FLAG INVESTORS VALUE BUILDER FUND INC, 497, 1999-04-12

FLAG INVESTORS VALUE BUILDER FUND INC
497, 1999-04-12

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VALUE BUILDER FUND, INC.
(Class A, Class B and Class C Shares)

Prospectus & Application -- August 1, 1998, as
supplemented through March 31, 1999

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This mutual fund (the "Fund") seeks 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, 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 .................... 5
The Fund's Net Asset Value ................. 5
How to Buy Shares .......................... 5
How to Redeem Shares ....................... 7
Telephone Transactions ..................... 9
How to Choose the Class
That Is Right For You ................... 9
Dealer Compensation ........................ 9
Dividends and Taxes ........................ 10
Management of the Fund ..................... 10
Investment Advisor and Sub-Advisor ......... 10
Distributor ................................ 12
Custodian, Transfer Agent and
Accounting Services ..................... 12
Performance Information .................... 12
General Information ........................ 13
Application ................................ A-1

The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank. The shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other government
agency. Investment in the shares involves risk, including possible loss of
principal.

Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203

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These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.

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<PAGE>

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FEE TABLE
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<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
Initial Sales Deferred Level
Charge Sales Charge Sales Charge
Alternative Alternative Alternative
--------------- ----------------- ----------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .............................. 4.50%* None None
Maximum Sales Charge Imposed on Reinvested Dividends .............. None None None
Maximum Deferred Sales Charge for purchases made before May 1,
1999 (as a percentage of original purchase price or redemption
proceeds, whichever is lower) .................................. 0.50%* 4.00%** 1.00%***
Maximum Deferred Sales Charge for purchases made on or after
May 1, 1999 (as a percentage of original purchase price or redemp-
tion proceeds, whichever is lower) ............................... 1.00%* 4.00%** 1.00%***
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees ................................................... 0.77% 0.77% 0.77%
12b-1 Fees ........................................................ 0.25% 0.75% 0.75%
Other Expenses (including a 0.25% shareholder servicing
fee for Class B and Class C Shares) .............................. 0.12% 0.37%**** 0.37%****
------- -------- -----
Total Fund Operating Expenses ..................................... 1.14% 1.89% 1.89%
======= ======== =====
</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>

Example:

<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period: 1 year 3 years 5 years 10 years
Class A Shares ......................................... $56 $80 $105 $177
Class B Shares* ........................................ $59 $89 $122 $184*
Class C Shares ......................................... $29 $59 N/A N/A
You would pay the following expenses on the same invest-
ment, assuming no redemption:
Class B Shares* ........................................ $19 $59 $102 $184*
Class C Shares ......................................... $19 $59 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 past or
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. The Expenses and Example for
the Class C Shares, which have been offered only since April 8, 1998, 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.") 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 have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements and financial highlights for
the fiscal year ended March 31, 1998 and the report thereon of
PricewaterhouseCoopers LLP 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, 1998, which can be obtained at no charge by calling the Fund at (800)
767-FLAG. The Class C Shares were not offered in the fiscal year ended March
31, 1998.

(For a share outstanding throughout each period)
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<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------------------
For the Period
For the Year Ended March 31, June 15, 1992(1)
-------------------------------------------------------------------- through
1998 1997 1996 1995 1994 March 31, 1993
------------ ------------ ------------ ------------ ------------ ------------------
<S> <C> <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 $ 10.00
------- ------- ------- ------- ------- ---------
Income from Investment
Operations:
Net investment income ........ 0.47 0.39 0.36 0.35 0.40 0.18
Net realized and unrealized
gain/(loss) on invest-
ments ..................... 5.21 2.49 3.03 0.80 (0.04) 1.18
------- ------- ------- ------- -------- ---------
Total from Investment
Operations .................. 5.68 2.88 3.39 1.15 0.36 1.36
------- ------- ------- ------- -------- ---------
Less Distributions:
Net investment income and
short-term gains ........... (0.47) (0.36) (0.41) (0.35) (0.38) (0.11)
Net realized mid-term and
long-term gains ............ (0.26) (0.06) (0.32) (0.01) -- --
-------- -------- -------- -------- -------- ---------
Total distributions .......... (0.73) (0.42) (0.73) (0.36) ( 0.38) (0.11)
-------- -------- -------- -------- -------- ---------
Net asset value at end of
period ...................... $ 22.09 $ 17.14 $ 14.68 $ 12.02 $ 11.23 $ 11.25
======== ======== ======== ======== ======== =========
Total Return .................. 33.82% 19.90% 28.86% 10.57% 3.14% 13.73%
Ratios to Average
Net Assets:
Expenses(2) .................. 1.14% 1.27% 1.31% 1.35% 1.35% 1.35%(3)
Net investment income(4) ..... 2.49% 2.51% 2.72% 3.07% 3.14% 2.88%(3)
Supplemental Data:
Net assets at end of period
(000) ....................... $491,575 $278,130 $200,020 $146,986 $131,097 $ 83,535
Portfolio turnover rate ...... 7% 13% 15% 18% 8% 8%
Average Commissions Per
Share ....................... $ 0.062 $ 0.066 -- -- -- --

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Class B Shares
----------------------------------------

For the Year For the Period
Ended March 31, January 3, 1995(1)
-------------------------------------- through
1998 1997 1996 March 31, 1995
----------- ----------- ------------ --------------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ......... $ 17.16 $ 14.71 $ 12.01 $ 11.14
------- ------- -------- ----------
Income from Investment
Operations:
Net investment income ........ 0.34 0.26 0.21 0.08
Net realized and unrealized
gain/(loss) on invest-
ments ..................... 5.20 2.51 3.05 0.79
------- ------- -------- ----------
Total from Investment
Operations .................. 5.54 2.77 3.26 0.87
------- ------- -------- ----------
Less Distributions:
Net investment income and
short-term gains ........... (0.36) (0.26) (0.24) --
Net realized mid-term and
long-term gains ............ (0.26) (0.06) (0.32) --
-------- -------- --------- ----------
Total distributions .......... (0.62) (0.32) (0.56) --
-------- -------- --------- ----------
Net asset value at end of
period ...................... $ 22.08 $ 17.16 $ 14.71 $ 12.01
======== ======== ========= ==========
Total Return .................. 32.84% 19.00% 27.89% 7.81%
Ratios to Average
Net Assets:
Expenses(2) .................. 1.89% 2.02% 2.06% 2.10%(3)
Net investment income(4) ..... 1.75% 1.84% 1.97% 2.94%(3)
Supplemental Data:
Net assets at end of period
(000) ....................... $64,498 $ 17,311 $ 4,178 $ 341
Portfolio turnover rate ...... 7% 13% 15% 18%
Average Commissions Per
Share ....................... $ 0.062 $ 0.066 -- --
</TABLE>

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(1) Commencement of operations.
(2) Without the waiver of advisory fees, the ratio of expenses to average 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.
(3) Annualized.
(4) Without the waiver of advisory fees, the ratio of net investment income to
average 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.

2
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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 (securi-ties 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.)

<PAGE>

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, 1998,
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 11.89%
AA 1.65%
A 4.24%
BBB 11.51%
BB 3.41%
B 3.74%
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.

Year 2000 Issues

The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and has received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Fund. The Fund and its
shareholders may experience losses if these assurances prove to be incorrect or
if issuers of portfolio securities or third parties, such as custodians, banks,
broker-dealers or others, with which the Fund does business experience
difficulties as a result of year 2000 issues.

4
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<PAGE>

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INVESTMENT RESTRICTIONS

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The investment restrictions recited below are matters of fundamental
policy and may not be changed without shareholder approval. Accordingly, the
Fund will not:

1) Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for these

purposes the U.S. Government and its agencies and instrumentalities are
not considered an industry);

2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer; or

3) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an
issuer).

Further investment restrictions are listed in the Statement of Additional
Information.

THE FUND'S NET ASSET VALUE

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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

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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.

You may purchase Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.

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.

<PAGE>

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.

5
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<PAGE>

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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 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 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 reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.

2) 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).

3) 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.

4) If you are buying shares in any of the following types of accounts:

(i) A qualified retirement plan;

(ii) A Flag Investors fund payroll savings plan program;

(iii) 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.

Purchases by Exchange

You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an

6
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<PAGE>

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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. The Fund may modify or terminate these offers of
exchange upon 60 days' prior written notice.

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.

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.

7
- --------------------------------------------------------------------------------
<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 ................ 1.00%* 4.00% 1.00%
Second ............... 0.50%* 4.00% None
Third ................ None 3.00% None
Fourth ............... None 3.00% None
Fifth ................ None 2.00% None
Sixth ................ None 1.00% 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. For purchases of $1,000,000 or more of Class A Shares made before May
1, 1999, you will pay a sales charge of 0.50% if you redeem your shares
within the first year of purchase instead of the 1.00% reflected in the
above chart.

Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:

1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.

2) 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.

3) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of 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.

4) The sales charge is applied to the lesser of the cost of the shares or
their current market value.

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 your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan
are 12% or less of your share balance.

4) 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.

5) 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
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.
<PAGE>

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.

8
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

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.

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.
<PAGE>

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 - $ 99,999.......... 3.00% 4.00% 1.00%
$ 100,000 - $249,999.......... 2.00% 4.00% 1.00%
$ 250,000 - $499,999 ......... 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, 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
for as long as you hold them. 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.

9
- --------------------------------------------------------------------------------
<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 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 its shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are advised to consult with your tax advisor regarding
specific questions.

There is further information concerning taxes in the Statement of
Additional Information.

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. As long as the Fund qualifies for this tax treatment, it will not pay
federal income tax on that part of its net investment income that is
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 to you in cash or reinvested in
additional shares.

Capital gains distributions from the Fund are classified as either
short-term or long-term depending upon how long the Fund held the securities it
sold to generate the gains. You will be taxed on the distributions according to
the category stipulated by the Fund regardless of how long you have held your
Fund shares. You will be taxed on all other income distributions as ordinary
income. If you are a corporate shareholder, you 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 federal income tax status of all
distributions.

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 paid by the Fund and received by you 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.

<PAGE>

MANAGEMENT OF THE FUND

- --------------------------------------------------------------------------------

The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, 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 the investment advisor to mutual
funds with approximately $7.4 billion of net assets as of March 31, 1998. In
addition to this Fund, these include other funds in the Flag Investors family
of funds and BT Alex. Brown Cash Reserve Fund, Inc. ABIM is a registered
investment advisor with approximately $8.4 billion under management as of March
31, 1998.

10
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

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,
1998, ICC received from the Fund a fee equal to 0.77% of the Fund's average
daily net assets and, for the same period, ICC paid ABIM a fee equal to 0.56%
of the Fund's average daily net assets.

ICC is an indirect subsidiary of Bankers Trust 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.")

On November 30, 1998, Bankers Trust Corporation entered into an Agreement
and Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation
would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is
a major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with ICC and sub-advisory relationship with ABIM thereafter is
subject to the approval of Fund shareholders. On March 30, 1999, the Board of
Directors approved, subject to shareholder approval, a new advisory agreement
between ICC and the Fund and a new sub-advisory agreement among the Fund, ICC
and ABIM in the event the merger is approved and completed. If the transaction
is approved and completed, Deutsche Bank AG will control the operations of ICC
and may be deemed to indirectly control ABIM. ICC and ABIM believe that, under
this new arrangement, the services provided to the Fund will be maintained at
their current level.

On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. ICC became a subsidiary of Bankers Trust Corporation in a
merger that occurred after these events took place. Pursuant to its agreement
with the U.S. Attorney's Office, Bankers Trust pleaded guilty to misstating
entries in the bank's books and records and agreed to pay a $60 million fine to
federal authorities. Separately, Bankers Trust agreed to pay a $3.5 million
fine to the State of New York. The events leading up to the guilty pleas did
not arise out of the investment advisory or mutual fund management activities
of Bankers Trust or its affiliates.

As a result of the plea, absent an order from the SEC, ICC and ABIM may
not be able to continue to provide advisory services to the Fund. The SEC has
granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.

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.

Mr. Buppert has 26 years of investment experience. He 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.

11
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

DISTRIBUTOR

- --------------------------------------------------------------------------------

ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of the Fund's shares since August 31, 1997. 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 the Advisors.

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 for the period from August 31, 1997 through March 31, 1998, the
Distributor received a fee equal to 0.25% (annualized) of the Class A Shares'
average daily net assets.

As compensation for providing distribution and shareholder services for
the Class B Shares for the period from August 31, 1997 through March 31, 1998,
the Distributor received a distribution fee equal to 0.75% (annualized) and a
shareholder servicing fee equal to 0.25% (annualized) of the Class B Shares'
average daily net assets. As compensation for providing distribution and
shareholder services for the Class C Shares, the Distributor receives a
distribution fee equal to 0.75% and a shareholder servicing fee equal to 0.25%
of the Class C Shares' 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 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. If the cost of
providing distribution services is less than the payments received, the
Distributor may retain the unexpended portion of the distribution fee. The
Advisor or the Distributor and their respective affiliates may make payments
from their own resources to securities dealers and servicing agents. Payments
by the Distributor may include additional discounts or promotional incentives
in the form of cash or other compensation (including merchandise or travel).

<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, 1998, ICC received a fee equal to 0.02% of the Fund's average daily net
assets. Bankers Trust 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

12
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

will be stated in the same terms in which such comparative data and indices are
stated, which is normally total return rather than yield. For these purposes,
the performance of the Fund, as well as the performance of such investment
companies or indices, may not reflect sales charges, which, if reflected, would
reduce performance results.

The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, long-term U.S. Treasury bonds, bank certificates of deposit,
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.

Performance will fluctuate, and any statement of past results should not
be considered as representative of the future performance of the Fund.
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 your account are not included in calculations of
performance and will reduce your investment returns.

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 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.

<PAGE>

Annual Meetings

The Fund does not expect to hold annual meetings of shareholders, unless
required by applicable Mary-land law. 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, PricewaterhouseCoopers LLP.

Shareholder Inquiries

If you have questions concerning your shares, contact the Fund at (800)
767-FLAG, the Transfer Agent at (800) 553-8080, or your securities dealer or
servicing agent.

13
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

FLAG INVESTORS VALUE BUILDER FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors For assistance in completing
Value Builder Fund, Inc." and mail with this Application please call:
this Application to: 1-800-553-8080, Monday
through Friday, 8:30 a.m.
to 5:30 p.m. (Eastern Time).

Flag Investors Funds
P.O. Box 419663 To open an IRA account,
Kansas City, MO 64141-6663 please call 1-800-767-3524
for an IRA information kit.

Attn: Flag Investors Value Builder Fund, Inc.

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 $________

Your Account Registration (Please Print)

Existing Account No., if any:_____________

<S> <C> <C> <C> <C> <C> <C>
Individual or Joint Tenant Gifts to Minors

---------------------------------------------------------------------
- ----------------------------------------------------------- Custodian's Name (only one allowed by law)
First Name Initial Last Name

---------------------------------------------------------------------
- ----------------------------------------------------------- Minor's Name (only one)
Social Security Number

---------------------------------------------------------------------
- ----------------------------------------------------------- Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
Joint Tenant Initial Last Name

under the ------------- Uniform Gifts to Minors Act
State of Residence
Corporations, Trusts, Partnerships, etc.

Mailing Address
- -----------------------------------------------------------
Name of Corporation, Trust or Partnership
---------------------------------------------------------------------
Street
- -------------------- -----------------------------------
Tax ID Number Date of Trust
---------------------------------------------------------------------
City State Zip
- -----------------------------------------------------------
Name of Trustees (If to be included in the Registration)
( )
- ----------------------------------------------------------- ---------------------------------------------------------------------
For the Benefit of Daytime Phone

</TABLE>

<PAGE>

Letter of Intent (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

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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 [ ] Reinvested in additional
shares shares
[ ] Paid in Cash [ ] Paid in Cash

Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

Automatic Investing Plan (Optional)

[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $------- in Class A Shares or $------- in Class B Shares 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.)

Please attach a voided check.
Minimum Initial Investment: $250
per class [ ] Monthly ($100 minimum per class)
Subsequent Investments (check one): [ ] Quarterly ($250 minimum per class)

- --------------------------- -------------------------------------------
Bank Name Depositor's Signature Date

- --------------------------- -------------------------------------------
Existing Flag Investors Fund Depositor's Signature (if
Account No., if any joint acct., both must sign) Date

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: ----------------------

-------------------------

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.

<PAGE>

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.

I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus.

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 Date
must sign)
- --------------------------------------------------------------------------------

For Dealer Use Only

Dealer's Name: ___________________________ Dealer Code: _______________________
Dealer's Address: _________________________ Branch Code: _______________________
__________________________
Representative: ___________________________ Rep. No.: __________________________

A-2

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

FLAG INVESTORS VALUE BUILDER FUND, INC.

(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 Two Portland Square
Baltimore, Maryland 21202 Portland, Maine 04101

Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080

Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------

VBPRS
4/99

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------

[GRAPHIC OMITTED]

VALUE BUILDER FUND, INC.
(Institutional Shares)

Prospectus & Application -- August 1, 1998, as
supplemented through March 31, 1999

- --------------------------------------------------------------------------------

This mutual fund (the "Fund") seeks to maximize total return through a
combination of long-term growth of capital and current income.

Flag Investors Institutional Shares of the Fund ("Institutional Shares") are
available through your securities dealer or the Fund's transfer agent and may
be purchased only by eligible institutions, certain qualified retirement plans
or investment advisory affiliates of BT Alex. Brown Incorporated ("BT Alex.
Brown"). (See "How to Buy Institutional 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, 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 .................... 5
The Fund's Net Asset Value ................. 5
How to Buy Institutional Shares ............ 5
How to Redeem Institutional Shares ......... 6
Telephone Transactions ..................... 6
Dividends and Taxes ........................ 7
Management of the Fund ..................... 7
Investment Advisor and Sub-Advisor ......... 8
Distributor ................................ 9
Custodian, Transfer Agent and
Accounting Services ..................... 9
Performance Information .................... 9
General Information ........................ 10
Application ................................ A-1

Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

FEE TABLE
- --------------------------------------------------------------------------------

Shareholder Transaction Expenses:

Maximum Sales Charge Imposed on Purchases .................... None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None
Maximum Deferred Sales Charge ................................ None

Annual Fund Operating Expenses (as a percentage of average daily net assets):

Management Fees ....................... 0.77%
12b-1 Fees ............................ None
Other Expenses ........................ 0.12%
-----
Total Fund Operating Expenses ......... 0.89%
=====

<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: ............................ $9 $28 $49 $110
</TABLE>

The Expenses and Example should not be considered a representation of past or
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 indirectly when you invest in Institutional Shares.
If you purchase Institutional Shares through a financial institution, you may
be charged separate fees by that institution.

1
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
The financial highlights included in the following table are a part of the
Fund's financial statements for the periods indicated and have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial statements
and financial highlights for the fiscal year ended March 31, 1998 and the
report thereon of Pricewaterhouse-Coopers LLP are included in the Statement of
Additional Information. Additional performance information is contained in the
Fund's Annual Report for the fiscal year ended March 31, 1998, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.

(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Institutional Shares
-------------------------------------------------
For the Period
For the Year November 2, 1995(1)
Ended March 31, through
1998 1997 March 31, 1996
-------- ------- -------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................. $ 17.27 $ 14.77 $ 13.89
------- ------- --------
Income from Investment Operations:
Net investment income ................................... 0.51 0.41 0.13
Net realized and unrealized gain on investments ......... 5.25 2.53 1.17
------- ------- --------
Total from Investment Operations ........................ 5.76 2.94 1.30
------- ------- --------
Less Distributions:
Net investment income and short-term gains .............. (0.51) (0.38) (0.10)
Net realized mid-term and long-term gains ............... (0.26) (0.06) (0.32)
-------- -------- --------
Total distributions ..................................... (0.77) (0.44) (0.42)
-------- -------- --------
Net asset value at end of period $ 22.26 $ 17.27 $ 14.77
======== ======== ========
Total Return ............................................. 34.08 % 20.24 % 21.12%
Ratios to Average Net Assets:
Expenses ................................................ 0.89 % 1.02 % 1.03%(2)
Net investment income ................................... 2.75 % 2.83 % 2.89%(2)
Supplemental Data:
Net assets at end of period (000) ....................... $103,817 $ 34,771 $ 11,768
Portfolio turnover rate ................................. 7% 13% 15%
Average commissions per share ........................... $ 0.062 $ 0.066 --
</TABLE>

- ---------------------------
(1) Commencement of operations.
(2) Annualized.

2
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

INVESTMENT PROGRAM

- --------------------------------------------------------------------------------

Investment Objective, Policies and Risk
Considerations

<PAGE>

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.)

Investments in Non-Investment Grade
Securities

Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. Securities in the lowest rating
category that the Fund may purchase (securities rated D by S&P or C by Moody's)
may present a particular risk of default, or may be in default and in arrears
in payment of principal and interest. In addition, C- or D-rated securities may
be regarded as having extremely poor prospects of ever attaining investment
standing. Yields and market values of these bonds will fluctuate over time,
reflecting changing interest rates and the market's perception of credit
quality and the outlook for economic growth. When economic conditions appear to
be deteriorating, lower rated bonds may decline in value, regardless of
prevailing interest rates. Accordingly, adverse economic developments,
including a recession or a substantial period of rising interest rates, may
disrupt the high- yield bond market, affecting both the value and liquid-ity 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

3
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

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.

S&P Rating Average
- ------------ -----------
AAA 11.89%
AA 1.65%
A 4.24%
BBB 11.51%
BB 3.41%
B 3.74%
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

Other Investments

4
- --------------------------------------------------------------------------------
<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

Further investment restrictions are listed in the Statement of Additional
Information.

Year 2000 Issues

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. The net asset value per share of a 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.

HOW TO BUY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

You may buy Institutional Shares if you are any of the following:

o An eligible institution (e.g., a financial institution, corporation,
investment counselor, trust, estate or educational, religious or
charitable institution or a qualified retirement plan other than a
defined contribution plan).

o A defined contribution plan with assets of at least $75 million.

o An investment advisory affiliate of BT Alex. Brown purchasing shares
for the accounts of your investment advisory clients.

5
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

You may buy Institutional 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 Institutional 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

If you are an eligible institution, your initial investment must be at
least $500,000. The following are exceptions to the $500,000 minimum initial
investment:

o There is no minimum initial investment for investment advisory
affiliates of BT Alex. Brown purchasing shares for the accounts of
their investment advisory clients.

o There is no minimum initial investment for defined contribution plans
with assets of at least $75 million.

o The minimum initial investment for all other qualified retirement plans
is $1 million.

There are no minimums for subsequent investments.

Purchases by Exchange

You may exchange Institutional shares of any other Flag Investors fund
for an equal dollar amount of Institutional Shares of the Fund. The Fund may
modify or terminate this offer of exchange at any time on 60 days' prior
written notice

You may request an exchange through your securities dealer or your
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 express mail or telephone.

Other Information

In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued.
<PAGE>

HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

You may redeem your shares through your securities dealer or your
servicing agent. Contact them for details on how to enter your order. If your
shares are in an account with the Fund, you may also redeem them by contacting
the Transfer Agent by telephone (if you are redeeming less than $500,000). You
will be paid for redeemed shares by wire transfer of funds to your securities
dealer, servicing agent or bank upon receipt of a duly authorized redemption
request as promptly as feasible and, under most circumstances, within three
Business Days.

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 remitted by wire to your securities dealer, servicing
agent or bank.

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' written notice.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $500,000 or exchange them for Institutional Shares of
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.

6
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

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.

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

Dividends and Distributions

The Fund's policy is to distribute substantially all of its taxable net
investment income in the form of quarterly dividends. The Fund may distribute
any taxable net capital gains on an annual basis or, alternatively, may elect
to retain net capital gains and pay tax thereon.

Unless you elect otherwise, all income dividends and capital gains
distributions will be reinvested in additional Institutional Shares at net
asset value. You may elect to terminate automatic reinvestment by giving
written notice to the Transfer Agent, either directly or through your
securities dealer or servicing agent, at least five days before the next date
on which dividends or distributions will be paid.

Tax Treatment of Dividends and Distributions

The following summary of certain federal income tax consequences
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 its shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are advised to consult with your tax advisor regarding
specific questions.

There is further information concerning taxes in the Statement of
Additional Information.

The Fund has been and expects to continue to be taxed as a regulated
investment company under Sub-chapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will not pay
federal income tax on that part of its net investment income that is
distributed to shareholders. Unless you are otherwise exempt, you will be
generally subject to federal income tax on the amounts distributed to you,
regardless of whether such distributions are paid to you in cash or reinvested
in additional Institutional Shares.

The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.

The sale, exchange or redemption of Institutional Shares is a taxable
event for 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 the Distributor. A majority of
Directors of the Fund are not affiliated with the Advisors or the Distributor.

7
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

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 the investment advisor to mutual
funds with approximately $7.4 billion of net assets as of May 31, 1998. In
addition to this Fund, these include other funds in the Flag Investors family
of funds and BT Alex. Brown Cash Reserve Fund, Inc. ABIM is a registered
investment advisor with approximately $8.4 billion under management as of May
31, 1998.

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. The Board has established procedures under which ABIM may
allocate transactions to certain affiliates, provided that compensation to such
affiliates 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 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 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 providing investment advisory services to the Fund
for the fiscal year ended March 31, 1998, ICC received a fee equal to 0.77% of
the Fund's average daily net assets and, for the same period, ICC paid ABIM a
fee equal to 0.56% of the Fund's average daily net assets.

ICC is an indirect subsidiary of Bankers Trust Corporation. ABIM is a
limited partnership affilated 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 owns a 1% general partnership interest in ABIM and BT Alex.
Brown Holdings, Inc. owns the remaining limited partnership interest.

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.")

As a result of the plea, absent an order from the SEC, ICC and ABIM may
not be able to continue to provide advisory services to the Fund. The SEC has
granted a temporary order to permit Bankers Trust

8
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

and its affiliates to continue to provide investment advisory services to
registered investment companies. There is no assurance that the SEC will grant
a permanent order.

Portfolio Manager

Mr. Buppert has 26 years of investment experienced. He 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
- --------------------------------------------------------------------------------

ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as distributor of each class of the Fund's shares. ICC Distributors receives no
compensation for distributing the Institutional 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 the Advisors.

ICC Distributors bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to individuals and entities other than Fund shareholders. The Advisor or its
affiliates may make payments from their own resources to securities dealers and
servicing agents.

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, 1998, ICC received from the Fund a fee equal to 0.02% of the Fund's average
daily net assets. Bankers Trust 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 to other mutual funds with similar investment objectives and to
stock or other relevant indices. All advertisements of performance will show
the average annual total return over one-, five- and ten-year periods or, if
such periods have not yet elapsed, shorter periods corresponding to the life of
the Fund. Such total return quotations will be computed by finding average
annual compounded rates of return over such periods that would equate an
assumed initial investment of $1,000 to the ending redeemable value according
to the required standardized calculation. The standardized calculation is
required by the SEC to provide consistency and comparability in investment
company advertising and is not equivalent to a yield calculation.

If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield.

9
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

Business Week, Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and
The Wall Street Journal.

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 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 been designated: "Flag Investors Value
Builder Fund Institutional Shares." The Board has no present intention of
establishing any additional series of the Fund, but the Fund does have four
other classes of shares in addition to the shares offered hereby: "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,"
which are offered by a separate prospectus and "Flag Investors Value Builder
Fund Class D Shares," which are not currently being offered. Additional
information concerning the Fund's Class A Shares, Class B Shares and Class C
Shares may be obtained by calling the Fund at (800) 767-FLAG. Different classes
of the Fund may be offered to certain investors and holders of such shares may
be entitled to certain exchange privileges not offered to Institutional Shares.
All classes of the Fund share a common investment objective, portfolio of
investments and advisory fee, but the classes may have different distribution
fees or sales load structures and, accordingly, the net asset value per share
of the classes may differ at times.

Annual Meetings

The Fund does not expect to hold annual meetings of shareholders unless
required by applicable Maryland law. 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

Shareholder Inquiries

If you have questions concerning your Institutional Shares, contact the
Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080 or your securities
dealer or servicing agent.

10
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<PAGE>

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FLAG INVESTORS VALUE BUILDER FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
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Send completed Application by overnight For assistance in completing
carrier to: this Application please call:
Flag Investors Funds 1-800-553-8080, Monday
330 West Ninth Street, First Floor through Friday, 8:30 a.m. to
Kansas City, MO 64105 5:30 p.m.(Eastern Time).
Attn: Flag Investors Value Builder Fund, Inc.
If you are paying by check, make check payable to "Flag Investors Value Builder
Fund, Inc." and mail with this Application. If you are paying by wire, see
instructions below.

Your Account Registration (Please Print)
----------------------------------------

Name on Account Mailing Address
- ---------------------------------- -------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive
Correspondence

- --------------------------- -------------------------------------
Tax ID Number Street

[ ] Corporation [ ] Partnership -------------------------------------
[ ] Trust City State Zip
[ ] Non-Profit or Charitable
Organization ( )
[ ] Other -------------------------------------
-------------
If a Trust, please provide the -------------------------------------
following: Daytime Phone

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Date of Trust For the Benefit of

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Name of Trustees (If to be included in the Registration)

Initial Investment

Indicate the amount to be invested and the method of payment:
__ A. By Mail: Enclosed is a check in the amount of $___________ payable to
Flag Investors Value Builder Fund, Inc.

__ B. By Wire: A bank wire in the amount of $___________ has been sent
from ____________ _____________________________________
Name of Bank Wire Control Number

Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:

o Send completed Application by overnight carrier to BT Alex. Brown
Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary
Trust Company ("IFTC"), as follows:

IFTC
a/c Flag Investors Funds
Acct. # 7528167
ABA # 1010-0362-1
Kansas City, Missouri 64105

Please include the following information in the wire:
o Flag Investors Value Builder Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to ____________________________________ ."
(Investor's Fund Account Number)

Distribution Options

Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.

Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional
shares
[ ]|B) Paid in cash [ ] Paid in cash

<PAGE>
Telephone Transactions

I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want: [ ] Telephone redemption privileges [ ] Telephone
exchange privileges

Redemptions effected by telephone will be wired to the bank
account designated below.

Bank Account Designation
(This Section Must Be Completed)

Please attach a blank, voided check to provide account and bank routing
information.

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Name of Bank Branch

- --------------------------------------------------------------------------------
Bank Address City/State/Zip

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Name(s) on Account

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Account Number A.B.A. Number

A-1

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<PAGE>

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Acknowledgment, Certificate and Signature

[ ] U.S. Citizen/Taxpayer:

[ ] I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.

[ ] If no Tax ID Number has been provided above, I have applied, or
intend to apply, to the IRS for a Tax ID Number, and I understand that
if I do not provide such number to the Transfer Agent within 60 days of
the date of this Application or if I fail to furnish my correct Tax ID
Number, I may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide your Tax ID
Number on IRS Form W-9. You may request such form by calling the
Transfer Agent at 800-553-8080.)

[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax purposes:
_________________________________ Under penalties of perjury, I certify that
I am not a U.S. citizen or resident and I am an exempt foreign person as
defined by the Internal Revenue Service.

I have received a copy of the Fund's prospectus.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid
backup withholding.

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Signature of Corporate Officer, General Partner, Trustee, etc. Date

Person(s) Authorized to Conduct Transactions

The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
_____________ * of the Authorized Person(s) is, by lawful and appropriate action
of the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.

- ---------------------------------- ----------------------------------
Name/Title Signature Date

The signature appearing to the right of each Authorized Person is that person's
signature. Investment Company Capital Corp. ("ICC") may, without inquiry, act
upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.

Certificate of Authority

Investors must complete one of the following two Certificates of Authority.

Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)

I _________________________ , Secretary of the above-named investor, do hereby
certify that at a meeting on ___________, at which a quorum was present
throughout, the Board of Directors (Board of Trustees) of the investor duly
adopted a resolution which is in full force and effect and in accordance with
the investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do
so on behalf of the investor; (2) empowered the above-named Authorized Person(s)
to effect securities transactions for the investor on the terms described above;
(3) authorized the Secretary to certify, from time to time, the names and titles
of the officers of the investor and to notify ICC when changes in officers
occur; and (4) authorized the Secretary to certify that such a resolution has
been duly adopted and will remain in full force and effect until ICC receives a
duly-executed amendment to the Certification form.

Witness my hand and seal on behalf of the investor.

This _ day of _____________, 199- Secretary_____________________________________

The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.

- --------------------------------------------------------------------------------
Signature and title Date

Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)

The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).

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Signature and title Date

A-2

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<PAGE>

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FLAG INVESTORS VALUE BUILDER FUND, INC.

(Institutional Shares)

Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202

Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ICC DISTRIBUTORS, INC.
One South Street Two Portland Square
Baltimore, Maryland 21202 Portland, Maine 04101

Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103

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VBIPRS
4/99