<PAGE>
As Filed With the Securities and Exchange Commission on June 1, 1999
Registration No. 33-46279
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 13 [X]
FLAG INVESTORS VALUE BUILDER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
One South Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LP
1701 Market Street
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on August 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ on August 1, 1999 pursuant to paragraph (a) of rule 485
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<PAGE>
[FLAG INVESTORS LOGO]
VALUE BUILDER FUND, INC.
(Class A, Class B and Class C Shares)
Prospectus & Application -- August 1, 1999
This mutual fund (the "Fund") is designed to maximize total return through a
combination of long-term growth of capital and current income.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes 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. These
separate classes give you a choice as to sales charge and fund expenses. (Refer
to the section on sales charges and the attached Application.)
TABLE OF CONTENTS
Investment Summary.........................................................2
Fees and Expenses of the Fund..............................................5
Investment Program.........................................................6
The Fund's Net Asset Value.................................................8
How to Buy Shares..........................................................8
How to Redeem Shares......................................................10
Telephone Transactions....................................................11
Sales Charges.............................................................11
How to Choose the Class That Is Right for You.............................15
Dividends and Taxes.......................................................16
Investment Advisor and Sub-Advisor........................................17
Financial Highlights......................................................19
Application..............................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED NOR
DISAPPROVED THESE SECURITIES NOR HAS IT PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INVESTMENT SUMMARY
OBJECTIVES AND STRATEGIES
The Fund seeks to maximize total return through a combination of
long-term growth of capital and current income by investing primarily in a
portfolio of common stocks and corporate bonds.
The Fund's investment advisor and sub-advisor (the "Advisors")may alter
the percentages of assets invested in common stocks and bonds depending on their
judgment as to general market and economic conditions, trends in yields and
interest rates and changes in fiscal and monetary policy. Under normal market
conditions, between 40% and 75% of the Fund's assets will be invested in common
stocks and at least 25% of the Fund's assets will be invested in bonds.
In selecting common stocks for the Fund's portfolio, the Advisors use a
"flexible value" approach. With this approach, they try to find common stocks
that are undervalued in the marketplace based on such characteristics as
earnings, cash flow, or asset values. In evaluating a stock's potential, they
also consider other factors such as earnings growth, industry position and the
strength of management. The Advisors' strategy gives them the flexibility to
purchase traditional value stocks as well as the stocks of high growth rate
companies.
In selecting bonds for the Fund, the Advisors purchase securities with
a range of maturities based on their assessment of the relative yields available
on securities of different maturities. The Advisors currently anticipate that
the average maturity of the bonds in the Fund's portfolio will be between two
and ten years. The bonds purchased by the Fund will generally be investment
grade, but may also be non-investment grade.
RISK PROFILE
The Fund is best suited for investors who are seeking both long-term
growth of capital and current income through an approach that combines
investments in common stocks and bonds. The value of an investment in the Fund
will vary from day to day based on changes in the prices of the common stocks
and the bonds in the Fund's portfolio. The Fund's investments in common stocks
can be expected to be more volatile than the Fund's investments in bonds.
General Stock Risk. The prices of common stocks purchased by the Fund
will fluctuate based upon investor perceptions of the economy, the markets and
the companies represented in the Fund's portfolio.
General Fixed Income Risk. The value of the bonds in the Fund's
portfolio can be expected to increase during periods of falling interest rates
and decrease during periods of rising
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interest rates. The magnitude of these increases and decreases will generally be
larger if the Fund holds securities with longer maturities or if the Fund holds
lower quality securities.
Style Risk. As with any investment strategy, the "flexible value"
strategy used in managing the Fund's equity portfolio will, at times, perform
better than or worse than other investment styles and the overall market. If the
Advisors overestimate the value or return potential of one or more common
stocks, the Fund may underperform the general equity market.
Asset Allocation Risk. The Advisors' assessment of market and economic
conditions may cause them to invest too much or too little in either stocks or
bonds which could adversely affect the Fund's performance.
If you invest in the Fund, you could lose money. An investment in the
Fund is not a bank deposit and is not guaranteed by the FDIC or any other
government agency.
FUND PERFORMANCE
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
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CLASS A SHARES*
FOR YEARS ENDED DECEMBER 31,
35.00%
30.00% 32.74%
25.00% 24.64%
20.00% 22.67%
15.00% 18.53%
10.00% 11.76%
5.00%
0.00% -0.37%
- -5.00%
1993 1994 1995 1996 1997 1998
* The bar chart does not reflect sales charges. If it did, returns would be less
than those shown. For the period from January 1, 1999 through June 30, 1999,
the year-to-date total return for Class A Shares was __%.
During the 6-year period shown in the bar chart, the highest return for a
quarter was 17.91% (quarter ended 12/31/98) and the lowest return for a quarter
was -9.66% (quarter ended 9/30/98).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Class A Shares(1) S&P 500(2) 91-Day U.S. Lipper Balanced
Treasury Bill(3) Fund Index(4)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Past One Year................. 13.19% 28.58% 4.88% 15.09%
- ---------------------------------------------------------------------------------------------------------------
Past Five Years............... 18.01% 24.06% 5.02% 13.87%
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Since Inception............... 17.58% (6/15/92) 21.28%(5) 4.57%(5) 13.63%(5)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class B Shares(1) S&P 500(2) 91-Day U.S. Lipper
Treasury Bill(3) Balanced Fund
Index(4)
- ---------------------------------------------------------------------------------------------------------------
Past One Year................. 13.60% 28.58% 4.88% 15.09%
- ---------------------------------------------------------------------------------------------------------------
Since Inception............... 23.63% (1/3/95) 30.51%(6) 5.20%(6) 18.24%(6)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
4
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Standard & Poor's 500 Index is an unmanaged index that is a widely
recognized benchmark of general equity market performance. The index does
not factor in the costs of buying, selling and holding securities -- costs
which are reflected in the Fund's results.
(3) The 91-Day U.S. Treasury Bill is a measure of short-term bond market
performance.
(4) The Lipper Balanced Fund Index is a non-weighted index of the 30 largest
funds within the Lipper balanced fund investment category. Typically, the
stock/bond ratio of the funds in the index ranges around 60%/40%.
(5) For the period from 6/30/92 through 12/31/98.
(6) For the period from 12/31/94 through 12/31/98.
No performance information is provided for the Class C Shares because
they have not been offered for a full year. However, performance of the Class C
Shares is expected to be similar to that of the Fund's other classes and will
differ only to the extent that Class C Shares do not have the same expenses.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
Initial Sales Deferred Sales Deferred Sales
SHAREHOLDER FEES: Charge Charge Charge
(fees paid directly from your investment) Alternative Alternative Alternative
----------- ----------- -----------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering price).................................................. 4.50%* None None
Maximum Deferred Sales Charge (Load)(as a percentage of original
purchase price or redemption proceeds, whichever is lower)............. 1.00%* 4.00%** 1.00%***
Maximum Sales Charge (Load) Imposed on Reinvested Dividends............ None None None
Redemption Fee......................................................... None None None
Exchange Fee........................................................... None None None
ANNUAL FUND OPERATING EXPENSES:
(expenses that are deducted from Fund assets)
Management Fees........................................................ 0.75% 0.75% 0.75%
Distribution and/or Service (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 Annual Fund Operating Expenses................................... 1.12% 1.87% 1.87%
===== ====== ======
</TABLE>
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* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem your
shares. (See "Sales Charges -- Redemption Price.")
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** Contingent deferred sales charges decline over time and reach zero after
six years. At that time, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges" and "How to Choose the Class that is Right for
You.")
*** You will be required to pay a contingent deferred sales charge if you
redeem your Class C Shares within one year after purchase. (See "Sales
Charges -- Redemption Price.")
**** 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.
EXAMPLE:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES................................... $559 $790 $1,039 $1,752
CLASS B SHARES................................... $590 $888 $1,211 $1,815
CLASS C SHARES................................... $290 $588 N/A N/A
You would pay the following expenses if you did not redeem your shares:
CLASS A SHARES................................... $559 $790 $1,039 $1,752
CLASS B SHARES................................... $190 $588 $1,011 $1,815
CLASS C SHARES................................... $190 $588 N/A N/A
</TABLE>
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold your shares
for a long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund seeks to maximize total return through a combination of
long-term growth of capital and current income by investing primarily in a
portfolio of common stocks and bonds.
The Advisors are responsible for managing the Fund's investments.
(Refer to the section on Investment Advisor and Sub-Advisor.) In selecting
investments for the Fund, the Advisors determine the relative percentages of
assets to be invested in common stocks and bonds based on
6
<PAGE>
their judgement as to general market and economic conditions, trends in yields
and interest rates and changes in fiscal and monetary policy. Under normal
market conditions, between 40% and 75% of the Fund's assets will be invested in
common stocks and at least 25% of the Fund's assets will be invested in bonds.
In selecting common stocks for the Fund's portfolio, the Advisors use a
"flexible value" approach. With this approach, they try to find common stocks
that are undervalued in the marketplace based on such characteristics as
earnings, cash flow, or asset values. In evaluating a stock's potential, they
also consider other factors such as earnings growth, industry position and the
strength of management. The Advisors' strategy gives them the flexibility to
purchase traditional value stocks as well as the stocks of high growth rate
companies.
In managing the Fund's bond portfolio, the Advisors invest primarily
in corporate bonds. The Advisors select bonds with a range of maturities based
on their assessment of the relative yields available on securities of different
maturities. The Advisors currently anticipate that the average maturity of the
bonds in the Fund's portfolio will be between two and ten years. In general, the
corporate bonds held by the Fund will be investment grade bonds. However, the
Fund also invests, to a limited extent, in non-investment grade bonds.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run, stocks can be more volatile than other types of securities. Stock
prices are sensitive to developments affecting particular companies and to
general economic conditions that affect particular industry sectors or the
securities markets as a whole. Bonds are subject to interest rate risk. The
value of the Fund's bond portfolio can be expected to increase during periods of
falling interest rates and decrease during periods of rising interest rates. The
magnitude of these increases and decreases will generally be larger if the Fund
holds securities with longer maturities or if the Fund holds lower quality
securities. Whether or not the Fund benefits from the allocation of assets
between common stocks and bonds will depend on the Advisors' success in
assessing economic trends and their impact on financial assets.
To reduce the Fund's risk, the Advisors may make temporary, defensive
investments 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. While engaged in a temporary defensive strategy, the Fund may not
achieve its investment objective. The Advisor would follow such a strategy only
if it believed the risk of loss outweighed the opportunity for gain.
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
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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.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
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 any class
of shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. 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.
In valuing its assets, the Fund's investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem shares on any day 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.
The following sections describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check
8
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(along with a completed Application Form) directly to the Fund. The Application
Form, which includes instructions, is attached to this Prospectus.
You may invest in 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.
INVESTMENT MINIMUMS
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may
be as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan,
your initial investment may be as low as $250. If you participate
in the monthly plan, your subsequent investments may be as low as
$100. If you participate in the quarterly plan, your subsequent
investments may be as low as $250. Refer to the section on the
Fund's Automatic Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
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.
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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 you have an account with the
Fund that is in your name, 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.
You can obtain one from most banks or securities dealers.
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.
OTHER REDEMPTION INFORMATION
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 in cash whether or not that is the payment option
you have selected.
10
<PAGE>
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. The Fund reserves the right to redeem shares in kind under certain
circumstances.
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.
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 but you may 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 when you
open your account and before you effect 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 telephone instructions that it reasonably believes 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.
SALES CHARGES
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:
11
<PAGE>
<TABLE>
<CAPTION>
Class A
Sales Charge
as a % of
----------------------------
Offering Net Amount Class B Class C Sales
Amount of Purchase Price Invested Sales 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 redemption price for details. Your securities dealer may be paid
a commission at the time of your purchase.
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 purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares, you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for reduced sales charges. (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:
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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 Fund Director, a director, an employee
or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Fund's distributor, the
Advisors or a 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 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' 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.
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<PAGE>
REDEMPTION PRICE
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
-------------------------------------------------------------------
Class A Sales Class B Sales Class C Sales
------------- ------------- -------------
Charge (as % of Charge (as % of Charge (as % of
Years Since Purchase Cost or Value) Cost or Value) Cost or Value)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 million or
more.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) 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 your 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 value at the time of your redemption.
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.
14
<PAGE>
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
Fund's distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares six years after your purchase. This
conversion will be made on the basis of the relative net asset values of the
classes and will not be a taxable event to you.
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
15
<PAGE>
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 is paid a fee when you buy shares. In addition,
your securities dealer is paid an annual fee as long as you hold your shares.
For Class A and Class B Shares, this fee begins when you purchase your shares.
For Class C Shares, this fee begins one year after you purchase your shares.
Your securities dealer or servicing agent may receive different levels
of compensation depending upon which class of shares you buy.
DISTRIBUTION PLANS
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder service. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Class B
and Class C Shares pay an annual distribution fee equal to 0.75% of average
daily net assets of the respective class and an annual shareholder servicing fee
equal to 0.25% of average daily net assets of the respective class. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
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 and to
distribute taxable net capital gains on an annual basis.
TAXES
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local taxation, depending upon your
16
<PAGE>
tax situation. Distributions you receive from the Fund may be taxable whether or
not you reinvest them. Each sale or exchange of the Fund's shares is a taxable
event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor regarding your specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $___
billion of net assets as of June 30, 1999. ABIM is a registered investment
advisor with approximately $___ billion under management as of June 30, 1999.
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 owns a 1% general partnership interest in ABIM and BT
Alex. Brown Holdings, Inc. owns the remaining 49% limited partnership interest.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABIM. ABIM is responsible
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended March 31,
1999, ICC received from the Fund a fee equal to 0.75% of the Fund's average
daily net assets. ICC compensates ABIM out of its advisory fee.
The Advisor is an indirect subsidiary of Bankers Trust Corporation. On
[date], Bankers Trust Corporation merged 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. Because
Deutsche Bank AG, as ICC's new parent company, controls its operations as
investment advisor, the Fund's shareholders will be asked to approve a new
investment advisory agreement between ICC and the Fund. Shareholders also will
be asked to approve a new sub-advisory agreement among the Fund, ICC and ABIM. A
Special Meeting of Shareholders will be held for this purpose. ICC believes
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
17
<PAGE>
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 27 years 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.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years for Class A Shares
and since commencement of operations for Class B and Class C Shares. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information is part of the Fund's financial statements
which have been audited by PricewaterhouseCoopers LLP. These financial
statements are included in the Statement of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
----------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
----------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year... $ 22.09 $ 17.14 $ 14.68 $ 12.02 $ 11.23
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.56 0.47 0.39 0.36 0.35
Net realized and unrealized gain on
investments............................ 2.40 5.21 2.49 3.03 0.80
------- ------- ------- ------- -------
Total from Investment Operations....... 2.96 5.68 2.88 3.39 1.15
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income and short-term gains (0.57) (0.47) (0.36) (0.41) (0.35)
Net realized mid-term and long-term gains (0.33) (0.26) (0.06) (0.32) (0.01)
------- ------- ------- ------- -------
Total distributions.................... (0.90) (0.73) (0.42) (0.73) (0.36)
------- ------- ------- ------- -------
Net asset value at end of year ........ $ 24.15 $ 22.09 $ 17.14 $ 14.68 $ 12.02
======= ======= ======= ======= =======
TOTAL RETURN............................... 13.91% 33.82% 19.90% 28.86% 10.57%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 1.12% 1.14% 1.27% 1.31% 1.35%(1)
Net investment income.................. 2.64% 2.49% 2.51% 2.72% 3.07%(2)
SUPPLEMENTAL DATA:
Net assets at end of year (000)........ $649,664 $491,575 $278,130 $200,020 $146,986
Portfolio turnover rate................ 10% 7% 13% 15% 18%
</TABLE>
- ------------
(1) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 1.40% for the year ended March 31, 1995.
(2) Without the waiver of advisory fees, the ratio of net investment income to
average net assets would have been 3.02% for the year ended March 31, 1995.
19
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
---------------------------------- --------------
FOR THE
PERIOD
JANUARY 3, FOR THE PERIOD
1995(1) APRIL 8, 1998(1)
THROUGH THROUGH
FOR THE YEARS ENDED MARCH 31, MARCH 31, MARCH 31,
----------------------------- --------- ---------
1999 1998 1997 1996 1995 1999
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 22.08 $ 17.16 $ 14.71 $ 12.01 $ 11.14 $ 22.31
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ 0.41 0.34 0.26 0.21 0.08 0.39
Net realized and unrealized gain on
investments.................... 2.38 5.20 2.51 3.05 0.79 2.10
------- ------- ------- ------- ------- -------
Total from Investment Operations..... 2.79 5.54 $ 2.77 3.26 0.87 2.49
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income and short-term
gains.............................. (0.43) (0.36) (0.26) (0.24) --- (0.35)
Net realized mid-term and long-term
capital gains................... (0.33) (0.26) (0.06) (0.32) --- (0.33)
------- ------- ------- ------- ------- -------
Total distributions.................. (0.76) (0.62) (0.32) (0.56) --- (0.68)
------- ------- ------- ------- ------- -------
Net asset value at end of period .... $ 24.11 $ 22.08 $ 17.16 $ 14.71 $ 12.01 $ 24.12
======= ======= ======= ======= ======= =======
TOTAL RETURN............................. 13.10% 32.84% 19.00% 27.89% 7.81% 11.50%(2)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 1.87% 1.89% 2.02% 2.06% 2.10%(3,4) 1.91%(4)
Net investment income................ 1.90% 1.75% 1.84% 1.97% 2.94%(4,5) 2.05%(4)
SUPPLEMENTAL DATA:
Net assets at end of period (000).... $110,680 $64,498 $17,311 $ 4,178 $ 341 $17,450
Portfolio turnover rate.............. 10% 7% 13% 15% 18% 10%
</TABLE>
- -----------
(1) Commencement of operations.
(2) Total return is since inception.
(3) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 2.17% annualized for the period ended March 31,
1995.
(4) Annualized.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average net assets would have been 2.87% annualized for the period ended
March 31, 1995.
20
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS VALUE BUILDER FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Make check payable to "Flag Investors Value Builder FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
Fund, Inc." and mail with this Application to: MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
Flag Investors Funds TO OPEN AN IRA ACCOUNT, PLEASE CALL 1-800-767-3524 FOR AN IRA
P.O. Box 219663 INFORMATION KIT.
Kansas City, MO 64121-9663
Attn: Flag Investors Value Builder Fund, Inc.
I wish to purchase the following class of shares of the Fund, in the amount indicated. (Please check the applicable box and
indicate the amount of purchase.)
MINIMUM INITIAL INVESTMENT: $2,000 ($500 FOR SHAREHOLDERS WITH AN EXISTING FLAG INVESTORS ACCOUNT.)
|_| 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 _________________________
INDIVIDUAL OR JOINT TENANT GIFTS TO MINORS
______________________________________________________ ______________________________________________________________________
First Name Initial Last Name Custodian's Name (only one allowed by law)
______________________________________________________ ______________________________________________________________________
Social Security Number Minor's Name (only one)
______________________________________________________ _______________________________ ____________________________________
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
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) Daytime Phone
________________________________________________________________
For the Benefit of
-----------------------------------------
LETTER OF INTENT (OPTIONAL)
-----------------------------------------
|_| I intend to invest at least the amount indicated below in Class A Shares of Flag Investors Value Builder Fund, Inc. I understand
that if I satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the applicable level of
reduced sales charges on my purchases.
|_|$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 you for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
___________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
-----------------------------------------
DISTRIBUTION OPTIONS
-----------------------------------------
Please check appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional shares of
the same class of the Fund at no sales charge.
INCOME DIVIDENDS CAPITAL GAINS
|_| Reinvested in additional shares |_| Reinvested in additional shares
|_| Paid in cash |_| Paid in cash
Call (800) 553-8080 for information about reinvesting your dividends in other funds in the Flag Investors Family of Funds.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------
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.)
<S> <C> <C>
----------------------------------------
PLEASE ATTACH A VOIDED CHECK.
----------------------------------------
MINIMUM INITIAL INVESTMENT: $250 PER CLASS
SUBSEQUENT INVESTMENTS (CHECK ONE): |_| Monthly ($100 MINIMUM PER CLASS) |_| Quarterly ($250 MINIMUM PER CLASS)
________________________________________________ ___________________________________________________________________________
Bank Name Depositor's Signature Date
________________________________________________ ___________________________________________________________________________
Existing Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
-----------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
-----------------------------------------
|_| Beginning the month of _________________, ______ (year) 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 redemption privileges |_|Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a predesignated
bank account, please provide the following information:
Bank:___________________________ Bank Account No.:____________________________________________________
Address: _______________________ Bank Account Name:___________________________________________________
________________________________ Bank Phone Number:___________________________________________________
-----------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
-----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE FUND MAY BE REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF ANY TAXABLE DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND REDEMPTION PROCEEDS PAID TO ANY INDIVIDUAL OR CERTAIN OTHER NON-CORPORATE SHAREHOLDERS WHO FAIL TO PROVIDE
THE INFORMATION AND/OR CERTIFICATIONS REQUIRED BELOW. THIS BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX, AND ANY AMOUNTS
WITHHELD MAY BE CREDITED AGAINST YOUR ULTIMATE U.S. TAX LIABILITY.
BY SIGNING THIS APPLICATION, I HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT THE INFORMATION ON THIS APPLICATION IS COMPLETE AND
CORRECT AND THAT AS REQUIRED BY FEDERAL LAW: (PLEASE CHECK APPLICABLE BOXES)
|_| U.S. CITIZEN/TAXPAYER:
|_| I CERTIFY THAT (1) THE NUMBER SHOWN ABOVE ON THIS FORM IS THE CORRECT SOCIAL SECURITY NUMBER OR TAX ID NUMBER AND
(2) I AM NOT SUBJECT TO ANY BACKUP WITHHOLDING EITHER BECAUSE (A) I AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I
HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT
OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
|_| IF NO TAX ID NUMBER OR SOCIAL SECURITY NUMBER HAS BEEN PROVIDED ABOVE, I HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS
OR THE SOCIAL SECURITY ADMINISTRATION FOR A SOCIAL SECURITY NUMBER OR TAX ID 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 must sign) Date
====================================================================================================================================
FOR DEALER USE ONLY
- ----------------------------------
Dealer's Name: ______________________________ Dealer Code:______________________________________________
Branch Address:______________________________ Branch Code:______________________________________________
______________________________ Rep. No.:_________________________________________________
Representative:______________________________ Rep Phone No.:____________________________________________
</TABLE>
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT ICC DISTRIBUTORS, INC.
MANAGEMENT Two Portland Square
One South Street Portland, Maine 04101
Baltimore, Maryland 21202
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>
[FLAG INVESTORS LOGO]
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
(800)767-FLAG
- -------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report,
a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information call (800)767-FLAG, or your securities dealer or servicing
agent.
Investment Company Act File No. 811-6600
- -------------------------------------------------------------------------------
VBPRS
(8/99)
<PAGE>
[FLAG INVESTORS LOGO]
VALUE BUILDER FUND, INC.
(Institutional Shares)
Prospectus & Application -- August 1, 1999
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") is designed to maximize total return through a
combination of long-term growth of capital and current income.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Institutional Shares (the "Institutional Shares") of the Fund. Institutional
Shares may be purchased only by eligible institutions, certain qualified
retirement plans or by investment advisory affiliates of BT Alex. Brown
Incorporated on behalf of their clients.
TABLE OF CONTENTS
Investment Summary.............................................................2
Fees and Expenses of Institutional Shares......................................5
Investment Program.............................................................5
The Fund's Net Asset Value.....................................................6
How to Buy Institutional Shares................................................7
How to Redeem Institutional Shares.............................................8
Telephone Transactions.........................................................8
Dividends and Taxes............................................................8
Investment Advisor and Sub-Advisor.............................................9
Financial Highlights..........................................................11
Application..................................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED NOR DISAPPROVED
THESE SECURITIES NOR HAS IT PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
INVESTMENT SUMMARY
OBJECTIVES AND STRATEGIES
The Fund seeks to maximize total return through a combination of
long-term growth of capital and current income by investing primarily in a
portfolio of common stocks and corporate bonds.
The Fund's investment advisor and sub-advisor (the "Advisors") may
alter the percentages of assets invested in common stocks and bonds depending on
their judgment as to general market and economic conditions, trends in yields
and interest rates and changes in fiscal and monetary policy. Under normal
market conditions, between 40% and 75% of the Fund's assets will be invested in
common stocks and at least 25% of the Fund's assets will be invested in bonds.
In selecting common stocks for the Fund's portfolio, the Advisors use a
"flexible value" approach. With this approach, they try to find common stocks
that are undervalued in the marketplace based on such characteristics as
earnings, cash flow, or asset values. In evaluating a stock's potential, they
also consider other factors such as earnings growth, industry position and the
strength of management. The Advisors' strategy gives them the flexibility to
purchase traditional value stocks as well as the stocks of high growth rate
companies.
In selecting bonds for the Fund, the Advisors purchase securities with
a range of maturities based on their assessment of the relative yields available
on securities of different maturities. The Advisors currently anticipate that
the average maturity of the bonds in the Fund's portfolio will be between two
and ten years. The bonds purchased by the Fund will generally be investment
grade, but may also be non-investment grade.
RISK PROFILE
The Fund is best suited for investors who are seeking both long-term
growth of capital and current income through an approach that combines
investments in common stocks and bonds. The value of an investment in the Fund
will vary from day to day based on changes in the prices of the common stocks
and the bonds in the Fund's portfolio. The Fund's investments in common stocks
can be expected to be more volatile than the Fund's investments in bonds.
General Stock Risk. The prices of common stocks purchased by the Fund
will fluctuate based upon investor perceptions of the economy, the markets and
the companies represented in the Fund's portfolio.
General Fixed Income Risk. The value of the bonds in the Fund's
portfolio can be expected to increase during periods of falling interest rates
and decrease during periods of rising interest rates. The magnitude of these
increases and decreases will generally be larger if the Fund holds securities
with longer maturities or if the Fund holds lower quality securities.
2
<PAGE>
Style Risk. As with any investment strategy, the "flexible value"
strategy used in managing the Fund's equity portfolio will, at times, perform
better than or worse than other investment styles and the overall market. If the
Advisors overestimate the value or return potential of one or more common
stocks, the Fund may underperform the general equity market.
Asset Allocation Risk. The Advisors' assessment of market and economic
conditions may cause them to invest too much or too little in either stocks or
bonds which could adversely affect the Fund's performance.
If you invest in the Fund, you could lose money. An investment in the
Fund is not a bank deposit and is not guaranteed by the FDIC or any other
government agency.
FUND PERFORMANCE
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
3
<PAGE>
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES*
FOR YEARS ENDED DECEMBER 31,
25.00% 24.99%
22.95%
20.00% 18.84%
15.00%
10.00%
5.00%
0.00%
1996 1997 1998
- --------------------------------------------------------------------------------
* For the period from January 1, 1999 through June 30, 1999, the year-to-date
return for Institutional Shares was __%.
During the 3-year period shown in the bar chart, the highest return for a
quarter was 18% (quarter ended 12/31/98) and the lowest return for a quarter was
- -9.59% (quarter ended 9/30/98).
AVERAGE ANNUAL TOTAL RETURN (for period ended December 31, 1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Shares(1) S&P 500(2) 91-Day U.S. Lipper
Treasury Bill(3) Balanced
Fund Index(4)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Past One Year................... 18.84% 28.60% 4.88% 15.09%
- ---------------------------------------------------------------------------------------------------------------------------
Since Inception................. 22.31%(11/2/95) 29.03%(5) 5.07%(5) 16.87%(5)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Standard & Poors 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general equity market performance. The index
does not factor in the costs of buying, selling and holding securities --
costs which are reflected in the Fund's results.
(3) The 91-Day U.S. Treasury Bill is a measure of short-term bond market
performance.
(4) The Lipper Balanced Fund Index is a non-weighted index of the 30 largest
funds within the Lipper balanced fund investment category. Typically, the
stock/bond ratio of the funds in the index ranges around 60%/40%.
(5) For the period 10/31/95 through 12/31/98.
4
<PAGE>
FEES AND EXPENSES OF INSTITUTIONAL SHARES
This table describes the fees and expenses that you may pay if you buy
and hold Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases.................................................. None
Maximum Deferred Sales Charge (Load).............................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends....................................... None
Redemption Fee.................................................................................... None
Exchange Fee...................................................................................... None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets):
Management Fees................................................................................... 0.75
Distribution and/or Service (12b-1) Fees.......................................................... None
Other Expenses.................................................................................... 0.12%
-----
Total Annual Fund Operating Expenses.............................................................. 0.87%
=====
</TABLE>
EXAMPLE:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Institutional Shares for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
INSTITUTIONAL SHARES.......... $88 $273 $470 $1,017
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS.
The Fund seeks to maximize total return through a combination of
long-term growth of capital and current income by investing primarily in a
portfolio of common stocks and bonds.
The Advisors are responsible for managing the Fund's investments.
(Refer to the section on Investment Advisor and Sub-Advisor.) In selecting
investments for the Fund, the Advisors determine the relative percentages of
assets to be invested in common stocks and bonds based on their judgement as to
general market and economic conditions, trends in yields and interest rates and
changes in fiscal and monetary policy. Under normal market conditions, between
40% and 75% of the Fund's assets will be invested in common stocks and at least
25% of the Fund's assets will be invested in bonds.
In selecting common stocks for the Fund's portfolio, the Advisors use a
"flexible value" approach. With this approach, they try to find common stocks
that are undervalued in the marketplace based on such characteristics as
earnings, cash flow, or asset values. In evaluating a stock's potential, they
also consider other factors such as earnings growth, industry position and the
strength of management. The Advisors' strategy gives them the flexibility to
purchase traditional value stocks as well as the stocks of high growth rate
companies.
5
<PAGE>
In managing the Fund's bond portfolio, the Advisors invest primarily
in corporate bonds. The Advisors select bonds with a range of maturities based
on their assessment of the relative yields available on securities of different
maturities. The Advisors currently anticipate that the average maturity of the
bonds in the Fund's portfolio will be between two and ten years. In general, the
corporate bonds held by the Fund will be investment grade bonds. However, the
Fund also invests, to a limited extent, in non-investment grade bonds.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run, stocks can be more volatile than other types of securities. Stock
prices are sensitive to developments affecting particular companies and to
general economic conditions that affect particular industry sectors or the
securities markets as a whole. Bonds are subject to interest rate risk. The
value of the Fund's bond portfolio can be expected to increase during periods of
falling interest rates and decrease during periods of rising interest rates. The
magnitude of the increases and decreases will generally be larger if the Fund
holds securities with longer maturities or if the Fund holds lower quality
securities. Whether or not the Fund benefits from the allocation of assets
between common stocks and bonds will depend on the Advisors' success in
assessing economic trends and their impact on financial assets.
To reduce the Fund's risk, the Advisors may make temporary, defensive
investments 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. While engaged in a temporary defensive strategy, the Fund may not
achieve its investment objective. The Advisor would follow such a strategy only
if it believed the risk of loss outweighed the opportunity for gain.
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.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. The net asset value per share
of the Fund is determined at the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern Time) on each day the Exchange is open
for business. It is calculated by subtracting the liabilities attributable to
the Institutional Shares from their proportionate share of the Fund's assets and
dividing the result by the outstanding Institutional Shares.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem Institutional Shares on any day 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.
6
<PAGE>
The following sections describe how to buy and redeem Institutional
Shares.
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 Incorporated
purchasing shares for the accounts of your investment advisory
clients.
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
Your initial investment must be at least $500,000.
The following are exceptions to this minimum:
o There is no minimum initial investment for investment
advisory affiliates of BT Alex. Brown Incorporated
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 upon 60 days' notice.
7
<PAGE>
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.
HOW TO REDEEM INSTITUTIONAL SHARES
You may redeem Institutional 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 them by contacting the Transfer Agent by mail or
(if you are redeeming less than $500,000) by telephone. 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' notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
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 but you may
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 when you
open your account and before you effect 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 telephone instructions that it reasonably believes 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.
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 and to
distribute taxable net capital gains on an annual basis.
8
<PAGE>
TAXES
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local taxation, depending upon your tax situation. Distributions you receive
from the Fund may be taxable whether or not you reinvest them. Each sale or
exchange of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor regarding your specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $___
billion of net assets as of June 30, 1999. ABIM is a registered investment
advisor with approximately $___ billion under management as of June 30, 1999.
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 owns a 1% general partnership interest in ABIM and BT
Alex. Brown Holdings, Inc. owns the remaining 49% limited partnership interest.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABIM. ABIM is responsible
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended March 31,
1999, ICC received from the Fund a fee equal to 0.75% of the Fund's average
daily net assets. ICC compensates ABIM out of its advisory fee.
The Advisor is an indirect subsidiary of Bankers Trust Corporation. On
[date], Bankers Trust Corporation merged 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. Because
Deutsche Bank AG, as ICC's new parent company, controls its operations as
investment advisor, the Fund's shareholders will be asked to approve a new
investment advisory agreement between ICC and the Fund. Shareholders also will
be asked to approve a new sub-advisory agreement among the Fund, ICC and ABIM. A
Special Meeting of Shareholders will be held for this purpose. ICC believes
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.
9
<PAGE>
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 27 years investment experience. He has been a Vice
President of ABIM since 1980. Prior to joining ABIM, he 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since it began operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information is part of the Fund's financial statements, which have been audited
by PricewaterhouseCoopers LLP. These financial statements are included in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
INSTITUTIONAL SHARES
------------------------------------------------------------------------
FOR THE PERIOD
NOVEMBER 2, 1995(1)
FOR THE YEARS ENDED MARCH 31, THROUGH
1999 1998 1997 MARCH 31, 1996
---- ---- ---- --------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period........ $ 22.26 $ 17.27 $ 14.77 $ 13.89
-------- ---------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... 0.63 0.51 0.41 0.13
Net realized and unrealized gain on investments 2.41 5.25 2.53 1.17
---- ---- ---- ----
Total from Investment Operations.............. 3.04 5.76 2.94 1.30
---- ---- ---- ----
LESS DISTRIBUTIONS:
Net investment income and short-term gains.... (0.61) (0.51) (0.38) (0.10)
Net realized long-term capital gains.......... (0.33) (0.26) (0.06) (0.32)
------ ------ ------ ------
Total distributions........................... (0.94) (0.77) (0.44) (0.42)
------ ------ ------ ------
Net asset value at end of period ............. $ 24.36 $ 22.26 $ 17.27 $ 14.77
======== =========== ========= ========
TOTAL RETURN...................................... 14.20% 34.08% 20.24% 21.12%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 0.87% 0.89% 1.02% 1.03%(2)
Net investment income......................... 2.88% 2.75% 2.83% 2.89%(2)
SUPPLEMENTAL DATA:
Net assets at end of period (000)............. $144,995 $103,817 $34,771 $11,768
Portfolio turnover rate........................ 10% 7% 13% 15%
</TABLE>
----------------
(1) Commencement of operations.
(2) Annualized.
11
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SEND COMPLETED APPLICATION BY OVERNIGHT CARRIER TO: FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
Flag Investors Funds MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
330 West Ninth Street, First Floor
Kansas City, MO 64105
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 ---------------------------------------------------------------------------
|_| Non-Profit or Charitable Organization |_|Other City State Zip
If a Trust, please provide the following: ( )
---------------------------------------------------------------------------
Daytime Phone
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- ------------------------------------------------------------------------------------------------------------------------------------
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 Inc.
__B. By Wire: A bank wire in the amount of $________________ has been sent from_________________ ________________________
WIRE INSTRUCTIONS Name of Bank Wire Control Number
Follow the instructions below to arrange for a wire transfer for initial investment:
o Send completed Application by overnight carrier to 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. #7519206
ABA #1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Value Builder Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to _________________________________."
(Investor's Fund Account Number)
Distribution Options
Please check appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional
Institutional Shares of the Fund.
INCOME DIVIDENDS CAPITAL GAINS
|_| Reinvested in additional shares |_| Reinvested in additional shares
|_| Paid in cash |_| Paid in cash
Telephone Transactions
I UNDERSTAND THAT I WILL AUTOMATICALLY HAVE TELEPHONE REDEMPTION PRIVILEGES (FOR AMOUNTS UP TO $500,000) AND EXCHANGE PRIVILEGES
(WITH RESPECT TO INSTITUTIONAL SHARES OF OTHER FLAG INVESTORS FUNDS) UNLESS I MARK ONE OR BOTH OF THE BOXES BELOW:
No, I do not want: |_|Telephone redemption privileges |_|Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank account designated below.
Bank Account Designation
(This Section Must Be Completed)
Please attach a blank, voided check to provide account and bank routing information.
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Bank Branch
- ------------------------------------------------------------------------------------------------------------------------------------
Bank Address City/State/Zip
- ------------------------------------------------------------------------------------------------------------------------------------
Name(s) on Account
- ------------------------------------------------------------------------------------------------------------------------------------
Account Number A.B.A. Number
</TABLE>
A-1
<PAGE>
Acknowledgment, Certificate and Signature
- --------------------------------------------------------------------------------
THE FUND MAY BE REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF ANY
TAXABLE DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REDEMPTION PROCEEDS PAID TO
ANY INDIVIDUAL OR CERTAIN OTHER NON-CORPORATE SHAREHOLDERS WHO FAIL TO PROVIDE
THE INFORMATION AND/OR CERTIFICATIONS REQUIRED BELOW. THIS BACKUP WITHHOLDING IS
NOT AN ADDITIONAL TAX, AND ANY AMOUNTS WITHHELD MAY BE CREDITED AGAINST YOUR
ULTIMATE U.S. TAX LIABILITY.
BY SIGNING THIS APPLICATION, I HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT
THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT AND THAT AS REQUIRED
BY FEDERAL LAW: (PLEASE CHECK APPLICABLE BOXES)
|_| U.S. CITIZEN/TAXPAYER:
|_| I CERTIFY THAT (1) THE NUMBER SHOWN ABOVE ON THIS FORM IS THE CORRECT TAX
ID NUMBER AND (2) I AM NOT SUBJECT TO ANY BACKUP WITHHOLDING 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any _____
* of the Authorized Person(s) is, by lawful and appropriate action of the
investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------- -----------------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------------
Name/Title Signature Date
<PAGE>
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 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 _____________, _____(Day/Mo./Yr.) 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 the general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust agreement: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the general
partners/trustees of the investor and to notify ICC when changes in general
partners/trustees occur. This authorization will remain in full force and effect
until ICC receives a further duly-executed certification. (If there are not
enough spaces here for all necessary signatures, complete a separate certificate
containing the language of this Certificate B and attach it to the Application).
- --------------------------------------------------------------------------------
Signature and title Date
- --------------------------------------------------------------------------------
Signature and title Date
A-2
<PAGE>
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>
[FLAG INVESTORS LOGO]
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
(800)767-FLAG
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling
(800)767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report,
a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-6600
- --------------------------------------------------------------------------------
VBIPRS
(8/99)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------
FLAG INVESTORS VALUE BUILDER FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH A PROSPECTUS WHICH MAY BE OBTAINED FROM YOUR SECURITIES
DEALER OR SHAREHOLDER SERVICING AGENT OR BY WRITING OR
CALLING THE FUND, ONE SOUTH STREET, BALTIMORE,
MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated:
August 1, 1999
relating to the Prospectuses Dated:
August 1, 1999
<PAGE>
TABLE OF CONTENTS
1. GENERAL INFORMATION AND HISTORY......................................1
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS...............1
3. VALUATION OF SHARES AND REDEMPTION...................................7
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS.................8
5. MANAGEMENT OF THE FUND..............................................11
6. INVESTMENT ADVISORY AND OTHER SERVICES..............................15
7. DISTRIBUTION OF FUND SHARES.........................................16
8. BROKERAGE...........................................................20
9. CAPITAL STOCK.......................................................21
10. SEMI-ANNUAL REPORTS.................................................22
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES...................22
12. INDEPENDENT ACCOUNTANTS.............................................23
13. LEGAL MATTERS.......................................................23
14. PERFORMANCE INFORMATION.............................................23
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................25
16. FINANCIAL STATEMENTS................................................26
APPENDIX...........................................................A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Value Builder Fund, Inc. (the "Fund") is an open-end
management investment company, or mutual fund. Under the rules and regulations
of the Securities and Exchange Commission (the "SEC"), all mutual funds are
required to furnish prospective investors with certain information concerning
the activities of the company being considered for investment. The Fund
currently offers four classes of shares: Flag Investors Value Builder Fund Class
A Shares (the "Class A Shares"), Flag Investors Value Builder Fund Class B
Shares (the "Class B Shares"); Flag Investors Value Builder Fund Class C Shares
(the "Class C Shares"); and Flag Investors Value Builder Fund Institutional
Shares (the "Institutional Shares") (collectively, the "Shares"). As used
herein, the "Fund" refers to Flag Investors Value Builder Fund, Inc. and
specific references to any class of the Fund's Shares will be made using the
name of such class.
Important information concerning the Fund is included in the Fund's
Prospectuses which may be obtained without charge from the Fund's distributor
(the "Distributor") or from Participating Dealers that offer Shares to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectuses. To
avoid unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Fund's Registration Statement filed with the SEC. Copies of the
Registration Statement as filed, including such omitted items, may be obtained
from the SEC by paying the charges prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
March 5, 1992. The Fund filed a registration statement with the SEC registering
itself as an open-end, diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
its Shares under the Securities Act of 1933, as amended, and began operations on
June 15, 1992. The Fund began offering the Class B Shares on January 3, 1995,
the Institutional Shares on November 2, 1995, and the Class C Shares on April 8,
1998.
Under a license agreement dated June 15, 1992 between the Fund and Alex.
Brown & Sons Incorporated ("Alex. Brown") (predecessor to BT Alex. Brown
Incorporated), Alex. Brown & Sons Incorporated licenses to the Fund the "Flag
Investors" name and logo but retains the rights to the name and logo, including
the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to maximize total return through a
combination of long-term capital appreciation and current income. The Fund seeks
to achieve this objective through a policy of diversified investments in equity
and debt securities (including common stocks, convertible securities and
government and corporate fixed-income obligations). Under normal market
conditions, between 40% and 75% of the Fund's total assets will be invested in
equity securities and at least 25% of the Fund's total assets will be invested
in fixed-income securities, all as more fully described below. There can be no
assurance that the Fund's investment objective will be achieved.
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 Fund's investment advisor (the "Advisor") and the Fund's sub-advisor (the
"Sub-Advisor") (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
-1-
<PAGE>
market conditions. In general, non-convertible corporate debt obligations held
in the Fund's portfolio will be rated, at the time of purchase, BBB or higher by
Standard & Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or, if unrated by S&P or Moody's, determined to be of
comparable quality by the Advisors under criteria approved by the Board of
Directors. Investment grade securities (securities rated BBB or higher by S&P or
Baa or higher by Moody's) are generally thought to provide the highest credit
quality and the smallest risk of default. Securities rated BBB by S&P or Baa by
Moody's have speculative characteristics. Up to 10% of the Fund's assets may be
invested in lower quality debt obligations (securities rated BB or lower by S&P
or Ba or lower by Moody's). Securities that were investment grade at the time of
purchase, but are subsequently downgraded to BB, Ba or lower will be included in
the 10% category. In the event that any security owned by the Fund is
downgraded, the Advisors will review the situation and take appropriate action,
but will not be required to sell any such security. If such a downgrade causes
the 10% limit to be exceeded, the Fund will be precluded from investing further
in below investment grade debt securities. (See "Investments in Non-Investment
Grade Securities" below.)
In addition to the Fund's investments in corporate and government
fixed-income obligations the Fund may invest up to 10% of its total assets in
non-convertible corporate debt obligations that are rated below investment grade
by S&P or Moody's or are unrated by S&P or Moody's but of similar quality. A
description of the rating categories of S&P and Moody's is set forth in the
Appendix to this Statement of Additional Information.
The Fund may also invest up to 5% of its net assets in covered call
options as described below, and an additional 10% of its total assets in the
aggregate in equity and debt securities issued by foreign governments or
corporations and not traded in the United States.
Additional information about certain of the Fund's investment policies
and practices are described below.
COVERED CALL OPTIONS
As a means of protecting the Fund's assets against market declines, the
Fund may write covered call option contracts on certain securities which it owns
or has the immediate right to acquire, provided that the aggregate value of such
options does not exceed 5% of the value of the Fund's net assets as of the time
such options are written. If, however, the securities on which the calls have
been written appreciate, more than 5% of the Fund's assets may be subject to the
call. The Fund may also purchase call options for the purpose of terminating its
outstanding call option obligations.
When the Fund writes a call option, it gives the purchaser of the option
the right, but not the obligation, to buy the securities at the price specified
in the option (the "Exercise Price") at any time prior to the expiration of the
option. In call options written by the Fund, the Exercise Price, plus the option
premium paid by the purchaser, will almost always be greater than the market
price of the underlying security at the time a call option is written. If any
option is exercised, the Fund will realize the gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the net
premium originally received. By writing a covered option, the Fund may forego,
in exchange for the net premium, the opportunity to profit from an increase in
value of the underlying security above the Exercise Price. Thus, options will be
written when the Advisors, as appropriate, believe the security should be held
for the long-term but expects no appreciation or only moderate appreciation
within the option period. The Fund also may write covered options on securities
that have a current value above the original purchase price but which, if then
sold, would not normally qualify for a long-term capital gains treatment. Such
activities will normally take place during periods when market volatility is
expected to be high.
-2-
<PAGE>
Only call options which are traded on a national securities exchange
will be written. Currently, call options may be traded on the Chicago Board
Options Exchange and the American, Pacific, Philadelphia and New York Stock
Exchanges. Call options are issued by The Options Clearing Corporation, which
also serves as the clearing house for transactions with respect to options. The
price of a call option is paid to the writer without refund on expiration or
exercise, and no portion of the price is retained by The Options Clearing
Corporation or the exchanges listed above. Writers and purchasers of options pay
the transaction costs, which may include commissions charged or incurred in
connection with such option transactions.
Call options may be purchased by the Fund, but only to terminate an
obligation as a writer of a call option. This is accomplished by making a
closing purchase transaction, that is, the purchase of a call option on the same
security with the same Exercise Price and expiration date as specified in the
call option which had been written previously. A closing purchase transaction
with respect to calls traded on a national securities exchange has the effect of
extinguishing the obligation of a writer. Although the cost to the Fund of such
a transaction may be greater than the net premium received by the Fund upon
writing the original option, the Directors believe that it is appropriate for
the Fund to have the ability to make closing purchase transactions in order to
prevent its portfolio securities from being purchased pursuant to the exercise
of a call. The Advisors may also permit the call option to be exercised. A
profit or loss from a closing purchase transaction or exercise of a call option
will be realized depending on whether the amount paid to purchase a call to
close a position, or the price at which the option is exercised, is less or more
than the amount received from writing the call. In the event that the Advisors
are incorrect in their forecasts regarding market values, interest rates and
other applicable factors, the Fund would be in a worse position than if the call
option had not been written.
Positions in options on stocks may be closed before expiration only by a
closing transaction, which may be made only on an exchange which provides a
liquid secondary market for such options. Although the Fund will write options
only when the Advisors believe a liquid secondary market will exist on an
exchange for options of the same series, there can be no assurance that a liquid
secondary market will exist for any particular stock option. Possible reasons
for the absence of a liquid secondary market include the following: (a)
insufficient trading interest in certain options; (b) restrictions on
transactions imposed by an exchange; (c) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (d) inadequacy of the facilities of an exchange or The
Options Clearing Corporation to handle trading volume; or (e) a decision by one
or more exchanges to discontinue the trading of options or to impose
restrictions on types of orders. Although The Options Clearing Corporation has
stated that it believes (based on forecasts provided by the exchanges on which
options are traded) that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and although each exchange has
advised The Options Clearing Corporation that it believes that its facilities
will also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions.
Certain provisions of Subchapter M of the Internal Revenue Code of 1986,
as amended, will restrict the use of covered call options. (See "Federal Tax
Treatment of Dividends and Distributions" below.)
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. In general, the market
value of a convertible security is at least the higher of its "investment value"
(i.e., its value as a fixed-income security) or its "conversion value" (i.e.,
the value of the underlying shares of common stock if the security is
converted). A convertible security tends to increase in market value when
interest rates decline and tends to decrease in value when interest rates rise.
However, the price of a convertible security also is influenced by the market
value of the security's underlying common stock. Thus, the price of a
convertible security tends to increase as the market value of the underlying
common stock increases, whereas it tends to decrease as the market value of the
underlying stock
-3-
<PAGE>
declines. Investments in convertible securities generally entail less risk than
investment in common stock of the same issuer.
NON-INVESTMENT GRADE SECURITIES
The Fund may purchase non-convertible corporate bonds that carry ratings
lower than those assigned to investment grade bonds by S&P or Moody's, or that
are unrated by S&P or Moody's if such bonds, in the Advisors' judgment, meet the
quality criteria established by the Board of Directors. These bonds generally
are known as "junk bonds." These securities may trade at substantial discounts
from their face values. Accordingly, if the Fund is successful in meeting its
objectives, investors may receive a total return consisting not only of income
dividends but, to a lesser extent, capital gains. Appendix A to this Statement
of Additional Information sets forth a description of the S&P and Moody's rating
categories, which indicate the rating agency's opinion as to the probability of
timely payment of interest and principal. These ratings range in descending
order of quality from AAA to D, in the case of S&P, and from Aaa to C, in the
case of Moody's. Generally, securities that are rated lower than BBB by S&P or
Baa by Moody's are described as below investment grade. Securities rated lower
than investment grade may be of a predominately speculative character and their
future cannot be considered well-assured. The issuer's ability to make timely
payments of principal and interest may be subject to material contingencies.
Securities in the lowest rating categories may be unable to make timely interest
or principal payments and may be in default and in arrears in interest and
principal payments.
Ratings of S&P and Moody's represent their opinions of the quality of
bonds and other debt securities they undertake to rate at the time of issuance.
However, these ratings are not absolute standards of quality and may not reflect
changes in an issuer's creditworthiness. Accordingly, the Advisors do not rely
exclusively on ratings issued by S&P or Moody's in selecting portfolio
securities, but supplement such ratings with independent and ongoing review of
credit quality. In addition, the total return the Fund may earn from investments
in high-yield securities will be significantly affected not only by credit
quality but by fluctuations in the markets in which such securities are traded.
Accordingly, selection and supervision by the Advisors of investments in lower
rated securities involves continuous analysis of individual issuers, general
business conditions, activities in the high-yield bond market and other factors.
The analysis of issuers may include, among other things, historic and current
financial conditions, strength of management, responsiveness to business
conditions, credit standing and current and anticipated results of operations.
Analysis of general business conditions and other factors may include
anticipated changes in economic activity in interest rates, the availability of
new investment opportunities and the economic outlook for specific industries.
Investing in higher yield, lower rated bonds entails substantially
greater risk than investing in investment grade bonds, including not only credit
risk, but potentially greater market volatility and lower liquidity. Yields and
market values of high-yield bonds will fluctuate over time, reflecting not only
changing interest rates but also the bond market's perception of credit quality
and the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated bonds may decline in value due to heightened concern
over credit quality, regardless of prevailing interest rates. In adverse
economic conditions, the liquidity of the secondary market for junk bonds may be
significantly reduced. In addition, adverse economic developments could disrupt
the high-yield market, affecting both price and liquidity, and could also affect
the ability of issuers to repay principal and interest, thereby leading to a
default rate higher than has been the case historically. Even under normal
conditions, the market for lower rated bonds may be less liquid than the market
for investment grade corporate bonds. There are fewer securities dealers in the
high-yield market and purchasers of high-yield bonds are concentrated among a
smaller group of securities dealers and institutional investors. In periods of
reduced market liquidity, the market for lower rated bonds may become more
volatile and there may be significant disparities in the prices quoted for
high-yield securities by various dealers. Under conditions of increased
volatility and reduced liquidity, it would become more difficult for the Fund to
value its portfolio securities accurately because there might be less reliable,
objective data available. Finally, prices for high-yield bonds may be affected
by legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high-yield bonds.
-4-
<PAGE>
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,
1999, 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 9.66
AA 2.04
A 4.80
BBB 10.17
BB 4.57
B and Below 4.79
Unrated 0.00
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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed to be creditworthy by the Advisors, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set price,
usually not more than seven days from the date of purchase, thereby determining
the yield during the purchaser's holding period. The value of underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund makes payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The underlying
securities, which in the case of the Fund are securities of the U.S. Government
only, may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible sub-normal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
FOREIGN INVESTMENT RISK CONSIDERATIONS
From time to time, the Advisors may invest the Fund's assets in
American Depository Receipts and other securities, which are traded in the
United States and represent interests in foreign issuers. The Advisors may also
invest up to 10% of the Fund's assets in securities of foreign companies, and in
debt and equity securities issued by foreign corporate and government issuers
and which are not traded in the United States when the Advisors believe that
such investments provide good opportunities for achieving income and capital
-5-
<PAGE>
gains without undue risk. Foreign investments involve substantial and different
risks which should be carefully considered by any potential investor. Such
investments are usually not denominated in dollars so changes in the value of
the dollar relative to other currencies will affect the value of foreign
investments. In general, less information is publicly available about foreign
companies than is available about companies in the United States. Most foreign
companies are not subject to uniform audit and financial reporting standards,
practices and requirements comparable to those in the United States. In most
foreign markets volume and liquidity are less than in the United States and, at
times, volatility of price can be greater than in the United States. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on United States exchanges. There is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies in
the United States. The settlement periods for foreign securities, which are
often longer than those for securities of U.S. issuers, may affect portfolio
liquidity. Portfolio securities held by the Fund which are listed on foreign
exchanges may be traded on days that the Fund does not value its securities,
such as Saturdays and the customary United States business holidays on which the
New York Stock Exchange is closed. As a result, the net asset value of Shares
may be significantly affected on days when shareholders do not have access to
the Fund.
Although the Fund intends to invest in securities of companies and
governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries. The dividends and interest payable on certain of the
Fund's foreign portfolio securities may be subject to foreign withholding taxes,
thus reducing the net amount available for distribution to the Fund's
shareholders.
ILLIQUID SECURITIES
In addition, the Fund may invest up to 10% of its net assets in
illiquid securities, including repurchase agreements with remaining maturities
in excess of seven days, provided that no more than 5% of its total assets may
be invested in restricted securities. Not included within this limitation are
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act, if the securities are determined to
be liquid. The Board of Directors has adopted guidelines and delegated to the
Advisors, subject to the supervision of the Board of Directors, the daily
function of determining and monitoring the liquidity of Rule 144A securities.
Rule 144A securities may become illiquid if qualified institutional buyers are
not interested in acquiring the securities.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectuses, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. Accordingly, the Fund will not:
1. 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;
-6-
<PAGE>
3. With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any single issuer (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an issuer);
4. Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only from banks and in an amount not exceeding 10%
of the value of the total assets of the Fund at the time of such borrowing,
provided that while borrowings by the Fund equaling 5% or more of the Fund's
total assets are outstanding, the Fund will not purchase securities;
5. Invest in real estate or mortgages on real estate;
6. Purchase or sell commodities or commodities contracts, including
financial futures contracts;
7. Act as an underwriter of securities within the meaning of the U.S.
federal securities laws, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
8. Issue senior securities;
9. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in accordance with its
investment objectives and policies;
10. Effect short sales of securities;
11. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
12. Purchase participations or other direct interests in oil, gas or
other mineral leases or exploration or development programs; or
13. Invest more than 10% of the value of its net assets in illiquid
securities (as defined under federal or state securities laws), including
repurchase agreements with remaining maturities in excess of seven days,
provided, however, that the Fund shall not invest more than 5% of its total
assets in securities that the Fund is restricted from selling to the public
without registration under the Securities Act of 1933, as amended (excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, that have been determined to be liquid by
the Fund's Board of Directors based upon the trading markets for such
securities).
The following investment restriction may be changed by a vote of the
majority of the Board of Directors. The Fund will not invest in shares of any
other investment company registered under the Investment Company Act, except as
permitted by federal law.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
3. VALUATION OF SHARES AND REDEMPTION
VALUATION OF SHARES
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) each
day on which the New York Stock Exchange is open for
-7-
<PAGE>
business (a "Business Day"). The New York Stock Exchange is open for business on
all weekdays except for the following holidays (or the days on which they are
observed): New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business which is ordinarily 4:00 p.m. (Eastern Time). Under such agreements, so
long as a third party receives an order prior to the Fund's close of business,
the order is deemed to have been received by the Fund and, accordingly, may
receive the net asset value computed at the close of business that day. These
"late day" agreements are intended to permit shareholders placing orders with
third parties to place orders up to the same time as other shareholders.
REDEMPTION
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem shares by check or by
wire transfer of funds. However, if the Board of Directors determines that it
would be in the best interests of the remaining shareholders of the Fund to make
payment of the redemption price in whole or in part by a distribution in kind of
readily marketable securities from the portfolio of the Fund in lieu of cash, in
conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation of Shares" and
such valuation will be made as of the same time the redemption price is
determined. The Fund, however, has elected to be governed by Rule 18f-1 under
the Investment Company Act pursuant to which the Fund is obligated to redeem
Shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult with their tax advisors
with specific reference to their own tax situation, including their state and
local tax liabilities.
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
-8-
<PAGE>
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of
its net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital losses
less operating expenses) and at least 90% of its net tax exempt interest income,
for each tax year, if any, to its shareholders and also must meet several
additional requirements. Included among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, or certain other
income; (ii) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities, with
such other securities limited, in respect to any one issuer, to an amount that
does not exceed 5% of the value of the Fund's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held the shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than
capital gains distributions) from a RIC generally qualify for the
dividends-received deduction to the extent of the gross amount of qualifying
dividends received by a Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, distributions from the Fund
generally will qualify for the corporate dividends-received deduction.
-9-
<PAGE>
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be
capital gain or loss that will be long-term if the Share has been held for more
than twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of a Fund with
respect to such Share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder's long-term capital gains). In addition, any loss realized on a
sale or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Depending upon state
and local law, distributions by the Fund to shareholders and the ownership of
shares may be subject to state and local taxes. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state and
local tax rules affecting an investment in the Fund.
-10-
<PAGE>
5. MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
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 Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each Director and
executive officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman (10/27/26)
Vice Chairman, Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company), Director, Investment
Company Capital Corp. (registered investment advisor) and Virginia Hot
Springs, Inc. (property management). Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated (now BT Alex. Brown Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present and Director, Net.World
(telecommunications), 1998-Present. Formerly, Senior Vice President and
Chief Financial Officer, General Dynamics Corporation (defense)
1989-1993; and Director, The Arch Fund (registered investment company).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor); and
Chartered Financial Analyst.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, The Nevis Fund (registered
investment company) and Circon Corp. (medical instruments). Formerly,
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer of Alex. Brown & Sons Incorporated (now BT Alex.
Brown Incorporated) 1985-1987; General Partner, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated) 1976 -1985.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants.
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; and Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care); Executive Vice Chairman and Director, Central
Carolina Bank & Trust (banking) and Director, Victory Funds (registered
investment companies). Formerly, Director, AMBAC Treasurers Trust
(registered investment company) and DP Mann Holdings (insurance).
-11-
<PAGE>
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103-7017. President and Chief
Executive Officer, The Pew Charitable Trusts; Director and Executive
Vice President, The Glenmede Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking) and American Science &
Engineering (x-ray detection equipment). Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak) and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and Family
Health International (non-profit research and education); Director,
Research America (non-profit medical research). Formerly, Trustee,
Rockefeller Foundation and Reed College (education); Director, Merrill
Lynch Cluster C Funds and Flag Investors/ISI/BT Alex. Brown Cash Reserve
Fund, Inc., Complex of funds (registered investment companies).
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988-1997.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Investment Company
Capital Corp. (registered investment advisor), 1995-Present. Formerly,
Vice President and Treasurer, The Delaware Group of Funds (registered
investment companies) and Vice President, Delaware Management Company,
Inc. (investments), 1980-1995.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present.
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994-1996; Supervisor, Brown
Brothers Harriman & Co. (domestic and global custody), 1991-1994.
- ---------------------
* A Director who is an "interested person," as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or advised
by BT Alex. Brown or its affiliates. There are currently 12 funds in the Flag
Investors/ISI Funds and BT Alex. Brown Cash Reserve Fund, Inc. fund complex (the
"Fund Complex"). Mr. Semans serves as Chairman of five funds and as a Director
of five other funds in the Fund Complex. Mr. Hale serves as Chairman of three
funds and as a Director of seven other funds in the Fund Complex. Messrs.
Cunnane, Hardiman, Levy, McDonald and Vogt serve as Directors of each fund in
the Fund Complex. Ms. Rimel serves as Director of 11 funds in the Fund Complex.
Mr. Woolf serves as President of seven funds in the Fund Complex. Ms. Olmert
serves as Secretary, Mr. Finelli serves as Treasurer and Mr. Liotta serves as
Assistant Secretary of each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, BT Alex. Brown in the ordinary course of business.
All such transactions were made on substantially the same
-12-
<PAGE>
terms as those prevailing at the time for comparable transactions with unrelated
persons. Additional transactions may be expected to take place in the future.
With the exception of the Fund's President, officers of the Fund receive
no direct remuneration in such capacity from the Fund. Officers and Directors of
the Fund who are officers or directors of BT Alex. Brown or the Advisor may be
considered to have received remuneration indirectly. As compensation for his or
her services, each Director who is not an "interested person" of the Fund (as
defined in the Investment Company Act) (an "Independent Director") and Mr.
Woolf, the Fund's President, receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his or her attendance at board and committee meetings) from each fund in the
Fund Complex for which he or she serves. In addition, the Chairmen of the Fund
Complex's Audit Committee and Executive Committee receive an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses is allocated among
the funds in direct proportion to their relative net assets. For the fiscal year
ended March 31, 1999, Independent Directors' fees attributable to the assets of
the Fund totaled approximately $36,141.
The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
March 31, 1999.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation From Pension or Retirement Total Compensation from the Fund
Position the Fund Payable to Directors Benefits Accrued as Part and Fund Complex Payable to
for the Fiscal Year Ended of Fund Expenses Directors for the Fiscal Year Ended
March 31, 1999 March 31, 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman
Richard T. Hale(1) $0 $0 $0
Director
James J. Cunnane $3,448(2) $ (3) $39,000 for service
Director on 13(4) Boards
Joseph R. Hardiman(5) $2,717 $ (3) $29,500 for service
Director on 12(6) Boards
John F. Kroeger(7) $3,232 $ (3) $36,750 for service
Director on 13(4) Boards
Louis E. Levy $4,111 $ (3) $46,500 for service
Director on 13(4) Boards
Eugene J. McDonald $3,885(2) $ (3) $44,000 for service
Director on 13(4) Boards
Rebecca W. Rimel $3,501(2) $ (3) $39,000 for service
Director on 11(4,6) Boards
Carl W. Vogt $3,523(2) $ (3) $39,000 for service
Director on 12(4,6) Boards
</TABLE>
- --------------------------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Of amounts payable to Messrs. Cunnane, McDonald, and Vogt and Ms. Rimel
$3,448, $3,885, $3,523 and $3,501, respectively, was deferred pursuant to a
deferred compensation plan.
(3) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the year ended
March 31, 1999 was approximately $14,319.
(4) One of these Funds ceased operations on July 29, 1998.
(5) Elected to Fund's board effective September 27, 1998.
(6) Ms. Rimel receives and Messrs. Hardiman and Vogt, prior to their appointment
or election as Director to all 12 Funds in the Fund Complex, received
proportionately higher compensation from each fund for which they serve as
Director.
(7) Retired, effective September 27, 1998; Deceased, November 26, 1998.
-13-
<PAGE>
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which the Participant serves. The Retirement Plan is
unfunded and unvested. The Fund has two Participants, a Director who retired
effective December 31, 1994 and Mr. Woolf who retired effective December 31,
1996, who have qualified for the Retirement Plan by serving thirteen and
fourteen years, respectively, as Directors in the Fund Complex and each of whom
will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of his
life. Such fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1998 are as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years; for Mr. Vogt, 3 years;
and for Mr. Hardiman, 0 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- ------------------------------------------------------------------
Chairmen of Audit and Executive Other Participants
Committees ------------------
-------------------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer 50%
to 100% of his or her annual compensation pursuant to a Deferred Compensation
Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms. Rimel have each executed
a Deferred Compensation Agreement. Currently, the deferring Directors may select
from among various Flag Investors funds, BT Alex. Brown Cash Reserve Fund, Inc.
and BT International Equity Fund in which all or part of their deferral account
shall be deemed to be invested. Distributions from the deferring Directors'
deferral accounts will be paid in cash, in generally quarterly installments over
a period of ten years.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors and the Distributor. As described below, the Code of Ethics
imposes significant restrictions on the Advisors' investment personnel,
including the portfolio managers and employees who execute or help execute a
portfolio manager's decisions or who obtain contemporaneous information
regarding the purchase or sale of a security by the Fund.
-14-
<PAGE>
The Code of Ethics requires that any officer, director or employee of
the Fund or the Advisors preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases that are part
of an automatic dividend reinvestment plan). The foregoing would apply to any
officer, director or employee of the Distributor that is an access person. The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and special preclearance of the
acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security. Trading by investment personnel and certain other employees
of the Advisor or Sub-Advisor, as appropriate, would be exempt from this
"blackout period" provided that (1) the market capitalization of a particular
security exceeds $2 billion; and (2) orders of such entity (including trades of
both clients and covered persons) do not exceed ten percent of the daily average
trading volume of the security for the prior 15 days. Officers, directors and
employees of the Advisors and the Distributor may comply with codes instituted
by those entities so long as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. ("ICC" or the "Advisor")
and a Sub-Advisory Agreement among the Fund, ICC and Alex. Brown Investment
Management ("ABIM" or the "Sub-Advisor"), both of which contracts are described
in greater detail below. The Investment Advisory and Sub-Advisory Agreements
were approved by shareholders of the Fund on August 14, 1997. ICC, the
investment advisor, is an indirect subsidiary of Bankers Trust 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 owns a 1% general partnership interest in ABIM and BT Alex. Brown
Holdings, Inc. owns the remaining limited partnership interest. ICC also serves
as advisor and ABIM serves as sub-advisor to other funds in the Flag Investors
family of funds.
Under the Investment Advisory Agreement, ICC is responsible for
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment policies for the Fund. ICC has delegated this
responsibility to ABIM, provided that ICC continues to supervise the performance
of ABIM and report thereon to the Fund's Board of Directors. Any investment
program undertaken by ICC or ABIM will at all times be subject to policies and
control of the Fund's Board of Directors. ICC will provide the Fund with office
space for managing its affairs, with the services of required executive
personnel and with certain clerical and bookkeeping services and facilities.
These services are provided by ICC without reimbursement by the Fund for any
costs. Neither ICC nor ABIM shall be liable to the Fund or its shareholders for
any act or omission by ICC or ABIM or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABIM to the
Fund are not exclusive and ICC and ABIM are free to render similar services to
others.
As compensation for its services, the Fund pays ICC an annual fee based
on the Fund's average daily net assets. This fee is calculated daily and paid
monthly, at the following annual rates; 1.00% of the first $50 million, 0.85% of
the next $50 million, 0.80% of the next $100 million, and 0.70% of the amount of
$200 million. As compensation for its services, ABIM is entitled to receive a
fee from ICC, payable from its advisory fee based on the Fund's average daily
net assets. This fee is calculated daily and payable
-15-
<PAGE>
monthly, at the annual rate of 0.75% of the first $50 million, 0.60% of the next
$150 million, and 0.50% of the amount in excess of $200 million.
The Investment Advisory Agreement and the Sub-Advisory Agreement will
continue for an initial term of two years, and thereafter, from year to year if
such continuance is specifically approved at least annually by the Fund's Board
of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in such agreements, by votes cast in
person at a meeting called for such purpose, or by a vote of a majority of the
outstanding Shares (as defined under "Capital Stock"). The Fund or ICC may
terminate the Investment Advisory Agreement on sixty days' written notice
without penalty. The Investment Advisory Agreement will terminate automatically
in the event of assignment (as defined in the Investment Company Act). The
Sub-Advisory Agreement has similar termination provisions.
Advisory fees paid by the Fund to ICC and sub-advisory fees paid by ICC
to ABIM for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------
FEES PAID TO: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ICC $5,619,259 $3,769,264 $2,227,355
ABIM $4,056,393 $2,735,069 $1,633,167
</TABLE>
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors") serves as the exclusive
distributor of the Fund's Shares pursuant to a Distribution Agreement effective
August 31, 1997, which provides for distribution of each class of Shares.
The Distribution Agreement provides that ICC Distributors shall; (i) use
reasonable efforts to sell Shares upon the terms and conditions contained in the
Distribution Agreement and the Fund's then current Prospectus; (ii) use its best
efforts to conform with the requirements of all federal and state laws relating
to the sale of the Shares; (iii) adopt and follow procedures as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. and any other applicable self-regulatory organization; (iv)
perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of its duties or obligations under the
Distribution Agreement or by reason of the reckless disregard of its duties and
obligations under the Distribution Agreement. The Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
-16-
<PAGE>
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of distribution is approved at least annually
by the Independent Directors in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement, including the form of
Sub-Distribution Agreement, was initially approved by the Board of Directors,
including a majority of the Independent Directors, on August 4, 1997 and most
recently on September 29, 1998.
ICC Distributors and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such Participating
Dealers have agreed to process investor purchase and redemption orders and
respond to inquiries from shareholders concerning the status of their accounts
and the operations of the Fund. Any Sub-Distribution Agreement may be terminated
in the same manner as the Distribution Agreement and shall automatically
terminate in the event of an assignment.
In addition, with respect to the Class A, Class B and Class C Shares,
the Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, such as BT Alex. Brown and certain banks, to act as Shareholder
Servicing Agents, pursuant to which ICC Distributors will allocate a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor or its affiliates will provide
compensation out of its own resources for ongoing shareholder services. Although
banking laws and regulations prohibit banks from distributing shares of open-end
investment companies such as the Fund, according to interpretations by various
bank regulatory authorities, financial institutions are not prohibited from
acting in other capacities, such as the shareholder servicing capacities
described above. Should future legislative, judicial or administrative action
prohibit or restrict the activities of the Shareholder Servicing Agents in
connection with the Shareholder Servicing Agreements, the Fund may be required
to alter materially or discontinue its arrangements with the Shareholder
Servicing Agents. Such financial institutions may impose separate fees in
connection with these services and investors should review the Prospectuses and
this Statement of Additional Information in conjunction with any such
institution's fee schedule.
As compensation for providing distribution services as described above
for the Class A Shares, ICC Distributors receives an annual fee, paid monthly
equal to 0.25% of the average daily net assets of the Class A Shares. With
respect to Class A Shares, ICC Distributors expects to allocate up to all of its
fee to Participating Dealers and Shareholder Servicing Agents. As compensation
for providing distribution services as described above for the Class B Shares,
ICC Distributors receives an annual fee, paid monthly, equal to 0.75% of the
average daily net assets of the Class B Shares. As compensation for providing
distribution services as described above for Class C Shares, ICC Distributors
receives an annual fee, paid monthly, equal to 0.75% of the average daily net
assets of the Class C Shares. In addition, with respect to the Class B and Class
C Shares, ICC Distributors receives a shareholder servicing fee at an annual
rate of 0.25% of the respective average daily net assets of the Class B and the
Class C Shares. (See the Prospectus.) ICC Distributors receives no compensation
for distributing the Institutional Shares.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received fees
in the following amounts:
-17-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------------------------------
Fee 1999 1998 1997
---------- ------------- ------------ ----------
<S> <C> <C> <C>
12b-1 Fee $2,095,410(1) $1,318,534(2) $726,107(4)
Class B Shareholder Servicing Fee $206,332(1) $96,025(3) $21,379(4)
Class C Shareholder Servicing Fee $19,316 N/A N/A
</TABLE>
- -------------
(1) Fees received by ICC Distributors.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $457,116 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $861,418.
(3) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $26,604 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $69,421.
(4) Fees received by Alex. Brown.
Pursuant to Rule 12b-1 under the Investment Company Act, investment
companies may pay distribution expenses, directly or indirectly, only pursuant
to a plan adopted by the investment company's board of directors and approved by
its shareholders. The Fund has adopted a Plan of Distribution for each of its
classes of Shares (except the Institutional Shares) (the "Plans"). Under each
Plan, the Fund pays a fee to ICC Distributors for distribution and other
shareholder servicing assistance as set forth in the Distribution Agreement, and
ICC Distributors is authorized to make payments out of its fee to Participating
Dealers and Shareholder Servicing Agents. The Plans will remain in effect from
year to year, as specifically approved (a) at least annually by the Fund's Board
of Directors and (b) by the affirmative vote of a majority of the Independent
Directors, by votes cast in person at a meeting called for such purpose. The
Plans were most recently approved by the Fund's Board of Directors, including a
majority of the Independent Directors, on September 29, 1998.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreement without the approval of the shareholders of the Fund.
The Plans may be terminated at any time without penalty, by the vote of a
majority of the Fund's Independent Directors or by a vote of a majority of the
Fund's outstanding Shares (as defined under "Capital Stock").
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans to ICC Distributors pursuant to the
Distribution Agreement and to Participating Dealers pursuant to any
Sub-Distribution Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Independent Directors shall be
committed to the discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
under the Plans. Payments under the Plans are made as described above regardless
of ICC Distributors' actual cost of providing distribution services and may be
used to pay ICC Distributors' overhead expenses. If the cost of providing
distribution services to the Class A Shares is less than 0.25% of the Class A
Shares' average daily net assets for any period or if the cost of providing
distribution services to the Class B Shares and the Class C Shares is less than
0.75% of the classes' respective average daily net assets for any period, the
unexpended portion of the distribution fees may be retained by ICC Distributors.
The Plans do not provide for any charges to the Fund for excess
-18-
<PAGE>
amounts expended by ICC Distributors and, if any of the Plans is terminated in
accordance with its terms, the obligation of the Fund to make payments to ICC
Distributors pursuant to such Plan will cease and the Fund will not be required
to make any payments past the date the Distribution Agreement terminates with
respect to that class. In return for payments received pursuant to the Plans,
ICC Distributors pays the distribution-related expenses of the Fund including
one or more of the following: advertising expenses; printing and mailing of
prospectuses to other than current shareholders; compensation to dealers and
sales personnel; and interest, carrying or other financing charges.
GENERAL INFORMATION
The Fund's distributor received commissions on the sale of the Flag
Investors Class A Shares and contingent deferred sales charges on the Flag
Investors Class B and Class C Shares and retained from such commissions and
sales charges the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------------- --------------------------
Class Received Retained Received Retained Received Retained
-------- ------------- -------- -------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A
Commissions $1,159,313(1) $0(1) $1,547,315(2) $1,308,006(4) $937,641(6) $868,899(6)
Class B
Contingent
Deferred Sales $1,607,852(1) $0(1) $1,498,689(3) $1,128,132(5) $483,596(6) $350,485(6)
Charge
Class C Contingent
Deferred Sales $159,062(1) $0(1) N/A N/A N/A N/A
Charge
</TABLE>
- -------------
(1) By ICC Distributors.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $566,160 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $981,154.
(3) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $539,410 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $959,279.
(4) Of commissions received, Alex. Brown retained $130,006 and ICC Distributors
retained $0.
(5) Of sales charges received, Alex. Brown retained $418,559 and ICC
Distributors retained $709,573.
(6) By Alex. Brown.
Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing Shares; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its Shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and
-19-
<PAGE>
travel expenses of Directors and Director members of any advisory board or
committee; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses of
any outside service used for pricing of the Shares; fees and expenses of legal
counsel, including counsel to the Independent Directors, and of independent
auditors, in connection with any matter relating to the Fund; membership dues of
industry associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Directors) of the Fund
which inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by ICC Distributors, ICC or ABIM.
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for the
Fund, for broker-dealer selection and for negotiation of commission rates,
subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a commission
for their services. Brokerage commissions are subject to negotiation between
ABIM and the broker-dealers. ABIM may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, its affiliates and ICC Distributors.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with
affiliates of the Advisors in any transaction in which they act as a principal.
If affiliates of the Advisors are participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with rules of the SEC. The Fund believes that the limitation will
not affect its ability to carry out its present investment objective.
ABIM's primary consideration in effecting securities transactions is to
obtain best price and execution of orders on an overall basis. As described
below, however, ABIM may, in its discretion, effect transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by ABIM to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ABIM with clients other than the Fund. Similarly, any research services received
by ABIM through placement of portfolio transactions of other clients may be of
value to ABIM in fulfilling its obligations to the Fund. No specific value can
be determined for research and statistical services furnished without cost to
ABIM by a broker-dealer. ABIM is of the opinion that because the material must
be analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ABIM's research and analysis.
Therefore, it may tend to benefit the Fund by improving ABIM's investment
advice. In over-the-counter transactions, ABIM will not pay any commission or
other remuneration for research services. ABIM's policy is to pay a
broker-dealer higher commissions for particular transactions than might be
charged if a different broker-dealer had been chosen when, in ABIM's opinion,
this policy furthers the overall objective of obtaining best price and
execution. Subject to periodic review by the Fund's Board of Directors, ABIM is
also authorized to pay broker-dealers other than affiliates of the Advisors
higher commissions than another broker might have charged on brokerage
transactions for the Fund for brokerage or research services. The allocation of
orders among broker-dealers and the commission rates paid by the Fund will be
reviewed periodically by the Board.
-20-
<PAGE>
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through affiliates of the Advisors. At the time of such authorization, the Board
adopted certain policies and procedures incorporating the standards of Rule
17e-1 under the Investment Company Act which requires that the commissions paid
affiliates of the Advisors must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Directors and requires ICC and
ABIM to furnish reports and to maintain records in connection with such reviews.
ABIM manages other investment accounts. It is possible that, at times,
identical securities will be acceptable for the Fund and one or more of such
other accounts; however, the position of each account in the securities of the
same issuer may vary and the length of time that each account may choose to hold
its investment in such securities may likewise vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ABIM. ABIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
ABIM directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------------------------------------------------
1999 1998 1997
---- ----------- -----------
<S> <C> <C> <C>
Transactions Directed $0 $80,647,030 $38,947,268
Commissions Paid $0 $ 174,443 $ 111,113
</TABLE>
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of March 31, 1999, the Fund held
a 4.80% repurchase agreement issued by Goldman Sachs & Co. valued at $32,211,000
and corporate debt of J.P. Morgan Securities, Inc. with a market value of
$5,143,750. Goldman Sachs & Co. and J.P. Morgan Securities, Inc. are "regular
brokers or dealers" of the Fund.
9. CAPITAL STOCK
The Fund is authorized to issue 90 million Shares of common stock, par
value $.001 per share. The Board of Directors may increase or decrease the
number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated four classes of Shares: Flag Investors Value Builder Fund Class A
Shares, Flag Investors Value Builder Fund Class B Shares, Flag Investors Value
Builder Fund Class C Shares and Flag Investors Value Builder Fund Institutional
Shares. The Flag Investors Value Builder Fund
-21-
<PAGE>
Institutional Shares are offered only to certain eligible institutions and to
clients of investment advisory affiliates of BT Alex. Brown. In the event
separate series or classes are established, all Shares of the Fund, regardless
of series or class would have equal rights with respect to voting, except that
with respect to any matter affecting the rights of the holders of a particular
series or class, the holders of each series or class would vote separately. In
general, each such series would be managed separately and shareholders of each
series would have an undivided interest in the net assets of that series. For
tax purposes, the series would be treated as separate entities. Generally, each
class of Shares issued by a particular series would be identical to every other
class and expenses of the Fund (other than 12b-1 and any applicable service
fees) are prorated between all classes of a series based upon the relative net
assets of each class. Any matters affecting any class exclusively will be voted
on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all the members of the Board of Directors of
the Fund.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of Shares if there is more than one series) after all debts
and expenses have been paid.
As used in this Statement of Additional Information the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust") serves as custodian of the
Fund's investments. Bankers Trust receives such compensation from the Fund for
its services as custodian as may be agreed to from time to time by Bankers Trust
and the Fund. For the fiscal year ended March 31, 1999, Bankers Trust was paid
$92,747 as compensation for providing custody services to the Fund. Investment
Company Capital Corp. has been retained to act as transfer and dividend
disbursing agent. As compensation for providing these services, the Fund pays
ICC up to $16.83 per account per year, plus reimbursement for out-of-pocket
expenses incurred in connection therewith. For the fiscal year ended March 31,
1999 such fees totaled $335,996.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
-22-
<PAGE>
Average Net Assets Incremental Annual Accounting Fee
- ------------------ ---------------------------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 0.100%
$20,000,000 - $30,000,000 0.80%
$30,000,000 - $40,000,000 0.60%
$40,000,000 - $50,000,000 0.50%
$50,000,000 - $60,000,000 0.40%
$60,000,000 - $70,000,000 0.30%
$70,000,000 - $100,000,000 0.20%
$100,000,000 - $500,000,000 0.15%
$500,000,000 - $1,000,000,000 0.05%
over $1,000,000,000 0.01%
In addition, the Fund will reimburse ICC for the following out of pocket
expenses incurred in connection with ICC's performance of its services under the
Master Services Agreement: express delivery service, independent pricing and
storage.
For the fiscal year ended March 31, 1999, ICC received accounting fees of
$127,817.
12. INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, Maryland
21201, are independent accountants to the Fund.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
14. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to that
of other open-end diversified management investment companies and to stock or
other relevant indices in advertisements or in certain reports to shareholders,
performance will be stated in terms of total return rather than in terms of
yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-, or 10-year periods
(or fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the 1-, 5- or 10-year periods.
-23-
<PAGE>
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date of the Fund (or
the later commencement of operations of a Series or class) commenced operations
(provided such date is subsequent to the date the registration statement became
effective). In calculating the ending redeemable value for the Class A Shares,
the maximum sales load (4.5%) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Prospectuses on the reinvestment dates
during the period. In calculating the performance of the Class B Shares, the
applicable contingent deferred sales charge (4.0% for the one-year period, 2.0%
for the five-year period and no sales charge thereafter) is deducted from the
ending redeemable value and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. In calculating the
performance of the Class C Shares, the applicable contingent deferred sales
charge (1.00% for the one-year period and no sales charge thereafter) is
deducted from the ending redeemable value and all dividends and distributions by
the Fund are assumed to have been reinvested at net asset value as described in
the prospectus on the reinvestment dates during the period. "T" in the formula
above is calculated by finding the average annual compounded rate of return over
the period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 investment for the periods
ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
ONE-YEAR PERIOD ENDED FIVE YEAR PERIOD ENDED
MARCH 31, 1999 MARCH 31, 1999 SINCE INCEPTION
--------------------------- -------------------------- --------------------------
Average Average
Ending Ending Annual Ending Annual
Redeemable Total Redeemable Total Redeemable Total
Class Value Return Value Return Value Return
- ------- ---------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A $1,088 8.78% $2,487 19.99% $2,917 17.07%
6/15/92*
Class B $1,090 9.05% N/A N/A $2,444 23.47%
1/3/95*
Class C N/A N/A N/A N/A $1,105 10.53%
4/8/98*
Institutional $1,142 14.22% N/A N/A $2,002 22.59%
11/2/95*
</TABLE>
- -----------
* Inception Date
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc. or CDA Investment Technologies
Inc., or with the performance of the Lehman Government Corporate Bond Index, the
Consumer Price Index, the return on 90-day U.S.
-24-
<PAGE>
Treasury bills, the Standard and Poor's 500 Stock Index or the Dow Jones
Industrial Average, the Fund calculates its aggregate and average annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. For this alternative computation,
the Fund assumes that the $10,000 invested in Shares is net of all sales
charges. The Fund will, however, disclose the maximum sales charges and will
also disclose that the performance data do not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted. Such alternative
total return information will be given no greater prominence in such advertising
than the information prescribed under SEC rules, and all advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. The Fund's portfolio
turnover rate in fiscal year 1999 was 10% and in fiscal year 1998 was 7%.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons held beneficially
or of record 5% or more of the outstanding shares of a class of the Fund, as of
May 11, 1999:
<TABLE>
<CAPTION>
Owned of Beneficially
Name and Address Record Owned Percentage of Ownership
---------------- -------- ------------ ---------------------------
<S> <C> <C> <C>
Bankers Trust Corp & Affil 401K X 10.05% of Class A Shares
Savings Plan
The Partnershare Plan of
Bankers Trust NY Corp & Affil
100 Plaza One
Jersey City, NJ 07311
Mercantile Safe Dep & Tr Co X 8.91% of Institutional Shares
Cust
FBO Calvert School Pension
Plan
2 Hopkins Plz Lowr Level
Baltimore, MD 21201
Mercantile Safe Dep & Tr Co X 10.86% of Institutional Shares
Cust
FBO Calvert School
AB Flag Value A/C #1166032
766 Hammonds Ferry Road
Linthicum, MD 21090-1317
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BT Alex. Brown Incorporated X X 13.96% of Institutional Shares
FBO 250-10788-16
Brown Advisory House Acct.
P.O. Box 1346
Baltimore, MD 21203
Nationsbank Montgomery X 23.59% of Institutional Shares
Securities
FBO 800002431
P.O. Box 37156
San Francisco, CA 94137-0001
</TABLE>
As of May 11, 1999, Directors and officers as a group beneficially
owned an aggregate of less than 1% of the Fund's total outstanding shares.
16. FINANCIAL STATEMENTS
See next page.
-26-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets March 31, 1999
Shares Market Value
- --------------------------------------------------------------------------------
Common Stock: 66.5%
Banking: 2.3%
152,500 Bank of America Corporation ................ $ 10,770,312
200,000 KeyCorp .................................... 6,062,500
131,000 Wells Fargo & Company ...................... 4,593,187
------------
21,425,999
------------
Basic Industry: 1.3%
707,600 Airgas, Inc.* .............................. 5,926,150
140,000 Georgia Gulf Corp. ......................... 1,566,250
30,000 Hercules, Inc. ............................. 757,500
44,654 Potash Corp. of Saskatchewan, Inc. ......... 2,388,989
31,600 Schulman (A.), Inc. ........................ 430,550
28,000 Solutia, Inc. .............................. 486,500
------------
11,555,939
------------
Business Services: 3.1%
294,700 First Data Corp. ........................... 12,598,425
176,400 SEI Corp. .................................. 16,317,000
------------
28,915,425
------------
Capital Goods: 1.3%
300,000 Case Corp. ................................. 7,612,500
36,000 Eaton Corp. ................................ 2,574,000
96,200 Westinghouse Air Brake Co. ................. 2,008,175
------------
12,194,675
------------
Consumer Durables/Non-Durables: 5.7%
860,800 Blyth Industries, Inc.* .................... 20,336,400
33,500 Eastman Kodak Co. .......................... 2,139,812
140,000 Ford Motor Company ......................... 7,945,000
50,000 Liz Claiborne, Inc. ........................ 1,631,250
111,600 Philip Morris Cos., Inc. ................... 3,926,925
510,100 Richfood Holdings, Inc. .................... 10,999,031
414,800 Unifi, Inc.* ............................... 5,288,700
------------
52,267,118
------------
Consumer Services: 17.2%
736,000 America Online, Inc.* ...................... 107,456,000
1,632,400 Cendant Corp.* ............................. 25,710,300
60,000 Gannett Co. ................................ 3,780,000
202,000 Sinclair Broadcasting Group A* ............. 2,941,625
-27-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Common Stock (continued)
Consumer Services (concluded)
559,400 The Learning Co., Inc.* ...................... $16,222,600
50,000 Times Mirror Co.-Class A ..................... 2,703,125
-----------
158,813,650
-----------
Defense/Aerospace: 0.8%
156,000 Boeing Co. ................................... 5,323,500
62,342 Lockheed Martin Corp. ........................ 2,349,514
-----------
7,673,014
-----------
Energy: 1.0%
125,000 Burlington Resources, Inc. ................... 4,992,187
250,000 Petroleum Geo Services* ...................... 3,812,500
-----------
8,804,687
-----------
Entertainment: 0.6%
796,700 Lodgenet Entertainment Corp.* ................ 5,228,344
-----------
Financial Services: 5.0%
83,500 American Express Co. ......................... 9,811,250
258,500 Citigroup .................................... 16,511,687
87,500 Countrywide Credit Industries, Inc. .......... 3,281,250
172,000 Freddie Mac .................................. 9,825,500
265,780 MBNA Corp. ................................... 6,345,497
-----------
45,775,184
-----------
Health Care Services: 4.2%
190,000 Amgen, Inc.* ................................. 14,226,250
40,000 Baxter International, Inc. ................... 2,640,000
76,000 Bristol-Myers Squibb Co. ..................... 4,887,750
114,000 Johnson & Johnson ............................ 10,680,375
77,200 Wellpoint Health Networks, Inc.* ............. 5,852,725
-----------
38,287,100
-----------
Hotels/Gaming: 0.4%
200,000 Harrah's Entertainment, Inc.* ................ 3,812,500
-----------
Housing: 1.5%
367,800 Champion Enterprises, Inc.* .................. 7,126,125
128,000 USG Corp. .................................... 6,576,000
-----------
13,702,125
-----------
-28-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1999
Shares/
Par (000) Market Value
- --------------------------------------------------------------------------------
Common Stock (continued)
Insurance: 7.2%
1,256,749 Conseco, Inc. ................................ $38,802,125
65,000 Hartford Financial Services Group ............ 3,692,812
77,900 NAC Re Corp. ................................. 4,182,256
150,000 RenaissanceRe Holdings Limited ............... 5,240,625
236,720 XL Capital Limited - Class A ................. 14,380,740
-----------
66,298,558
-----------
Multi - Industry: 0.9%
64,000 United Technologies Corp. .................... 8,668,000
-----------
Real Estate: 1.7%
89,913 Crestline Capital Corp.* ..................... 1,382,412
60,200 General Growth Properties, Inc. .............. 1,952,738
899,136 Host Marriott Corp. .......................... 10,002,888
35,000 National Health Investors, Inc. .............. 752,500
100,500 U.S. Restaurant Properties, Inc. ............. 1,940,906
-----------
16,031,444
-----------
Retail: 1.6%
53,164 J.C. Penney Co., Inc. ........................ 2,153,142
400,000 Kmart Corp.* ................................. 6,725,000
90,000 Tandy Corp. .................................. 5,743,125
-----------
14,621,267
-----------
Technology: 5.9%
70,400 Autodesk, Inc. ............................... 2,846,800
326,800 Cognex Corp.* ................................ 7,741,075
125,000 Electronic Data Systems Corp. ................ 6,085,938
86,000 International Business Machines Corp. ........ 15,243,500
903,000 Novell, Inc.* ................................ 22,744,313
-----------
54,661,626
-----------
Telecommunications: 2.7%
300,000 Comsat Corp. ................................. 8,681,250
190,689 MCI Worldcom, Inc.* .......................... 16,887,895
-----------
25,569,145
-----------
-29-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
March 31, 1999
Shares/
Par (000) Market Value
- --------------------------------------------------------------------------------
Common Stock (concluded)
Transportation: 1.1%
135,000 Canadian National Railway Co. ............ $ 7,509,375
34,982 Delta Air Lines, Inc. .................... 2,431,249
------------
9,940,624
------------
Utilities: 1.0%
204,700 Midamerican Energy Hldgs* ................ 5,731,600
881 Star Gas Partners L.P.* .................. 12,340
100,000 Unicom Corp. ............................. 3,656,250
------------
9,400,190
------------
Total Common Stock
(Cost $324,609,023) ...................... 613,646,614
------------
Preferred Stock: 0.8%
200,000 Conseco Financial Trust, 8.70% ............. 4,950,000
100,000 Conseco Financial Trust, 9.16% ............. 2,506,250
---------
Total Preferred Stock
(Cost $7,500,000) ........................ 7,456,250
---------
Convertible Preferred Stock: 1.8%
40,000 Fleetwood Capital Trust, Cvt. Pfd., 6.00% .. 1,620,000
75,000 Host Marriott Financial Trust,
Cvt. Pfd., 6.75% ........................... 3,075,000
95,000 Sinclair Broadcast Group Cvt. Pfd., 6.00% .. 3,877,188
423,600 U.S. Restaurant Properties, Series A,
Cvt. Pfd., 7.72% ........................... 7,889,550
----------
Total Convertible Preferred Stock
(Cost $20,341,867) ....................... 16,461,738
----------
-30-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) March 31, 1999
Par
(000) Market Value
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 2.4%
$ 2,000 Healthcare Realty Trust, Cvt. Deb.,
6.55%, 3/14/02 ............................ $ 1,830,000
8,800 Platinum Technology International, Inc.,
Cvt. Deb. 6.25%, 12/15/02 ................. 8,338,000
1,661 Richardson Electronics, Cvt. Deb.
8.25%, 6/15/06 ............................ 1,407,698
339 Richardson Electronics, Cvt. Deb.
7.25%, 12/15/06 ........................... 224,164
10,907 Softkey International Cvt. Deb.,
5.50%, 11/1/00 ............................ 10,716,128
-----------
Total Convertible Bonds
(Cost $21,052,282) ........................ 22,515,990
-----------
CORPORATE BONDS: 23.0%
7,400 Amazon.com Inc., 0.00%, 5/1/08 .............. 5,032,000
3,000 Avon Products, Inc., 6.55%, 8/1/07 .......... 2,970,000
1,000 Caesar's World, 8.875%, 8/15/02 ............. 1,007,500
2,975 Calenergy Co., Inc., 7.23%, 9/15/05 ......... 3,082,844
5,000 Calenergy Co., Inc., 7.63%, 10/15/07 ........ 5,300,000
3,000 Campbell Soup Co., 6.15%, 12/1/02 ........... 3,056,250
1,000 Capstar Hotel, 8.75%, 8/15/07 ............... 957,500
8,000 Cendant Corp., 7.75%, 12/1/03 ............... 8,220,000
873 Chattem Inc., Sr Sub Deb, 12.75%, 6/15/04 ... 977,760
3,000 Circus Circus, 6.75%, 7/15/03 ............... 2,857,500
1,000 Citigroup, Inc, 6.125%, 6/15/00 ............. 1,004,270
5,100 Conseco, Inc., 6.80%, 6/15/05 ............... 4,927,875
700 CSX Corp., Nt, 7.00%, 9/15/02 ............... 720,125
5,000 Cytec Industries, Inc., 6.50%, 3/15/03 ...... 4,743,750
5,000 Cytec Industries, Inc., 6.75%, 3/15/08 ...... 5,031,250
300 Exxon Capital Corp., Nt, 6.50%, 7/15/99 ..... 300,993
2,150 First Tennessee Bank, 6.40%, 4/1/08 ......... 2,158,063
2,000 FMC Corp., Nt, 8.75%, 4/1/99 ................ 2,000,000
1,500 FMC Corp., Nt, 6.75%, 5/5/05 ................ 1,428,750
5,000 FMC Corp., Nt, 7.00%, 5/15/08 ............... 4,868,750
5,000 Frontier Corp., 7.25%, 5/15/04 .............. 5,112,500
1,000 Fund America Enterprise, Nt, 7.75%, 2/1/03 .. 1,020,000
5,000 Furon Co., 8.12%, 3/1/08 .................... 4,912,500
5,000 GTE Corp., 6.46%, 4/15/08 ................... 5,118,750
5,700 HMH Properties, Nt, 7.875%, 8/1/05 .......... 5,543,250
1,000 HMH Properties, Nt, 8.45%, 12/1/08 .......... 995,000
-31-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- --------------------------------------------------------------------------------
Par
(000) Market Value
- --------------------------------------------------------------------------------
CORPORATE BONDS (continued)
$ 3,000 Host Marriott Travel Plaza, 9.50%, 5/15/05 ... $ 3,131,250
5,000 HVIDE Marine, Inc., 8.375%, 2/15/08 .......... 3,425,000
5,000 ICI, 6.95%, 9/15/04 .......................... 4,968,750
1,775 ITT Corp., Nt, 6.25%, 11/15/00 ............... 1,723,969
2,000 ITT Corp., Nt, 6.75%, 11/15/03 ............... 1,870,000
5,000 J.P. Morgan, Nt, 6.875%, 1/15/07 ............. 5,143,750
4,000 Jeffries Group, Inc., 7.50%, 8/15/07 ......... 4,200,000
2,000 John Q. Hammons Hotels LP, Nt,
8.875%, 2/15/04 ............................ 1,870,000
3,000 Knight-Ridder, Inc., 6.625%, 11/1/07 ......... 3,082,500
5,000 Lilly Industries, Inc., 7.75%, 12/1/07 ....... 5,087,500
2,500 Lockheed Martin Corp., 7.25%, 5/15/06 ........ 2,646,875
2,200 Lockheed Martin Corp., Nt, 6.85%, 5/15/01 .... 2,244,000
5,000 LodgeNet Entertainment, Nt,
10.25%, 12/15/06 ........................... 5,112,500
1,285 Markel Corp., Nt, 7.25%, 11/1/03 ............. 1,338,006
10,000 Marriot International, Inc.,
6.625%, 11/15/03 ........................... 10,012,500
1,100 Masco Corp., Nt, 6.625%, 9/15/99 ............. 1,105,500
1,000 Masco Corp., Nt, 6.125%, 9/15/03 ............. 1,005,000
2,000 McDonnell Douglas Corp., Nt,
6.875%, 11/1/06 ............................ 2,100,000
500 MCI Communication, Nt, 7.50%, 8/20/04 ........ 532,500
9,800 Millipore Corp., 7.20%, 4/1/02 ............... 9,800,000
7,100 Millipore Corp., Nt, 7.50%, 4/1/07 ........... 6,984,625
4,000 Morgan Guaranty Trust Co., Nt,
5.75%, 10/8/99 ............................. 4,014,360
2,000 Nabisco, Inc., 6.70%, 6/15/02 ................ 2,012,500
1,500 Norfolk Southern, 6.95%, 5/1/02 .............. 1,537,500
1,500 Norfolk Southern, 7.35%, 5/15/07 ............. 1,603,125
5,000 Premier Parks, Nt, 9.25%, 4/1/06 ............. 5,225,000
4,000 Premier Parks, Nt, 9.75%, 1/15/07 ............ 4,350,000
3,815 Raychem Corp.,7.20%, 10/15/08 ................ 3,829,306
3,000 Raytheon Co., 6.45%, 8/15/02 ................. 3,052,500
5,000 Raytheon Co., 6.50%, 7/15/05 ................. 5,081,250
1,500 Salomon, Inc., Nt, 7.125%, 8/1/99 ............ 1,510,050
5,500 Solutia, Inc., 6.50%, 10/15/02 ............... 5,527,500
3,000 Tandy Corp., 6.95%, 09/1/07 .................. 3,120,000
1,000 Tektronix, Inc., Nt, 7.50%, 8/1/03 ........... 1,022,500
1,000 Tenneco, Inc., Nt, 8.075%, 10/1/02 ........... 1,042,500
5,000 United Defense Inds, Inc.,
8.75%, 11/15/07 ............................ 5,025,000
2,660 USG Corp., 8.50%, 8/1/05 ..................... 2,859,500
500 Xerox Corp., Nt, 7.15%, 8/1/04 ............... 522,500
-----------
Total Corporate Bonds (Cost $210,757,633) .... 212,066,496
-----------
-32-
<PAGE>
- -----------------------------------------------------------------------------
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Statement of Net Assets (concluded) March 31, 1999
Par
(000) Market Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES: 1.4%
$ 1,000 Federal National Mortgage Assoc.,
7.60%, 5/24/06 .......................... $ 1,003,280
-----------
U.S. Treasury Notes
4,000 6.25%, 5/31/00 .......................... 4,058,720
4,000 5.75%, 10/31/00 ......................... 4,043,760
4,000 6.125%, 12/31/01 ........................ 4,106,600
-----------
12,209,080
-----------
Total U.S. Government Agency Securities
(Cost $12,976,097) ...................... 13,212,360
-----------
Repurchase Agreement: 3.5%
32,211 Goldman Sachs & Co., 4.80%
Dated 3/31/99, to be repurchased on 4/1/99,
collateralized by U.S. Treasury Note with a
par value of $30,327,000, coupon rate of
6.375%, due 8/15/27, with a market value of
$32,620,328 (Cost $32,211,000) ................. 32,211,000
----------
Total Investments in Securities (Cost $629,447,902)** .. 99.4% $917,570,448
Other Assets in Excess of Liabilities .................. 0.6% 5,218,468
----- ------------
Net Assets ............................................. 100.0% $922,788,916
===== ============
Net Asset Value and Redemption Price Per:
Class A Share ($649,663,851 / 26,897,803 shares) .......... $ 24.15
=========
Class B Share ($110,679,674 / 4,590,241 shares) ........... $ 24.11***
=========
Class C Share ($17,450,549 / 723,521 shares) .............. $ 24.12****
=========
Institutional Share ($144,994,842 / 5,953,220 shares) ..... $ 24.36
=========
Maximum Offering Price Per:
Class A Share ($24.15 / 0.955) ............................ $ 25.29
=========
Class B Share ............................................. $ 24.11
=========
Class C Share ............................................. $ 24.12
=========
Institutional Share ....................................... $ 24.36
=========
- --------
* Non-income producing security.
** Aggregate cost for federal tax purposes is $629,224,848.
*** Redemption value is $23.15 following a 4% maximum contingent deferred
sales charge.
**** Redemption value is $23.88 following a 1% maximum contingent deferred
sales charge.
See accompanying Notes to Financial Statements.
-33-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
March 31,
- --------------------------------------------------------------------------------
1999
Investment Income:
Dividends ................................................ $ 8,804,013
Interest ................................................. 19,627,795
Less:Foreign taxes withheld .............................. (19,778)
-------------
Total income .................................... 28,412,030
-------------
Expenses:
Investment advisory fee .................................. 5,619,259
Distribution fee ......................................... 2,321,058
Transfer agent fee ....................................... 335,996
Accounting fee ........................................... 127,817
Registration fees ........................................ 119,352
Custodian fees ........................................... 92,747
Directors' fees .......................................... 36,141
Miscellaneous ............................................ 239,029
-------------
Total expenses .................................. 8,891,399
-------------
Net investment income .................................... 19,520,631
-------------
Realized and unrealized gain on investments:
Net realized gain from security transactions ............. 13,846,863
Change in unrealized appreciation/depreciation
of investments ......................................... 76,741,086
-------------
Net gain on investments .................................. 90,587,949
-------------
Net increase in net assets resulting from operations ........ $ 110,108,580
=============
See accompanying Notes to Financial Statements.
-34-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Years Ended March 31,
- ------------------------------------------------------------------------------
1999 1998
Increase in Net Assets:
Operations:
Net investment income .................... $ 19,520,631 $ 12,089,775
Net realized gain from security
transactions ........................... 13,846,863 4,718,485
Change in unrealized appreciation/
depreciation of investments ............ 76,741,086 124,787,999
------------- -------------
Net increase in net assets
resulting from operations .............. 110,108,580 141,596,259
------------- -------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares ......................... (13,804,511) (8,528,277)
Class B Shares ......................... (1,569,776) (625,533)
Class C Shares ......................... (128,906) --
Class D Shares ......................... (257,548) (351,052)
Institutional Shares ................... (3,045,076) (1,539,023)
Net realized long-term gains:
Class A Shares ......................... (8,542,386) (5,136,333)
Class B Shares ......................... (1,338,049) (601,637)
Class C Shares ......................... (156,874) --
Class D Shares ......................... -- (224,735)
Institutional Shares ................... (1,772,147) (1,098,467)
------------- -------------
Total distributions ...................... (30,615,273) (18,105,057)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares ............. 273,356,523 233,685,893
Value of shares issued in reinvestment
of dividends ........................... 27,465,074 16,203,251
Cost of shares repurchased ............... (135,894,760) (40,437,180)
------------- -------------
Increase in net assets derived from
capital share transactions ............. 164,926,837 209,451,964
------------- -------------
Total increase in net assets ............. 244,420,144 332,943,166
Net Assets:
Beginning of period ...................... 678,368,772 345,425,606
------------- -------------
End of period (including undistributed net
investment income of $4,505,377 and
$3,766,431, respectively) .............. $ 922,788,916 $ 678,368,772
============= =============
See accompanying Notes to Financial Statements.
-35-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Year Ended
March 31,
----------
1999
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .......... $ 22.09
---------
Income from Investment Operations:
Net investment income ........................... 0.56
Net realized and unrealized gain on investments . 2.40
---------
Total from Investment Operations ................ 2.96
---------
Less Distributions:
Net investment income and short-term gains ...... (0.57)
Net realized mid-term and long-term capital gains (0.33)
---------
Total distributions ............................. (0.90)
---------
Net asset value at end of period ................ $ 24.15
=========
Total Return ....................................... 13.91%
Ratios to Average Net Assets:
Expenses ........................................ 1.12%
Net investment income ........................... 2.64%
Supplemental Data:
Net assets at end of period (000) ............... $ 649,664
Portfolio turnover rate ......................... 10%
</TABLE>
- ------
(1) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 1.40% for the year ended March 31, 1995.
(2) Without the waiver of advisory fees, the ratio of net investment income to
average net assets would have been 3.02% for the year ended March 31, 1995.
-36-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended March 31,
---------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period .......... $ 17.14 $ 14.68 $ 12.02 $ 11.23
--------- --------- --------- ---------
Income from Investment Operations:
Net investment income ........................... 0.47 0.39 0.36 0.35
Net realized and unrealized gain on investments . 5.21 2.49 3.03 0.80
--------- --------- --------- ---------
Total from Investment Operations ................ 5.68 2.88 3.39 1.15
--------- --------- --------- ---------
Less Distributions:
Net investment income and short-term gains ...... (0.47) (0.36) (0.41) (0.35)
Net realized mid-term and long-term capital gains (0.26) (0.06) (0.32) (0.01)
--------- --------- --------- ---------
Total distributions ............................. (0.73) (0.42) (0.73) (0.36)
--------- --------- --------- ---------
Net asset value at end of period ................ $ 22.09 $ 17.14 $ 14.68 $ 12.02
========= ========= ========= =========
Total Return ....................................... 33.82% 19.90% 28.86% 10.57%
Ratios to Average Net Assets:
Expenses ........................................ 1.14% 1.27% 1.31% 1.35%(1)
Net investment income ........................... 2.49% 2.51% 2.72% 3.07%(2)
Supplemental Data:
Net assets at end of period (000) ............... $ 491,575 $ 278,130 $ 200,020 $ 146,986
Portfolio turnover rate ......................... 7% 13% 15% 18%
</TABLE>
See accompanying Notes to Financial Statements.
-37-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Year Ended
March 31,
----------
1999
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .......... $ 22.08
---------
Income from Investment Operations:
Net investment income ........................... 0.41
Net realized and unrealized gain on investments . 2.38
---------
Total from Investment Operations ................ 2.79
---------
Less Distributions:
Net investment income and short-term gains ...... (0.43)
Net realized mid-term and long-term capital gains (0.33)
---------
Total distributions ............................. (0.76)
---------
Net asset value at end of period ................ $ 24.11
=========
Total Return ....................................... 13.10%
Ratios to Average Net Assets:
Expenses ........................................ 1.87%
Net investment income ........................... 1.90%
Supplemental Data:
Net assets at end of period (000) ............... $ 110,680
Portfolio turnover rate ......................... 10%
</TABLE>
- -------------
(1) Annualized
(2) Commencement of Operations.
(3) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 2.17% annualized for the period ended March 31, 1995.
(4) Without the waiver of advisory fees, the ratio of net investment income to
average net assets would have been 2.87% annualized for the period ended
March 31, 1995.
-38-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Jan. 3, 1995(2)
through
For the Years Ended March 31, March 31,
--------------------------------------------------
1998 1997 1996 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 on investments . 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 capital 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 ........................................ 1.89% 2.02% 2.06% 2.10%(1,3)
Net investment income ........................... 1.75% 1.84% 1.97% 2.94%(1,4)
Supplemental Data:
Net assets at end of period (000) ............... $ 64,498 $ 17,311 $ 4,178 $ 341
Portfolio turnover rate ......................... 7% 13% 15% 18%
</TABLE>
See accompanying Notes to Financial Statements.
-39-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Financial Highlights -- Class C Shares
(For a share outstanding throughout each period)
For the Period
April 8, 1998(1)
through
March 31,
----------------
1999
Per Share Operating Performance:
Net asset value at beginning of period .......... $ 22.31
-------
Income from Investment Operations:
Net investment income ........................... 0.39
Net realized and unrealized gain on investments . 2.10
-------
Total from Investment Operations ................ 2.49
-------
Less Distributions:
Net investment income and short-term gains ...... (0.35)
Net realized mid-term and long-term capital gains (0.33)
-------
Total distributions ............................. (0.68)
-------
Net asset value at end of period ................ $ 24.12
=======
Total Return ....................................... 11.50%(3)
Ratios to Average Net Assets:
Expenses ........................................ 1.91%(2)
Net investment income ........................... 2.05%(2)
Supplemental Data:
Net assets at end of period (000) ............... $17,450
Portfolio turnover rate ......................... 10%
See accompanying Notes to Financial Statements.
- ----------
(1) Commencement of operations.
(2) Annualized
(3) Total return is since inception.
-40-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Financial Highlights -- Class D Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
April 1, 1998
through
November 20,(1)
---------------
1999
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........ $22.05
------
Income from Investment Operations:
Net investment income ......................... 0.29
Net realized and unrealized gain on investments (0.06)
------
Total from Investment Operations .............. 0.23
------
Less Distributions:
Net investment income and short-term gains .... (0.32)
Net realized long-term capital gains .......... --
------
Total distributions ........................... (0.32)
------
Net asset value at end of period .............. $21.96
======
Total Return ..................................... 1.09%
Ratios to Average Net Assets:
Expenses ...................................... 1.50%
Net investment income ......................... 2.04%
Supplemental Data:
Net assets at end of period (000) ............. $ --
Portfolio turnover rate ....................... 10%
</TABLE>
- --------
(1) Class D Shares were converted to Class A Shares on November 20, 1998.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 1.74% for Class D Shares for the year ended
March 31, 1995.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 2.68% for Class D Shares for the year
ended March 31, 1995.
-41-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........ $ 17.11 $ 14.66 $ 12.01 $ 11.22
------- ------- ------- -------
Income from Investment Operations:
Net investment income ......................... 0.43 0.35 0.33 0.31
Net realized and unrealized gain on investments 5.17 2.47 3.02 0.80
------- ------- ------- -------
Total from Investment Operations .............. 5.60 2.82 3.35 1.11
------- ------- ------- -------
Less Distributions:
Net investment income and short-term gains .... (0.40) (0.31) (0.38) (0.31)
Net realized long-term capital gains .......... (0.26) (0.06) (0.32) (0.01)
------- ------- ------- -------
Total distributions ........................... (0.66) (0.37) (0.70) (0.32)
------- ------- ------- -------
Net asset value at end of period .............. $ 22.05 $ 17.11 $ 14.66 $ 12.01
======= ======= ======= =======
Total Return ..................................... 33.33% 19.46% 28.44% 10.18%
Ratios to Average Net Assets:
Expenses ...................................... 1.49% 1.62% 1.66% 1.70%(2)
Net investment income ......................... 2.14% 2.15% 2.37% 2.72%(3)
Supplemental Data:
Net assets at end of period (000) ............. $18,478 $15,213 $13,757 $11,717
Portfolio turnover rate ....................... 7% 13% 15% 18%
</TABLE>
See accompanying Notes to Financial Statements.
-42-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Year Ended
March 31,
----------
1999
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........ $ 22.26
--------
Income from Investment Operations:
Net investment income ......................... 0.63
Net realized and unrealized gain on investments 2.41
--------
Total from Investment Operations .............. 3.04
--------
Less Distributions:
Net investment income and short-term gains .... (0.61)
Net realized long-term capital gains .......... (0.33)
--------
Total distributions ........................... (0.94)
--------
Net asset value at end of period .............. $ 24.36
========
Total Return ..................................... 14.20%
Ratios to Average Net Assets:
Expenses ...................................... 0.87%
Net investment income ......................... 2.88%
Supplemental Data:
Net assets at end of period (000) ............. $144,995
Portfolio turnover rate ....................... 10%
</TABLE>
- --------
(1) Commencement of operations.
(2) Annualized
-43-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Jan. 3, 1995(2)
through
For the Years Ended March 31, March 31,
--------------------------------------------------
1998 1997 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 long-term capital 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%
</TABLE>
See accompanying Notes to Financial Statements.
-44-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- ---------------------------------------------------------------------
Notes to Financial Statements
NOTE 1 -- Significant Accounting Policies
Flag Investors Value Builder Fund, Inc. ("the Fund"), which was organized
as a Maryland Corporation on March 5, 1992, commenced operations June 15, 1992.
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. Its objective is to seek
long-term growth of capital and current income through diversified in vestments
in a professionally managed balanced portfolio of equity and debt securities.
The Fund consists of four share classes: Class A Shares, which were first
offered June 15, 1992; Class B Shares, which were first offered January 3, 1995;
Institutional Shares, which were first offered November 2, 1995; and Class C
Shares, which were first offered April 8, 1998. The Fund previously offered
Class DShares which were converted to Class A Shares on November 20, 1998.
The Class A, Class B, and Class C Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge and the Class B and C
Shares have a contingent deferred sales charge. In addition each of the classes
has a different distribution fee. The Institutional Shares do not have a
front-end sales charge, a contingent deferred sales charge or a distribution
fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation-- values a portfolio security that is primarily
traded on a national exchange by using the last price reported for the
day. If there are no sales or the security is not traded on a listed
exchange, the Fund values the security at the average of the last bid
and asked prices in the over-the-counter market. When a market
quotation is unavailable, the Investment Advisor determines a fair
value using procedures that the Board of Directors establishes and
monitors. The Fund values short-term obligations with maturities of 60
days or less at amortized cost.
-45-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
NOTE 1 -- concluded
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the seller agrees to repurchase at a set time and price.
The third party, which is the seller's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the seller defaults.
The Fund's access to the collateral may be delayed or limited if the
seller defaults and the value of the collateral declines or if the
seller enters into an insolvency proceeding.
C. Federal Income Taxes-- Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes. The Fund designates $11,809,456
as being paid from long-term capital gains.
D. Securities Transactions, Investment Income, Distributions and Other--
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes
amortization of premiums and accretion of discounts when appropriate.
Income and common expenses are allocated to each class based on its
respective average net assets. Class specific expenses are charged
directly to each class. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
-46-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2 Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. As compensation for its
advisory services, the Fund pays ICC an annual fee. This fee is based on the
Fund's average daily net assets and is calculated daily and paid monthly at the
following annual rates: 1.00% of the first $50 million, 0.85% of the next $50
million, 0.80% of the next $100 million and 0.70% of the amount over $200
million.
For the year ended March 31, 1999 ICC's advisory fee was $5,619,259 of
which $559,244 was payable at the end of the period.
ICC also provides accounting services to the Fund for which the Fund pays
ICCan annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the year ended March 31, 1999 ICC's fee was
$127,817 of which $11,441 was payable at the end of the period.
ICC also provides transfer agency services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the year
ended March 31, 1999 ICC's fee was $335,996 of which $25,461 was payable at the
end of the period.
Bankers Trust Corporation is the Fund's custodian. For the year ended March
31, 1999, custody fees amounted to $92,747, of which $35,500 was payable at the
end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
Alex. Brown Investment Management ("ABIM") is the Fund's sub-advisor. As
compensation for its sub-advisory services, ICC pays ABIMa fee based on the
Fund's average daily net assets. This fee is calculated daily and paid monthly
at the following annual rates: 0.75% of the first $50 million, 0.60% of the next
$150 million, and 0.50% of the amount over $200 million.
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee that is calculated daily and paid monthly at the following annual
rates: 0.25% of the Class A Shares' average daily net assets and 1.00% of the
Class B and Class C Shares' average daily net assets. The fees for the Class B
and Class C Shares include a 0.25% shareholder servicing fee.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
March 31, 1999 was $14,319 and the accrued liability was $31,300.
-47-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
NOTE 2 -- concluded
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 thereafter is subject to the approval of Fund
shareholders. On March 30, 1999, the Board of Directors approved a new advisory
agreement between ICC and the Fund in the event the merger is approved and
completed. The new advisory agreement and a new sub-advisory agreement will be
subject to shareholder approval. If the transaction is approved and completed,
Deutsche Bank AG, as ICC's new parent company, will control its operations as
investment advisor. ICC believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
NOTE 3 Capital Share Transactions
The Fund is authorized to issue up to 90 million shares of $.001 par value
capital stock (40 million Class A, 15 million Class B, 15 million Institutional,
15 million Class C, 3 million Class D and 2 million undesignated). Transactions
in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Class A Shares
----------------------------------
For the For the
Year Ended Year Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Shares sold ................................ 7,667,470 7,042,839
Shares issued to shareholders on
reinvestment of dividends ................ 927,793 641,162
Shares converted from Class D .............. 744,609 --
Shares redeemed ............................ (4,698,072) (1,656,511)
------------- -------------
Net increase in shares outstanding ......... 4,641,800 6,027,490
============ =============
Proceeds from sale of shares ............... $ 167,786,940 $ 140,113,104
Value of reinvested dividends .............. 20,162,879 12,406,231
Value of shares converted from Class D ..... 16,366,512 --
Cost of shares redeemed .................... (102,312,507) (32,747,372)
------------- -------------
Net increase from capital share
transactions .............................. $ 102,003,824 $ 119,771,963
============= =============
</TABLE>
-48-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 3 continued
<TABLE>
<CAPTION>
Class B Shares
----------------------------------
For the For the
Year Ended Year Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Shares sold ................................ 1,963,448 1,916,773
Shares issued to shareholders on
reinvestment of dividends ................ 119,699 58,431
Shares redeemed ............................ (414,281) (62,652)
----------- -----------
Net increase in shares outstanding ......... 1,668,866 1,912,552
=========== ===========
Proceeds from sale of shares ............... $42,732,188 $37,749,769
Value of reinvested dividends .............. 2,606,348 1,143,662
Cost of shares redeemed .................... (8,899,431) (1,250,962)
----------- -----------
Net increase from capital share
transactions ............................. $36,439,105 $37,642,469
=========== ===========
</TABLE>
Class C Shares
------------
For Period
April 8, 1998(1)
through
March 31, 1999
---------------
Shares sold ................................ 735,840
Shares issued to shareholders on
reinvestment of dividends ................ 12,033
Shares redeemed ............................ (24,353)
------------
Net increase in shares outstanding ......... 723,520
============
Proceeds from sale of shares ............... $ 16,181,630
Value of reinvested dividends .............. 261,764
Cost of shares redeemed .................... (544,762)
------------
Net increase from capital share
transactions ............................. $ 15,898,632
============
- ----------
(1) Commencement of operations.
-49-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
NOTE 3 -- concluded
Class D Shares(1)
--------------------------------------
For the Period
April 1, 1998 For the
through Year Ended
November 20, 1998 March 31, 1998
----------------- --------------
Shares sold ........................ -- --
Shares issued to shareholders on
reinvestment of dividends ........ 9,988 26,051
Shares converted to Class A ........ (745,254) --
Shares redeemed .................... (102,674) (77,261)
------------ ------------
Net decrease in shares outstanding . (837,940) (51,210)
============ ============
Proceeds from sale of shares ....... $ -- $ --
Value of reinvested dividends ...... 212,526 500,413
Value of shares converted to Class A (16,366,512)
Cost of shares redeemed ............ (2,130,846) (1,566,659)
------------ ------------
Net decrease from capital share
transactions ..................... $(18,284,832) $ (1,066,246)
============ ============
- -----------
(1) Converted to Class A Shares on November 20, 1998.
Institutional Shares
-----------------------------------
For the For the
Year Ended Year Ended
March 31, 1999 March 31, 1998
------------ ------------
Shares sold ...................... 2,172,982 2,782,404
Shares issued to shareholders on
reinvestment of dividends ...... 192,473 109,243
Shares redeemed .................. (1,076,590) (241,221)
------------ ------------
Net increase in shares outstanding 1,288,865 2,650,426
============ ============
Proceeds from sale of shares ..... $ 46,655,765 $ 55,823,020
Value of reinvested dividends .... 4,221,557 2,152,945
Cost of shares redeemed .......... (22,007,214) (4,872,187)
------------ ------------
Net increase from capital share
transactions ................... $ 28,870,108 $ 53,103,778
============ ============
-50-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4 -- Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $248,879,467 and sales of investment securities
aggregated $70,765,644 for the year ended March 31, 1999. Purchases of U.S.
government obligations aggregated $1,012,734, and sales of U.S. government
obligations aggregated $7,034,903 for the period.
On March 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $312,827,053
and aggregate gross unrealized depreciation of all securities in which there is
an excess of tax cost over value was $24,481,453.
Note 5 -- Net Assets
On March 31, 1999, net assets consisted of:
Paid-in capital:
Class A Shares $407,144,016
Class B Shares 90,075,405
Class C Shares 15,898,631
Institutional Shares 114,058,757
Accumulated net realized gain from security transactions 2,984,183
Unrealized appreciation of investments 288,122,547
Undistributed net investment income 4,505,377
------------
$922,788,916
============
-51-
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND
- -----------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Value Builder Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Flag Investors Value Builder Fund, Inc. (the "Fund"), at March 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, MD
April 30, 1999
- -----------------------------------------------------------------------------
Tax Information (Unaudited)
For the Tax Year Ended March 31, 1999
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $11,809,456 from
long-term capital gains; of which $11,809,456 was subject to the 20% rate gains
category.
Of ordinary distributions made during the fiscal year ended March 31, 1999,
41.71% qualifies for the dividends received deduction available to corporate
shareholders.
-52-
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues rated
A-1+ are those with "extremely strong" safety characteristics. Those rated A-1
reflect a " strong" degree of safety regarding timely payment.
MOODY'S COMMERCIAL PAPER RATINGS
Commercial paper issuers rated Prime-1 by Moody's are judged by Moody's to be of
the highest quality on the basis of relative repayment capacity.
CORPORATE BOND RATINGS
STANDARD & POOR'S BOND RATINGS
AAA -- The highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal
and, in the majority of instances, differs from the highest rated issues only in
small degree. Also qualify as high quality debt obligations.
A -- Strong capacity to pay interest and repay principal although
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB -- Regarded as having an adequate capacity to pay interest
and repay principal. While normally exhibiting adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, and CC and C -- Regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
C -- The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D -- In default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
A-1
<PAGE>
MOODY'S BOND RATINGS
Aaa -- Judged to be of the best quality. Carries the smallest
degree of investment risk and generally referred to as "gilt edged." Interest
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Judged to be of high quality by all standards. Together
with the Aaa group comprise what are generally known as "high-grade" bonds.
Rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or the fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than Aaa securities.
A -- Possess many favorable investment attributes and considered
as upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Considered as medium-grade obligations (i.e., neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Judged to have speculative elements; future cannot be
considered as well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterize bonds in
this class.
B -- Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa -- Of poor standing. May be in default or there may be
present elements of danger with respect to principal or interest.
Ca -- Speculative in a high degree. Often in default or have
other marked shortcomings.
C -- The lowest rated class of bonds. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1,2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a rating in the lower end of
that generic rating category.
A-2
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation and
Certificate of Correction incorporated by
reference to Exhibit (1)(a) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(2) Amended Articles of Incorporation dated May
1, 1992 incorporated by reference to Exhibit
(1)(b) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(3) Articles Supplementary dated December 27,
1993 incorporated by reference to Exhibit
(1)(c) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(4) Articles Supplementary dated November 18,
1994 incorporated by reference to Exhibit
(1)(d) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(5) Articles Supplementary dated October 6, 1995
incorporated by reference to Exhibit (1)(e)
to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000687) on
July 29, 1996.
(6) Articles Supplementary dated June 17, 1997
incorporated by reference to Exhibit (1)(f)
to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-001357) on
July 29, 1997.
(7) Articles Supplementary, as filed with the
Maryland State Department of Taxation and
Assessments on January 20, 1998 incorporated
by reference to Exhibit (1)(g) to
Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-001585) on
July 29, 1998.
(8) Articles of Amendment dated November 24,
1998, filed herewith.
(b) By-Laws, as amended through December 19, 1996
incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001357)
on July 29, 1997.
1
<PAGE>
(c) (1) Instruments Defining Rights of Security
Holders incorporated by reference to Exhibit
1 (Articles of Incorporation) as amended to
date, filed as part of Post-Effective
Amendments Nos. 5 and 7 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-46279) filed with the
Securities and Exchange Commission via EDGAR
(Accession Nos. 950116-95-000312 and
950116-96- 000687) on July 26, 1995 and July
29, 1996, respectively, and Exhibit 2 (By-
Laws) as amended to date, filed as part of
Post-Effective Amendment No. 8 to such
Registration Statement filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-001357) on July 29,
1997.
(d) (1) Investment Advisory Agreement dated
September 1, 1997 between Registrant and
Investment Company Capital Corp.
incorporated by reference to Exhibit (5)(a)
to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on
March 10, 1998.
(2) Sub-Advisory Agreement dated September 1,
1997 among Registrant, Investment Company
Capital Corp. and Alex. Brown Investment
Management incorporated by reference to
Exhibit (5)(b) to Post-Effective Amendment
No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000571) on March 10, 1998.
(e) (1) Distribution Agreement dated August 31,
1997 between Registrant and ICC
Distributors, Inc. incorporated by reference
to Exhibit (6)(a) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000571) on March 10, 1998.
(2) Form of Sub-Distribution Agreement between
ICC Distributors, Inc. and Participating
Broker-Dealers incorporated by reference to
Exhibit (6)(b) to Post-Effective Amendment
No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000571) on March 10, 1998.
(3) Form of Shareholder Servicing Agreement
between Registrant and Shareholder Servicing
Agents incorporated by reference to Exhibit
(6)(c) to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on
March 10, 1998.
(f) None.
(g) Custodian Agreement between Registrant and Bankers
Trust Company dated June 5, 1998 incorporated by
reference to Exhibit (8) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-001585) on July 29, 1998.
2
<PAGE>
(h) Master Services Agreement (including Accounting and
Transfer Agency Services Appendices) between
Registrant and Investment Company Capital Corp.
incorporated by reference to Exhibit (9)(a) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000687)
on July 29, 1996.
(i) Opinion of Counsel, filed herewith.
(j) Consent of PricewaterhouseCoopers LLP, filed
herewith.
(k) None.
(l) Subscription Agreement re: initial $100,000 capital
incorporated by reference to Exhibit 13 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(m) (1) Distribution Plan (Flag Investors Class A
Shares) incorporated by reference to Exhibit
(15)(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(2) Distribution Plan (Flag Investors Class B
Shares) incorporated by reference to Exhibit
(15)(c) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000312) on
July 26, 1995.
(3) Amended Distribution Plan (Flag Investors
Class A Shares) incorporated by reference to
Exhibit (15)(d) to Post-Effective Amendment
No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000571) on March 10, 1998.
(4) Amended Distribution Plan (Flag Investors
Class B Shares) incorporated by reference to
Exhibit (15)(e) to Post-Effective Amendment
No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000571) on March 10, 1998.
(5) Distribution Plan (Flag Investors Class C
Shares) incorporated by reference to Exhibit
(15)(g) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on
Form N-1A (Registration No. 33-46279), filed
with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-001585)
on July 29, 1998.
(n) Not applicable.
(o) (1) Registrant's Rule 18f-3 Plan incorporated by
reference to Exhibit (18)(a) to
Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and
3
<PAGE>
Exchange Commission via EDGAR (Accession No.
950116-97-001357) on July 29, 1997.
(2) Registrant's Amended Rule 18f-3 Plan
incorporated by reference to Exhibit (18)(b)
to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on
March 10, 1998.
(p) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
Furnish a list or diagram of all persons directly or
indirectly controlled by or under common control with the Registrant and as to
each such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, and (2) the percentage of voting
securities owned or other basis of control by the person, if any, immediately
controlling it.
None.
Item 25. Indemnification
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any liability
incurred in their official capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's
Articles of Incorporation, included as Exhibit (a) to this Registration
Statement and incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the Corporation shall have any liability to the Corporation or
its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents
in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland
General Corporation law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time
amended. No further amendment to the Charter of the
Corporation
4
<PAGE>
shall decrease, but may expand, any right of any person under
this Article VIII based on any event, omission or proceeding
prior to such amendment.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue. In the absence of a
determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested, non-party directors of
the Fund, or an independent legal counsel in a written opinion, based on review
of readily available facts.
Item 26. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment advisor of the
Registrant, and each director, officer or partner of any such investment
advisor, is or has been, at any time during the past two fiscal years, engaged
for his own account or in the capacity of director, officer, employee, partner
or trustee. (Disclose the name and principal business address of any company for
which a person listed above serves in the capacity of director, officer,
employee, partner or trustee, and the nature of the relationship.)
During the past two fiscal years, no director or officer of
Investment Company Capital Corp., the Registrant's investment advisor, and no
partner of Alex. Brown Investment Management, the Registrant's sub-advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment management and,
through affiliates, investment banking.
Item 27. Principal Underwriters
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing securities of the Registrant also acts as a principal
underwriter, depositor or investment advisor.
ICC Distributors, Inc. acts as distributor for BT Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Communications Fund, Inc.
(formerly known as Flag Investors Telephone Income Fund, Inc.),
Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Total Return U.S. Treasury Fund
Shares, Flag Investors Managed Municipal Fund Shares, Flag
Investors Short-Intermediate Income Fund, Inc., (formerly known as
Flag Investors Intermediate-Term Income Fund, Inc.), Flag Investors
Real Estate Securities Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., all registered open-end management investment
companies.
(b) Provide the information with respect to each director, officer
or partner of each principal underwriter named in answer to Item
21.
5
<PAGE>
Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ----------------- -------------- -----------
John Y. Keffer President None
Benjamin L. Niles Vice-President None
Nanette K. Chern Chief Compliance Officer None
Sara M. Morris Treasurer None
Margaret J. Fenderson Assistant Treasurer None
David I. Goldstein Secretary None
Dana L. Lukens Assistant Secretary None
- --------------------
*Two Portland Square
Portland, ME 04101
(c) Not applicable.
Item 28. Location of Accounts and Records
State the names and address of each person maintaining physical
possession of each account, book or other document required to be maintained by
Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules [17 CFR
270.31a-1 to 31a-3] thereunder.
Investment Company Capital Corp., Registrant's investment advisor,
transfer agent and dividend disbursing agent, One South Street, Baltimore,
Maryland 21202, maintains physical possession of each such account, book or
other document of the Fund, except for those maintained by the Registrant's
sub-advisor ABIM, One South Street, Baltimore, MD 21202, by the Registrant's
custodian, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC and ABIM each maintains physical possession of all journals
containing itemized daily records of all purchases and sales of securities, and,
in the case of ICC, sales and redemptions of Fund securities, and Bankers Trust
Company maintains physical possession of all receipts and deliveries of
securities (including certificate numbers is such detail is not recorded by the
custodian or transfer agent), all receipts and disbursements of cash, and all
other debts and credits.
Item 29. Management Services
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
None.
6
<PAGE>
Item 30. Undertakings
Furnish the following undertakings in substantially the following
form in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable
(c) A copy of the Registrant's latest Annual Report to Shareholders
will be furnished upon request and without charge, by contacting the Registrant
at (800) 767-3524.
7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 11 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 1st day of June, 1999.
FLAG INVESTORS VALUE BUILDER
FUND, INC.
By: /s/ Harry Woolf
-------------------------
Harry Woolf
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
* Chairman and June 1, 1999
- --------------------- Director ------------------
Truman T. Semans Date
* Director June 1, 1999
- --------------------- ------------------
James J. Cunnane Date
* Director June 1, 1999
- --------------------- ------------------
Richard T. Hale Date
* Director June 1, 1999
- --------------------- ------------------
Joseph R. Hardiman Date
* Director June 1, 1999
- --------------------- ------------------
Louis E. Levy Date
* Director June 1, 1999
- --------------------- ------------------
Eugene J. McDonald Date
* Director June 1, 1999
- --------------------- ------------------
Rebecca W. Rimel Date
* Director June 1, 1999
- --------------------- ------------------
Carl W. Vogt Date
/s/ Harry Woolf President June 1, 1999
- --------------------- ------------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial June 1, 1999
- --------------------- and Accounting ------------------
Joseph A. Finelli Officer Date
*By: /s/Amy M. Olmert
----------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit
Number Document
- ------ -----------------------------------------------------
(a)(1) Articles of Incorporation and Certificate of
Correction incorporated by reference to Exhibit
(1)(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-46279), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000312) on July 26, 1995.
(2) Amended Articles of Incorporation dated May 1, 1992
incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(3) Articles Supplementary dated December 27, 1993
incorporated by reference to Exhibit (1)(c) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(4) Articles Supplementary dated November 18, 1994
incorporated by reference to Exhibit (1)(d) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(5) Articles Supplementary dated October 6, 1995
incorporated by reference to Exhibit (1)(e) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000687)
on July 29, 1996.
(6) Articles Supplementary dated June 17, 1997
incorporated by reference to Exhibit (1)(f) to
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001357)
on July 29, 1997.
(7) Articles Supplementary, as filed with the Maryland
State Department of Taxation and Assessments on
January 20, 1998 incorporated by reference to Exhibit
(1)(g) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-46279), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-001585) on July 29, 1998.
EX-99.B (8) Articles of Amendment dated November 24, 1998, filed
herewith.
<PAGE>
(b) By-Laws, as amended through December 19, 1996
incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001357)
on July 29, 1997.
(c)(1) Instruments Defining Rights of Security Holders
incorporated by reference to Exhibit 1 (Articles of
Incorporation) as amended to date, filed as part of
Post- Effective Amendments Nos. 5 and 7 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-46279) filed with the Securities
and Exchange Commission via EDGAR (Accession Nos.
950116-95-000312 and 950116-96-000687) on July 26,
1995 and July 29, 1996, respectively, and Exhibit 2
(By-Laws) as amended to date, filed as part of
Post-Effective Amendment No. 8 to such Registration
Statement filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001357)
on July 29, 1997.
(d)(1) Investment Advisory Agreement dated September 1, 1997
between Registrant and Investment Company Capital
Corp. incorporated by reference to Exhibit (5)(a) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000571)
on March 10, 1998.
(2) Sub-Advisory Agreement dated September 1, 1997 among
Registrant, Investment Company Capital Corp. and
Alex. Brown Investment Management incorporated by
reference to Exhibit (5)(b) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on March 10,
1998.
(e)(1) Distribution Agreement dated August 31, 1997 between
Registrant and ICC Distributors, Inc. incorporated by
reference to Exhibit (6)(a) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on March 10,
1998.
(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Broker-Dealers
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000571)
on March 10, 1998.
(3) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000571)
on March 10, 1998.
(f) None.
<PAGE>
(g) Custodian Agreement between Registrant and Bankers
Trust Company dated June 5, 1998 incorporated by
reference to Exhibit (8) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-46279), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-001585) on July 29, 1998.
(h) Master Services Agreement (including Accounting and
Transfer Agency Services Appendices) between
Registrant and Investment Company Capital Corp.
incorporated by reference to Exhibit (9)(a) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000687)
on July 29, 1996.
EX-99.B (i) Opinion of Counsel, filed herewith.
EX-99.B (j) Consent of PricewaterhouseCoopers LLP, filed
herewith.
(k) None.
(l) Subscription Agreement re: initial $100,000 capital
incorporated by reference to Exhibit 13 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(m)(1) Distribution Plan (Flag Investors Class A Shares)
incorporated by reference to Exhibit (15)(a) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(2) Distribution Plan (Flag Investors Class B Shares)
incorporated by reference to Exhibit (15)(c) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000312)
on July 26, 1995.
(3) Amended Distribution Plan (Flag Investors Class A
Shares) incorporated by reference to Exhibit (15)(d)
to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000571)
on March 10, 1998.
(4) Amended Distribution Plan (Flag Investors Class B
Shares) incorporated by reference to Exhibit (15)(e)
to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000571)
on March 10, 1998.
(5) Distribution Plan (Flag Investors Class C Shares)
incorporated by reference to Exhibit (15)(g) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-46279), filed with
<PAGE>
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-001585) on July 29, 1998.
(n) Not applicable.
(o)(1) Registrant's Rule 18f-3 Plan incorporated by
reference to Exhibit (18)(a) to Post-Effective
Amendment No. 8 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-001357) on July 29,
1997.
(2) Registrant's Amended Rule 18f-3 Plan incorporated by
reference to Exhibit (18)(b) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-46279),
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000571) on March 10,
1998.
EX-99.B (p) Powers of Attorney, filed herewith.
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
ARTICLES OF AMENDMENT
FLAG INVESTORS VALUE BUILDER FUND, INC. (the "Corporation") having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law at a meeting duly convened on
September 28, 1998 has adopted a resolution redesignating the Corporation's
classified ninety million (90,000,000) shares of Common Stock, par value $.001
per share, having an aggregate par value of ninety thousand dollars
($90,000.00), as follows: forty-three million (43,000,000) shares are designated
"Flag Investors Value Builder Fund Class A Shares" (the "Class A Shares"), five
million (5,000,000) shares are designated "Flag Investors Value Builder Fund
Class B Shares" (the "Class B Shares"), fifteen million (15,000,000) shares are
designated "Flag Investors Value Builder Fund Class C Shares" (the "Class C
Shares"), fifteen million (15,000,000) shares are designated "Flag Investors
Value Builder Fund Institutional Shares" (the "Institutional Shares") and two
million (2,000,000) shares remain undesignated.
SECOND: Immediately before the redesignation of the Flag Investors
Value Builder Fund Class D Shares (the "Class D Shares") pursuant to these
Articles of Amendment, the corporation was authorized to issue ninety million
(90,000,000) shares of Common Stock, par value $.001 per share, having an
aggregate par value of ninety thousand dollars ($90,000.00), of which forty
million (40,000,000) shares were designated Class A Shares, five million
(5,000,000) shares were designated Class B Shares, fifteen million (15,000,000)
shares were designated Class C Shares, three million (3,000,000) shares were
designated Class D Shares, fifteen million (15,000,000) shares were designated
Institutional Shares and two million (2,000,000) shares remained undesigated.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
FOURTH: These Articles of Amendment shall be effective as of the later
of the time the State Department of Assessments and Taxation of Maryland accepts
these Articles Supplementary of record or November 24, 1998.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Value Builder Fund, Inc. has caused
these Articles of Amendment to be executed by its President and its corporate
seal to be affixed and attested by its Secretary on this 17th day of November,
1998.
[CORPORATE SEAL]
FLAG INVESTORS VALUE BUILDER FUND, INC.
Attest: /s/Amy M. Olmert By: /s/Harry Woolf
---------------- ------------------
Harry Woolf
President
The undersigned, President of FLAG INVESTORS VALUE BUILDER FUND, INC.,
who executed on behalf of said corporation the foregoing Articles of Amendment
to the Articles of Incorporation of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles of Amendment to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/Harry Woolf
--------------------
Harry Woolf
President
<PAGE>
1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS L L P
(215)963-5000 C O U N S E L O R S A T L A W
Fax: (215)963-5299
May 28, 1999
Flag Investors Value Builder Fund, Inc.
One South Street
Baltimore, MD 21202
Re: Opinion of Counsel regarding Post-Effective Amendment No. 11 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-46279)
-----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Flag Investors Value Builder Fund, Inc.,
(the "Fund") a Maryland corporation, in connection with the above-referenced
Registration Statement which relates to the Fund's shares of common stock, par
value $.001 per share (the "Shares"). This opinion is being delivered to you in
connection with the Fund's filing of Post-Effective Amendment No. 11 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission pursuant to Rule 485(a) under the Securities Act of 1933.
With your permission, all assumptions and statements of reliance herein have
been made without any independent investigation or verification on our part,
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of such assumptions or items relied
upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the State of Maryland to the existence and good
standing of the Fund dated May 11, 1999;
(b) the Articles of Incorporation of the Fund and all amendments and
supplements thereto (the "Articles of Incorporation");
(c) a certificate executed by Amy M. Olmert, the Secretary of the Fund,
certifying as to the Fund's Articles of Incorporation and By-Laws
and certain resolutions adopted by the Board of Directors of the
Fund authorizing the issuance of the shares; and
(d) a printer's proof of the Amendment.
<PAGE>
In our capacity as counsel to the Fund, we have examined the originals,
or certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of
the opinion that the Shares, when issued and sold in accordance with the
Articles of Incorporation and By-Laws, and for the consideration described in
the Registration Statement, will be legally issued, fully paid and non
assessable under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective
Amendment No. 11 to the Registration Statement of Flag Investors Value Builder
Fund, Inc. on Form N-1A (File Number 33-46279 and 811-6600) of our report dated
April 30, 1999, on our audit of the financial statements and financial
highlights of the Portfolios, which report is included in the Annual Report to
Shareholders for the year ended March 31, 1999, which is incorporated by
reference in the Registration Statement. We also consent to the reference of our
firm under the caption "Financial Highlights" in the Prospectus and "Independent
Accountants" in the Statement of Additional Information.
/s/PRICEWATERHOUSECOOPERS LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Chairman and a director of the Fund
such Registration Statement and any and all such pre- and post-effective
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or either of them or their substitute or substitutes, shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Truman T. Semans
-------------------
Truman T. Semans
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Richard T. Hale
------------------
Richard T. Hale
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Joseph R. Hardiman
---------------------
Joseph R. Hardiman
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Eugene J. McDonald
---------------------
Eugene J. McDonald
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Louis E. Levy
----------------
Louis E. Levy
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/James J. Cunnane
-------------------
James J. Cunnane
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Value Builder Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Carl W. Vogt
---------------
Carl W. Vogt
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, her true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in her name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Value Builder Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/Rebecca W. Rimel
-------------------
Rebecca W. Rimel
Date: May 28, 1999
<PAGE>
FLAG INVESTORS VALUE BUILDER FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Value Builder Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as President of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Harry Woolf
--------------
Harry Woolf
Date: May 28, 1999
