (0.26) (0.24) --
Distributions from net realized
long-term gains ............... -- -- (0.06) (0.32) --
--------- ------- ------- -------- ----------
Total distributions ............ (0.11) (0.16) (0.32) (0.56) --
--------- ------- ------- -------- ----------
Net asset value at end of
period ........................ $ 11.25 $ 20.24 $ 17.16 $ 14.71 $ 12.01
========= ======= ======= ======== ==========
Total Return(2) ................. 13.73% 19.01% 19.00% 27.89% 7.81%
Ratios to Average Daily
Net Assets:
Expenses(3) .................... 1.35%(4) 1.90%(4) 2.02% 2.06% 2.10%(4)
Net investment income(5) ....... 2.88%(5) 1.77%(4) 1.84% 1.97% 2.94%(4)
Supplemental Data:
Net assets at end of period
(000) ......................... $ 83,535 $38,612 $ 17,311 $ 4,178 $ 341
Portfolio turnover rate ........ 8% 6%(4) 13% 15% 18%
Average commissions per
share(6) ...................... -- $ 0.057 $ 0.066 -- --
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 1.40%, 1.38% and 1.70% (annualized) for
Class A Shares for the years ended March 31, 1995, March 31, 1994 and the
period ended March 31, 1993, respectively, and 2.17% (annualized) for
Class B Shares for the period ended March 31, 1995.
(4) Annualized.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 3.02%, 3.11% and 2.53%
(annualized) for Class A Shares for the years ended March 31, 1995, March
31, 1994 and the period ended March 31, 1993, respectively, and 2.87%
(annualized) for Class B Shares for the period ended March 31, 1995.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
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<PAGE>
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INVESTMENT PROGRAM
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Investment Objective, Policies and Risk
Considerations
The Fund's investment objective is to maximize total return through a
combination of long-term growth of capital and current income. The Fund seeks
to achieve this objective through a policy of diversified investments in
equity and debt securities, including common stocks, convertible securities
and government and corporate fixed-income obligations. There can be no
assurance, however, that the Fund will achieve its investment objective.
The Fund's investment advisor (the "Advisor") and the Fund's sub-advisor
(the "Sub-Advisor") (collectively, the "Advisors") are responsible for
managing the Fund's investments. (See "Investment Advisor and Sub-Advisor.")
The Advisors consider both the opportunity for gain and the risk of loss in
making investments, and may alter the relative percentages of assets invested
in equity and fixed-income securities from time to time, depending on the
judgment of the Advisors as to general market and economic conditions, trends
in yields and interest rates and changes in fiscal and monetary policies.
Under normal market conditions, between 40% and 75% of the Fund's total
assets will be invested in common stock and other equity investments
(including preferred stocks, convertible debt, warrants and other securities
convertible into or exchangeable for common stocks). In selecting securities
for the Fund's portfolio, the Advisors expect to apply a "flexible value"
approach to the selection of equity investments. Under this approach, the
Advisors will attempt to identify securities that are undervalued in the
marketplace, but will also consider such factors as current and expected
earnings, dividends, cash flows and asset values in their evaluation of a
security's investment potential.
At least 25% of the Fund's total assets will be invested in fixed-income
securities, defined for this purpose to include non-convertible corporate debt
securities, non-convertible preferred stock and government obligations. The
average maturity of these investments will vary from time to time depending on
the Advisors' assessment of the relative yields available on securities of
different maturities. It is currently anticipated that the average maturity of
the fixed-income securities in the Fund's portfolio will be between two and
ten years under normal market conditions. In general, non-convertible
corporate debt obligations held in the Fund's portfolio will be rated, at the
time of purchase, BBB or higher by Standard & Poor's Ratings Group ("S&P") or
Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated by
S&P or Moody's, determined to be of comparable quality by the Advisors under
criteria approved by the Board of Directors. Investment grade securities
(securities rated BBB or higher by S&P or Baa or higher by Moody's) are
generally thought to provide the highest credit quality and the smallest risk
of default. Securities rated BBB by S&P or Baa by Moody's have speculative
characteristics. Up to 10% of the Fund's assets may be invested in lower
quality debt obligations (securities rated BB or lower by S&P or Ba or lower
by Moody's). Securities that were investment grade at the time of purchase,
but are subsequently downgraded to BB, Ba or lower will be included in the 10%
category. In the event that any security owned by the Fund is downgraded, the
Advisors will review the situation and take appropriate action, but will not
be required to sell any such security. If such a downgrade causes the 10%
limit to be exceeded, the Fund will be precluded from investing further in
below investment grade debt securities. (See "Investments in Non-Investment
Grade Securities" below.)
The Fund may also purchase obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including certain
mortgage-related debt securities), and may invest in high quality short-term
debt securities such as commercial paper rated A-1 or A-1+ by S&P or P-1 by
Moody's.
Investments in Non-Investment Grade
Securities
Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. Securities in the lowest rating
category that the Fund may purchase (secur-ities rated D by S&P or C by
Moody's) may present a particular risk of default, or may be in default and in
arrears in payment of principal and interest. In addition, C- or D-rated
securities may be regarded as having extremely poor prospects of ever
attaining investment standing. Yields and market values of these bonds will
fluctuate over time, reflecting changing interest rates and the market's
perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, lower rated bonds may decline
in value, regardless of prevailing interest rates. Accordingly, adverse
economic developments, including a recession or a substantial
3
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<PAGE>
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period of rising interest rates, may disrupt the high- yield bond market,
affecting both the value and liquidity of such bonds. The market prices of
these securities may fluctuate more than those of higher rated securities and
may decline significantly in periods of general economic difficulty, which may
follow periods of rising interest rates. An economic downturn could adversely
affect the ability of issuers of such bonds to make payments of principal and
interest to a greater extent than issuers of higher rated bonds might be
affected. The ratings categories of S&P and Moody's are described more fully
in the Appendix to the Statement of Additional Information.
The following table provides a summary of ratings assigned by S&P to
debt obligations in the Fund's portfolio. These figures are dollar-weighted
averages of month-end portfolio holdings during the fiscal year ended March
31, 1997, presented as a percentage of total investments. These percentages
are historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
S&P Rating Average
------------- ----------
AAA 0.72%
AA 0.53%
A 3.43%
BBB 9.05%
BB 5.40%
B 2.99%
Unrated 0.00%
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks or broker-dealers subject
to the seller's agreement to repurchase the securities at an established time
and price. Default by or bankruptcy proceedings with respect to the seller
may, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.
Investments in Securities of Foreign Issuers
From time to time, the Fund may invest in American Depositary Receipts,
which are interests in securities of foreign companies, and up to 10% of the
Fund's total assets in debt and equity securities of foreign issuers not
publicly traded in the United States when the Advisors believe that such
investments provide good opportunities for achieving income and capital gains
without undue risk. Nevertheless, foreign investments involve different risks
from investments in the United States, including currency market and political
risks. Accordingly, the Advisors intend to seek securities of companies in,
and governments of, developed, stable nations.
Other Investments
For temporary, defensive purposes the Fund may invest up to 100% of its
assets in high quality short-term money market instruments, and in notes or
bonds issued by the U.S. Treasury Department or by other agencies of the U.S.
Government.
The Fund may write covered call options on common stock that it owns or
has the immediate right to acquire through conversion or exchange of other
securities, provided that any such option is traded on a national securities
exchange. The Fund may also enter into closing transactions with respect to
such options.
In addition, the Fund may invest up to 10% of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, provided that no more than 5% of its total assets may be
invested in restricted securities. Not included within this limitation are
securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act"), but that can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act, if the securities are
determined to be liquid. The Board of Directors has adopted guidelines and
delegated to the Advisors, subject to the supervision of the Board of
Directors, the daily function of determining and monitoring the liquidity of
Rule 144A securities. Rule 144A securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions recited below are matters of fundamental
policy and may not be changed without shareholder approval. Accordingly, the
Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an industry);
2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer; or
4
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<PAGE>
- --------------------------------------------------------------------------------
3) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for these purposes the
U.S. Government and its agencies and instrumentalities are not considered
an issuer).
The Fund is subject to further investment restrictions that are set
forth in the Statement of Additional Information.
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The following sections describe how to buy and redeem shares of the
Fund.
The price you pay or receive is based on the Fund's net asset value per
share. When you buy Class A Shares, the price you pay may be increased by a
sales charge. When you redeem shares of any of the classes, the price you
receive may be reduced by a sales charge. Read the sections on how to buy
shares and how to redeem shares for details on how and when these charges may
or may not be imposed.
The net asset value per share of each class is determined on each
business day as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. Eastern Time). It is calculated by subtracting the
liabilities attributable to a class from its proportionate share of the Fund's
assets and dividing the result by the outstanding shares of the class. Because
the different classes have different distribution or service fees, their net
asset values may differ from time to time.
In valuing the Fund's assets, its investments are priced at their market
value which is normally based on current prices but which may be determined
according to "fair value" procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may buy any class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may
be as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan,
your initial investment may be as low as $250. If you participate in
the monthly plan, your subsequent investments may be as low as $100.
If you participate in the quarterly plan, your subsequent
investments may be as low as $250. Refer to the section on the
Fund's Automatic Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value
per share of
5
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<PAGE>
- --------------------------------------------------------------------------------
the class you are buying. The amount of any sales charge included in your
purchase price will be according to the following schedule.
<TABLE>
<CAPTION>
Class A Sales
Charge As % of
-------------------------
Offering Net Amount Class B Sales Class C Sales
Amount of Purchase Price Invested Charge Charge
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $ 50,000 ......... 4.50% 4.71% None None
$ 50,000 - $ 99,999.......... 3.50% 3.63% None None
$ 100,000 - $249,999 ......... 2.50% 2.56% None None
$ 250,000 - $499,999 ......... 2.00% 2.04% None None
$ 500,000 - $999,999.......... 1.50% 1.52% None None
$1,000,000 and over ........... None None None None
- ---------------------------------------------------------------------------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B or
Class C Shares, you may have to pay a sales charge when you redeem your
shares. Refer to the section on how to redeem shares for details.
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
Rights of Accumulation. If you are also purchasing Class A shares of
this or any other Flag Investors fund or if you already have investments in
Class A or Class D shares, you may combine the value of your purchases with
the value of your existing investments to determine whether you qualify for a
reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under
the age of 21 for this purpose. You must be able to provide sufficient
information to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class
A Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to
initially purchase at least 5% of the total. When you make each purchase
during the period, you will pay the sales charge applicable to their combined
value. If, at the end of the 13-month period, the total value of your
purchases is less than the amount you indicated, you will be required to pay
the difference between the sales charges you paid and the sales charges
applicable to the amount you actually did purchase. Some of the shares you own
will be redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are buying shares in any of the following types of accounts:
(i) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional
fee by your securities dealer or servicing agent if you buy shares
in this manner;
(ii) A qualified retirement plan;
(iii) A Flag Investors fund payroll savings plan program.
2) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
3) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
4) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Distributor, the Advisors
and any broker-dealer authorized to sell shares of the Fund.
<PAGE>
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an equal dollar amount of Class A, B or C Shares,
as applicable, without payment of the sales charges described above or any
other charge. If you exchange Class A shares of any Flag Investors fund with a
lower sales charge structure into Class A Shares, you will be charged the
difference in sales charges unless (with the exception of Flag Investors Cash
Reserve Prime Class A Shares) you have owned the shares for at least 24
months. You may enter both your redemption and purchase orders on the same
Business Day or, if you have already redeemed the shares of the other fund,
you may enter your purchase order within 90 days of the redemption.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
The Fund may modify or terminate this offer upon 60 days' notice.
6
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<PAGE>
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Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you
need any additional information, complete the appropriate section of the
attached Application Form or contact your securities dealer, your servicing
agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in any class of shares. The amount you decide upon will
be withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Fund shares at
net asset value. You may elect to receive your distributions in cash or to
have your distributions invested in shares of other Flag Investors funds. To
make either of these elections or to terminate automatic reinvestment,
complete the appropriate section of the attached Application Form or notify
the Transfer Agent, your securities dealer or your servicing agent at least
five days before the date on which the next dividend or distribution will be
paid.
Systematic Purchase Plan. You may also purchase any class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem any class of the Fund's shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If your shares are in an
account with the Fund, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. The letter must be signed by
all owners of the shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature by
a member of the Federal Deposit Insurance Corporation, a trust company,
broker, dealer, securities exchange or association, clearing agency,
savings association or (if authorized by state law) credit union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
<PAGE>
Redemption Price
The price you receive when you redeem shares will be the net asset value
of the class of shares you are redeeming less any applicable sales charge. The
amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
- -----------------------------------------------------------------------
Class A Class B Class C
Years Since Purchase Shares Shares Shares
- -----------------------------------------------------------------------
First ................ 0.50%* 4.0% 1.00%
Second ............... 0.50%* 4.0% None
Third ................ None 3.0% None
Fourth ............... None 3.0% None
Fifth ................ None 2.0% None
Sixth ................ None 1.0% None
Thereafter ........... None None None
- -----------------------------------------------------------------------
* You will pay a sales charge when you redeem Class A Shares only if you
bought those shares at net asset value as part of an investment of
$1,000,000 or more.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) The sales charge is applied to the lesser of the cost of the shares or
their current market value.
2) No sales charge will be applied to shares you owned as a result of
reinvesting dividends or distributions.
3) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
4) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of
7
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<PAGE>
- --------------------------------------------------------------------------------
time you held the original shares will be combined with the period of time
you held the shares being redeemed to determine the years since purchase.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag Investors
fund with the same sales charge structure.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a
joint tenant with rights of survivorship, as a participant in
community property, or as a minor child under the Uniform Gifts or
Uniform Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances
exist.
4) If you are redeeming Class A Shares, your original investment was at
least $3,000,000 and your securities dealer has agreed to return to the
Fund's distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will
be automatically converted to Class A Shares six years after your purchase.
This conversion will be made on the basis of the relative net asset values of
the classes and will not be a taxable event to you.
Other Redemption Information
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves
all the tax and sales charge implications normally associated with Fund
redemptions. Contact your securities dealer, your servicing agent or the
Transfer Agent for information on this plan.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time,
the dividend will be paid to you by check, whether or not that is the payment
option you have selected.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you
60 days' notice.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically
entitled to telephone transaction privileges unless you specifically request
that no telephone redemptions or exchanges be accepted for your account. You
may make this election when you complete the Application Form or at any time
thereafter by completing and returning documentation supplied by the Transfer
Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information at the
time your account is opened and prior to effecting each telephone transaction.
You may be required to provide additional telecopied instructions. If these
procedures are employed, neither the Fund nor the Transfer Agent will bear any
liability for following instructions received by telephone that they
reasonably believe to be genuine. Your telephone transaction request will be
recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your shares in certificate form,
you may not exchange or redeem them by telephone.
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
- --------------------------------------------------------------------------------
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares
and, except in the case of investments of $1,000,000 or more, no sales charge
if you redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within six years of
purchase, but the amount of the charge declines the longer you hold your
shares and, at the end of six years, your shares convert to Class A Shares
thus eliminating the higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy
your shares or if you redeem them after holding them for at least a year. On
the other hand, expenses on Class C Shares are the same as those on Class B
Shares and, since there is no conversion to Class A Shares at the end of six
years, the higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $100,000 your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
If you intend to buy less than $100,000 and expect to hold your shares for
less than six years, your combined sales charges and expenses are lower with
Class C Shares.
Your securities dealer or servicing agent may receive different levels
of compensation depending upon which class of shares you buy.
DEALER COMPENSATION
- --------------------------------------------------------------------------------
Your securities dealer is paid a commission when you buy shares and is
paid a servicing fee for as long as you hold your shares.
<TABLE>
<CAPTION>
Dealer Compensation as a % of Offering Price
-----------------------------------------------------
Amount of Purchase Class A Shares Class B Shares Class C Shares
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 ........... 4.00% 4.00% 1.00%
$ 50,000 - $ 99,000 .......... 3.00% 4.00% 1.00%
$ 100,000 - $249,000.......... 2.00% 4.00% 1.00%
$ 250,000 - $499,000 ......... 1.50% 4.00% 1.00%
$ 500,000 - $999,999.......... 1.25% 4.00% 1.00%
$1,000,000 and over .......... * 4.00% 1.00%
- --------------------------------------------------------------------------------------
</TABLE>
* Your securities dealer may be paid up to 1.00% of the Offering Price
In addition to the commissions shown above, when you buy your shares,
your securities dealer may be paid an annual fee equal to 0.25% of the value
of your Class A Shares or Class B Shares and an annual fee equal to 1.00% of
the value of your Class C Shares. The annual fee for the Class A and Class B
Shares will begin when you buy your shares. The annual fee for the Class C
Shares will begin one year after you buy your shares.
<PAGE>
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The Fund
may distribute to shareholders any taxable net capital gains on an annual
basis or, alternatively, may elect to retain net capital gains and pay tax
thereon.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its shareholders is based on current tax laws and
regulations, which may be changed by legislative, judicial, or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or the shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are advised to consult your tax advisor regarding specific
questions as to federal, state and local income taxes.
The Statement of Additional Information sets forth further information
concerning taxes.
9
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<PAGE>
- --------------------------------------------------------------------------------
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund qualifies for this tax treatment, it
will be relieved of federal income tax on amounts distributed to shareholders.
Unless you are otherwise exempt, you will be generally subject to income tax
on the amounts distributed to you, regardless of whether such distributions
are paid in cash or reinvested in additional shares.
You will be taxed on distributions from the Fund out of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, as gains from the sale of a capital asset held for more than
twelve months regardless of the length of time you have held the shares. You
will be taxed on all other income distributions as ordinary income. Corporate
shareholders may be entitled to the dividends received
deduction on a portion of dividends received from the Fund. You will be advised
annually as to the tax status of all distributions.
Ordinarily, you should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be
deemed for tax purposes to have been received by you and paid by the Fund in
the year in which the dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of Fund shares is a taxable event for
you.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Advisors and to the Distributor. A majority
of the Directors of the Fund have no affiliation with the Advisors or the
Distributor.
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the "Sub-
Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown
Cash Reserve Fund, Inc., which funds, together with the Fund, had
approximately $6.5 billion of net assets as of December 31, 1997. ABIM is a
registered investment advisor with approximately $7.2 billion under management
as of December 31, 1997.
Pursuant to the terms of the Investment Advisory Agreement, ICC
supervises and manages all of the Fund's operations. Under the Investment
Advisory and Sub-Advisory Agreements, ICC delegates to ABIM certain of its
duties, provided that ICC continues to supervise the performance of ABIM and
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to certain affiliates, provided that compensation on
each transaction is reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other broker-dealers in
connection with comparable transactions involving similar securities during a
comparable period of time. In addition, consistent with NASD Rules, and
subject to seeking the most favorable price and execution available and such
other policies as the Board may determine, ABIM may consider services in
connection with the sale of shares as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
As compensation for its services for the fiscal year ended March 31,
1997, ICC received from the Fund a
10
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<PAGE>
- --------------------------------------------------------------------------------
fee equal to 0.82% of the Fund's average daily net assets and, for the same
period, ICC paid ABIM a fee equal to 0.60% of the Fund's average daily net
assets.
ICC is an indirect subsidiary of Bankers Trust New York Corporation.
ABIM is a limited partnership affiliated with the Advisor. Buppert, Behrens &
Owen, Inc., a company organized and owned by three employees of ABIM, owns a
49% limited partnership interest and a 1% general partnership interest in
ABIM. BT Alex. Brown Incorporated ("BT Alex. Brown") owns a 1% general
partnership interest in ABIM and BT Alex. Brown Holdings, Inc. owns the
remaining 49% limited partnership interest.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting ser-vices to the Fund. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting
Services.")
Portfolio Manager
Mr. Hobart C. Buppert, II has primary responsibility for managing the
Fund's assets. From the Fund's inception until July 31, 1997, he shared that
responsibility with Messrs. J. Dorsey Brown, III and Lee S. Owen.
Hobart C. Buppert, II -- 25 Years Investment Experience
Mr. Buppert has been a Vice President of ABIM since 1980. Prior to
joining ABIM, Mr. Buppert worked as a Portfolio Manager for T. Rowe Price
Associates from 1976 to 1980 and as a Portfolio Manager and Research Analyst
for the Equitable Trust Company from 1972 to 1976. Mr. Buppert received his
B.A. and M.B.A. degrees from Loyola College in 1970 and 1974, respectively. He
is a member of the Baltimore Security Analysts Society and the Financial
Analysts Federation.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Effective August 31, 1997, ICC Distributors, Inc. ("ICC Distributors" or
the "Distributor") acts as distributor of each class of the Fund's shares. ICC
Distributors is a registered broker-dealer that offers distribution services
to a variety of registered investment companies including other funds in the
Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund, Inc. ICC
Distributors is not affiliated with either the Advisor or the Sub-Advisor.
The Fund has adopted a Distribution Agreement and related Plans of
Distribution with respect to the Class A Shares, the Class B Shares and the
Class C Shares (the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended. In addition, the Fund may enter into
agreements with certain financial institutions, including certain banks and BT
Alex. Brown, to provide shareholder services, pursuant to which the
Distributor may allocate on a proportional basis up to all of its distribution
fee as compensation for such financial institutions' ongoing shareholder
services. Such financial institutions may charge you separately for these
services.
As compensation for providing distribution services for the Class A
Shares, ICC Distributors receives a fee equal to 0.25% of the average daily
net assets of the Class A Shares.
As compensation for providing distribution and shareholder services for
each of the Class B Shares and the Class C Shares, ICC Distributors receives a
distribution fee equal to 0.75% of the related class' average daily net assets
and a shareholder servicing fee equal to 0.25% of the related class' average
daily net assets. The distribution fees are used to compensate the Distributor
for its services and expenses in distributing the Class B Shares and the Class
C Shares. The shareholder servicing fees are used to compensate the
Distributor, securities dealers and Shareholder Servicing Agents for services
provided and expenses incurred in maintaining your account, responding to your
inquiries and providing you with information on your investments.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used
to pay the Distributor's overhead expenses. If the cost of providing
distribution services to the Fund is less than the payments received, the
unexpended portion of the distribution fees may be retained as profit by the
Distributor. ICC Distributors or the Advisor and their respective affiliates
may make payments from their own resources to Participating Dealers and
Shareholder Servicing Agents. Payments by the Distributor will include
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel).
11
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<PAGE>
- --------------------------------------------------------------------------------
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended March
31, 1997, ICC received a fee equal to 0.03% of the Fund's average daily net
assets. Bankers Trust Company, a subsidiary of Bankers Trust New York
Corporation, acts as custodian of the Fund's assets. (See the Statement of
Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares or Class C Shares redeemed at the end of the specified period covered
by the total return figure, over one-, five- and ten-year periods or, if such
periods have not yet elapsed, shorter periods corresponding to the life of the
Fund. Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value, net of the
maximum sales charge and other fees according to the required standardized
calculation. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation. If the Fund compares its performance to
other funds or to relevant indices, the Fund's performance will be stated in
the same terms in which such comparative data and indices are stated, which is
normally total return rather than yield. For these purposes, the per- formance
of the Fund, as well as the performance of such investment companies or
indices, may not reflect sales charges, which, if reflected, would reduce
performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, long-term U.S. Treasury bonds, bank certificates of deposit,
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
The Fund may also use total return performance data as reported in the
following national financial and industry publications that monitor the
performance of mutual funds: Money Magazine, Forbes, Business Week, Barron's,
Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate, and any statement of performance should not
be considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by your bank with respect to the account
through which your shares may be purchased, although not included in
calculations of performance, will reduce your performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end, diversified management investment company,
organized under the laws of the State of Maryland on March 5, 1992 and is
authorized to issue 90 million shares of capital stock, with a par value of
$.001 per share. Shares of the Fund have equal rights with respect to voting.
Voting rights are not cumulative, so the holders of more than 50% of the
outstanding shares voting together for the election of Directors may elect all
the members of the Board of Directors of the Fund. In the event of liquidation
or dissolution of the Fund, each share is entitled to its pro rata portion of
the Fund's assets after all debts and expenses have been paid. The fiscal
year-end of the Fund is March 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have
12
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<PAGE>
- --------------------------------------------------------------------------------
been designated: "Flag Investors Value Builder Fund Class A Shares", "Flag
Investors Value Builder Fund Class B Shares" and "Flag Investors Value Builder
Fund Class C Shares." The Board has no present intention of establishing any
additional series of the Fund, but the Fund does have two other classes of
shares in addition to the shares offered hereby: "Flag Investors Value Builder
Fund Class D Shares," which are not currently being offered, and "Flag
Investors Value Builder Fund Institutional Shares." Additional information
concerning the Fund's Institutional Shares may be obtained by calling the
Distributor at (800) 767-FLAG. Different classes of the Fund may be offered to
certain investors and holders of such shares may be entitled to certain
exchange privileges not offered to other classes of shares. All classes of the
Fund share a common investment objective, portfolio of investments and
advisory fee, but the classes may have different distribution/service fees or
sales load structures and, accordingly, the net asset value per share of
classes may differ at times.
Annual Meetings
Unless required by applicable Maryland law, the Fund does not expect to
hold annual meetings of share-holders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
Reports
You will be furnished with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, Coopers & Lybrand L.L.P.
Shareholder Inquiries
If you have questions concerning your shares, you should contact the
Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or your
securities dealer or Shareholder Servicing Agent.
13
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<PAGE>
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FLAG INVESTORS VALUE BUILDER FUND, INC.
NEW ACCOUNT APPLICATION
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<TABLE>
<CAPTION>
<S> <C>
Make check payable to "Flag Investors Value Builder For assistance in completing this Application please call:
Fund, Inc." and mail with this Application to: 1-800-553-8080, Monday through Friday, 8:30 a.m. to 5:30 p.m.
Flag Investors Funds (Eastern Time).
P.O. Box 419663
Kansas City, MO 64141-6663 To open an IRA account, please call 1-800-767-3524 for an IRA
Attn: Flag Investors Value Builder Fund, Inc. information kit.
</TABLE>
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of $______
[ ] Class B Shares (4.0% maximum contingent deferred sales charge) in the
amount of $________
[ ] Class C Shares (1.0% maximum contingent deferred sales charge) in the
amount of $________
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The minimum initial purchase for each class of shares is $2,000, except that
the minimum initial purchase for shareholders of any other Flag Investors Fund
or class is $500 and the minimum initial purchase for participants in the
Fund's Automatic Investing Plan is $250 per class. The Fund reserves the right
not to accept checks for more than $50,000 that are not certified or bank
checks.
Your Account Registration (Please Print)
Existing Account No., if any: ___________________
Individual or Joint Tenant
- ---------------------------------------------
First Name Initial Last Name
- ---------------------------------------------
Social Security Number
- ---------------------------------------------
Joint Tenant Initial Last Name
<PAGE>
Corporations, Trusts, Partnerships, etc.
- ---------------------------------------------
Name of Corporation, Trust or Partnership
- -------------------- ---------------------
Tax ID Number Date of Trust
- ---------------------------------------------
Name of Trustees (If to be included in the
Registration)
- ---------------------------------------------
For the Benefit of
Gifts to Minors
- ---------------------------------------------
Custodian's Name (only one allowed by law)
- ---------------------------------------------
Minor's Name (only one)
- ---------------------------------------------
Social Security Number of Minor
under the __________________ Uniform Gifts to Minors Act
State of Residence
Mailing Address
- ---------------------------------------------
Street
- ---------------------------------------------
City State Zip
( )
- --------------------------------------
Daytime Phone
<PAGE>
Letter of Intent (Class A Shares only) (Optional)
[ ] I agree to the Letter of Intent and Escrow Arrangement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Value
Builder Fund, Inc., in an aggregate amount at least equal to
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your
immediate family already own that qualify for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
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Distribution Options
Please check the appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the same class of the
Fund at no sales charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
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<PAGE>
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Automatic Investing Plan (Optional)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_______ in Class A Shares or $_______ in Class B Shares or $_______ in
Class C Shares for me, on a monthly or quarterly basis, on or about the 20th
of each month or, if quarterly, the 20th of January, April, July and October,
and to draw a bank draft in payment of the investment against my checking
account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class [ ] Monthly ($100 minimum per class)
Subsequent Investments (check one): [ ] Quarterly ($250 minimum per class)
Please attach a voided check.
- ------------------------------------ -----------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------ -----------------------------------------
Existing Flag Investors Fund Account Depositor's Signature Date
No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of __________ , 19__ please send me checks on a monthly
or quarterly basis, as indicated below, in the amount of (complete as
applicable) $________ , from Class A Shares and/or $_______ from Class B Shares
and/or $___________ from Class C Shares that I own, payable to the account
registration address as shown above. (Participation requires minimum account
value of $10,000 per class.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April, July and
October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: [ ] Telephone exchange privileges [ ] Telephone
redemption privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank:________________________ Bank Account No.:____________________
Address:________________________ Bank Account Name:____________________
________________________
<PAGE>
Signature and Taxpayer Certification
- -------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against
your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080).
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:___________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
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I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be
effected as described in the Fund's current prospectus (see "Telephone
Transactions"). I also acknowledge that I may bear the risk of loss in the
event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
- -------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision
of this document other than the certifications required to avoid backup
withholding.
- -------------------------------------------------------------------------------
- --------------------------- --------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ______________________ Dealer Code:_________________________
Dealer's Address: ______________________ Branch Code:_________________________
______________________
Representative: ______________________ Rep. No.: _________________________
A-2
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<PAGE>
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FLAG INVESTORS VALUE BUILDER FUND, INC.
(Class A, Class B and Class C Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ICC DISTRIBUTORS, INC.
One South Street P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. COOPERS & LYBRAND L.L.P.
One South Street 2400 Eleven Penn Center
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Institutional Shares)
Cross Reference Sheet
March 10, 1998
Items Required by Form N-1A
<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Institutional Shares
Item 8. Redemption or Repurchase How to Redeem Institutional
Shares; Telephone Transactions
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Control Persons and
Holders of Securities Principal Holders of
Securities
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent and
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares; Semi-Annual Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
The prospectus dated August 1, 1997, as supplemented through September 1, 1997,
for the Flag Investors Institutional Shares class of Flag Investors Value
Builder Fund, Inc., filed as part of Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (File No. 33-46279), filed
with the SEC via EDGAR on July 29, 1997 (Accession Number 0000950116-97-001357),
in final form under Rule 497(c) on August 6, 1997 (Accession Number
0000950116-97-001415) and as supplemented under Rule 497(e) on September 2, 1997
(Accession Number 0000950116-97-001627) is incorporated herein by reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------
FLAG INVESTORS VALUE BUILDER FUND, INC.
One South Street
Baltimore, Maryland 21202
----------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS WHICH MAY BE
OBTAINED FROM YOUR PARTICIPATING DEALER OR SHAREHOLDER
SERVICING AGENT OR BY WRITING OR CALLING THE FUND, ONE SOUTH
STREET, BALTIMORE, MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated:
August 1, 1997, as supplemented through __________, 1998,
relating to the Prospectuses Dated:
August 1, 1997, as supplemented through September 1, 1997,
relating to the Institutional Shares and
_________ relating to the Class A, Class B and Class C Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History................................... 1
2. Investment Objective, Policies and Risk Considerations........... 1
3. Valuation of Shares and Redemption................................ 8
4. Federal Tax Treatment of Dividends and
Distributions................................................... 8
5. Management of the Fund............................................ 11
6. Investment Advisory and Other Services............................ 16
7. Distribution of Fund Shares....................................... 17
8. Brokerage......................................................... 21
9. Capital Stock..................................................... 23
10. Semi-Annual Reports............................................... 23
11. Custodian, Transfer Agent and Accounting Services................. 24
12. Independent Accountants........................................... 24
13. Performance Information........................................... 24
14. Control Persons and Principal Holders of
Securities...................................................... 26
15. Financial Statements.............................................. 26
Appendix.......................................................... A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Value Builder Fund, Inc. (the "Fund") is an
open-end management investment company, or mutual fund. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), all mutual
funds are required to furnish prospective investors with certain information
concerning the activities of the company being considered for investment. The
Fund currently offers four classes of shares: Flag Investors Value Builder Fund
Class A Shares (the "Class A Shares"), Flag Investors Value Builder Fund Class B
Shares (the "Class B Shares"); Flag Investors Value Builder Fund Class C Shares
(the "Class C Shares"); and Flag Investors Value Builder Fund Institutional
Shares (the "Institutional Shares") (collectively, the "Shares"). As used
herein, the "Fund" refers to Flag Investors Value Builder Fund, Inc. and
specific references to any class of the Fund's Shares will be made using the
name of such class.
Important information concerning the Fund is included in the
Fund's Prospectuses which may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer Shares
to prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectuses. To
avoid unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement for the Fund and its Shares filed with
the SEC. Copies of the Registration Statement as filed, including such omitted
items, may be obtained from the SEC by paying the charges prescribed under its
rules and regulations.
The Fund was incorporated under the laws of the State of Maryland
on March 5, 1992. The Fund filed a registration statement with the SEC
registering itself as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended, and commenced
operations on June 15, 1992. The Fund commenced offering the Class B Shares on
January 3, 1995 and the Institutional Shares on November 2, 1995. The Class C
Shares have not been offered prior to the date of this Statement of Additional
Information.
For the period from November 9, 1992 through November 18, 1994,
the Fund offered another class of shares: Flag Investors Value Builder Fund
Class D Shares, which were known at the time as Flag Investors Value Builder
Fund Class B Shares and reclassified as Flag Investors Value Builder Fund Class
D Shares on November 18, 1994. Shares of that class are not currently being
offered, although some Class D Shares remain outstanding.
[Under a license agreement dated June 15, 1992 between the Fund
and Alex. Brown & Sons Incorporated, now BT Alex. Brown Incorporated ("BT Alex.
Brown"), BT Alex. Brown licenses to the Fund the "Flag Investors" name and logo
but retains the rights to the name and logo, including the right to permit other
investment companies to use them.]
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to maximize total return
through a combination of long-term capital appreciation and current income. The
Fund seeks to achieve this objective through a policy of diversified investments
in equity and debt securities (including common stocks, convertible securities
and government and corporate fixed-income obligations). Under normal market
conditions,
1
<PAGE>
between 40% and 75% of the Fund's total assets will be invested in equity
securities and at least 25% of the Fund's total assets will be invested in
fixed-income securities, all as more fully described in the Prospectus. In
addition, the Fund may invest in other types of securities, which are also
described in the Prospectus. There can be no assurance that the Fund's
investment objective will be achieved.
In addition to the Fund's investments in corporate and government
fixed-income obligations rated, at the time of purchase, BBB or higher by
Standard & Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors
Service, Inc. ("Moody's"), the Fund may purchase a limited amount, up to 10% of
its total assets, of non-convertible corporate debt obligations that are rated
below investment grade by S&P or Moody's or are unrated by S&P or Moody's and of
similar quality. A description of the rating categories of S&P and Moody's is
set forth in the Appendix to this Statement of Additional Information. The Fund
may also invest up to 5% of its net assets in covered call options as described
below, and an additional 10% of its total assets in the aggregate in equity and
debt securities issued by foreign governments or corporations and not traded in
the United States.
Additional information about certain of the Fund's investment
policies and practices are described below.
Covered Call Options
As a means of protecting the Fund's assets against market
declines, the Fund may write covered call option contracts on certain securities
which it owns or has the immediate right to acquire, provided that the aggregate
value of such options does not exceed 5% of the value of the Fund's net assets
as of the time such options are written. If, however, the securities on which
the calls have been written. appreciate, more than 5% of the Fund's assets may
be subject to the call. The Fund may also purchase call options for the purpose
of terminating its outstanding call option obligations.
When the Fund writes a call option on securities which it owns,
it gives the purchaser of the option the right, but not the obligation, to buy
the securities at the price specified in the option (the "Exercise Price") at
any time prior to the expiration of the option. In call options written by the
Fund, the Exercise Price, plus the option premium paid by the purchaser, will
almost always be greater than the market price of the underlying security at the
time a call option is written. If any option is exercised, the Fund will realize
the gain or loss from the sale of the underlying security and the proceeds of
the sale will be increased by the net premium originally received. By writing a
covered option, the Fund may forego, in exchange for the net premium, the
opportunity to profit from an increase in value of the underlying security above
the Exercise Price. Thus, options will be written when the Fund's investment
advisor (the "Advisor"), or the Fund's sub-advisor (the "Sub-Advisor")
(collectively, the "Advisors"), as appropriate, believe the security should be
held for the long-term but expects no appreciation or only moderate appreciation
within the option period. The Fund also may write covered options on securities
that have a current value above the original purchase price but which, if then
sold, would not normally qualify for a long-term capital gains treatment. Such
activities will normally take place during periods when market volatility is
expected to be high.
Only call options which are traded on a national securities
exchange will be written. Currently, call options may be traded on the Chicago
Board Options Exchange and the American, Pacific, Philadelphia and New York
Stock Exchanges. Call options are issued by The Options Clearing Corporation,
which also serves as the clearing house for transactions with respect to
options. The price of a call option is paid to the writer without refund on
expiration or exercise, and no portion of the price
2
<PAGE>
is retained by The Options Clearing Corporation or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
Call options may be purchased by the Fund, but only to terminate
an obligation as a writer of a call option. This is accomplished by making a
closing purchase transaction, that is, the purchase of a call option on the same
security with the same Exercise Price and expiration date as specified in the
call option which had been written previously. A closing purchase transaction
with respect to calls traded on a national securities exchange has the effect of
extinguishing the obligation of a writer. Although the cost to the Fund of such
a transaction may be greater than the net premium received by the Fund upon
writing the original option, the Directors believe that it is appropriate for
the Fund to have the ability to make closing purchase transactions in order to
prevent its portfolio securities from being purchased pursuant to the exercise
of a call. The Advisors may also permit the call option to be exercised. A
profit or loss from a closing purchase transaction or exercise of a call option
will be realized depending on whether the amount paid to purchase a call to
close a position, or the price at which the option is exercised, is less or more
than the amount received from writing the call. In the event that the Advisors
are incorrect in their forecasts regarding market values, interest rates and
other applicable factors, the Fund would be in a worse position than if the call
option had not been written.
Positions in options on stocks may be closed before expiration
only by a closing transaction, which may be made only on an exchange which
provides a liquid secondary market for such options. Although the Fund will
write options only when the Advisors believe a liquid secondary market will
exist on an exchange for options of the same series, there can be no assurance
that a liquid secondary market will exist for any particular stock option.
Possible reasons for the absence of a liquid secondary market include the
following: (a) insufficient trading interest in certain options; (b)
restrictions on transactions imposed by an exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) inadequacy of the facilities of
an exchange or The Options Clearing Corporation to handle trading volume; or (e)
a decision by one or more exchanges to discontinue the trading of options or to
impose restrictions on types of orders. Although The Options Clearing
Corporation has stated that it believes (based on forecasts provided by the
exchanges on which options are traded) that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and although
each exchange has advised The Options Clearing Corporation that it believes that
its facilities will also be adequate to handle reasonably anticipated volume,
there can be no assurance that higher than anticipated trading activity or order
flow or other unforeseen events might not at times render certain of these
facilities inadequate and thereby result in the institution of special trading
procedures or restrictions.
Certain provisions of Subchapter M of the Internal Revenue Code
of 1986, as amended, will restrict the use of covered call options. (See
"Federal Tax Treatment of Dividends and Distributions" below.)
Convertible Securities
As described in the Prospectus, the Fund may invest in
convertible securities. In general, the market value of a convertible security
is at least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., the value of the
underlying shares of common stock if the security is converted). A convertible
security tends to increase in market value when interest rates decline and tends
to decrease in value when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock.
3
<PAGE>
Thus, the price of a convertible security tends to increase as the market value
of the underlying common stock increases, whereas it tends to decrease as the
market value of the underlying stock declines. Investments in convertible
securities generally entail less risk than investment in common stock of the
same issuer.
Below Investment Grade Corporate Bonds
The Fund may purchase non-convertible corporate bonds that carry
ratings lower than those assigned to investment grade bonds by S&P or Moody's,
or that are unrated by S&P or Moody's if such bonds, in the Advisors' judgment,
meet the quality criteria established by the Board of Directors. These bonds
generally are known as "junk bonds." These securities may trade at substantial
discounts from their face values. Accordingly, if the Fund is successful in
meeting its objectives, investors may receive a total return consisting not only
of income dividends but, to a lesser extent, capital gain distributions.
Appendix A to this Statement of Additional Information sets forth a description
of the S&P and Moody's rating categories, which indicate the rating agency's
opinion as to the probability of timely payment of interest and principal. These
ratings range in descending order of quality from AAA to D, in the case of S&P,
and from Aaa to C, in the case of Moody's. Generally, securities that are rated
lower than BBB by S&P or Baa by Moody's are described as below investment grade.
Securities rated lower than investment grade may be of a predominately
speculative character and their future cannot be considered well-assured. The
issuer's ability to make timely payments of principal and interest may be
subject to material contingencies. Securities in the lowest rating categories
may be unable to make timely interest or principal payments and may be in
default and in arrears in interest and principal payments.
Ratings of S&P and Moody's represent their opinions of the
quality of bonds and other debt securities they undertake to rate at the time of
issuance. However, these ratings are not absolute standards of quality and may
not reflect changes in an issuer's creditworthiness. Accordingly, the Advisors
do not rely exclusively on ratings issued by S&P or Moody's in selecting
portfolio securities, but supplement such ratings with independent and ongoing
review of credit quality. In addition, the total return the Fund may earn from
investments in high-yield securities will be significantly affected not only by
credit quality but by fluctuations in the markets in which such securities are
traded. Accordingly, selection and supervision by the Advisors of investments in
lower rated securities involves continuous analysis of individual issuers,
general business conditions, activities in the high-yield bond market and other
factors. The analysis of issuers may include, among other things, historic and
current financial conditions, strength of management, responsiveness to business
conditions, credit standing and current and anticipated results of operations.
Analysis of general business conditions and other factors may include
anticipated changes in economic activity in interest rates, the availability of
new investment opportunities and the economic outlook for specific industries.
Investing in higher yield, lower rated bonds entails
substantially greater risk than investing in investment grade bonds, including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of high-yield bonds will fluctuate over
time, reflecting not only changing interest rates but also the bond market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value
due to heightened concern over credit quality, regardless of prevailing interest
rates. In adverse economic conditions, the liquidity of the secondary market for
junk bonds may be significantly reduced. In addition, adverse economic
developments could disrupt the high-yield market, affecting both price and
liquidity, and could also affect the ability of issuers to repay principal and
interest, thereby leading to a default rate higher than has been the case
historically. Even under normal conditions, the market for lower rated bonds may
be less liquid than the market for investment grade
4
<PAGE>
corporate bonds. There are fewer securities dealers in the high-yield market and
purchasers of high-yield bonds are concentrated among a smaller group of
securities dealers and institutional investors. In periods of reduced market
liquidity, the market for lower rated bonds may become more volatile and there
may be significant disparities in the prices quoted for high-yield securities by
various dealers. Under conditions of increased volatility and reduced liquidity,
it would become more difficult for the Fund to value its portfolio securities
accurately because there might be less reliable, objective data available.
Finally, prices for high-yield bonds may be affected by
legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high-yield bonds.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic banks
or broker-dealers deemed to be creditworthy by the Advisors, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. The value of
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. The Fund makes payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of a custodian or bank acting as agent. The underlying
securities, which in the case of the Fund are securities of the U.S. Government
only, may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible sub-normal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
Foreign Investment Risk Considerations
From time to time, the Advisors may invest the Fund's assets in
American Depository Receipts and other securities, which are traded in the
United States and represent interests in foreign issuers. The Advisors may also
invest up to 10% of the Fund's assets in securities of foreign companies, and in
debt and equity securities issued by foreign corporate and government issuers
and which are not traded in the United States when the Advisors believe that
such investments provide good opportunities for achieving income and capital
gains without undue risk. Foreign investments involve substantial and different
risks which should be carefully considered by any potential investor. Such
investments are usually not denominated in dollars so changes in the value of
the dollar relative to other currencies will affect the value of foreign
investments. In general, less information is publicly available about foreign
companies than is available about companies in the United States. Most foreign
companies are not subject to uniform audit and financial reporting standards,
practices and requirements comparable to those in the United States. In most
foreign markets volume and liquidity are less than in the United States and, at
times, volatility of price can be greater than in the United States. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on United States exchanges. There is generally less government
supervision and
5
<PAGE>
regulation of foreign stock exchanges, brokers, and companies in the United
States. The settlement periods for foreign securities, which are often longer
than those for securities of U.S. issuers, may affect portfolio liquidity.
Portfolio securities held by the Fund which are listed on foreign exchanges may
be traded on days that the Fund does not value its securities, such as Saturdays
and the customary United States business holidays on which the New York Stock
Exchange is closed. As a result, the net asset value of Shares may be
significantly affected on days when shareholders do not have access to the Fund.
Although the Fund intends to invest in securities of companies
and governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries. The dividends and interest payable on certain of the
Fund's foreign portfolio securities may be subject to foreign withholding taxes,
thus reducing the net amount available for distribution to the Fund's
shareholders. The expense ratio of the Fund can be expected to be higher than
those of investment companies investing in domestic securities due to the
additional cost of custody of foreign securities.
Mortgage Securities
The Fund may purchase mortgage-backed debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Mortgage-backed securities represent an ownership interest in a pool of
residential and commercial mortgage loans. Generally, these securities are
designed to provide monthly payments of interest and principal to the investor.
The mortgagee's monthly payments to his/her lending institution are passed
through to investors such as the Fund. Most issuers or poolers provide
guarantees of payments, regardless of whether the mortgagor actually makes the
payment. The guarantees made by issuers or poolers are supported by various
forms of credit, collateral, guarantees or insurance, including individual loan,
title, pool and hazard insurance purchased by the issuer. The pools are
assembled by various Governmental and Government-related organizations. The Fund
may invest in securities issued or guaranteed by the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),
Federal National Mortgage Association (FNMA) and other government agencies.
Mortgage-backed securities are subject to certain risks that are
different from those associated with other debt securities. Due to the
possibility that prepayments on home mortgages will alter cash flow on mortgage
securities, it is not possible to determine in advance the actual final maturity
date or average life. Like debt securities in general, mortgage-backed
securities will generally decline in price when interest rates rise. Rising
interest rates also tend to discourage refinancings of home mortgages, with the
result that the average life of mortgage securities held by the Fund may be
lengthened. This extension of average life causes the market price of the
securities to decrease further than if their average lives were fixed. However,
when interest rates fall, mortgages may not enjoy as large a gain in market
value due to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
regulatory limitations. The investment restrictions
6
<PAGE>
recited below are in addition to those described in the Fund's Prospectuses, and
are matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the outstanding Shares. Accordingly, the Fund will not:
1. Borrow money except as a temporary measure for extraordinary
or emergency purposes and then only from banks and in an amount not exceeding
10% of the value of the total assets of the Fund at the time of such borrowing,
provided, that while borrowings by the Fund equaling 5% or more of the Fund's
total assets are outstanding, the Fund will not purchase securities;
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts,
including financial futures contracts;
4. Act as an underwriter of securities within the meaning of
the U.S. federal securities laws, except insofar as it might
be deemed to be an underwriter upon disposition of certain
portfolio securities acquired within the limitation on
purchases of restricted securities;
5. Issue senior securities;
6. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in
accordance with its investment objectives and policies;
7. Effect short sales of securities;
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions);
9. Purchase participations or other direct interests in oil,
gas or other mineral leases or exploration or development
programs; or
10. Invest more than 10% of the value of its net assets in
illiquid securities (as defined under federal or state
securities laws), including repurchase agreements with
remaining maturities in excess of seven days, provided,
however, that the Fund shall not invest more than 5% of its
total assets in securities that the Fund is restricted from
selling to the public without registration under the
Securities Act of 1933, as amended (excluding restricted
securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, that have been
determined to be liquid by the Fund's Board of Directors
based upon the trading markets for such securities).
The following investment restriction may be changed by a vote of
the majority of the Board of Directors. The Fund will not: Invest in shares of
any other investment company registered under the Investment Company Act, except
as permitted by federal law.
The percentage limitations contained in this restriction apply
at the time of purchase of securities.
7
<PAGE>
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close
of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time)
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as
agent for the Fund, to accept orders from its customers up until the Fund's
close of business which is ordinarily 4:00 p.m. (Eastern Time). Under such
agreements, so long as a third party receives an order prior to the Fund's close
of business, the order is deemed to have been received by the Fund and,
accordingly, may receive the net asset value computed at the close of business
that day. These "late day" agreements are intended to permit shareholders
placing orders with third parties to place orders up to the same time as other
shareholders.
Redemption
The Fund may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Class A Shares,
Class B Shares and Class C Shares by check, and Institutional Shares by wire
transfer of funds, as described in the Prospectuses relating to such Shares.
However, if the Board of Directors determines that it would be in the best
interests of the remaining shareholders of the Fund to make payment of the
redemption price in whole or in part by a distribution in kind of readily
marketable securities from the portfolio of the Fund in lieu of cash, in
conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described in the Prospectus under "How to
Invest" and such valuation will be made as of the same time the redemption price
is determined. The Fund, however, has elected to be governed by Rule 18f-1 under
the Investment Company Act pursuant to which the Fund is obligated to redeem
Shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
8
<PAGE>
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders and the
discussion here and in the Fund's Prospectuses is not intended as a substitute
for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be, and has been, taxed as a regulated
investment company ("RIC") under Subchapter M of the Code. In order to qualify
as a RIC for any taxable year, the Fund generally must derive at least 90% of
its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies and other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in securities or currencies (the "Income
Requirement").
In addition, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must consist of cash and
cash items, U.S. government securities, securities of other RICs and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of its total assets in securities of any such issuer and as to which the
Fund does not hold more than 10% of the outstanding voting securities of any
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other RICs), or in two or more issuers which the
Fund controls and which are engaged in the same or similar trades or businesses
or related trades or businesses (the "Asset Diversification Test"). The Fund
will not lose its status as a RIC if it fails to meet the Asset Diversification
Test solely as a result of a fluctuation in value of portfolio assets not
attributable to a purchase. The Fund may curtail its investments in certain
securities where the application thereto of the Asset Diversification Test is
uncertain.
Under Subchapter M of the Code, the Fund is exempt from federal
income tax on its net investment income and capital gains which it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) for the year (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. Distributions of investment company taxable income made during the
taxable year or, under certain specified circumstances, within twelve months
after the close of the taxable year will satisfy the Distribution Requirement.
The Distribution Requirement for any year may be waived if a RIC establishes to
the satisfaction of the Internal Revenue Service that it is unable to satisfy
the Distribution Requirement by reason of distributions previously made for the
purpose of avoiding liability for federal excise tax.
Although the Fund intends to distribute substantially all of its
net investment income and capital gains for any taxable year, the Fund will be
subject to federal income taxation to the extent any such income or gains are
not distributed.
If for any taxable year, the Fund does not qualify as a RIC, all
of its taxable income will be subject to tax at regular corporate income tax
rates without any deduction for distributions to shareholders, and all such
distributions generally will be taxable to shareholders as ordinary dividends to
the extent of the Fund's current and accumulated earnings and profits. Such
distributions generally will be eligible for the 70% dividends received
deduction for corporate shareholders.
9
<PAGE>
Fund Distributions
Distributions of investment company taxable income, generally,
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in additional Shares. The Fund
anticipates that it will distribute substantially all of its investment company
taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains") for each taxable year. If such gains are distributed as a
capital gains distribution, they are taxable to shareholders as gain from the
sale or exchange of a capital asset held for more than one year, regardless of
the length of time the shareholder has held Shares, whether or not such gains
were recognized by the Fund prior to the date on which a shareholder acquired
Shares and whether or not the distribution was paid in cash or reinvested in
Shares. Conversely, if the Fund elects to retain its net capital gains, it will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the applicable corporate capital gains tax rate. In this event, it is
expected that the Fund also will elect to have shareholders treated as having
received a distribution of such gains, with the result that shareholders will be
required to report such gains on their returns as gain from the sale or exchange
of a capital asset held for more than one year, will receive a tax credit for
their allocable share of capital gains tax paid by the Fund on the gains, and
will increase the tax basis for their Shares by an amount equal to 65% of such
gains.
In the case of corporate shareholders, Fund distributions (other
than capital gains distributions) generally qualify for the 70% dividends
received deduction to the extent of the gross amount of certain qualifying
dividends received by the Fund for the year. Generally, a dividend will be
treated as a qualifying dividend if it has been received from a domestic
corporation. For purposes of the alternative minimum tax and the environmental
tax, corporate shareholders generally will be required to take the full amount
of any dividend received from the Fund into account in determining their
adjusted current earnings for purposes of computing "alternative minimum taxable
income."
Generally for individual shareholders, gain or loss on the sale
or exchange of a Share will be capital gain or loss which will be long-term
capital gain if the Share has been held for eighteen months or more, mid-term
capital gain if the Share has been held for more than twelve, but less than
eighteen months, and otherwise will be short-term capital gain. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or has included in income any undistributed net
capital gains of the Fund with respect to such Share), the shareholder must
treat the loss as a long-term capital loss to the extent of the amount of the
prior capital gains distribution (or any undistributed net capital gains of the
Fund with respect to such Share which have been included in the shareholder's
income). In addition, any loss realized on a sale or other disposition of Shares
will be disallowed to the extent an investor repurchases (or enters into a
contract or option to repurchase) Shares within a period of 61 days (beginning
30 days before and ending 30 days after the disposition of the Shares). This
loss disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase may have reflected the amount of such
forthcoming dividend or distribution.
10
<PAGE>
The Fund will be required in certain cases to withhold and remit
to the United States Treasury 31% of distributions payable to any shareholder
who (1) has provided either an incorrect taxpayer identification number or no
number at all, (2) is subject to backup withholding by the Internal Revenue
Service for failure to properly report receipt of interest or dividends, or (3)
who has failed to certify to the Fund that such shareholder is not subject to
backup withholding.
The Fund will provide a statement annually to shareholders as to
the federal income tax status of distributions paid (or deemed to be paid) by
the Fund during the year, including the amount of dividends eligible for the
corporate dividends received deduction.
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% federal excise tax on RICs
that do not distribute in each calendar year an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The excise
tax is imposed on the undistributed part of this required distribution. In
addition, the balance of such income must be distributed during the next
calendar year to avoid liability for the excise tax in that year. For the
foregoing purposes, an investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year. Because the Fund intends to distribute all of its income
currently (or to retain, at most its net capital gains and pay tax thereon), the
Fund does not anticipate incurring any liability for this excise tax.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman (10/27/26)
Managing Director Emeritus, BT Alex. Brown Incorporated. Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated. (now known as BT Alex. Brown
Incorporated); Vice Chairman, Alex. Brown Capital Advisory & Trust Company;
and Director, Investment Company Capital Corp. (registered investment
advisor).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present. Formerly, Senior
Vice President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993; and Director, The Arch Fund (registered investment
company).
11
<PAGE>
*RICHARD T. HALE, Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor); Chartered
Financial Analyst.
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM Funds
(registered investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm); General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director, Kimberly-Clark
Corporation (personal consumer products) and Household International
(banking and finance); Chairman of the Quality Control Inquiry Committee,
American Institute of Certified Public Accountants. Formerly, Trustee,
Merrill Lynch Funds for Institutions, 1991-1993; Adjunct Professor,
Columbia University-Graduate School of Business, 1991-1992; Partner, KPMG
Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main Street,
Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care); Director, Central Carolina Bank & Trust
(banking), Key Funds (registered investment companies) and DP Mann Holdings
(insurance). Formerly, Director, AMBAC Treasurers Trust (registered
investment company).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street, Suite
1700, Philadelphia, Pennsylvania 19103-7017. President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice President,
The Glenmede Trust Company. Formerly, Executive Director, The Pew
Charitable Trusts.
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking); Director, American Science &
Engineering (x-ray detection equipment). Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad Passenger
Corporation (Amtrak); Member, Aviation System Capacity Advisory Committee
(Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study; Director,
ATL and Spacelabs Medical Corp. (medical equipment); Director, Family
Health International (non-profit research and education); Director,
Research America (non-profit medical research). Formerly, Director, Flag
Investors/ISI/BT Alex. Brown Family of Funds; Trustee, Rockefeller
Foundation; Director, Merrill Lynch Cluster C Funds (registered investment
companies); and Trustee, Reed College (education).
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, June 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand LLP, September 1988-June 1997.
12
<PAGE>
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President, Investment
Company Capital Corp. (registered investment advisor), September
1995-Present. Formerly, Vice President and Treasurer, The Delaware Group of
Funds (registered investment companies) and Vice President, Delaware
Management Company, Inc. (investments), 1980-August, 1995.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, July 1996-Present.
Formerly, Manager and Foreign Markets Specialist, Putnam Investments Inc.
(registered investment companies), April 1994-July 1996; Supervisor,
Brown Brothers Harriman & Co. (domestic and global custody), August
1991-April 1994.
- ---------------------
* A Director who is an "interested person", as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered
or advised by BT Alex. Brown or its affiliates. There are currently 13 funds in
the Flag Investors/ISI Funds and BT Alex. Brown Cash Reserve Fund, Inc. fund
complex (the "Fund Complex"). Mr. Semans serves as Chairman of five funds and as
a Director of six other funds in the Fund Complex. Mr. Hale serves as Chairman
of four funds and as a Director of eight other funds in the Fund Complex.
Messrs. Cunnane, Kroeger, Levy and McDonald serve as Directors of each fund in
the Fund Complex. Ms. Rimel and Mr. Vogt serve as Directors of 11 funds in the
Fund Complex. Mr. Woolf serves as President of seven funds in the Fund Complex.
Ms. Olmert serves as Secretary, Mr. Finelli serves as Treasurer and Mr. Liotta
serves as Assistant Secretary, respectively, of each of the funds in the Fund
Complex.
Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with, BT Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
With the exception of the Fund's President, officers of the Fund
receive no direct remuneration in such capacity from the Fund. Officers and
Directors of the Fund who are officers or directors of BT Alex. Brown may be
considered to have received remuneration indirectly. As compensation for his or
her services, each Director who is not an "interested person" of the Fund (as
defined in the Investment Company Act) (an "Independent Director") and Mr.
Woolf, the Fund's President, receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his or her attendance at board and committee meetings) from each fund in the
Fund Complex for which he or she serves. In addition, the Chairman of the Fund
Complex's Audit Committee receives an aggregate annual fee from the Fund
Complex. Payment of such fees and expenses is allocated among the funds in
direct proportion to their relative net assets. For the fiscal year ended March
31, 1997, Independent Directors' fees attributable to the assets of the Fund
totaled approximately $19,242.
13
<PAGE>
The following table shows aggregate compensation payable to each
of the Fund's Directors by the Fund and the Fund Complex, respectively, and
pension or retirement benefits accrued as part of Fund expenses in the fiscal
year ended March 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation From Pension or Retirement Total Compensation from the Fund and
Position the Fund Payable to Directors Benefits Accrued as Fund Complex Payable to Directors for the
for the Fiscal Year Ended Part of Fund Expenses Fiscal Year Ended March 31, 1997
March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans (1) $0 $0 $0
Chairman
W. James Price (1,2) $0 $0 $0
Director
Richard T. Hale (1) $0 $0 $0
Director
Charles W. Cole, Jr. (1,3) $0 $0 $0
Director,
James J. Cunnane $1,860 (4) $ (5) $39,000 for service
Director on 12 Boards
John F. Kroeger $2,337 (4) $ (5) $49,000 for service
Director on 12 Boards
Louis E. Levy $1,860 (4) $ (5) $39,000 for service
Director on 12 Boards
Eugene J. McDonald $1,860 (4) $ (5) $39,000 for service
Director on 12 Boards
Rebecca W. Rimel $552 (4) $ (5) $39,000 for service
Director on 10 Boards (6)
Carl W. Vogt $557 (4) $ (5) $39,000 for service
Director on 10 Boards (6)
Harry Woolf (2) $1,321 (4) $ (5) $29,250 for service
Director on 12 Boards
</TABLE>
- -----------------
1 A Director who is an "interested person" as defined in the Investment
Company Act.
2 Messrs. Price and Woolf each retired as Directors of the Fund,
effective December 31, 1996. Effective September 1, 1997, Mr. Woolf
serves as President of the Fund and other funds in the Fund Complex.
For serving as President, Mr. Woolf receives compensation from the
Fund and certain other funds in the Fund Complex in addition to his
retirement benefits.
3 Retired, effective August 13, 1997.
4 Of amounts payable to Messrs. Cunnane, Levy, McDonald, Vogt and Woolf
and Ms. Rimel $1,860, $0, $0, $1,860, $557, $1,321 and $552,
respectively, was deferred pursuant to a deferred compensation plan.
5 The Fund Complex has adopted a retirement plan for eligible Directors,
as described below. The actuarially computed pension expense for the
year ended March 31, 1997 was approximately $10,628.
6 Ms. Rimel and Mr. Vogt received proportionately higher compensation
from each fund for which they serve.
14
<PAGE>
The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of six years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which the Participant serves. The Retirement Plan is
unfunded and unvested. Mr. Kroeger has qualified but has not received benefits.
The Fund has two Participants, a Director who retired effective December 31,
1994 and Mr. Woolf who retired effective December 31, 1996, who have qualified
for the Retirement Plan by serving thirteen and fourteen years, respectively, as
Directors in the Fund Complex and each of whom will be paid a quarterly fee of
$4,875 by the Fund Complex for the rest of his life. Another participant, who
retired on January 31, 1996 and died on June 2, 1996, was paid fees of $8,090 by
the Fund Complex under the Retirement Plan in the period ended December 31,
1996. Such fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his or her last
year of service, as described above. The approximate credited years of service
at March 31, 1997 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; for Ms. Rimel, 1 year;
and for Mr. Vogt, 1 year.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his or her annual compensation pursuant
to a Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and
Vogt and Ms. Rimel have each executed a Deferred Compensation Agreement.
Currently, the deferring Directors may select various Flag Investors funds and
BT Alex. Brown Cash Reserve Fund, Inc. in which all or part of their deferral
account shall be deemed to be invested. Distributions from the deferring
Directors' deferral accounts will be paid in cash, in generally quarterly
installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors and the Distributor. As described below, the Code of Ethics
imposes additional restrictions on the Advisors' investment personnel, including
the portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
15
<PAGE>
The Code of Ethics requires that any officer, director or
employee of the Fund, the Distributor or the Advisors, preclear personal
securities investments (with certain exceptions, such as non-volitional
purchases or purchases which are part of an automatic dividend reinvestment
plan). The preclearance requirement and associated procedures are designed to
identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to investment personnel
include a ban on acquiring any securities in an initial public offering, a
prohibition from profiting on short-term trading in securities and special
preclearance of the acquisition of securities in private placements.
Furthermore, the Code of Ethics provides for trading "blackout periods" that
prohibit trading by investment personnel and certain other employees within
periods of trading by the Fund in the same security. Trading by investment
personnel and certain other employees of the Advisor or Sub-Advisor, as
appropriate, would be exempt from this "blackout period" provided that (1) the
market capitalization of a particular security exceeds $2 billion; and (2)
orders of such entity do not exceed ten percent of the daily average trading
volume of the security for the prior 15 days. Officers, directors and employees
of the Advisors and the Distributor may comply with codes instituted by those
entities so long as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. ("ICC" or the "Advisor")
and a Sub-Advisory Agreement among the Fund, ICC and Alex. Brown Investment
Management ("ABIM" or the "Sub-Advisor"), both of which contracts are described
in greater detail below. The Investment Advisory and Sub-Advisory Agreements
were approved by shareholders of the Fund on August 14, 1997. ICC, the
investment advisor, is an indirect subsidiary of Bankers Trust New York
Corporation. ABIM is a limited partnership affiliated with the Advisor. Buppert,
Behrens & Owens, Inc., a company organized and owned by three employees of ABIM,
owns a 49% limited partnership interest and a 1% general partnership interest in
ABIM. BT Alex. Brown owns a 1% general partnership interest in ABIM and BT Alex.
Brown Holdings, Inc. owns the remaining limited partnership interest. ICC also
serves as advisor and ABIM serves as sub-advisor to other funds in the Flag
Investors family of funds.
Under the Investment Advisory Agreement, ICC is responsible for
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment policies for the Fund. ICC has delegated this
responsibility to ABIM, provided that ICC continues to supervise the performance
of ABIM and report thereon to the Fund's Board of Directors. Any investment
program undertaken by ICC or ABIM will at all times be subject to policies and
control of the Fund's Board of Directors. ICC will provide the Fund with office
space for managing its affairs, with the services of required executive
personnel and with certain clerical and bookkeeping services and facilities.
These services are provided by ICC without reimbursement by the Fund for any
costs. Neither ICC nor ABIM shall be liable to the Fund or its shareholders for
any act or omission by ICC or ABIM or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABIM to the
Fund are not exclusive and ICC and ABIM are free to render similar services to
others.
As compensation for its services, ICC is entitled to receive a
fee from the Fund, calculated daily and paid monthly, at the annual rate of
1.00% of the first $50 million of the Fund's average daily net assets, 0.85% of
the next $50 million of the Fund's average daily net assets, 0.80% of the next
$100 million of the Fund's average daily net assets, and 0.70% of the Fund's
average daily net assets in excess of $200 million. As compensation for its
services, ABIM is entitled to receive a fee from ICC, payable from its advisory
fee, calculated daily and payable monthly, at the annual rate of 0.75% of the
first $50 million of the Fund's average daily net assets, 0.60% of the next $150
million of the Fund's average daily net assets, and 0.50% of the Fund's average
daily net assets in excess of $200 million.
16
<PAGE>
ICC has voluntarily agreed to waive a portion of its fee from
time to time so that the Fund's total operating expenses do not exceed 1.35% of
the Class A Shares' average daily net assets, 2.10% of the Class B Shares'
average daily net assets, 2.10% of the Class C Shares' average daily net assets
and 1.10% of the Institutional Shares' average daily net assets.
The Investment Advisory Agreement and the Sub-Advisory Agreement
will continue for an initial term of two years, and thereafter, from year to
year if such continuance is specifically approved at least annually by the
Fund's Board of Directors, including a majority of the Independent Directors who
have no direct or indirect financial interest in such agreements, by votes cast
in person at a meeting called for such purpose, or by a vote of a majority of
the outstanding Shares (as defined under "Capital Stock"). The Fund or ICC may
terminate the Investment Advisory Agreement on sixty days' written notice
without penalty. The Investment Advisory Agreement will terminate automatically
in the event of assignment (as defined in the Investment Company Act). The
Sub-Advisory Agreement has similar termination provisions.
Advisory fees paid by the Fund to ICC and sub-advisory fees paid
by ICC to ABIM for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
Fees Paid to: 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICC $2,227,355 $ 1,651,971 $ 1,248,666*
- -------------------------------------------------------------------------------------------------------------------------------
ABIM $1,633,167 $ 1,225,064 $ 967,323
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Net of fee waivers.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. An affiliate of ICC serves
as the Fund's custodian. (See "Custodian, Transfer Agent and Accounting
Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors") serves as the
exclusive distributor of the Fund's Shares pursuant to the Distribution
Agreement, effective August 31, 1997, which provides for distribution of each
class of Shares. Prior to August 31, 1997, Alex. Brown & Sons Incorporated
("Alex. Brown"), served as distributor of the Fund's Shares for the same rate of
compensation and on substantially the same terms and conditions as ICC
Distributors.
The Distribution Agreement provides that ICC Distributors shall;
(i) use reasonable efforts to sell Shares upon the terms and conditions
contained in the Distribution Agreement and the Fund's then current Prospectus;
(ii) use its best efforts to conform with the requirements of all federal and
state laws relating to the sale of the Shares; (iii) adopt and follow procedures
as may be necessary to comply with the requirements of the National Association
of Securities Dealers, Inc. and any other applicable self-regulatory
organization; (iv) perform its duties under the supervision of and in accordance
with the directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written
17
<PAGE>
report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of its duties or obligations under the
Distribution Agreement or by reason of the reckless disregard of its duties and
obligations under the Distribution Agreement. The Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
The Distribution Agreement may be terminated at any time upon 60
days' written notice by the Fund, without penalty, by the vote of a majority of
the Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of distribution is approved at least annually
by the Independent Directors in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement, including the form of
Sub-Distribution Agreement, was initially approved by the Board of Directors,
including a majority of the Independent Directors, on August 4, 1997.
ICC Distributors and certain broker-dealers ("Participating
Dealers") have entered into Sub-Distribution Agreements under which such
Participating Dealers have agreed to process investor purchase and redemption
orders and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Any Sub-Distribution Agreement may be
terminated in the same manner as the Distribution Agreement and shall
automatically terminate in the event of an assignment.
In addition, with respect to the Class A, Class B and Class C
Shares, the Fund may enter into Shareholder Servicing Agreements with certain
financial institutions, such as BT Alex. Brown and certain banks, to act as
Shareholder Servicing Agents, pursuant to which ICC Distributors will allocate a
portion of its distribution fee as compensation for such financial institutions'
ongoing shareholder services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor or its affiliates will provide
compensation out of its own resources for ongoing shareholder services. Although
banking laws and regulations prohibit banks from distributing shares of open-end
investment companies such as the Fund, according to interpretations by various
bank regulatory authorities, financial institutions are not prohibited from
acting in other capacities, such as the shareholder servicing capacities
described above. Should future legislative, judicial or administrative action
prohibit or restrict the activities of the Shareholder Servicing Agents in
connection with the Shareholder Servicing Agreements, the Fund may be required
to alter materially or discontinue its arrangements with the Shareholder
Servicing Agents. Such financial institutions may impose separate fees in
connection with these services and investors should review the Prospectuses and
this Statement of Additional Information in conjunction with any such
institution's fee schedule.
As compensation for providing distribution services as described
above for the Class A Shares, ICC Distributors receives an annual fee, paid
monthly equal to .25% of the average daily net assets of the Class A Shares.
With respect to Class A Shares, ICC Distributors expects to allocate up to all
of its fee to Participating Dealers and Shareholder Servicing Agents. As
compensation for providing distribution services as described above for the
Class B Shares, ICC Distributors receives an annual fee, paid monthly, equal to
.75% of the average daily net assets of the Class B Shares. As compensation for
providing distribution services as described above for Class C Shares, ICC
Distributors receives an annual fee, paid monthly, equal to .75% of the average
daily net assets of the
18
<PAGE>
Class C Shares. In addition, with respect to the Class B and Class C Shares, the
Fund will pay ICC Distributors a shareholder servicing fee at an annual rate of
.25% of the respective average daily net assets of the Class B and the Class C
Shares. (See the Prospectus.) ICC Distributors receives no compensation for
distributing the Institutional Shares.
As compensation for providing distribution and shareholder
services to the Fund for the last three fiscal years, Alex. Brown received fees
in the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended March 31,
- --------------------------------------------------------------------------------------------------------------------------------
Class 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A 12b-1 $575,090 $435,163 $342,916
- --------------------------------------------------------------------------------------------------------------------------------
Class B 12b-1 $ 64,138 $ 14,685 $ 305*
- --------------------------------------------------------------------------------------------------------------------------------
Class B Shareholder
Servicing Fee $ 21,379 $ 4,895 $ 101*
- --------------------------------------------------------------------------------------------------------------------------------
Class D 12b-1 $ 86,879 $ 77,244 $ 69,979
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*for the period from January 3, 1995 through March 31,1995
Pursuant to Rule 12b-1 under the Investment Company Act,
investment companies may pay distribution expenses, directly or indirectly, only
pursuant to a plan adopted by the investment company's board of directors and
approved by its shareholders. The Fund has adopted a Plan of Distribution for
each of its classes of Shares (except the Institutional Shares) (the "Plans").
Under each Plan, the Fund pays a fee to ICC Distributors for distribution and
other shareholder servicing assistance as set forth in the Distribution
Agreement, and ICC Distributors is authorized to make payments out of its fee to
Participating Dealers and Shareholder Servicing Agents. The Plans will remain in
effect from year to year, as specifically approved (a) at least annually by the
Fund's Board of Directors and (b) by the affirmative vote of a majority of the
Independent Directors, by votes cast in person at a meeting called for such
purpose. The Plans were most recently approved by the Fund's Board of Directors,
including a majority of the Independent Directors, on September 16, 1997.
In approving the Plans, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreement without the approval of the shareholders of the Fund.
The Plans may be terminated at any time without penalty, by the vote of a
majority of the Fund's Independent Directors or by a vote of a majority of the
Fund's outstanding Shares (as defined under "Capital Stock").
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plans to ICC Distributors pursuant
to the Distribution Agreement and to Participating Dealers pursuant to any
Sub-Distribution
19
<PAGE>
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the Plans, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
under the Plans. Payments under the Plans are made as described above regardless
of ICC Distributors' actual cost of providing distribution services and may be
used to pay ICC Distributors overhead expenses. If the cost of providing
distribution services to the Class A Shares is less than .25% of the Class A
Shares' average daily net assets for any period or if the cost of providing
distribution services to the Class B Shares and the Class C Shares is less than
.75% of the classes' respective average daily net assets for any period, the
unexpended portion of the distribution fees may be retained by ICC Distributors.
The Plans do not provide for any charges to the Fund for excess amounts expended
by ICC Distributors and, if any of the Plans is terminated in accordance with
its terms, the obligation of the Fund to make payments to ICC Distributors
pursuant to such Plan will cease and the Fund will not be required to make any
payments past the date the Distribution Agreement terminates with respect to
that class. In return for payments received pursuant to the Plans, ICC
Distributors pays the distribution-related expenses of the Fund including one or
more of the following: advertising expenses; printing and mailing of
prospectuses to other than current shareholders; compensation to dealers and
sales personnel; and interest, carrying or other financing charges.
General Information
Alex. Brown received commissions on the sale of Class A Shares
and contingent deferred sales loads on the Class B Shares, of which only a
portion of these amounts was retained by Alex. Brown, in the following amounts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
- --------------------------------------------------------------------------------------------------------------------------------
Class 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Received Retained Received Retained Received Retained
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Commissions $937,641 $868,899 $431,884 $430,833 $225,285 $204,552
- --------------------------------------------------------------------------------------------------------------------------------
Class B $483,596 $350,485 $133,944 $126,571 $34,265* $33,025*
Contingent
Deferred Sales
Charge
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*for the period from January 3, 1995 through March 31,1995
Except as described elsewhere, the Fund pays or causes to be
paid all continuing expenses of the Fund, including, without limitation:
investment advisory and distribution fees; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of cash, portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
20
<PAGE>
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its Shares with the
SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of printing,
including typesetting and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and travel expenses
of Directors and Director members of any advisory board or committee; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Shares; fees and expenses of legal counsel,
including counsel to the Independent Directors, and of independent auditors, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by ICC Distributors, ICC or ABIM.
The address of ICC Distributors is P.O. Box 7558, Portland, Maine
04101.
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for
the Fund, for the broker-dealer selection and for negotiation of commission
rates, subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a commission
for their services. Brokerage commissions are subject to negotiation between
ABIM and the broker-dealers. ABIM may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, its affiliates and ICC Distributors.
In over-the-counter transactions, orders are placed directly with
a principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with the
Advisors or their affiliates in any transaction in which any of them acts as a
principal nor will the Fund buy or sell over-the-counter securities with the
Advisors or their affiliates acting as market maker.
If the Advisors or their affiliates are participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with rules of the SEC. The Fund believes that the
limitation will not affect its ability to carry out its present investment
objective.
ABIM's primary consideration in effecting securities transactions
is to obtain best price and execution of orders on an overall basis. As
described below, however, ABIM may, in its discretion, effect transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by ABIM to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ABIM with clients other than the Fund. Similarly, any research services received
by ABIM through placement of portfolio transactions of other clients may be of
value to ABIM in fulfilling its obligations to the Fund. No specific value can
be determined for research and statistical services furnished without cost to
ABIM by a broker-dealer. ABIM is of the opinion that because the material must
be analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ABIM's research and analysis.
Therefore, it may tend to benefit the Fund by improving ABIM's
21
<PAGE>
investment advice. In over-the-counter transactions, ABIM will not pay any
commission or other remuneration for research services. ABIM's policy is to pay
a broker-dealer higher commissions effected on an agency (but not on a
principal) basis for particular transactions than might be charged if a
different broker-dealer had been chosen when, in ABIM's opinion, this policy
furthers the overall objective of obtaining best price and execution. Subject to
periodic review by the Fund's Board of Directors, ABIM is also authorized to pay
broker-dealers other than the Advisors or their affiliates higher commissions
than another broker might have charged on brokerage transactions for the Fund
for brokerage or research services. The allocation of orders among
broker-dealers and the commission rates paid by the Fund will be reviewed
periodically by the Board.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through the Advisors or their affiliates. At the time of such authorization, the
Board adopted certain policies and procedures incorporating the standards of
Rule 17e-1 under the Investment Company Act which requires that the commissions
paid the Advisors or their affiliates must be "reasonable and fair compared to
the commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Directors and requires ICC and
ABIM to furnish reports and to maintain records in connection with such reviews.
ABIM manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ABIM. ABIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
ABIM directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended March 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transactions Directed $38,947,268 $31,958,910 $38,044,707
- --------------------------------------------------------------------------------------------------------------------------------
Commissions Paid $111,113 $78,634 $89,162
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of March 31, 1997, the Fund held
a 6.25% repurchase agreement issued by Goldman Sachs & Co. valued at $23,392,000
and a 6.78% note of J.P. Morgan due January 15, 2007, valued at $4,831,250.
Goldman Sachs & Co. and J.P. Morgan are "regular brokers or dealers" of the
Fund.
22
<PAGE>
9. CAPITAL STOCK
The Fund is authorized to issue 90 million Shares of common
stock, par value $.001 per share. The Board of Directors may increase or
decrease the number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of Shares by the Directors
at any time without shareholder approval. The Fund currently has one Series and
the Board has designated four classes of Shares: Flag Investors Value Builder
Fund Class A Shares, Flag Investors Value Builder Fund Class B Shares, Flag
Investors Value Builder Fund Class C Shares, Flag Investors Value Builder Fund
Institutional Shares and Flag Investors Value Builder Fund Class D Shares. The
Flag Investors Value Builder Fund Institutional Shares are offered only to
certain eligible institutions and to clients of investment advisory affiliates
of BT Alex. Brown. The Flag Investors Value Builder Fund Class D Shares are not
currently being offered. In the event separate series or classes are
established, all Shares of the Fund, regardless of series or class would have
equal rights with respect to voting, except that with respect to any matter
affecting the rights of the holders of a particular series or class, the holders
of each series or class would vote separately. In general, each such series
would be managed separately and shareholders of each series would have an
undivided interest in the net assets of that series. For tax purposes, the
series would be treated as separate entities. Generally, each class of Shares
issued by a particular series would be identical to every other class and
expenses of the Fund (other than 12b-1 and any applicable service fees) are
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
There are no preemptive, conversion or exchange rights applicable
to any of the Shares. The issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of Shares if there is more than one series) after all debts
and expenses have been paid.
As used in this Statement of Additional Information the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67% or
more of the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Effective September 22, 1997, Bankers Trust Company ("Bankers
Trust"), has been retained to act as custodian of the Fund's investments.
Bankers Trust receives such compensation from the Fund for its services as
Custodian as may be agreed to from time to time by Bankers Trust and the Fund.
Investment Company Capital Corp. has been retained to act as transfer and
dividend disbursing agent. As compensation for
23
<PAGE>
providing these services, the Fund pays ICC up to $15.00 per account per year,
plus reimbursement for out-of-pocket expenses incurred in connection therewith.
For the fiscal year ended March 31, 1997 such fees totaled $105,449.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
- ------------------ ---------------------------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 .100%
$20,000,000 - $30,000,000 .080%
$30,000,000 - $40,000,000 .060%
$40,000,000 - $50,000,000 .050%
$50,000,000 - $60,000,000 .040%
$60,000,000 - $70,000,000 .030%
$70,000,000 - $100,000,000 .020%
$100,000,000 - $500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following out of
pocket expenses incurred in connection with ICC's performance of its services
under the Master Services Agreement: express delivery service, independent
pricing and storage.
For the fiscal year ended March 31, 1997, ICC received accounting
fees of $80,766.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers
& Lybrand L.L.P., whose report thereon appears elsewhere herein, and have been
included herein in reliance upon the report of such firm of accountants given on
their authority as experts in accounting and auditing. Coopers & Lybrand L.L.P.
has offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund
to that of other open-end diversified management investment companies and to
stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
1-, 5- or 10-year periods.
24
<PAGE>
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date of the Fund (or
the later commencement of operations of a Series or class) commenced operations
(provided such date is subsequent to the date the registration statement became
effective). In calculating the ending redeemable value for the Class A Shares,
the maximum sales load (4.5%) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Prospectuses on the reinvestment dates
during the period. In calculating the performance of the Class B Shares, the
applicable contingent deferred sales charge (4.0% for the one-year period, 2.0%
for the five-year period and no sales charge thereafter) is deducted from the
ending redeemable value and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. In calculating the
performance of the Class C Shares, the applicable contingent deferred sales
charge (1.00% for the one-year period and no sales charge thereafter) is
deducted from the ending redeemable value and all dividends and distributions by
the Fund are assumed to have been reinvested at net asset value as described in
the prospectus on the reinvestment dates during the period. "T" in the formula
above is calculated by finding the average annual compounded rate of return over
the period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund.
Calculated according to SEC rules, the ending redeemable value
and average annual total return of a hypothetical $1,000 investment for the
periods ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Ended
March 31, 1997 Since Inception
- ------------------------------------------------------------------------------------------------------------------
Ending Average Ending Average
Redeemable Annual Total Redeemable Annual Total
Class Value Return Value Return
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
June 15, 1992* $1145.00 14.50% $2003.77 14.49%
- ------------------------------------------------------------------------------------------------------------------
Class B
January 3, 1995* $1149.80 14.98% $1600.43 23.35%
- ------------------------------------------------------------------------------------------------------------------
Class D
November 9, 1992* $1166.85 16.69% $1846.66 14.99%
- ------------------------------------------------------------------------------------------------------------------
Institutional
November 2, 1995* $1202.40 20.24% $1307.13 20.95%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
* Inception Date
25
<PAGE>
The Fund may also from time to time include in such advertising
total return figures that are not calculated according to the formula set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc. or CDA Investment Technologies
Inc., or with the performance of the Lehman Government Corporate Bond Index, the
Consumer Price Index, the return on 90-day U.S. Treasury bills, the Standard and
Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund calculates
its aggregate and average annual total return for the specified periods of time
by assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000 invested in
Shares is net of all sales charges. The Fund will, however, disclose the maximum
sales charges and will also disclose that the performance data do not reflect
sales charges and that inclusion of sales charges would reduce the performance
quoted. Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under SEC rules,
and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding U.S. Government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. The
Fund's portfolio turnover rate in fiscal year 1997 was 13% and in fiscal year
1996 was 15%.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons held
beneficially or of record 5% or more of the Fund's outstanding Shares as of
March 6, 1998:
T. Rowe Price TR
Alex. Brown & Sons Inc. Plan 100460 5.91%
Flag Investors Value Builder
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21297-1215
401k Plan
As of March 6, 1998, Directors and officers as a group
beneficially owned an aggregate of less than 1% of the Fund's total outstanding
shares.
15. FINANCIAL STATEMENTS
See next page.
26
<PAGE>
Alex Brown FI Value Builder AR Form N-30D
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 60.0%
Banking: 3.3%
35,000 Citicorp $ 3,788,750
100,000 KeyCorp 4,875,000
10,000 Wells Fargo & Company 2,841,250
-----------
11,505,000
-----------
Basic Industry: 3.8%
70,077 Agrium, Inc. 893,482
20,000 Georgia-Pacific Corp. 1,450,000
30,000 Hercules, Inc. 1,267,500
32,232 Martin Marietta Materials, Inc. 829,974
140,000 Monsanto Co. 5,355,000
44,654 Potash Corp. of Saskatchewan 3,393,766
-----------
13,189,722
-----------
Business Services: 1.7%
81,900 First Data Corp. 2,774,363
151,100 SEI Corp. 3,173,100
-----------
5,947,463
-----------
Capital Goods: 1.2%
36,000 Eaton Corp. 2,551,500
110,300 Westinghouse Air Brake Co. 1,433,900
-----------
3,985,400
-----------
Consumer Durables/Non-Durables: 5.1%
140,000 Blyth Industries, Inc.* 5,057,500
33,500 Eastman Kodak Co. 2,541,812
110,000 Ford Motor Company 3,451,250
50,000 Liz Claiborne, Inc. 2,181,250
37,200 Philip Morris Cos., Inc. 4,245,450
-----------
17,477,262
-----------
Consumer Services: 3.5%
92,000 America Online, Inc.* 3,898,500
124,875 CUC International, Inc.* 2,809,688
30,000 Gannett Co. 2,576,250
50,000 Times Mirror Co. Class A 2,731,250
-----------
12,015,688
-----------
27
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
Defense/Aerospace: 2.9%
31,171 Lockheed Martin Corp. $ 2,618,364
120,000 McDonnell Douglas Corp. 7,320,000
-----------
9,938,364
-----------
Electric Utilities: 0.6%
100,000 Unicom Corp. 1,950,000
-----------
Energy: 0.6%
71,600 MAPCO, Inc. 2,219,600
-----------
Entertainment: 0.9%
300,000 LodgeNet Entertainment Corp.* 3,150,000
-----------
Financial Services: 6.0%
83,500 American Express Co. 4,999,562
87,500 Countrywide Credit Industries, Inc. 2,165,625
172,000 Federal Home Loan Mortgage Corp. 4,687,000
118,125 MBNA Corp. 3,292,734
114,000 Travelers Group, Inc. 5,457,750
-----------
20,602,671
-----------
Health Care: 5.7%
50,000 Amgen, Inc.* 2,793,750
40,000 Baxter International, Inc. 1,725,000
38,000 Bristol-Myers Squibb 2,242,000
54,434 Eli Lilly & Co. 4,477,196
114,000 Johnson & Johnson 6,027,750
60,000 Mallinckrodt Group 2,467,500
-----------
19,733,196
-----------
Hotels/Gaming: 1.8%
200,000 Harrah's Entertainment, Inc.* 3,425,000
40,000 Hilton Hotels Corp. 970,000
32,500 ITT Corp.* 1,913,438
-----------
6,308,438
-----------
Housing: 1.8%
200,000 Champion Enterprises, Inc.* 2,975,000
108,000 USG Corp.* 3,388,500
-----------
6,363,500
-----------
28
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS (concluded)
Insurance: 8.8%
495,858 Conseco, Inc. $ 17,664,941
80,000 EXEL Limited 3,380,000
135,000 GCR Holding Limited 3,088,125
32,500 ITT Hartford Group, Inc. 2,344,063
80,000 Mid Ocean Ltd. 3,820,000
-----------
30,297,129
-----------
Multi-Industry: 2.5%
42,500 ITT Industries, Inc. 950,937
33,400 Loews Corp. 2,968,425
64,000 United Technologies Corp. 4,816,000
-----------
8,735,362
-----------
Real Estate: 2.5%
60,200 General Growth Properties, Inc. 1,911,350
324,136 Host Marriott Corp.* 5,510,312
35,000 National Health Investors, Inc. 1,299,375
-----------
8,721,037
-----------
Retail: 3.4%
124,664 J.C. Penney Company, Inc. 5,937,123
300,000 Kmart Corp.* 3,637,500
45,000 Tandy Corp. 2,255,625
-----------
11,830,248
-----------
Technology: 2.8%
70,400 Autodesk, Inc. 2,182,400
43,000 International Business Machines Corp. 5,907,125
33,400 Millipore Corp. 1,415,325
-----------
9,504,850
-----------
Telecommunications: 0.7%
69,000 MCI Communications 2,458,125
-----------
Transportation: 0.4%
17,491 Delta Air Lines, Inc. 1,471,430
-----------
Total Common Stock
(Cost $123,460,459) 207,404,485
-----------
29
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1997
Shares/ Market Value
Par(000) (Note 1)
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK: 2.4%
32,300 Conseco Inc., $4.28 Cvt. Pfd., Series E $ 4,089,988
75,000 Host Marriott Financial Trust 4,237,500
-----------
Total Convertible Preferred Stock
(Cost $5,724,337) 8,327,488
-----------
PREFERRED SECURITIES: 0.7%
100,000 Conseco Financial Trust
(Cost $2,500,000) 2,512,500
-----------
CONVERTIBLE BONDS: 1.6%
$2,000 Capstone Capital Corp., Cvt. Deb.,
6.55%, 3/14/02 1,830,000
339 Richardson Electronics, Cvt. Deb.,
7.25%, 12/15/06 276,285
1,661 Richardson Electronics, Cvt. Deb.,
8.25%, 6/15/06 1,422,231
2,000 Sizeler Property Investors, Cvt. Deb.,
8.00%, 7/15/03 1,840,000
-----------
Total Convertible Bonds
(Cost $5,461,496) 5,368,516
-----------
CORPORATE BONDS: 23.4%
1,000 American Life Holding Co., Sr Sub Nt,
11.25%, 9/15/04 1,131,250
1,000 Caesar's World, 8.875%, 8/15/02 1,040,000
873 Chattem, Inc., Sr Sub Deb, 12.75%, 6/15/04 953,753
-- Chattem, Inc., 1,000 Warrants, Expiring 6/17/99 8,900
3,000 Conseco, Inc., Nt, 8.125%, 2/15/03 3,048,750
700 CSX Corp., Nt, 7.00%, 9/15/02 695,625
575 Dillard Dept. Stores, Nt, 7.15%, 9/1/02 571,406
3,000 Eckerd Corp., Nt, 9.25%, 2/15/04 3,187,500
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 298,875
2,000 FMC Corp., Nt, 8.75%, 4/1/99 2,050,000
1,000 Fund America Enterprise, Nt, 7.75%, 2/1/03 990,000
4,500 HMH Properties, Nt, 9.50%, 5/15/05 4,590,000
3,000 Host Marriott Travel Plaza, Nt, 9.50%, 5/15/05 3,060,000
30
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS (concluded)
$2,775 ITT Corp., Nt, 6.25%, 11/15/00 $ 2,684,813
2,000 ITT Corp., Nt, 6.75%, 11/15/03 1,905,000
2,000 John Q. Hammons Hotels LP, Nt,
8.875%, 2/15/04 1,982,500
2,000 Jordan Industries, Nt, 10.375%, 8/1/03 1,982,500
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 4,831,250
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 2,180,750
2,500 Lockheed Martin Corp., Nt, 7.25%, 5/15/06 2,471,875
5,000 LodgeNet Entertainment, Nt, 10.25%, 12/15/06 4,925,000
1,285 Markel Corp., Nt, 7.25%, 11/1/03 1,270,544
2,500 Marriott International, 6.75%, 12/15/03 2,396,875
2,100 Marriott International, 7.875%, 4/15/05 2,121,000
1,100 Masco Corp., Nt, 6.625%, 9/15/99 1,095,875
1,000 Masco Corp., Nt, 6.125%, 9/15/03 938,750
2,000 McDonnell Douglas Corp., Nt, 6.875%, 11/1/06 1,927,500
2,000 MCI Communications, Nt, 6.25%, 3/23/99 1,985,000
500 MCI Communications, Nt, 7.50%, 8/20/04 509,375
2,100 Millipore Corp., Nt, 7.20%, 4/1/02 2,089,500
2,100 Millipore Corp., Nt, 7.50%, 4/1/07 2,085,468
2,000 Nabisco, Inc., 6.70%, 6/15/02 1,945,000
500 New England Telephone & Telegraph, Nt,
6.15%, 9/1/99 494,375
1,000 Noble Drilling Company, Nt, 9.25%, 10/1/03 1,053,750
500 PepsiCo, Inc., Nt, 6.25%, 9/1/99 495,625
325 Petroleum Heat & Power, Nt, 12.25%, 2/1/05 354,656
2,000 Petroleum Heat & Power, Nt, 9.375%, 2/1/06 1,897,500
4,000 Premier Parks, Nt, 9.75%, 1/15/07 4,130,000
2,000 RJR Nabisco Inc., Nt, 7.625%, 9/15/03 1,905,000
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 1,507,500
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 990,000
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 1,035,000
1,000 Travelers Group, Inc., Nt, 6.125%, 6/15/00 970,000
1,000 Union Pacific Co., 6.25%, 3/15/99 988,750
1,660 USG Corp., 8.50%, 8/1/05 1,678,675
500 Xerox Corp., Nt, 7.15%, 8/1/04 496,250
----------
Total Corporate Bonds
(Cost $80,723,099) 80,951,715
----------
31
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) March 31, 1997
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 4.0%
$1,000 Federal National Mortgage Assoc., 7.6%, 5/24/06 $ 985,940
----------
U.S. Treasury Notes
3,000 5.125%, 2/28/98 2,975,880
3,000 5.875%, 2/28/99 2,972,400
3,000 6.25%, 5/31/00 2,969,220
4,000 6.125%, 12/31/01 3,900,840
----------
12,818,340
----------
Total U.S. Government Securities
(Cost $13,906,131) 13,804,280
----------
REPURCHASE AGREEMENT: 6.8%
23,392 Goldman Sachs & Co., 6.25%
Dated 3/31/97, to be repurchased on 4/1/97,
collateralized by U.S. Treasury Notes with
a market value of $23,860,630.
(Cost $23,392,000) $ 23,392,000
------------
Total Investment In Securities: 98.9%
(Cost $255,167,522)** 341,760,984
Other Assets in Excess of Liabilities, Net: 1.1% 3,664,622
------------
Net Assets: 100.0% $345,425,606
============
32
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Market Value
(Note 1)
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($278,130,436 / 16,228,513 shares outstanding) $17.14
======
Class B Share
($17,311,481 / 1,008,822 shares outstanding) $17.16+
======
Class D Share
($15,212,749 / 889,149 shares outstanding) $17.11++
======
Institutional Share
($34,770,940 / 2,013,930 shares outstanding) $17.27
======
Maximum Offering Price Per:
Class A Share ($17.14 / .955) $17.95
======
Class B Share $17.16
======
Institutional Share $17.27
======
- ------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
+ Redemption value is $16.47 following 4% maximum contingent deferred sales
charge.
++ Redemption value is $16.94 following 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
33
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $ 6,100,648
Dividends 4,215,000
-----------
Total income 10,315,648
-----------
Expenses:
Investment advisory fee (Note 2) 2,227,355
Distribution fee (Note 2) 747,486
Transfer agent fee (Note 2) 105,449
Registration fees 85,812
Accounting fee (Note 2) 80,766
Miscellaneous 68,067
Printing and postage 53,700
Legal 51,314
Custodian fee 42,540
Audit 32,040
Director's fees 19,242
Pricing fee 11,041
Organizational expense (Note 1) 10,202
-----------
Total expenses 3,535,014
-----------
Net investment income 6,780,634
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 4,707,093
Change in unrealized appreciation or depreciation of
investments 34,681,754
-----------
Net gain on investments 39,388,847
-----------
Net increase in net assets resulting from operations $46,169,481
===========
See Notes to Financial Statements.
34
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended March 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 6,780,634 $ 5,157,897
Net realized gain from security transactions 4,707,093 4,755,355
Change in unrealized appreciation or
depreciation of investments 34,681,754 37,398,630
------------ ------------
Net increase in net assets resulting
from operations 46,169,481 47,311,882
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (5,070,551) (4,710,084)
Class B Shares (119,491) (25,557)
Class D Shares (280,846) (319,956)
Institutional Shares (391,368) (19,252)
Net realized short-term gains:
Class A Shares -- (517,708)
Class B Shares -- (7,307)
Class D Shares -- (37,816)
Institutional Shares -- (12,834)
Net realized long-term gains:
Class A Shares (874,810) (4,012,860)
Class B Shares (38,817) (52,673)
Class D Shares (53,442) (298,195)
Institutional Shares (71,368) (76,965)
------------ ------------
Total distributions (6,900,693) (10,091,207)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 100,059,836 51,325,277
Value of shares issued in reinvestment
of dividends 6,063,887 9,094,751
Cost of shares repurchased (29,688,897) (26,963,230)
------------ ------------
Increase in net assets derived from
capital share transactions 76,434,826 33,456,798
------------ ------------
Total increase in net assets 115,703,614 70,677,473
Net Assets:
Beginning of year 229,721,992 159,044,519
------------ ------------
End of year $345,425,606 $229,721,992
============ ============
See Notes to Financial Statements.
35
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68
--------
Income from Investment Operations:
Net investment income 0.39
Net realized and unrealized gain/(loss)
on investments 2.49
--------
Total from Investment Operations 2.88
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.36)
Distributions from net realized
long-term gains (0.06)
--------
Total distributions (0.42)
--------
Net asset value at end of period $ 17.14
========
Total Return(2) 19.90%
Ratios to Average Daily Net Assets:
Expenses(3) 1.27%
Net investment income(4) 2.51%
Supplemental Data:
Net assets at end of period (000) $278,130
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.40%, 1.38% and 1.70%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.02%, 3.11% and 2.53%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
36
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the Period
June 15, 1992(1)
through
For the Year Ended March 31, March 31,
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.02 $ 11.23 $ 11.25 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.36 0.35 0.40 0.18
Net realized and unrealized gain/(loss)
on investments 3.03 0.80 (0.04) 1.18
------- ------- ------- -------
Total from Investment Operations 3.39 1.15 0.36 1.36
------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.41) (0.35) (0.38) (0.11)
Distributions from net realized
long-term gains (0.32) (0.01) -- --
------- ------- ------- -------
Total distributions (0.73) (0.36) (0.38) (0.11)
------- ------- ------- -------
Net asset value at end of period $ 14.68 $ 12.02 $ 11.23 $ 11.25
======= ======= ======= =======
Total Return(2) 28.86% 10.57% 3.14% 13.73%
Ratios to Average Daily Net Assets:
Expenses(3) 1.31% 1.35% 1.35% 1.35%(5)
Net investment income(4) 2.72% 3.07% 3.14% 2.88%(5)
Supplemental Data:
Net assets at end of period (000) $200,020 $146,986 $131,097 $83,535
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
For the Year
Ended
March 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.71
-------
Income from Investment Operations:
Net investment income 0.26
Net realized and unrealized gain
on investments 2.51
-------
Total from Investment Operations 2.77
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.26)
Distributions from net realized long-term gains (0.06)
-------
Total distributions (0.32)
-------
Net asset value at end of period $ 17.16
=======
Total Return(2) 19.00%
Ratios to Average Daily Net Assets:
Expenses(3) 2.02%
Net investment income(4) 1.84%
Supplemental Data:
Net assets at end of period (000) $17,311
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.17% (annualized) for the period
ended March 31, 1995.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.87% (annualized) for
the period ended March 31, 1995.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
38
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
For the Period
For the Year Jan. 3, 1995(1)
Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $12.01 $11.14
------ ------
Income from Investment Operations:
Net investment income 0.21 0.08
Net realized and unrealized gain
on investments 3.05 0.79
------ ------
Total from Investment Operations 3.26 0.87
------ ------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.24) --
Distributions from net realized
long-term gains (0.32) --
------ ------
Total distributions (0.56) --
------ ------
Net asset value at end of period $14.71 $12.01
====== ======
Total Return(2) 27.89% 7.81%
Ratios to Average Daily Net Assets:
Expenses(3) 2.06% 2.10%(5)
Net investment income(4) 1.97% 2.94%(5)
Supplemental Data:
Net assets at end of period (000) $4,178 $ 341
Portfolio turnover rate 15% 18%
Average commissions per share -- --
See Notes to Financial Statements.
39
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class D Shares
(For a share outstanding throughout each period)
For the Year Ended
March 31,
- -------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 14.66
--------
Income from Investment Operations:
Net investment income 0.35
Net realized and unrealized gain/
(loss) on investments 2.47
--------
Total from Investment Operations 2.82
--------
Less Distributions:
Distributions from net investment
income and net realized short-term
gains (0.31)
Distributions from net realized long-term
gains (0.06)
--------
Total distributions (0.37)
--------
Net asset value at end of period $ 17.11
========
Total Return(2) 19.46%
Ratios to Average Daily Net Assets:
Expenses(3) 1.62%
Net investment income(4) 2.15%
Supplemental Data:
Net assets at end of period (000) $ 15,213
Portfolio turnover rate 13%
Average commissions per share $ 0.066(6)
- ------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.74%, 1.73% and 1.93%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.68%, 2.76% and 2.60%
(annualized) for the years ended March 31, 1995, 1994 and the period ended
March 31, 1993, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
40
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Nov. 9, 1992(1)
through
For the Year Ended March 31, March 31,
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.01 $ 11.22 $ 11.24 $10.45
------- ------- ------- ------
Income from Investment Operations:
Net investment income 0.33 0.31 0.36 0.14
Net realized and unrealized gain/(loss)
on investments 3.02 0.80 (0.04) 0.74
------- ------- ------- ------
Total from Investment Operations 3.35 1.11 0.32 0.88
------- ------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.31) (0.34) (0.09)
Distributions from net realized long-term gains (0.32) (0.01) -- --
------- ------- ------- ------
Total distributions (0.70) (0.32) (0.34) (0.09)
------- ------- ------- ------
Net asset value at end of period $ 14.66 $ 12.01 $ 11.22 $11.24
======= ======= ======= ======
Total Return(2) 28.44% 10.18% 2.78% 9.00%
Ratios to Average Daily Net Assets:
Expenses(3) 1.66% 1.70% 1.70% 1.70%(5)
Net investment income(4) 2.37% 2.72% 2.79% 2.83%(5)
Supplemental Data:
Net assets at end of period (000) $ 13,757 $11,717 $11,051 $6,285
Portfolio turnover rate 15% 18% 8% 8%
Average commissions per share -- -- -- --
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
For the Period
For the Nov. 2, 1995(1)
Year Ended through
March 31, March 31,
- --------------------------------------------------------------------------------
1997 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 14.77 $ 13.89
------- -------
Income from Investment Operations:
Net investment income 0.41 0.13
Net realized and unrealized gain
on investments 2.53 1.17
------- -------
Total from Investment Operations 2.94 1.30
------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.38) (0.10)
Distributions from net realized
long-term gains (0.06) (0.32)
------- -------
Total distributions (0.44) (0.42)
------- -------
Net asset value at end of period $ 17.27 $ 14.77
======= =======
Total Return 20.24% 21.12%
Ratios to Average Daily Net Assets:
Expenses 1.02% 1.03%(2)
Net investment income 2.83% 2.89%(2)
Supplemental Data:
Net assets at end of period (000) $34,771 $11,768
Portfolio turnover rate 13% 15%
Average commissions per share $ 0.066(3) --
- ------------
(1) Commencement of operations.
(2) Annualized.
(3) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
42
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Value Builder Fund, Inc. ("the Fund"), which was organized
as a Maryland Corporation on March 5, 1992, commenced operations June 15, 1992.
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. Its objective is to seek
long-term growth of capital and current income through diversified investments
in a professionally managed balanced portfolio of equity and debt securities.
The Fund consists of four share classes: Class A Shares, which commenced
June 15, 1992; Class D Shares (formerly Class B Shares), which commenced
November 9, 1992; Class B Shares, which commenced January 3, 1995; and
Institutional Shares, which commenced November 2, 1995. The Fund has not sold
Class D Shares since November 18, 1994, but existing shareholders may reinvest
their dividends.
The Class A, Class B and Class D Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge, the Class B Shares
have a contingent deferred sales charge and the Class D Shares have both a
front-end sales charge and a contingent deferred sales charge. The Institutional
Shares do not have a front-end sales charge or a contingent deferred sales
charge. In addition, each class has a different distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. If there are no sales or the security is not
traded on a listed exchange, the Fund values the security at the
average of the last bid and asked prices in the over-the-counter
market. When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors
establishes and monitors. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost.
43
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
D. Securities Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of investments
sold or redeemed. Interest income is recorded on an accrual basis and
includes the pro rata scientific method for amortization of premiums
and accretion of discounts when appropriate. Income and common
expenses are allocated to each class based on its respective average
net assets. Class specific expenses are charged directly to each
class. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. The Fund has deferred the costs incurred by
its organization and the initial public offering of shares. These
costs are being amortized on the straight-line method over a five-year
period from the Fund's commencement of operations.
44
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor and Alex. Brown Investment
Management ("ABIM") is the Fund's subadvisor. As compensation for its advisory
services, the Fund pays ICC an annual fee. This fee is based on the Fund's
average daily net assets and is calculated daily and paid monthly at the
following annual rates: 1.00% of the first $50 million, 0.85% of the next $50
million, 0.80% of the next $100 million and 0.70% of the amount over $200
million.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee. This fee is based on the Fund's average daily net assets and is
calculated daily and paid monthly at the following annual rates: 0.75% of the
first $50 million, 0.60% of the next $150 million and 0.50% of the amount over
$200 million.
ICC has agreed to reduce its aggregate fees so that ordinary Fund expenses
for any fiscal year do not exceed 1.35% of the Class A Shares' average daily net
assets, 2.10% of the Class B Shares' average daily net assets, 1.70% of the
Class D Shares' average daily net assets and 1.10% of the Institutional Shares'
average daily net assets. No fees were reduced for the year ended March 31,
1997.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $80,766 for accounting services for the year ended
March 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $105,449 for
transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the Class
A Shares' average daily net assets, 1.00% (includes 0.25% shareholder servicing
fee) of the Class B Shares' average daily net assets and 0.60% of the Class D
Shares' average daily net assets. For the year ended March 31, 1997,
distribution fees aggregated $747,486, of which $575,090 was attributable to the
Class A Shares, $85,517 was attributable to the Class B Shares and $86,879 was
attributable to the Class D Shares. The Fund did not pay Alex. Brown any
commissions for the year ended March 31, 1997.
45
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
March 31, 1997 was $10,628, and the accrued liability was $25,784.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 35 million shares of $.001 par value
capital stock (20 million Class A, 5 million Class B, 5 million Institutional, 3
million Class D and 2 million undesignated). Transactions in shares of the Fund
were as follows:
Class A Shares
----------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 3,858,982 2,645,585
Shares issued to shareholders on
reinvestment of dividends.................. 330,808 611,385
Shares redeemed............................... (1,584,547) (1,862,910)
------------ ------------
Net increase in shares outstanding............ 2,605,243 1,394,060
============ ============
Proceeds from sale of shares.................. $ 64,502,359 $ 36,567,203
Value of reinvested dividends................. 5,229,071 8,303,476
Cost of shares redeemed....................... (25,438,783) (25,776,184)
------------ ------------
Net increase from capital share transactions.. $ 44,292,647 $ 19,094,495
============ ============
Class B Shares
---------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
----------------- --------------
Shares sold................................... 754,825 252,563
Shares issued to shareholders on
reinvestment of dividends.................. 8,887 5,788
Shares redeemed............................... (38,898) (2,754)
----------- ----------
Net increase in shares outstanding............ 724,814 255,597
=========== ==========
Proceeds from sale of shares.................. $12,645,227 $3,471,865
Value of reinvested dividends................. 144,638 79,812
Cost of shares redeemed....................... (635,497) (39,242)
----------- ----------
Net increase from capital share transactions.. $12,154,368 $3,512,435
=========== ==========
46
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Class D Shares
-------------------------------
For the For the
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold.................................... -- --
Shares issued to shareholders on
reinvestment of dividends................... 19,676 45,398
Shares redeemed................................ (68,822) (82,585)
----------- ------------
Net decrease in shares outstanding............. (49,146) (37,187)
=========== ============
Proceeds from sale of shares................... $ -- $ --
Value of reinvested dividends.................. 311,352 616,247
Cost of shares redeemed........................ (1,071,231) (1,105,221)
----------- ------------
Net decrease from capital share transactions... $ (759,879) $ (488,974)
=========== ============
Institutional Shares
-------------------------------
For the Period
For the Nov. 2, 1995*
Year Ended through
March 31, 1997 March 31, 1996
-------------- --------------
Shares sold................................... 1,343,738 793,108
Shares issued to shareholders on
reinvestment of dividends.................. 23,612 6,860
Shares redeemed............................... (150,351) (3,037)
----------- -----------
Net increase in shares outstanding............ 1,216,999 796,931
=========== ===========
Proceeds from sale of shares.................. $22,912,250 $11,286,209
Value of reinvested dividends................. 378,826 95,216
Cost of shares redeemed....................... (2,543,386) (42,583)
----------- -----------
Net increase from capital share transactions.. $20,747,690 $11,338,842
=========== ===========
- -------------
*Commencement of operations.
47
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $79,767,274 and sales of investment
securities aggregated $28,149,581 for the year ended March 31, 1997.
Purchases of U.S. government obligations aggregated $10,920,000 and sales of
U.S. government obligations aggregated $4,994,843 for the period.
On March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $89,444,695
and aggregate gross unrealized depreciation of all securities in which there is
an excess of tax cost over value was $2,851,233.
NOTE 5--Net Assets
On March 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares............................................... $195,270,863
Class B Shares............................................... 15,993,831
Class D Shares............................................... 9,448,443
Institutional Shares......................................... 32,084,870
Accumulated net realized gain from security transactions........ 3,856,762
Unrealized appreciation of investments.......................... 86,593,462
Undistributed net investment income............................. 2,177,375
------------
$345,425,606
============
NOTE 6--Shareholder Meeting
On March 7, 1997, the Flag Investors Value Builder Fund held a special
meeting for its shareholders. During the meeting, shareholders elected the
following Directors: Truman T. Semans, Charles W. Cole, Jr., James J. Cunnane,
Richard T. Hale, John F. Kroeger, Louis E. Levy, Eugene J. McDonald, Rebecca W.
Rimel and Carl W. Vogt.
NOTE 7--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
48
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Value Builder Fund, Inc.
We have audited the accompanying statement of net assets of Flag Investors
Value Builder Fund, Inc. as of March 31, 1997 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Value Builder Fund, Inc. as of March 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 2, 1997
49
<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>
50
<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>
51
<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>
52
<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>
53
<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>
54
<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>
55
<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.
56
<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.
57
<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.
58
<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.
59
<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> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.68 $ 12.02 $ 11.23 $ 11.25 $ 10.00
-------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income 0.39 0.36 0.35 0.40 0.18
Net realized and unrealized gain/(loss) on investments 2.49 3.03 0.80 (0.04) 1.18
-------- -------- -------- -------- -------
Total from Investment Operations 2.88 3.39 1.15 0.36 1.36
-------- -------- -------- -------- -------
Less Distributions:
Distributions from net 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.
60
<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.
61
<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> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 14.71 $12.01 $11.14
------- ------ ------
Income from Investment Operations:
Net investment income 0.26 0.21 0.08
Net realized and unrealized gain 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.
62
<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.
63
<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> <C> <C> <C> <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.
64
<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.
65
<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> <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.
66
<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.
67
<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
68
<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
69
<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.
70
<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.
71
<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 ICC and a new
Sub-Advisory Agreement among the Fund, ICC and ABIM. The new agreements are
substantially the same as the former agreements.
72
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Moody's Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P-2 or P-3.
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, and CC and C -- Regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
A-1
<PAGE>
` D -- In default. The D rating category is used when interest payments or
principal payments are not made on the date due even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or the
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration
Statement:
-- Financial Highlights for the periods ended March
31, 1993, March 31, 1994, March 31, 1995, March
31, 1996 and March 31, 1997, and unaudited
Financial Highlights for the six months ended
September 30, 1997
-- Statement of Net Assets at March 31, 1997
-- Statement of Operations for the fiscal year ended
March 31, 1997
-- Statement of Changes in Net Assets for the periods
ended March 31, 1996 and March 31, 1997
-- Notes to Financial Statements
-- Report of Independent Accountants
-- Statement of Net Assets at September 30, 1997,
unaudited
-- Statement of Operations for the six months ended
September 30, 1997, unaudited
-- Statement of Changes in Net Assets for the six
months ended September 30, 1997, unaudited
-- Notes
*No financial statements are provided for Flag Investors
Class C Shares
(2) All required financial statements are included in
Parts A and B hereof. All other financial statements
and schedules are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation and Certificate of
Correction;(1)
(b) Amended Articles of Incorporation dated May 1,
1992;(1)
(c) Articles Supplementary dated December 27, 1993;(1)
(d) Articles Supplementary dated November 18, 1994;(1)
<PAGE>
(e) Articles Supplementary dated October 6, 1995;(2)
(f) Articles Supplementary dated June 17, 1997;(3)
(g) Articles Supplementary dated December 18, 1997,
filed herewith;
(2) By-Laws, as amended through December 19, 1996;(3)
(3) None;
(4) (a) Specimen Securities;(4)
(5) (a) Investment Advisory Agreement dated September 1,
1997 between Registrant and Investment Company
Capital Corp. filed herewith;
(b) Sub-Advisory Agreement dated September 1, 1997
among Registrant, Investment Company Capital Corp.
and Alex. Brown Investment Management filed
herewith;
(6) (a) Distribution Agreement dated August 31, 1997
between Registrant and ICC Distributors, Inc.
filed herewith;
(b) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating
Broker-Dealers, filed herewith;
(c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents filed
herewith;
(7) None;
(8) Form of Custodian Agreement between Registrant and
Bankers Trust Company filed herewith;
(9) (a) Master Services Agreement (including Accounting
and Transfer Agency Services Appendices) between
Registrant and Investment Company Capital
Corp.;(2)
2
<PAGE>
(10) Opinion of Counsel;(1)
(11) Consent of Coopers & Lybrand L.L.P., filed herewith;
(12) None;
(13) Subscription Agreement re: initial $100,000
capital;(1)
(14) None;
(15) (a) Distribution Plan (Flag Investors Class A
Shares)(1)
(b) Distribution Plan (Flag Investors Class D
Shares);(1)
(c) Distribution Plan (Flag Investors Class B
Shares);(1)
(d) Amended Distribution Plan (Flag Investors Class A
Shares) filed herewith;
(e) Amended Distribution Plan (Flag Investors Class B
Shares) filed herewith;
(f) Form of Distribution Plan (Flag Investors Class C
Shares) filed herewith;
3
<PAGE>
(16) Schedule of Computation of Performance Quotations;(1)
(18) (a) Registrant's Rule 18f-3 Plan;(3)
(b) Registrant's Amended Rule 18f-3 Plan, filed
herewith;
(24) Powers of Attorney, filed herewith;
(27) Financial Data Schedule, filed herewith.
- ---------------------
1 Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 26, 1995.
2 Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 29, 1996.
3 Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 29, 1997.
4 Incorporated by reference to Exhibit 1 (Articles of Incorporation) as
amended to date, filed as part of Post-Effective Amendments Nos. 5 and 7,
to Registrant's Registration Statement on Form N-1A (Registration No.
33-46279) filed with the Securities and Exchange Commission via EDGAR on
July 26, 1995 and July 29, 1996, respectively, and Exhibit 2 (By-Laws) as
amended to date, filed as part of Post-Effective Amendment No. 8 to such
Registration Statement filed with the Securities and Exchange Commission
via EDGAR on July 29, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
Furnish a list or diagram of all persons directly or
indirectly controlled by or under common control with the Registrant and as to
each such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, and (2) the percentage of voting
securities owned or other basis of control by the person, if any, immediately
controlling it.
4
<PAGE>
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of December 31, 1997
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock
Class A 7,235
Class B 1,975
Class D 470
Institutional 72
Class C 0
Item 27. Indemnification
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's
Articles of Incorporation, included as Exhibit 1 to this Registration Statement
and incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the Corporation shall have any liability to the Corporation or
its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents
in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland
General Corporation law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time
amended. No further amendment to the Charter of the
Corporation shall decrease, but may expand, any right of any
person under this Article VIII based on any event, omission or
proceeding prior to such amendment.
5
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment advisor of the
Registrant, and each director, officer or partner of any such investment
advisor, is or has been, at any time during the past two fiscal years, engaged
for his own account or in the capacity of director, officer, employee, partner
or trustee.
During the last two fiscal years, no director or officer of
Investment Company Capital Corp., the Registrant's investment advisor, and no
partner of Alex. Brown Investment Management, the Registrant's sub-advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment management and,
through affiliates, investment banking.
Item 29. Principal Underwriters
(a) ICC Distributors, Inc. acts as distributor for BT Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Telephone
Income Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., Flag Investors
Total Return U.S. Treasury Fund Shares, Flag Investors
Managed Municipal Fund Shares, Flag Investors
Short-Intermediate Income Fund, Inc., (formerly known as
Flag Investors Intermediate-Term Income Fund, Inc.), Flag
Investors Maryland Intermediate Tax Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc. and Flag
Investors Equity Partners Fund, Inc., all registered
open-end management investment companies.
6
<PAGE>
<TABLE>
<CAPTION>
(b) Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
----------------- ----------- ----------
<S> <C> <C>
John Y. Keefer President None
Richard C. Butt Vice-President None
Nanette K. Chern Chief Compliance Officer None
Sara M. Morris Treasurer None
Margaret J. Fenderson Assistant Treasurer None
David I. Goldstein Secretary None
Dana L. Lukens Assistant Secretary None
</TABLE>
- --------------------
*Two Portland Square
Portland, ME 04101
(c) Not applicable.
Item 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the names and
address of each person maintaining physical possession of each such account,
book or other document.
Investment Company Capital Corp., Registrant's investment advisor,
transfer agent and dividend disbursing agent, One South Street, Baltimore,
Maryland 21202, maintains physical possession of each such account, book or
other document of the Fund, except for those maintained by the Registrant's
sub-advisor ABIM, One South Street, Baltimore, MD 21202, by the Registrant's
custodian, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC maintains physical possession of all journals containing
itemized daily records of all purchases and sales of securities, including sales
and redemptions of Fund securities, and Bankers Trust Company maintains physical
possession of all receipts and deliveries of securities (including certificate
numbers is such detail is not recorded by the custodian or transfer agent), all
receipts and disbursements of cash, and all other debts and credits.
7
<PAGE>
Item 31. Management Services
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
See Exhibit 8.
Item 32. Undertakings
Furnish the following undertakings in substantially the following
form in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable
(c) A copy of the Registrant's latest Annual Report to Shareholders
will be furnished upon request and without charge, by contacting the Registrant
at (800) 767-3524.
8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Post-Effective Amendment
to the Registration Statement to be signed on its behalf by the undersigned
thereto duly authorized in the City of Baltimore, in the State of Maryland, on
the 10th day of March, 1998.
FLAG INVESTORS VALUE BUILDER
FUND, INC.
By: /s/ Harry Woolf
---------------------------------
Harry Woolf
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
* Chairman and March 10, 1998
- ----------------------------- Director ----------------
Truman T. Semans Date
March 10, 1998
* Director ----------------
- ----------------------------- Date
James J. Cunnane
* March 10, 1998
- ----------------------------- Director ----------------
Richard T. Hale Date
* March 10, 1998
- ----------------------------- Director ----------------
John F. Kroeger Date
* March 10, 1998
- ----------------------------- Director ----------------
Louis E. Levy Date
* March 10, 1998
- ----------------------------- Director ----------------
Eugene J. McDonald Date
* March 10, 1998
- ----------------------------- Director ----------------
Rebecca W. Rimel Date
* March 10, 1998
- ----------------------------- Director ----------------
Carl W. Vogt Date
/s/ Harry Woolf President March 10, 1998
- ----------------------------- ----------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial March 10, 1998
- ----------------------------- and Accounting ----------------
Joseph A. Finelli Officer Date
* By: /s/ Amy M. Olmert
-----------------------------
Amy M. Olmert
Attorney-In-Fact
9
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Document
- ------ --------
<S> <C> <C>
(1)(a) Articles of Incorporation and Certificate of Correction;(1)
(b) Amended Articles of Incorporation dated May 1, 1992;(1)
(c) Articles Supplementary dated December 27, 1993;(1)
(d) Articles Supplementary dated November 18, 1994;(1)
(e) Articles Supplementary dated October 6, 1995;(2)
(f) Articles Supplementary dated June 17, 1997;(3)
EX-99.B (1)(g) Articles Supplementary dated December 18, 1997,
filed herewith;
(2) By-Laws, as amended through December 19, 1996;(3)
(3) None;
(4)(a) Specimen Securities;(4)
EX-99.B (5)(a) Investment Advisory Agreement dated September 1, 1997 between
Registrant and Investment Company Capital Corp. filed herewith;
EX-99.B (b) Sub-Advisory Agreement dated September 1, 1997 among Registrant,
Investment Company Capital Corp. and Alex. Brown Investment
Management filed herewith;
EX-99.B (6)(a) Distribution Agreement dated August 31, 1997 between Registrant and ICC
Distributions, Inc. filed herewith;
EX-99.B (6)(b) Form of Sub-Distribution Agreement between ICC Distributions, Inc. and
Participating Broker-Dealers, filed herewith;
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Document
- ------ --------
<S> <C> <C>
EX-99.B (6)(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents filed herewith;
(7) None;
EX-99.B (8) Form of Custodian Agreement between Registrant and
Bankers Trust Company filed herewith;
(9)(a) Master Services Agreement (including Accounting and Transfer Agency
Services Appendices) between Registrant and Investment Company Capital
Corp.;(2)
(10) Opinion of Counsel;(1)
EX-99.B (11) Consent of Coopers & Lybrand L.L.P., filed herewith;
(12) None;
(13) Subscription Agreement re: initial $100,000 capital;(1)
(14) None;
(15)(a) Distribution Plan (Flag Investors Class A Shares)(1)
(b) Distribution Plan (Flag Investors Class D Shares);(1)
(c) Distribution Plan (Flag Investors Class B Shares);(1)
EX-99.B (15)(d) Amended Distribution Plan (Flag Investors Class A Shares) filed herewith;
EX-99.B (15)(e) Amended Distribution Plan (Flag Investors Class B Shares) filed herewith;
EX-99.B (15)(f) Form of Distribution Plan (Flag Investors Class C Shares) filed herewith;
(16) Schedule of Computation of Performance Quotations;(1)
(18)(a) Registrant's Rule 18f-3 Plan;(3)
</TABLE>
<PAGE>
EDGAR
Exhibit
Number Document
- ------ --------
EX-99.B (b) Registrant's Amended Rule 18f-3 Plan, filed herewith;
EX-99.B (24) Powers of Attorney, filed herewith;
EX-27 (27) Financial Data Schedules filed herewith.
- ---------------------
1 Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 26, 1995.
2 Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via EDGAR on July 29, 1996.
3 Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commissio via EDGAR on July 29, 1997.
4 Incorporated by reference to Exhibit 1 (Articles of Incorporation) as
amended to date, filed as part of Post-Effective Amendments Nos. 5 and 7,
to Registrant's Registration Statement on Form N-1A (Registration No.
33-46279) filed with the Securities and Exchange Commission via EDGAR on
July 26, 1995 and July 29, 1996, respectively, and Exhibit 2 (By-Laws) as
amended to date, filed as part of Post-Effective Amendment No. 8 to such
Registration Statement filed with the Securities and Exchange Commission
via EDGAR on July 29, 1997.
<PAGE>
EX-99.B(1)(g)
FLAG INVESTORS VALUE BUILDER FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS VALUE BUILDER FUND, INC. (the "Corporation"), having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution designating a new class of shares and increasing the total number of
shares of capital stock which the Corporation has the authority to issue to
ninety million (90,000,000) shares of Common Stock, of the par value of 1 mil
($.001) per share and of the aggregate par value of ninety thousand dollars
($90,000), all of which shares are designated as follows: forty million
(40,000,000) shares are designated "Flag Investors Value Builder Fund Class A
Shares," fifteen million (15,000,000) shares are designated "Flag Investors
Value Builder Fund Class B Shares," fifteen million (15,000,000) shares are
designated "Flag Investors Value Builder Fund Class C Shares," three million
(3,000,000) shares are designated "Flag Investors Value Builder Fund Class D
Shares," fifteen million (15,000,000) shares are designated "Flag Investors
Value Builder Fund Institutional Shares" and two million (2,000,000) shares
remain undesignated.
SECOND: Immediately before the increase in authorized shares
and the designation of the new class of shares, the Corporation was authorized
to issue seventy-five million (75,000,000) shares of Common Stock, of the par
value of 1 mil ($.001) per share and of the aggregate par value of seventy-five
thousand dollars ($75,000), all of which shares were designated as follows:
forty million (40,000,000) shares were designated "Flag Investors Value Builder
Fund Class A Shares," fifteen million (15,000,000) shares were designated "Flag
Investors Value Builder Fund Class B Shares," three million (3,000,000) shares
were designated "Flag Investors Value Builder Fund Class D Shares," fifteen
million (15,000,000) shares were designated "Flag Investors Value Builder Fund
Institutional Shares" and two million (2,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Value Builder Fund, Inc.
has caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 18th day of
December, 1997.
[CORPORATE SEAL]
FLAG INVESTORS VALUE BUILDER FUND, INC.
By: /s/ Harry Woolf
-----------------------------------
Harry Woolf
President
Attest: /s/ Amy M. Olmert
-------------------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS VALUE BUILDER
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Harry Woolf
-----------------------------------
Harry Woolf
President
<PAGE>
EX-99.B(5)(a)
FLAG INVESTORS VALUE BUILDER FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of
September, 1997 by and between FLAG INVESTORS VALUE BUILDER FUND, INC., a
Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor
under the Investment Advisors Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an
agreement to provide investment advisory and administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors. The Advisor shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with
the State of Maryland on March 5, 1992 and all amendments thereto (such Articles
of Incorporation, as presently in effect and as they shall from time to time be
amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the Investment Company Act of 1940 on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on March 16, 1992;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-46279) and under the 1940 Act as filed with the SEC on March 16, 1992
relating to the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus,
as presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
<PAGE>
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
(c) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund, and
whether concerning the individual issuers whose securities are included in the
Fund's portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio;
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(g) take all actions necessary to carry into effect the
Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer and
dividend disbursing agent;
(i) provide the Fund with such administrative and
clerical services for the maintenance of certain shareholder records, as are
deemed advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filings with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund, broker-dealer
selection, and negotiation of its brokerage commission rates, the Advisor's
primary consideration in effecting securities transactions will be to obtain the
best price and execution on an overall basis. In performing this function the
Advisor shall comply with applicable policies established by the Board of
Directors and shall provide the Board of Directors with such reports as the
Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. In certain instances the Advisor may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the Advisor will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of
-2-
<PAGE>
the expected contribution of the broker-dealer to the investment performance of
the Fund on a continuing basis. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Directors
may determine, the Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker-dealer that provides brokerage and
research services to the Advisor an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers other than Alex. Brown & Sons Incorporated ("Alex. Brown")
who also provide research or statistical material or other services to the Fund
or the Advisor. Such allocation shall be in such amounts and proportions as the
Advisor shall determine and the Advisor will report on said allocation regularly
to the Board of Directors of the Fund, indicating the broker-dealers to whom
such allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other account of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Brown and the Advisor may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as any
other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the Board
of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
-3-
<PAGE>
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without cost to the
Fund, the services of and one or more officers of the Fund, to the extent that
such officers may be required by the Fund, for the proper conduct of its
affairs.
(b) The Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution, the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions, chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to Federal, State or
other governmental agencies; the costs and the expenses of engraving or printing
of certificates representing shares of the Fund; all costs and expenses in
connection with registration and maintenance of registration of the Fund and its
shares with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the Directors of the
Fund who are not "interested persons" (as defined in the 1940 Act) of the Fund
and of independent accountants, in connection with any matter relating to the
Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of Directors,
but shall not be responsible for the sub-advisor's performance under the
sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty
to, perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of
-4-
<PAGE>
Directors. Such services will be performed on behalf of the Fund and the
Advisor's charge in rendering such services may be billed monthly to the Fund,
subject to examination by the Fund's independent accountants. Payment or
assumption by the Advisor of any Fund expense that the Advisor is not required
to pay or assume under this Agreement shall not relieve the Advisor of any of
its obligations to the Fund nor obligate the Advisor to pay or assume any
similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual rate of 1.00% of the first $50 million of the Fund's
average daily net assets, .85% of the next $50 million of the Fund's average
daily net assets, .80% of the next $100 million of the Fund's average daily net
assets and .70% of the Fund's average daily net assets exceeding $200 million.
Except as hereinafter set forth, compensation under
this Agreement shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for the part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Advisor's compensation for the preceding month shall
be made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund are
not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, trustees or directors of any other firm, trust or corporation,
including other investment companies.
11. Term and Renewal. This Agreement shall become effective as
of the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of a party to this Agreement (other than as Directors
of the Fund) by votes cast in person at a meeting specifically called for such
purpose.
12. Termination. This Agreement may be terminated without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
13. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits to ensure
the accuracy of all services performed under this Agreement, but the Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross
-5-
<PAGE>
negligence on the part of the Advisor or its officers, directors or employees,
or reckless disregard by the Advisor of its duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.
15. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant to
the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective offices as of the day
and year first above written.
[SEAL] FLAG INVESTORS VALUE BUILDER FUND, INC.
Attest: /s/ Amy M. Olmert By: /s/ Harry Woolf
------------------ ----------------------
Amy M. Olmert Name: Harry Woolf
Title: President
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Amy M. Olmert By: /s/ Edward J. Veilleux
------------------ ----------------------
Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
-6-
<PAGE>
EX-99.B(5)(b)
FLAG INVESTORS VALUE BUILDER FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1997 by
and among FLAG INVESTORS VALUE BUILDER FUND, INC., a Maryland corporation (the
"Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), and ALEX. BROWN INVESTMENT MANAGEMENT, a Maryland limited
partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with
the State of Maryland on March 5, 1992 and all amendments thereto (such
Articles of Incorporation, as presently in effect and as they shall
from time to time be amended are herein called the "Articles of
Incorporation");
(b) The Fund's By-laws and all amendments thereto
(such By-laws, as presently in effect and as they shall from time to
time be amended, are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
-1-
<PAGE>
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on March 16, 1992;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-46279) and under the 1940 Act as filed with the SEC on March 16,
1992 relating to the shares of the Fund, and all amendments thereto;
and
(f) The Fund's most recent prospectus (such
prospectus, as presently in effect, and all amendments are supplements
thereto are herein called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
-2-
<PAGE>
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Sub-Advisor may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other accounts of the
Sub-Advisor is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Sub-Advisor. Alex. Brown and the Sub-Advisor may combine such transactions,
in accordance with applicable laws and regulations, in order to obtain the best
net price and most favorable execution.
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<PAGE>
The Fund will not deal with the Sub-Advisor or Alex. Brown in
any transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act
and any rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without
cost to the Fund, the services of the President and certain Vice
Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry out
its obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement between
the Fund and the Advisor; payments to the Fund's distributor under the
Fund's plan of distribution; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping
of its
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<PAGE>
cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commission chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by
the Fund to Federal, state or other governmental agencies; the costs
and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares
with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and
travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not "interested persons" (as
defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: .75% of the first $50 million of
the Fund's average daily net assets, .60% of the Fund's average daily net assets
in excess of $50 million but not exceeding $200 million, and .50% of the Fund's
average daily net assets in excess of $200 million. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued daily
and the amounts of the daily accruals paid monthly. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculations of the
fees as set forth above. Payment of the Sub-Advisor's compensation for the
preceding month shall be made as promptly as possible.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
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<PAGE>
10. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the Fund
(as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Advisor may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or partners of the Sub-Advisor to the extent permitted by law; and that
the partners of the Sub-Advisory are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this
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<PAGE>
Agreement, but the Sub-Advisor shall not be liable for any act or omission which
does not constitute willful misfeasance, bad faith or gross negligence on the
part of the Sub-Advisor or its officers, directors or employees, or reckless
disregard by the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor, of the Advisor and of the Fund for this purpose shall be One South
Street, Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: FLAG INVESTORS VALUE BUILDER FUND, INC.
/s/ Amy M. Olmert By: /s/ Harry Woolf
- -------------------- -------------------------
Amy M. Olmert Name: Harry Woolf
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/ Amy M. Olmert By: /s/ Edward J. Veilleux
- ------------------- -----------------------------------
Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ALEX. BROWN INVESTMENT MANAGEMENT
/s/ Amy M. Olmert By: /s/ J.Dorsey Brown, III
- ------------------- -----------------------------------
Amy M. Olmert Name: J. Dorsey Brown, III
Title: Chief Executive Officer
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<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between Flag
Investors Value Builder Fund, Inc., with its principal office and place of
business at One South Street, Baltimore, Maryland 21202 (the "Fund"), and ICC
Distributors, Inc., a Delaware corporation with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company, may
issue its shares of common stock (the "Shares") in separate series and classes
and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange Act of
1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the business
of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16, being herein referred to as a "Series," and collectively as the
"Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Fund and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Organic Documents"), the Fund's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, the
Fund's Registration Statement and all amendments thereto filed with the SEC
pursuant to the
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<PAGE>
Securities Act of 1933, as amended (the "Securities Act"), or the 1940 Act (the
"Registration Statement") and its current Prospectuses and Statements of
Additional Information (collectively, as currently in effect and as amended or
supplemented, the "Prospectus") and shall promptly furnish the Distributor with
all amendments of or supplements to the foregoing, each properly certified or
authenticated. In addition, the Fund shall furnish the Distributor with properly
certified or authenticated copies of all documents, notices and reports filed
with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Fund hereby appoints the Distributor as its principal underwriter
and distributor to sell its Shares to the public and hereby agrees during the
term of this Agreement to sell its Shares to the Distributor upon the terms and
conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
its principal underwriter and distributor except that the rights given under
this Agreement to the Distributor shall not apply to Shares issued in connection
with the merger, consolidation or reorganization of any other investment company
with the Fund; the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company; or the
reinvestment in Shares by the Fund's shareholders of dividends or other
distributions or any other offering by the Fund of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the Shares
needed to fill unconditional orders for unsold Shares of the Fund as shall then
be effectively registered under the Securities Act placed with the Distributor
by investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, the Distributor may act as the Fund's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Fund as shall then be
effectively registered under the Securities Act. The Distributor will promptly
forward all orders and subscriptions for Shares of the Fund. The price which the
Distributor shall pay for Shares purchased by it from the Fund shall be the net
asset value, determined as set forth in Section 3(c) hereof, used in determining
the public offering price on which the orders are based. The price at which the
Distributor shall offer and sell Shares to investors shall be the public
offering price, as set forth in Section 3(b) hereof. The Distributor may sell
Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to
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<PAGE>
investors through subscriptions received by the Fund, but no such direct sales
shall affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the price
per Share at which the Distributor or selected dealers or selected agents (each
as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the Fund's Prospectus,
shall be the public offering price determined in accordance with the then
currently effective Prospectus of the Fund or Class thereof under the Securities
Act, relating to such Shares, but not to exceed the net asset value at which the
Distributor, when acting as principal, is to purchase such Shares, plus, in the
case of Shares for which an initial sales charge is assessed, an initial charge
equal to a specified percentage or percentages of the public offering price of
the Shares as set forth in the current Prospectus relating to the Shares. In the
case of Shares for which an initial sales charge may be assessed, Shares may be
sold to certain classes of persons at reduced sales charges or without any sales
charge as from time to time set forth in the current Prospectus relating to the
Shares. The Fund will advise the Distributor of the net asset value per Share at
each time as the net asset value per Share shall have been determined by the
Fund.
(c) The net asset value per Share of each Series or Class thereof shall be
determined by the Fund, or an agent of the Fund, as of the close of the New York
Stock Exchange or such other time as set forth in the applicable Prospectus on
the Fund business day in accordance with the method set forth in the Prospectus
and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of any
Class at any time in the absolute discretion of the Board, and upon notice of
such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Fund for
acceptance and shall not be binding until accepted by the Fund. Any order or
subscription may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or confirm orders
or subscriptions for the purchase of Shares. The Fund (or its agent) will
confirm orders and subscriptions upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment thereof, will
issue such Shares in certificated or uncertificated form pursuant to the
instructions of the Distributor. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
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<PAGE>
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of time may be redeemed without payment of a deferred sales
charge as from time to time set forth in the Prospectus relating to those
Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of the
redemption price consisting of the redemption price less any applicable deferred
sales charge to the redeeming shareholder or its agent and (ii) except as may be
otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times when
the New York Stock Exchange is closed for any reason other than its customary
weekend or holiday closings, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by the Fund is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the Fund
upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the Shares. None of the
Distributor, any selected dealer, any selected agent or any other person is
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<PAGE>
authorized by the Fund to give any information or to make any representations
other than as is contained in the Fund's Prospectus or any advertising materials
or sales literature specifically approved in writing by the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers or selected agents, the collection of
amounts payable by investors and selected dealers or selected agents on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the supervision
of and in accordance with the directives of the Board. The Distributor will
perform its duties hereunder in accordance with the Fund's Organic Documents and
Prospectuses and with the instructions and directions of the Board and will
conform to and comply with the requirements of the 1940 Act, the Securities Act
and other applicable laws.
(e) The Distributor shall provide the Board with a written report of the
amounts expended in connection with this Agreement as requested by the Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware and it is duly
qualified to carry on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles
of Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(v) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Distributor,
enforceable against the Distributor in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of
creditors and secured parties;
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the NASD, it will
abide by the rules and regulations of the NASD, and it will notify the
Fund if its membership in the NASD is terminated or suspended; and
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<PAGE>
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(g) Notwithstanding anything in this Agreement, including the Appendices,
to the contrary, the Distributor makes no warranty or representation as to the
number of selected dealers or selected agents with which it has entered into
agreements in accordance with Section 11 hereof, as to the availability of any
Shares to be sold through any selected dealer, selected agent or other
intermediary or as to any other matter not specifically set forth herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other papers
or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Fund shall make available to the
Distributor the number of copies of its Prospectuses as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, subject to the approval of its
Board and any required approval of its shareholders, all action necessary to fix
the number of authorized Shares (if such number is not limited) and to register
the Shares under the Securities Act, to the end that there will be available for
sale the number of Shares as reasonably may be expected to be sold pursuant to
this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such registration or qualification.
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its Organic
Documents to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have
been taken to authorize it to enter into and perform its duties under
this Agreement;
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<PAGE>
(iv) It is registered as an open-end management investment
company with the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully
paid and non-assessable;
(vi) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Fund,
enforceable against the Fund in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties;
(vii) The performance by the Fund of its obligations hereunder
does not and will not contravene any provision of its Articles of
Incorporation.
(viii) The Fund's Registration Statement is currently
effective and will remain effective with respect to all Shares of the
Fund's Series and Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its
Registration Statement and Prospectuses have been or will be, as the
case may be, carefully prepared in conformity with the requirements of
the Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its
Registration Statement and Prospectuses contain or will contain all
statements required to be stated therein in accordance with the
Securities Act and the rules and regulations thereunder, (B) all
statements of fact contained or to be contained in the Registration
Statement or Prospectuses are or will be true and correct at the time
indicated or on the effective date as the case may be and (C) neither
the Registration Statement nor any Prospectus, when they shall become
effective or be authorized for use, will include an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares;
(xi) It will from time to time file such amendment or
amendments to its Registration Statement and Prospectuses as, in the
light of then-current and then-prospective developments, shall, in the
opinion of its counsel, be necessary in order to have the Registration
Statement and Prospectuses at all times contain all material facts
required to be stated therein or necessary to make any statements
therein not misleading to a purchaser of Shares ("Required
Amendments");
(xii) It shall not file any amendment to its Registration
Statement or Prospectuses without giving the Distributor reasonable
advance notice thereof (which shall be at least three Fund business
days); provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such
amendments to its Registration Statement
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<PAGE>
or Prospectuses, of whatever character, as the Fund may deem
advisable, such right being in all respects absolute and
unconditional; and
(xiii) It will use its best efforts to ensure that (A) any
amendment to its Registration Statement or Prospectuses hereafter filed
will, when it becomes effective, contain all statements required to be
stated therein in accordance with the 1940 Act and the rules and
regulations thereunder, (B) all statements of fact contained in the
Registration Statement or Prospectuses will, when it becomes effective,
be true and correct at the time indicated or on the effective date as
the case may be and (C) no such amendment, when it becomes effective,
will include an untrue statement of a material fact or will omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the
Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in rendering
services to the Fund under this Agreement but shall be under no duty to take any
action except as specifically set forth herein or as may be specifically agreed
to by the Distributor in writing. The Distributor shall not be liable to the
Fund or any of the Fund's shareholders for any error of judgment or mistake of
law, for any loss arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful misfeasance or gross
negligence in the performance of the Distributor's duties or obligations under
this Agreement or by reason of the Distributor's reckless disregard of its
duties and obligations under this Agreement.
(b) The Distributor shall not be liable to the Fund for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Fund or of counsel, who may be counsel
to the Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and
which it reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral instruction
(the Distributor shall have no duty or obligation to make any inquiry
or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any
resolution of the Board, and the Distributor may rely upon the
genuineness of any such document or copy thereof reasonably believed in
good faith by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order, or other document reasonably
-8-
<PAGE>
believed in good faith by the Distributor to be genuine and to have
been signed or presented by the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Distributor's employees), fire, mechanical breakdowns, flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply. In addition, to the extent the Distributor's
obligations hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the performance
of the Distributor's duties caused, directly or indirectly, by the failure or
delay of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Fund in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
-9-
<PAGE>
After receipt of the Distributor's notice of termination under Section
13(e), the Fund shall indemnify and hold each Distributor Indemnitee free and
harmless from and against any Distributor Claim; provided, that the term
Distributor Claim for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested amendment to the
Fund's Registration Statement and for which the Fund has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Fund by or on behalf of the
Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees
and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained
in the Fund's Registration Statement or Prospectus or any alleged
omission of a material fact required to be stated or necessary to make
the statements therein not misleading, if such statement or omission
was made in reliance upon, and in conformity with, information
furnished to the Fund in writing in connection with the preparation of
the Registration Statement or Prospectus by or on behalf of the
Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement (collectively, "Fund Claims").
-10-
<PAGE>
(d) The Distributor may assume the defense of any suit brought to enforce
any Fund Claim and may retain counsel of good standing chosen by the Distributor
and approved by the Fund, which approval shall not be withheld unreasonably. The
Distributor shall advise the Fund that it will assume the defense of the suit
and retain counsel within ten (10) days of receipt of the notice of the claim.
If the Distributor assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Distributor does not assume the defense of any such suit, or if
the Fund does not approve of counsel chosen by the Distributor or has been
advised that it may have available defenses or claims that are not available to
or conflict with those available to the Distributor, the Distributor will
reimburse any Fund Indemnitee named as defendant in such suit for the reasonable
fees and expenses of any counsel that person retains. A Fund Indemnitee shall
not settle or confess any claim without the prior written consent of the
Distributor, which consent shall not be unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Fund or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Fund
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to any Distributor
Indemnitee or Fund Indemnitee except to the extent that the ability of the party
entitled to such notice to defend such action has been materially adversely
affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Fund Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Fund of the commencement
of any litigation or proceeding of which it becomes aware arising out of or in
any way connected with the issuance or sale of Shares. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceeding of
which it becomes aware arising out of or in any way connected with the issuance
or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws
-11-
<PAGE>
or any applicable statute or regulation; provided, however, that neither the
Fund nor the Distributor may amend their Organic Documents or Articles of
Incorporation and Bylaws, respectively, in any manner that would result in a
violation of a representation or warranty made in this Agreement, except if
required by any applicable statute or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Fund or the security holders of the
Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request
by the SEC for amendments to the Fund's Registration Statement or Prospectus or
for additional information; (ii) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Fund's Registration Statement or
any Prospectus or the initiation of any proceedings for that purpose; (iii) of
the happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with the
distribution of Shares of the Fund and each Class thereof, the Distributor shall
receive: (i) any applicable sales charge assessed upon investors in connection
with the purchase of Shares; (ii) from the Fund, any applicable contingent
deferred sales charge ("CDSC") assessed upon investors in connection with the
redemption of Shares; (iii) from the Fund, the distribution service fees with
respect to the Shares of those Classes as designated in Appendix A for which a
plan under Rule 12b-1 under the 1940 Act (a "Plan") is effective (the
"Distribution Fee"); and (iv) from the Fund, the shareholder service fees with
respect to the Shares of those Classes as designated in Appendix A (the "Service
Fee"). The Distribution Fee and Service Fee shall be accrued daily by each
applicable Fund or Class thereof and shall be paid monthly as promptly as
possible after the last day of each calendar month but in any event on or before
the fifth (5th) Fund business day after month-end, at the rate or in the amounts
set forth in Appendix A and, as applicable, the Plan(s). The Fund grants and
transfers to the Distributor a general unperfected lien and security interest in
any and all securities and other assets of the Fund now or hereafter maintained
in an account at the Fund's custodian on behalf of the Fund to secure any
Distribution Fees and Service Fees owed the Distributor by the Fund under this
Agreement.
-12-
<PAGE>
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor shall be
entitled to no compensation or reimbursement of expenses for the services
provided by the Distributor pursuant to this Agreement. The Distributor may
receive compensation from the Fund's investment advisors, other service
providers or their respective affiliates (collectively, the "Advisor") for its
services hereunder or for additional services all as may be agreed to between
the Advisor and the Distributor. Notwithstanding anything in this Agreement to
the contrary, to the extent the Distributor receives compensation from the
Advisor that is disclosed to the Board, the Fund will indemnify, defend and hold
each Distributor Indemnitees free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for payment of
all its expenses, including fees and disbursements of its counsel and auditors,
in connection with the preparation and filing of the Registration Statement and
Prospectuses (including but not limited to the expense of setting in type the
Registration Statement and Prospectuses and printing sufficient quantities for
internal compliance, regulatory purposes and for distribution to current
shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration of
its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
-13-
<PAGE>
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto. Shares of each Series or Class
thereof shall be resold by selected dealers or selected agents only at the
public offering price(s) set forth in the Prospectus relating to the Shares. The
Distributor shall offer and sell Shares of the Fund only to such selected
dealers as are members in good standing of the NASD. The Distributor shall have
the right to enter into shareholder servicing agreements with financial
intermediaries of its choice; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix C hereto.
(b) The Distributor will supervise the Fund's relationship with selected
dealers and agents and may make payments to those selected dealers and agents in
such amounts as the Distributor may determine from time to time in its sole
discretion. The amount of payments to selected dealers and agents by the
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information related
to the Fund as proprietary information of the Fund and, on behalf of itself and
its employees, to keep confidential all such information, except that the
Distributor may:
(i) prepare or assist in the preparation of periodic reports
to shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment
company industry to companies that track or report price, performance
or other information regarding investment companies; and
(iii) release such other information as approved in writing by
the Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or criminal legal proceedings for failure to
comply, when requested to release any information by duly constituted
authorities or when so requested by the Fund.
-14-
<PAGE>
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series or
class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the date
on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series Fund
for a period of one year from its effectiveness and thereafter shall continue in
effect with respect to the Series until terminated; provided, that continuance
is specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Directors of the Fund (I) who are not parties to this Agreement or
interested persons of any such party (other than as Directors of the Fund) and
(II) with respect to each Class of a Series for which there is an effective
Plan, who do not have any direct or indirect financial interest in any such Plan
applicable to the Class or in any agreements related to the Plan, cast in person
at a meeting called for the purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a Series,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Series or, with respect to each
Class for which there is an effective Plan, a majority of Directors of the Fund
who do not have any direct or indirect financial interest in any such Plan or in
any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment and
upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive
any termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Fund or the Fund to the Distributor shall be deemed sufficiently given if
personally delivered or sent by telegram, facsimile or registered, certified or
overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
-15-
<PAGE>
giving such notice, and unless and until changed pursuant to the foregoing
provisions hereof each such notice shall be addressed to the Fund or the
Distributor, as the case may be, at their respective principal places of
business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, trust, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Series
and Classes under this Agreement upon approval of this Agreement by the Fund
with respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall
not be liable to the Distributor for consequential damages under any provision
of this Agreement except that Distributor Claims, as that term is used in
Section 8(a), shall include consequential damages related to, arising out of or
based upon any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the
Distributor and the Fund and supersedes any prior agreement with respect to the
subject matter hereof, whether oral or written.
-16-
<PAGE>
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to those
Series and Classes of the Fund and the Distributor shall look solely to the Fund
to satisfy any liability of a Series or Class thereof to the Distributor.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
FLAG INVESTORS VALUE BUILDER
FUND, INC.
- 17 -
<PAGE>
By: _______________________________
Name:
Secretary
ICC DISTRIBUTORS, INC.
By: _______________________________
John Y. Keffer
President
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
DISTRIBUTION AGREEMENT
<TABLE>
<CAPTION>
Appendix A
as of August 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
Distribution Service
Series Class Fee Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Value Builder Fund, Inc. Class A 0.25% ----
Class B 0.75% 0.25%
Class C(1) 0.75% 0.25%
Class D(1) 0.60% ----
Institutional Class ---- ----
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not currently offered.
- A1 -
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
- B1 -
<PAGE>
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or
- B2 -
<PAGE>
suspension. You agree that you will not offer Shares to persons in any
jurisdiction in which you may not lawfully make such offer due to the fact that
you have not registered under, or are not exempt from, the applicable
registration or licensing requirements of such jurisdiction. You agree that in
performing the services under this Agreement, you at all times, will comply with
the Conduct Rules (formerly the Rules of Fair Practice) of the NASD, including,
without limitation, the provisions of Rule 2830 (formerly Section 26) of such
Rules. You agree that you will not combine customer orders to reach breakpoints
in commission for any purposes whatsoever unless authorized by the then current
Prospectus in respect of a particular class of Shares or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the relevant
prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
- B3 -
<PAGE>
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
------------------
Vice President
Confirmed and accepted:
Firm Name:
By:
Signature
- B4 -
<PAGE>
Printed Name and Title
Date: __________________________
Address: _______________________
Clears Through: ________________
Phone No.: _________________________
- B5 -
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (vi) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii)
- C1 -
<PAGE>
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations. You
will provide to Customers a schedule of any fees that you may charge directly to
them for such services. You hereby represent that such fees are not unreasonable
or excessive. Shares purchased by you on behalf of Customers will be registered
with our transfer agent in your name or in the name of your nominee. The
Customer will be the beneficial owner of Shares purchased and held by you in
accordance with the Customer's instructions ("Customers' Shares") and the
Customer may exercise all rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
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<PAGE>
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
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<PAGE>
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name: __________________________
By: _________________________________
Name: _______________________________
Address: ____________________________
Date: _______________________________
- C4 -
<PAGE>
EX-99.B(6)(b)
FLAG INVESTORS VALUE BUILDER FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
<PAGE>
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
<PAGE>
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
<PAGE>
Confirmed and accepted:
Firm Name: _________________________________________
By: ________________________________________________
Signature
Printed Name and Title
Date: ______________________________________________
Address: ___________________________________________
Clears Through: ____________________________________
Phone No.: _____________________________________________
<PAGE>
EX-99.B(6)(c)
FLAG INVESTORS VALUE BUILDER FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (vi) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
<PAGE>
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any
<PAGE>
auditors designated by us), in connection with the preparation of reports to our
Board of Directors concerning this Agreement and the monies paid or payable by
us pursuant hereto, as well as any other reports or filings that may be required
by law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: _________________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name: __________________________________
By: _________________________________________
Name: _______________________________________
Address: ____________________________________
Date: _______________________________________
<PAGE>
EX-99.B(8)
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT dated as of ________________________________, 199 between
BANKERS TRUST COMPANY (the "Custodian") and FLAG INVESTORS VALUE BUILDER FUND,
INC. (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
noncash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio,
1
<PAGE>
the Customer shall, by Instructions (as herein defined in Section 14),
specifically indicate which Portfolio such Property belongs or if such Property
belongs to more than one Portfolio shall allocate such Property to the
appropriate Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the Custodian shall
have the right, in its sole discretion, to refuse to accept any Property that is
not in proper form for deposit for any reason. The Customer on behalf of each
Portfolio, acknowledges its responsibility as a principal for all of its
obligations to the Custodian arising under or in connection with this Agreement
warrants its authority to deposit in the appropriate Account any Property
received therefor by the Custodian or a Subcustodian and to give, and authorize
others to give, instructions relative thereto. The Custodian may deliver
securities of the same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or otherwise become payable and all
coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian
is actually aware of such opportunities and hold the cash
received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for the Custodian
to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale:
2
<PAGE>
(e) execute in the Customer's name for an Account whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.,
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions: provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
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Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement Subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities as may reasonably be requested by the
Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5 requires
the Customer's Board of Trustees to directly approve its foreign custody
arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the nominal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or value other
than for safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held pursuant to
such Agreement as
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belonging to the Custodian, on behalf of its customers and (v) to the extent
permitted by applicable law, officers of or auditors employed by, or other
representatives of or designated by, the Custodian, including the independent
public accountants of or designated by, the Customer be given access to the
books and records of such Subcustodian relating to its actions under its
agreement pertaining to any Property held by it thereunder or confirmation of or
pertinent information contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein,
shall be clearly recorded on the Custodian's books as
belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian shall keep accurate
and detailed accounts of all investments, receipts,
disbursements and other transactions for each Account. All
accounts, books and records of the Custodian relating thereto
shall be open to inspection and audit at all reasonable times
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during normal business hours by any person designated by the
Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer.
The Custodian will supply to the Customer from time to time,
as mutually agreed upon, a statement in respect to any
Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with
the Custodian by the Customer of exceptions or objections to
any such statement within sixty (60) days of the mailing
thereof, the Customer shall be deemed to have approved such
statement and in such case or upon written approval of the
Customer of any such statement, such statement shall be
presumed to be for all purposes correct with respect to all
information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions
from the Customer's independent certified public accountants
with respect to the Custodian's activities hereunder in
connection with the preparation of the Customer's Form N1-A
and the Customer's Form N-SAR or other periodic reports to the
SEC and with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's
independent certified public accountants with respect to the
services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for
safeguarding Cash and Securities, including Cash and
Securities deposited and/or maintained in a securities system
or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required
by the Customer and as may reasonably be obtained by the
Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the
Custodian which can provide the Customer, on a daily basis,
with the ability to view on-line or to print on hard copy
various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such
service shall include market values of Securities in an
Account, the Customer hereby acknowledges that the Custodian
now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be
reliable and the Customer agrees that the Custodian (i) does
not verify or represent or warrant either the reliability of
such service nor the accuracy or completeness of any such
information furnished or obtained by or through such service
and (ii) shall be without liability in selecting and utilizing
such service or furnishing any information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
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eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the Jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
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transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Global Guide provided to the Customer by the Custodian, the Custodian may,
at its sole option, reverse such credits or debits to the appropriate Account in
the event that the transaction does not settle, or the income is not received in
a timely manner, and the Customer agrees to hold the Custodian harmless from any
losses which may result therefrom.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any
Instructions to settle the purchase of any securities for the
Account, unless there are sufficient immediately available
funds in the relevant currency in the Account, provided that
if, after all expenses, debits and withdrawals of Cash in the
relevant currency ("Debits") applicable to the Account have
been made and if after all Conditional Credits, as defined
below, applicable to the Account have been made final entries
as set forth in (c) below, the amount of immediately available
funds of the relevant currency in such Account is at least
equal to the aggregate purchase price of all securities for
which the Custodian has received Instructions to settle on
that date ("Settlement Date"), the Custodian, upon settlement,
shall credit the Securities to the Account by making a final
entry on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable
to the Account have been made, there remains outstanding any
Conditional Credit (as defined below) applicable to the
Account or the amount of immediately available funds in a
given currency in such Account are less than the aggregate
purchase price in such currency of all securities for which
the Custodian has received Instructions to settle on the
Settlement Date, the Custodian, upon settlement, may credit
the securities to the Account by making a conditional entry on
its books and records ("Conditional Credit"), pending receipt
of sufficient immediately available funds in the relevant
currency in the Account.
(c) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are deposited into the Account,
the Custodian shall make the Conditional Credit a final entry
on its books and records. In such case, the Customer shall be
liable to the Custodian only for late charges at a rate which
the Custodian customary charges for similar extensions of
credit.
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(d) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are not deposited into the
Account, the Customer authorizes the Custodian, as agent, to
sell the securities and credit the Account with the proceeds
of such sale. In such case, the Customer shall be liable to
the Custodian for any deficiencies, out-of-pocket costs and
expenses associated with the sale of the securities, including
but not limited to, shortfalls in the sales proceeds and the
Custodian is hereby authorized to sell such other securities
to the extent necessary to satisfy such shortfalls with the
net proceeds of such sales.
(e) The Customer agrees that it will not use the Account to
facilitate the purchase of securities without sufficient funds
in the Account (which funds shall not include the expected
proceeds of the sale of the purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance with Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect
any restrictions applicable to the Customer.
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(i) For the purpose of redeeming shares of the capital stock of
the Customer against delivery of the shares to be redeemed to
the Custodian, a Subcustodian or the Customer's transfer
agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association
of Securities Dealers, Inc., relating to compliance with the
rules of The Options Clearing Corporation, the Commodities
Futures Trading Commission and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Custodian of monies for the
premium due and a receipt for the Securities which are to be
held in escrow. Upon exercise of the option, or at expiration,
the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance
with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any
such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from
Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 22 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii)
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a telephonic or oral communication by one or more persons as the Customer shall
have from time to time authorized to give the particular class of Instructions
in question and whose name has been filed with the Custodian; or (iv) upon
receipt of such other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by the
Customer by tested telex or writing in the manner set forth in clause (i) above,
but the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
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In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution, strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the
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performance of this Agreement, including (but without limitation) legal fees as
described herein and/or deemed necessary in the judgment of the Custodian to
keep safe or protect the Property in the Account. The initial fee schedule is
attached hereto as Exhibit C. The Customer hereby agrees to hold the Custodian
harmless from any liability or loss resulting from any taxes or other
governmental charges, and any expense related thereto, which may be imposed, or
assessed with respect to any Property in an Account and also agrees to hold the
Custodian, its Subcustodians, and their respective nominees harmless from any
liability as a record holder of Property in such Account. The Custodian is
authorized to charge the applicable Account for such items and the Custodian
shall have a lien on the Property in the applicable Account for any amount
payable to the Custodian under this Agreement, including but not limited to
amounts payable pursuant to Section 13 and pursuant to indemnities granted by
the Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination.
(a) Termination of Entire Agreement. This Agreement may be
terminated by the Customer or the Custodian by ninety (90)
days' written notice to the other; provided that notice by the
Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in each Account and to
whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall,
within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names
of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such
Account shall be paid. In either case, the Custodian will
deliver such Securities and Cash to the persons so specified,
after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 13, 18, and 24. In
addition, the Custodian may in its discretion withhold from
such delivery such Cash and Securities as may be necessary to
settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to
time in the full amount of the foregoing obligations. If
within ninety
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(90) days following the giving of a notice of termination by
the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities
in each Account and to whom the Cash in such Account shall
be paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company
doing business in the State of New York to be held and
disposed of pursuant to the provisions of this Agreement, or
may continue to hold such Securities and Cash until a
written notice as aforesaid is delivered to the Custodian,
provided that the Custodian's obligations shall be limited
to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may
be terminated by the Customer or the Custodian as to one or
more Portfolios (but less than all of the Portfolios) by
delivery of an amended Exhibit A deleting such Portfolios, in
which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery,
or such earlier time as mutually agreed. The execution and
delivery of an amended Exhibit A which deletes one or more
Portfolios shall constitute a termination of this Agreement
only with respect to such deleted Portfolio(s), shall be
governed by the preceding provisions of Section 21 as to the
identification of a successor custodian and the delivery of
Cash and Securities of the Portfolio(s) so deleted to such
successor custodian and shall not affect the obligations of
the Custodian and the Customer hereunder with respect to the
other Portfolios set forth in Exhibit A, as amended from time
to time.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio.
14
<PAGE>
Should the Customer fail to pay promptly any amounts owed hereunder, Custodian
shall be entitled to use available Cash in the Account or applicable Account, as
the case may be, and to dispose of Securities in the Account or such applicable
Account as is necessary. In any such case and without limiting the foregoing,
Custodian shall be entitled to take such other action(s) or exercise such other
options, powers and rights as Custodian now or hereafter has as a secured
creditor under the New York Uniform Commercial Code or any other applicable law.
25. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian
that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian a duly
executed Secretary's Certificate in the form of Exhibit E hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any
obligation by which the Custodian is bound, whether
arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by
appropriate action and when executed and delivered
will be binding upon the Custodian in accordance with
its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may
reasonably require, whether by way of a certified
resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will
remain so qualified or upon ceasing to be so
qualified shall promptly notify the Customer in
writing.
15
<PAGE>
26. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
27. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 22 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
[28. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.]
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
29. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Section shall survive the termination of this Agreement.
16
<PAGE>
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Entire Agreement. This Agreement together with any exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
33. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
[NAME OF CUSTOMER]
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
BANKERS TRUST COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
17
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________,199__ between Bankers
Trust Company and _______________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of:
[NAME OF CUSTOMER]
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
BANKERS TRUST COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of ________________, 199__ between
Bankers Trust Company and __________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the Global Guide]. For the United
States and Canada, the term "corporate communications" means the proxy
statements or meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Custodian. For countries other then the United States
and Canada, the term "corporate communications" means the meeting agenda only
and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
<PAGE>
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian wall not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
Global Guide. The Custodian will notify the Customer as
<PAGE>
to the inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit B will be deemed to be
automatically amended to include or delete such countries as the case may be.
Dated as of
[NAME OF CUSTOMER]
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
BANKERS TRUST COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ________________.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ______________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When Withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian,
<PAGE>
counsel or other professional tax advisers and shall be without liability to the
Customer for any action reasonably taken or omitted pursuant to information
contained in such services or such advice.
Dated as of
[NAME OF CUSTOMER]
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
BANKERS TRUST COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
EXHIBIT E
[Name of Entity]
Certificate of the Secretary
I, [Name of Secretary], hereby certify that I am the Secretary of
[Name of Entity], a [type of entity] organized under the laws of [jurisdiction]
(the "Company"), and as such I am duly authorized to, and do hereby, certify
that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of [jurisdiction], the Company continues to be in existence and is in
good standing, and no action has been taken to repeal such organizational
documents, the same being in full force and effect on the date hereof.
2. Bylaws. The Company's By-Laws have been duly adopted and no action
has been taken to repeal such By-Laws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, which resolutions (i) have not in any way been revoked or rescinded,
(ii) have been in full force and effect since their adoption, to and including
the date hereof, and are now in full force and effect, and (iii) are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with
Bankers Trust Company (the "Agreement"), and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
execute said Agreement on behalf of the Company, in conformity with the
requirements of the Company's organizational documents, Bylaws, and other
pertinent documents to which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company as a legal matter, with
respect to all matters pertaining to the Agreement, and to execute and deliver
said Agreement on behalf of the Company, and the signatures set forth opposite
the respective names and titles of said officers are their true, authentic
signatures:
Name Title Signature
[Name] [Position] ___________________________________
[Name] [Position] ___________________________________
[Name] [Position] ___________________________________
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
[Date], 19__.
By: ______________________________
Name: ____________________________
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of [Date], 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
By: ______________________________
Name: ____________________________
Title: Secretary
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
Flag Investors Value Builder Fund, Inc.
We hereby consent to the inclusion of our report dated May 2, 1997 on our audit
of the financial statements and financial highlights of Flag Investors Value
Builder Fund, Inc. in the Statement of Additional Information with respect to
Post-Effective Amendment No. 9 to the Registration Statement (No. 33-46279) on
Form N-1A under the Securities Act of 1933 and the Investment Company Act of
1940, respectively, of Flag Investors Value Builder Fund, Inc. We also consent
to the reference to our Firm under the headings "Financial Highlights" and
"General Information" in the Prospectuses and "Independent Accountants" in the
Statement of Additional Informatiion.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 9, 1998
<PAGE>
EX-99.B(15)(d)
Amended
August 4, 1997
FLAG INVESTORS VALUE BUILDER FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors Value Builder Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The Fund's distributor (the "Distributor")
is authorized, pursuant to the Plan, to make payments to any Participating
Dealer under a Sub-Distribution Agreement, to accept payments made to it under
the Distribution Agreement and to make payments on behalf of the Fund to
Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount, provided
that the total amount of all payments made during a fiscal year of the Fund do
not exceed, in any fiscal year of the Fund, the amount paid to the Distributor
under the Distribution Agreement which is an annual fee, calculated on an
average daily net basis and paid monthly, equal to .25% of the average daily net
assets of the Fund.
3. Expenses Authorized. The Distributor is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which the Distributor and the
Fund's Advisor are authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's Advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
<PAGE>
5. Other Distribution Resources. The Distributor and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. The Distributor will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, The Distributor shall report
in writing at least quarterly to the Fund's Board of Directors, and the Board
shall review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan.
This Plan shall, unless terminated as hereinafter provided, continue in effect
from year to year only so long as such continuance is specifically approved at
least annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on such continuance.
(b) This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
<PAGE>
EX-99.B(15)(e)
Class B Shares
Amended
August 4, 1997
FLAG INVESTORS VALUE BUILDER FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Value Builder Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement with respect to distribution of
the Shares which is an annual fee, calculated on an average daily net basis and
paid monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's investment advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption,
<PAGE>
whether in shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not interested persons
(as defined in the 1940 Act) of the Fund and of independent certified public
accountants, in connection with any matter relating to the Fund; membership dues
of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and Directors)
of the Fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan. This Plan shall, unless terminated as hereinafter provided, continue
in effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote of a
majority of the Directors who are not interested persons (as defined in the 1940
Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the
amount of payments to be made without shareholder approval, as set forth in (ii)
above, and all amendments must be approved in the manner set forth under (i)
above.
<PAGE>
EX-99.B(15)(f)
FORM OF
FLAG INVESTORS VALUE BUILDER FUND, INC.
FLAG INVESTORS CLASS C SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class C Shares (the "Shares")
of Flag Investors Value Builder Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's investment advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of
<PAGE>
independent certified public accountants, in connection with any matter relating
to the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote
of a majority of the Directors who are not interested persons (as defined in the
1940 Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase
materially the amount of payments to be made without approval by a vote of the
holders of at least a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) and all amendments must be approved by the Board of
Directors in the manner set forth under (a) above.
<PAGE>
EX-99.B(18)(b)
Flag Investors Value Builder Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Class C
and Institutional Class Shares
Adopted December 13, 1995
Amended through August 4, 1997
(With exhibits through December 18, 1997)
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Value Builder
Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who
are not "interested persons" of the Fund (the "Independent Directors") pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and
Institutional) and future classes of Fund shares. The Flag Investors Class A
Shares have been offered since the Fund's inception on June 15, 1992, the Flag
Investors Class B Shares have been offered since January 3, 1995 and the
Institutional Shares have been offered since November 2, 1995. The Flag
Investors Class D Shares are no longer being offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted
- 1 -
<PAGE>
with respect to the classes of the Fund and that are adopted pursuant to the
Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")1/; and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
- --------
1/ Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
BOARD APPROVALS
Date Approved: March 1992
Resolutions Approving Distribution Agreement and
Plan of Distribution for Flag Investors Shares
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, and that the appropriate officers of the Fund
be, and they hereby are, authorized and directed to enter into and execute such
Distribution Agreement with such modifications as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
is determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Plan are
comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
of the Fund be, and the same hereby is, approved.
<PAGE>
Date Approved: November 1992
Resolutions Renaming Flag Investors Fund Shares and
Creating Flag Investors Class B Shares
WHEREAS, the Board of Directors of Flag Investors Value Builder Fund,
Inc. has previously designated one class of the Fund's shares: "Flag Investors
Value Builder Fund Shares";
NOW THEREFORE BE IT RESOLVED, that such shares be, and they hereby are,
further designated and classified as the Fund's Class A Shares;
FURTHER RESOLVED, that in accordance with the authority granted to the
Board of Directors of the Fund pursuant to Article VI, Section 4 of the Fund's
Articles of Incorporation, a second class of the Fund's 30,000,000 authorized
shares of common stock, par value$.001, be, and hereby is, classified and
designated as the Fund's "Flag Investors Class B Shares" (the "Class B Shares");
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund to
make all appropriate filings with the Commission with respect to the
establishment of such new class of shares, the related Distribution Agreement
and Plan of Distribution under Rule 12b-1 under the 1940 Act approved by the
Board of Directors, including, if they deem it necessary or appropriate, the
filing of supplements and post-effective amendments under the 1933 Act and under
the 1940 Act to the Fund's Registration Statement on Form N-1A (Registration No.
33-46279), and all necessary exhibits and other instruments relating thereto
(collectively, the "Registration Statement"), procuring all other necessary
signatures thereon, and filing the appropriate exhibits thereto with the
Commission under the 1933 Act and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to appear, together with legal counsel, on
behalf of the Fund before the Commission in connection with any matter relating
to the Registration Statement and to take such other actions, including Blue Sky
filings, as may be required in connection with the establishment of such Class;
and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund, to
take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the Class B
Shares of the Fund, the taking of any such action to establish conclusively such
officer's authority therefore and the approval and ratification thereof by the
Fund.
<PAGE>
Date Approved: November 1992
Resolutions Approving Distribution Agreement and
Plan of Distribution for Flag Investors Class B Shares
WHEREAS, the Board of Directors of Flag Investors Value Builder Fund,
Inc. at a meeting held on March 31, 1992, approved the Distribution Agreement,
including the form of Sub-Distribution Agreement annexed as Exhibit A thereto,
dated as of June 15, 1992 between the Fund and Alex. Brown & Sons Incorporated
("Alex. Brown"); and
WHEREAS, such Agreement contemplates the creation of additional series
and classes and provides that the appointment of Alex. Brown effected thereby
shall constitute appointment for the distribution of such additional series and
classes unless the parties shall otherwise agree in writing; and
WHEREAS, it is the desire of the Board of Directors that Alex. Brown
serve as the distributor for the Fund's Flag Investors Class B Shares (the
"Class B Shares");
NOW THEREFORE BE IT RESOLVED, that the Fund's Distribution Agreement,
as previously adopted by this Board of Directors, is deemed to encompass the
Class B Shares and is hereby adopted as the Distribution Agreement for such
Shares;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
for the Class B Shares is determined to be reasonably likely to benefit the Fund
and its shareholders and that, based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for other similar plans;
FURTHER RESOLVED, that the Plan be, and hereby is, approved.
<PAGE>
Date Approved: September 1994
Resolutions of Board Reclassifying Old Class B Shares and
Creating New Class B Shares
RESOLVED, that all issued and outstanding Class B Shares of Flag
Investors Value Builder Fund, Inc. be, and they hereby are, reclassified as
Class D Shares upon later date;
FURTHER RESOLVED, that the Board of Directors of Flag Investors Value
Builder Fund, Inc., having considered the growth in class assets, outlook for
further growth and other relevant considerations, have determined that the
offering of the Class D Shares of the such Fund should be terminated, such
termination to be effective as of November 18, 1994;
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed in the name and on behalf of the Fund,
to take any action that the officer so acting may deem necessary or appropriate,
to effect the termination of the offering of the Class D Shares;
FURTHER RESOLVED, that an additional class of shares of the Fund be,
and hereby is, classified and designated as the "Flag Investors Class B Shares"
(the "Class B Shares") and that unissued shares of common stock, par value $.001
per share of the Fund be, and the same hereby are, reclassified as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total # of Shares Class A Class B Class D Unclassified
- ----------------- --------- -------- --------- -------------
30,000,000 20,000,000 5,000,000 3,000,000 2,000,000
</TABLE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares of the Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
<PAGE>
Approved: September 1995
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Value Builder Fund, Inc. is
authorized to issue is hereby increased from thirty million (30,000,000) to
thirty-five million (35,000,000) and that from such amount, five million
(5,000,000) authorized and unissued shares be, and hereby are, designated and
classified as the "Flag Investors Value Builder Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and
each of them hereby is, authorized and directed to file Articles Supplementary
to the Fund's Articles of Incorporation to effectuate the increase in authorized
shares and to designate and classify the new class;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund
to make all appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new class of shares and
the related Distribution Agreement approved at this meeting of this Board of
Directors, including, the filing of a post-effective amendment under the
Securities Act of 1933 (the "1933 Act") and under the Investment Company Act of
1940 (the "1940 Act") to the Fund's Registration Statement on Form N-1A, and all
necessary exhibits and other instruments relating thereto (collectively, the
"Registration Statement"), procuring all other necessary signatures thereon, and
filing the appropriate exhibits thereto with the Commission under the 1933 Act
and the 1940 Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed to appear, together with legal counsel,
on behalf of the Fund, before the Commission in connection with any matter
relating to the Registration Statement and to take such other actions, including
Blue Sky filings as may be required in connection with the establishment of the
new class; and
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed in the name and on behalf of the Fund,
to take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the new
class, the taking of any such action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund;
FURTHER RESOLVED, that any filings previously made and any
actions previously taken by the appropriate officers of each Fund in connection
with the establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
Approved: September 1995
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Value Builder Fund, Inc. and Alex. Brown & Sons Incorporated for the
Flag Investors Institutional Shares of said Fund be, and the same hereby is,
approved;
<PAGE>
FURTHER RESOLVED, that the proper officers of Flag Investors
Value Builder Fund, Inc. be, and each of them hereby is, authorized and directed
to enter into and execute the Distribution Agreement on behalf of the Fund, and
to take all other actions that such officer deems necessary or appropriate in
connection with the execution of such agreement, the taking of any action to
establish conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
Date Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of
Directors of Flag Investors Value Builder Fund, Inc. (the "Fund"), that the
Directors, including a majority of the Directors who are not "interested
persons" of the Fund, have determined that the Fund's amended Rule 18f-3 Plan,
including the expense allocations described therein, is in the best interests of
the fund and each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 Plan for the
Fund be, and hereby is, approved, in substantially the form presented to this
meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and
they hereby are, authorized and directed to take any and all actions necessary
or appropriate to cause the amended Rule 18f-3 Plan to be filed with the
Securities and Exchange Commission.
Date Approved: August 4, 1997
Resolutions Approving New Distribution
Agreement for Flag Investors Shares
RESOLVED, that ICC Distributors, Inc. ("ICC") be, and it
hereby is, appointed distributor for all classes of Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., and for the Flag Investors classes of each of Managed
Municipal Fund, Inc. and Total Return U.S. Treasury Fund, Inc., such appointment
to be effective upon the consummation of the merger of Alex. Brown Incorporated
with and into a subsidiary of Bankers Trust New York Corporation (the "Merger"),
or at such other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors Shares be, and the same hereby
is, approved in substantially the form presented to this meeting and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury
<PAGE>
Fund, Inc. (for Flag Investors Shares), Managed Municipal Fund, Inc. (for the
Flag Investors Shares), Flag Investors Short-Intermediate Income Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.,
and Flag Investors Equity Partner Fund, Inc., and ICC Distributors, Inc. be, and
the same hereby is, approved in substantially the form presented to this meeting
and that the appropriate officers of the Funds be, and they hereby are,
authorized and directed to negotiate, enter into and execute such Distribution
Agreement with such modifications as said officers in consultation with counsel
shall deem necessary or appropriate or as may be required to conform with the
requirements of any applicable statute, regulation or regulatory body.
Date Approved: August 4, 1997
Resolutions Approving Plan of
Distribution for Class A Shares
RESOLVED, that the Plan of Distribution for the Flag Investors
Class A Shares of Flag Investors Value Builder Fund, Inc. be, and hereby is,
amended to reflect the change in distributor effected at this meeting, such
amendment to be effective upon the consummation of the Merger, or such other
time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
Date Approved: August 4, 1997
Resolutions Approving Plan of
Distribution for Class B Shares
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
<PAGE>
Date Approved: August 4, 1997
Resolutions Approving Plan of
Distribution for Class D Shares
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class D Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected by the foregoing resolutions, such amendment to
be effective upon the consummation of the Merger, or such other time as the
proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
Date Approved: December 18, 1997
Resolutions of Board Creating
Class C Shares
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Value Builder Fund, Inc. is
authorized to issue be, and hereby is, increased from seventy-five million
(75,000,000) shares to ninety million (90,000,000) shares and that from such
amount, fifteen million (15,000,000) authorized and unissued shares be, and they
hereby are, designated and classified as the "Flag Investors Value Builder Fund
Class C Shares" (the "Flag Investors Class C Shares") ;
FURTHER RESOLVED, that the proper officers of Flag Investors
Value Builder Fund, Inc. be, and each of them hereby is, authorized and directed
to file Articles Supplementary to the Fund's Articles of Incorporation to
effectuate the increase in authorized shares and to designate and classify the
Flag Investors Class C Shares;
FURTHER RESOLVED, that the proper officers of Flag Investors
Value Builder Fund, Inc. be, and they hereby are, authorized and directed to
execute, in the name and on behalf of the Fund, Post-Effective Amendment No. 9
under the Securites Act of 1933 as amended (the "1933 Act") and Amendment No. 11
under the Investment Company Act of 1940, as amended (the "1940 Act") to the
Fund's Registration Statement on Form N-1A (File No. 33-46279), and all
necessary exhibits and other instruments relating thereto (collectively, the
"Registration Statement") relating to the Flag Investors Class C Shares, to
procure all other necessary signatures thereon, and to file the appropriate
exhibits thereto with the Commission under the 1933 Act and the 1940 Act and to
appear, together with legal counsel, on behalf of the Fund before the Commission
in connection with any matter relating to the Registration Statement;
<PAGE>
FURTHER RESOLVED, that the proper officers of Flag Investors
Value Builder Fund, Inc. be, and they hereby are, authorized and directed in the
name and on behalf of the Fund, to take any other action that the officer so
acting may deem necessary or appropriate in connection with the establishment
and registration of the new class, the taking of any such action to establish
conclusively such officer's authority therefor and the approval and ratification
thereof by the Fund; and
FURTHER RESOLVED, that any and all actions heretofore or
hereafter taken by such officer of officers within the terms of the foregoing
resolutions be, and they hereby are, ratified and confirmed as the authorized
act and deed of Flag Investors Value Builder Fund, Inc.
Date Approved: December 18, 1997
Adoption of Flag Investors Distribution Agreement
and Approval of Flag Investors Class C
Plan of Distribution
(Value Builder only)
FURTHER RESOLVED, that ICC Distributors, Inc. be, and hereby
is, appointed distributor for the Flag Investors Class C Shares of Flag
Investors Value Builder Fund, Inc.;
FURTHER RESOLVED, that the Flag Investors Distribution
Agreement dated as of August 31, 1997, a copy of which is attached hereto as
Exhibit A, be, and hereby is, approved and adopted as the Distribution Agreement
for the Flag Investors Class C Shares of said Fund;
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class C Shares of said Fund, a copy of which is attached hereto as
Exhibit B, is determined to be reasonably likely to benefit the Fund and its
shareholders, and that based on the information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is,
approved in substantially the form presented to this meeting.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation as amended and supplemented on May 1, 1992,
December 27, 1993 and November 18, 1994, filed as Exhibit (1)(a) through (1)(d)
to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-95-000312) on July 26, 1995 are
incorporated herein by reference.
2. Articles Supplementary dated October 6, 1995 filed as Exhibit (1)(e) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000687) on July 29, 1996 and
are incorporated herein by reference.
3. Articles Supplementary dated June 17, 1997, filed as Exhibit (1)(f) to
Post-Effective Amendment No. 8 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-97-001357) on July 29, 1997 and
are incorporated herein by reference.
4. By-Laws, as amended through December 18, 1996, are filed as Exhibit (2) to
Post-Effective Amendment No. 8 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-97-001357) on July 29, 1997 and
are incorporated herein by reference.
5. Distribution Agreement dated August 31, 1997 between Registrant and ICC
Distributors, Inc. relating to Flag Investors Shares filed as Exhibit (6)(a) to
this Post-Effective Amendment No. 9 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-46279), is incorporated herein by reference.
6. Form of Sub-Distribution Agreement is filed as Exhibit (6)(b) to this
Post-Effective Amendment No. 9 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), is incorporated herein by reference.
7. Distribution Plan relating to Flag Investors Class A Shares filed as Exhibit
(15)(d) to this Post- Effective Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279), is incorporated herein by
reference.
8. Distribution Plan relating to Flag Investors Class B Shares filed as Exhibit
(15)(e) to this Post- Effective Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279), is incorporated herein by
reference.
9. Form of Distribution Plan relating to Flag Investors Class C Shares filed as
Exhibit (15)(f) to this Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279) is incorporated
herein by reference.
10. Prospectus relating to Flag Investors Class A, Class B and Class C Shares,
filed as part of this Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-46279) and, as amended
from time to time, is incorporated herein by reference.
11. Prospectus relating to Flag Investors Institutional Shares filed as part of
Post-Effective Amendment No. 8 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-97-001357) on July 29, 1997 and
is incorporated herein by reference.
<PAGE>
EX-99.B(24)
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Chairman and a director of the Fund
such Registration Statement and any and all such pre- and post-effective
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or either of them or their substitute or substitutes, shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
------------------------
Richard T. Hale
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
------------------------
John F. Kroeger
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
-------------------------
Eugene J. McDonald
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
------------------------
Louis E. Levy
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
-------------------------
James J. Cunnane
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Value Builder Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
------------------------
Carl W. Vogt
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, her true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in her name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
--------------------------
Rebecca W. Rimel
Date: March 10, 1998
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Value Builder Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as President of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
--------------------------
Harry Woolf
Date: March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885111
<NAME> VALUE BUILDER CLASS A
<SERIES>
<NUMBER> 001
<NAME> VALUE BUILDER CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 335,934,367
<INVESTMENTS-AT-VALUE> 486,902,886
<RECEIVABLES> 7,266,096
<ASSETS-OTHER> 61,749
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 494,230,731
<PAYABLE-FOR-SECURITIES> 1,692,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,892,400
<TOTAL-LIABILITIES> 3,584,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,645,010
<SHARES-COMMON-STOCK> 18,489,756
<SHARES-COMMON-PRIOR> 16,228,513
<ACCUMULATED-NII-CURRENT> 3,040,955
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,833,589
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 150,968,519
<NET-ASSETS> 374,094,255
<DIVIDEND-INCOME> 2,115,469
<INTEREST-INCOME> 5,535,899
<OTHER-INCOME> 57,327
<EXPENSES-NET> 2,481,603
<NET-INVESTMENT-INCOME> 5,227,092
<REALIZED-GAINS-CURRENT> 2,976,827
<APPREC-INCREASE-CURRENT> 64,375,056
<NET-CHANGE-FROM-OPS> 72,578,975
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,516,907
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,916,118
<NUMBER-OF-SHARES-REDEEMED> 826,556
<SHARES-REINVESTED> 171,681
<NET-CHANGE-IN-ASSETS> 145,220,206
<ACCUMULATED-NII-PRIOR> 2,177,375
<ACCUMULATED-GAINS-PRIOR> 3,856,762
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,635,193
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,481,603
<AVERAGE-NET-ASSETS> 327,187,502
<PER-SHARE-NAV-BEGIN> 17.14
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 3.07
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.23
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885111
<NAME> VALUE BUILDER CLASS B
<SERIES>
<NUMBER> 002
<NAME> VALUE BUILDER CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 335,934,367
<INVESTMENTS-AT-VALUE> 486,902,886
<RECEIVABLES> 7,266,096
<ASSETS-OTHER> 61,749
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 494,230,731
<PAYABLE-FOR-SECURITIES> 1,692,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,892,400
<TOTAL-LIABILITIES> 3,584,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,992,382
<SHARES-COMMON-STOCK> 1,907,874
<SHARES-COMMON-PRIOR> 1,008,822
<ACCUMULATED-NII-CURRENT> 3,040,955
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,833,589
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 150,968,519
<NET-ASSETS> 38,611,858
<DIVIDEND-INCOME> 2,115,469
<INTEREST-INCOME> 5,535,899
<OTHER-INCOME> 57,327
<EXPENSES-NET> 2,481,603
<NET-INVESTMENT-INCOME> 5,227,092
<REALIZED-GAINS-CURRENT> 2,976,827
<APPREC-INCREASE-CURRENT> 64,375,056
<NET-CHANGE-FROM-OPS> 72,578,975
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 191,045
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 907,985
<NUMBER-OF-SHARES-REDEEMED> 18,711
<SHARES-REINVESTED> 9,778
<NET-CHANGE-IN-ASSETS> 145,220,206
<ACCUMULATED-NII-PRIOR> 2,177,375
<ACCUMULATED-GAINS-PRIOR> 3,856,762
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,635,193
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,481,603
<AVERAGE-NET-ASSETS> 27,145,205
<PER-SHARE-NAV-BEGIN> 17.16
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 3.07
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.24
<EXPENSE-RATIO> 1.9
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
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