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FLAG
INVESTORS
COMMUNICATIONS
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1998
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o Within the context of an evolving industry, we continue to concentrate on both
established and emerging companies with focused management, strong financial
characteristics, and solid market positioning.
o Over 30% of the Fund's assets are invested in companies operating traditional
local telephone networks. Telephone companies offer good relative value,
generate strong cash flow, and pay healthy dividends.
o Merger and acquisition activity within the industry continues at a rapid pace.
There are potential benefits associated with achieving greater scale in the
high fixed cost business. Our confidence in the future success of any merger
falls directly upon management.
o One outcome of our industry view and investment approach is we remain
concentrated in relatively few companies. Greater focus enables us to better
understand the businesses we own.
<PAGE>
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment in Class A Shares--Income vs. Appreciation*
January 18, 1984-June 30, 1998
[LINE CHARTS APPEARS HERE -- SEE PLOT POINTS BELOW]
Value of
Original Total Value
Investment of Investment
and Income (income +
Distributions appreciation)
1984 $10,000 $10,000
12/84 10,557 11,503
1985 11,392 14,850
1986 12,227 18,529
1987 12,946 18,807
1988 13,650 22,544
1989 14,508 33,545
1990 15,196 31,011
1991 15,909 38,228
1992 16,559 42,986
1993 17,209 50,773
1994 17,890 47,562
1995 18,408 63,466
1996 18,996 72,005
1997 19,615 98,906
6/98 19,754 126,536
Average Annual Total Return*
Class A Class B Class D
For the periods ended 6/30/98 Shares Shares Shares**
------------------------------------------------------------------------------
One Year 51.1% 49.7% 50.5%
..............................................................................
Five Years 21.2% -- 20.4%
..............................................................................
Ten Years 19.4% -- --
..............................................................................
Since Inception 1/18/84 1/3/95 4/6/93
------- ------ ------
(Annualized) 19.2% 31.4% 20.1%
..............................................................................
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the maximum
4.50% sales charge were reflected, the quoted performance would be lower.
Performance figures for the classes differ because each class maintains a
distinct expense structure. For further details on expense structures,
please refer to the Fund's prospectus. Since investment return and principal
value will fluctuate, an investor's shares may be worth more or less than
their original cost when redeemed. Past performance is not an indicator of
future results. Please review the Additional Performance Information on page
6.
**The Fund has not sold Class D Shares since November 18, 1994, but existing
shareholders may reinvest their dividends.
1
<PAGE>
LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report The Flag Investors Communications Fund produced a
27.9% total return for the first half of fiscal 1998. Among Telecommunications
Mutual Funds, your Fund received top rankings from Lipper Analytical Services,
Inc. of 1st out of thirteen funds, 1st out of eleven funds, 1st out of seven
funds and 2nd out of three funds respectively for the 1-, 3-, 5- and 10-year
periods ended June 30, 1998. It continues to be ranked 5 (highest) in the
Specialty-Communications Fund category by Morningstar.* We wish to thank our
shareholders for approving our proposed investment objective change which is
providing us greater flexibility in investing in the more broadly defined
communications field.
LONG-TERM CONSISTENCY
With a new investment objective of maximum total return and a new name it
is important to reaffirm our consistent industry perspective and investment
approach. Although gradual in nature, we understand that industry change is
inevitable. Within the context of an evolving industry, we continue to
concentrate on both established and emerging companies with focused management,
strong financial characteristics, and solid market positioning. In an industry
that is receiving significant investor attention we want to maintain our
commitment to a disciplined investment approach and avoid the great investment
"stories".
One of the Fund's holdings that demonstrates our additional flexibility is
America Online. Although not a traditional telecommunications carrier itself,
low cost, reliable telecommunications enables the company to deliver innovative
services to their subscriber community. America Online is a leader in its
industry with excellent management and experiencing strong demand for its online
services. As the world becomes more telecommunications intensive, we expect
businesses like America Online to be catalysts for future growth.
OPPORTUNITY WITH TELEPHONE COMPANIES
Our broader definition of telecommunications does not diminish the
importance of our investment in telephone companies. Over 30% of the fund's
assets are invested in companies operating traditional local telephone networks.
- --------------
*Morningstar's category rating system of "1" (lowest) to "5" (highest) shows how
well a fund has balanced risk and return relative to other funds in its
investment category. It is calculated based on a fund's three-year total return
and excludes the effect of sales charge. A "5" rating indicates that a fund has
an above average return and low risk. The top 10% of funds in an investment
category receive a "5" rating. Past performance is not an indicator of future
results.
2
<PAGE>
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Telephone companies offer good relative value, generate strong cash flows, and
pay healthy dividends. We recognize the regulatory and competitive risks
associated with local telephone company investments. Offsetting these risks is
the long-term potential of capitalizing on the growing demand for both voice and
data communications services.
After two and one half years since the passage of The Telecommunications
Act, we are beginning to see signs of a deregulatory shift by the Federal
Communications Commission (FCC) towards the local telephone companies. This move
could eventually eliminate restrictions on marketing long distance and certain
information services and enable telephone companies to offer a full range of
services. With regulatory relief, we have confidence in the managements of our
telephone company holdings to succeed in a fully competitive marketplace.
There are existing technologies capable of delivering alternative service
to the local telephone network and we expect more to be introduced in the
future. Services such as satellite, wireless, and cable offer unique benefits
and have potential to serve certain market segments within the industry.
However, when viewing the total addressable market, the local telephone network
provides a highly effective and economic solution to the increasingly complex
needs of the growing business and consumer markets.
CONSOLIDATION
Merger and acquisition activity within the industry continues at a rapid
pace. This consolidation trend includes some of the largest players in local
telephone, cable, and long distance. Proposed mergers include SBC Corporation
and Ameritech, AT&T and TCI Corp., and WorldCom and MCI. There are potential
benefits associated with achieving greater scale in these high fixed cost
businesses. However, we must question whether a proposed business combination
creates real synergies and improves a company's strategic positioning or merely
creates a larger collection of assets with little or no value creation.
There is never any shortage of opinions, both negative and positive, about
any announced merger. Our confidence in the future success of any newly merged
business falls directly upon management. We want to determine whether an
acquisition complements an existing strategy or masks an inherent weakness in
the business. Management's past success in valuing and integrating acquisitions
is also very important to us.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- --------------------------------------------------------------------------------
LONG-TERM APPROACH AND CONCENTRATION
We are very enthusiastic about the long-term prospects for the industry.
The market for basic products and services and related applications is measured
in trillions of dollars and growing. The potential growth created by available,
inexpensive and reliable global telecommunications provides opportunity for
product and service providers and communications application businesses. In such
a favorable environment, there is the temptation to try and take advantage of as
many short-term opportunities as possible. We look past the popular products and
services that may have limited life cycles, and emphasize the long term. When we
invest in companies we expect to own them beyond the length of a product cycle
and as long as the entire business fundamentals are attractive and management
remains focused.
One outcome of our industry view and investment approach is we remain
concentrated in relatively few companies. We hold 33 stocks and the 10 largest
account for 64% of the portfolio. When we decide to add a company to the Fund,
we invest in a meaningful way and allow our more successful ideas to grow.
Greater focus enables us to better understand the businesses we own. A
consequence of less diversification is that we may experience greater
volatility. Volatility is short-term in nature and we believe that owning a few,
well-managed companies in a large, expanding industry is a better way to create
long-term value than through excessive diversification.
CONCLUSION
We appreciate our fellow shareholders' continued support and hope you share
our enthusiasm and long-term perspective.
Sincerely,
/s/ Bruce E. Behrens /s/ Liam D. Burke
____________________ _________________
Bruce E. Behrens Liam D. Burke
Co-Portfolio Manager Co-Portfolio Manager
July 17, 1998
4
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
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Communications Holdings Percent of Net Assets
- --------------------------------------------------------------------------------
I. Regional Bell Operating Companies
(RBOCs):
Ameritech Corporation 5.5%
Bell Atlantic Corporation 4.2
SBC Communications Inc. 13.7
U.S. West Communications Group 3.0
----
26.3
II. Independent Local Exchange Carriers:
Alltel 2.5
Cincinnati Bell Inc. 4.5
----
7.0
III. Long Distance Telephone Companies:
Frontier Corporation 3.5
General Communications, Inc. 0.3
MCI Communications Corporation 1.3
Pacific Gateway Exchange, Inc. 0.7
Sprint Corporation 1.6
WorldCom, Inc. 7.5
----
14.8
IV. Foreign Telephone Companies:
Clearnet Communications Inc. 0.6
Compania Telefonica de Espana ADR 2.0
Telefonos de Mexico SA ADR 1.5
Teleglobe Inc. 1.1
----
5.2
V. Communication Equipment Providers:
BlackBox Corporation 1.3
CellStar Corporation 0.5
DSC Communications Corporation 3.0
Lucent Technologies Inc. 4.9
3Com Corporation 0.9
----
10.6
VI. Specialty Communication Services:
AirTouch Communications Inc. 1.7
America Online, Inc. 14.1
COMSAT Corporation 1.3
First Data Corporation 1.7
Skytel Communications 1.0
NEXTEL Communications Inc. 0.6
Novell Inc. 2.7
Orbital Sciences Corporation 1.8
Qwest Communications International Inc. 2.0
Winstar Communications 1.1
----
28.0
Total Communications Industry 91.9%
====
5
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares,
4.00% maximum sales contingent deferred sales charge for the Fund's Class B
Shares and 1.50% maximum sales charge and 1.00% maximum contingent deferred
sales charge for the Fund's Class D Shares.
Average Annual Total Return
Periods Ended 6/30/98 1 Year 5 Years 10 Years Since Inception*
------------------------------------------------------------------------------
Class A Shares 44.26% 20.05% 18.88% 18.83%
..............................................................................
Class B Shares 45.74% -- -- 30.91%
..............................................................................
Class D Shares 47.29% 20.01% -- 19.76%
..............................................................................
Institutional Shares -- -- -- 6.15%**
..............................................................................
*Inception dates: Class A 1/18/84, Class B 1/3/95, Class D 4/6/93,
Institutional 6/4/98.
**Cumulative; returns for less than one year are not annualized.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, investors' shares may be worth more or less than their original cost
when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS JUNE 30, 1998
(Unaudited)
Shares Security Market Value
- --------------------------------------------------------------------------------
COMMUNICATIONS INDUSTRY -- 91.94%
Common Stock -- 91.94%
270,408 AirTouch Communications Inc. * $ 15,801,968
480,000 Alltel Corp. 22,320,000
1,200,000 America Online, Inc. * 127,200,000
1,100,000 Ameritech Corporation 49,362,500
833,216 Bell Atlantic Corporation 38,015,480
366,428 BlackBox Corporation * 12,160,829
345,000 CellStar Corporation * 4,463,438
1,429,700 Cincinnati Bell Inc. 40,925,163
500,000 Clearnet Communications Inc.-- Class A * 5,500,000
417,800 Comsat Corporation 11,828,963
900,000 DSC Communications Corporation * 27,000,000
470,300 First Data Corporation 15,666,869
993,400 Frontier Corporation 31,292,100
500,000 General Communications-- Class A * 3,031,250
530,470 Lucent Technologies Inc. 44,128,473
200,000 MCI Communications Corporation 11,625,000
200,000 NEXTEL Communications Inc.-- Class A * 4,975,000
1,895,000 Novell Inc. * 24,161,250
435,347 Orbital Science Corporation * 16,271,094
150,000 Pacific Gateway Exchange, Inc. * 6,009,375
514,400 Qwest Communications International Inc. * 17,939,700
3,089,520 SBC Communications Inc. 123,580,800
405,000 Skytel Communications, Inc. * 9,479,531
200,000 Sprint Corporation 14,100,000
128,000 Telefonica Espana SA ADR 17,800,000
285,000 Telefonos de Mexico SA ADR-- Class L 13,697,813
368,200 Teleglobe Inc. 9,757,300
573,000 U.S. West Incorporated 26,931,000
225,000 Winstar Communications-- Class A * 9,660,938
1,401,300 WorldCom, Inc. * 67,875,469
259,000 3Com Corporation * 7,948,063
------------
Total Common Stock of Communications Industry
(Cost $373,625,936) 830,509,363
------------
7
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) JUNE 30, 1998
(Unaudited)
Shares/
Par (000) Security Market Value
- --------------------------------------------------------------------------------
NON-COMMUNICATIONS INDUSTRY -- 4.86%
Common Stock -- 4.26%
626,900 Alexander Haagen Properties, Inc. $ 9,442,681
620,548 Conseco Inc. 29,010,619
------------
Total Common Stock of Non-Communications
Industry (Cost $10,960,927) 38,453,300
------------
Corporate Bond -- 0.60%
$5,000 HMH Properties, 9.5%, 5/15/05
(Cost $4,921,593) 5,412,500
------------
Total Non-Communications Industry
(Cost $15,882,520) 43,865,800
------------
REPURCHASE AGREEMENT -- 2.90%
26,206 Goldman Sachs & Co., 5.40%
Dated 6/30/98, to be repurchased at $26,209,931
on 7/1/98, collateralized by U.S. Treasury Notes
with a market value of $26,730,137.
(Cost $26,206,000) 26,206,000
------------
Total Investments in Securities -- 99.70%
(Cost $415,714,456)** 900,581,163
Other Assets in Excess of Liabilities-- 0.30% 2,756,310
------------
Net Assets-- 100.0% $903,337,473
============
8
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value Per:
Class A Share
($795,302,503 / 32,212,798 shares outstanding) $24.69(1)
======
Class B Share
($70,518,745 / 2,887,572 shares outstanding) $24.42(2)
======
Class D Share
($37,356,988 / 1,515,751 shares outstanding) $24.65(3)
======
Institutional Share
($159,237 / 6,449 shares outstanding) $24.69(1)
======
Maximum Offering Price Per:
Class A Share
($24.69 / 0.955) $25.85
======
Class B Share $24.42
======
Class D Share
($24.65 / 0.985) $25.03
======
Institutional Share $24.69
======
- ----------
*Non-income producing security.
**Aggregate cost for federal tax purposes was $358,380,658.
(1)Redemption value is $24.69.
(2)Redemption value is $23.44 following a 4.00% maximum contingent deferred
sales charge.
(3)Redemption value is $24.40 following a 1.00% maximum contingent deferred
sales charge.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Investment Income:
Dividends $ 5,972,321
Interest 1,130,626
Less: Foreign taxes withheld (2,931)
------------
Total income 7,100,016
------------
Expenses:
Investment advisory fee 2,683,392
Distribution fee 1,252,949
Transfer agent fee 252,910
Accounting fee 64,771
Custodian fee 26,152
Printing and postage 83,764
Directors' fees 13,034
Miscellaneous 127,956
------------
Total expenses 4,504,928
------------
Net investment income 2,595,088
------------
Realized and unrealized gain on investments:
Net realized gain from security transactions 32,376,737
Change in unrealized appreciation/depreciation of investments 158,566,831
------------
Net gain on investments 190,943,568
------------
Net increase in net assets resulting from operations $193,538,656
============
- ---------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
June 30, Dec. 31,
- --------------------------------------------------------------------------------
1998(1) 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 2,595,088 $ 6,150,046
Net realized gain from security
transactions 32,376,737 53,763,750
Change in unrealized appreciation/
depreciation of investments 158,566,831 132,712,907
------------ ------------
Net increase in net assets resulting
from operations 193,538,656 192,626,703
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (2,924,485) (12,292,592)
Class B Shares (111,276) (438,661)
Class D Shares (107,192) (560,042)
Institutional Class -- --
Net realized mid-term and long-term gains:
Class A Shares -- (45,697,778)
Class B Shares -- (2,233,281)
Class D Shares -- (2,314,208)
Institutional Class -- --
------------ ------------
Total distributions (3,142,953) (63,536,562)
------------ ------------
Capital Share Transactions
Proceeds from sale of shares 77,171,010 32,057,019
Value of shares issued in reinvestment
of dividends 2,329,601 52,863,614
Cost of shares repurchased (52,829,280) (78,344,677)
------------ ------------
Increase in net assets derived from
capital share transactions 26,671,331 6,575,956
------------ ------------
Total increase in net assets 217,067,034 135,666,097
Net Assets:
Beginning of period 686,270,439 550,604,342
------------ ------------
End of period, (including (distributions in excess
of income) undistributed net investment
income of (547,865) and -0- respectively) $903,337,473 $686,270,439
============ ============
- ---------
(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 19.37
--------
Income from Investment Operations:
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments 5.33
--------
Total from Investment Operations 5.41
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.09)
Distributions from net realized mid-term and long-term gains --
--------
Total distributions (0.09)
--------
Net asset value at end of period $ 24.69
========
Total Return(2) 27.94%
Ratios to Average Daily Net Assets:
Expenses 1.06%(5)
Net investment income 0.71%(5)
Supplemental Data:
Net assets at end of period (000) $795,303
Portfolio turnover rate 10%
- -----------
(1) Unaudited.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 0.99%, 0.99% and 0.98% for the
years ended December 31, 1995, 1994 and 1993, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.79%, 3.07% and 3.06%
for the years ended December 31, 1995, 1994 and 1993, respectively.
(5) Annualized.
12
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 15.59 $ 14.87 $ 12.30 $ 13.70 $ 12.20
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.27 0.27 0.40 0.41 0.42
Net realized and unrealized gain/(loss) on investments 5.41 1.67 3.58 (1.27) 1.78
-------- -------- -------- -------- --------
Total from Investment Operations 5.68 1.94 3.98 (0.86) 2.20
-------- -------- -------- -------- --------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.40) (0.38) (0.41) (0.44) (0.42)
Distributions from net realized mid-term and long-term gains (1.50) (0.84) (1.00) (0.10) (0.28)
-------- -------- -------- -------- --------
Total distributions (1.90) (1.22) (1.41) (0.54) (0.70)
-------- -------- -------- -------- --------
Net asset value at end of period $ 19.37 $ 15.59 $ 14.87 $ 12.30 $ 13.70
======== ======== ======== ======== ========
Total Return(2) 37.36% 13.46% 33.44% (6.32)% 18.12%
Ratios to Average Daily Net Assets:
Expenses 1.11% 1.14% 0.93%(3) 0.92%(3) 0.92%(3)
Net investment income 1.07% 1.74% 2.85%(4) 3.14%(4) 3.12%(4)
Supplemental Data:
Net assets at end of period (000) $622,865 $505,371 $492,454 $435,805 $469,163
Portfolio turnover rate 26% 20% 24% 23% 14%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
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FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 19.22
-------
Income from Investment Operations:
Net investment income --
Net realized and unrealized gain on investments 5.25
-------
Total from Investment Operations 5.25
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.05)
Distributions from net realized long-term gains --
-------
Total distributions (0.05)
-------
Net asset value at end of period $ 24.42
=======
Total Return(3) 27.32%
Ratios to Average Daily Net Assets:
Expenses 1.81%(6)
Net investment income (0.09)%(6)
Supplemental Data:
Net assets at end of period (000) $70,519
Portfolio turnover rate 10%
- --------------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.74% (annualized) for the period
ended December 31, 1995.
(5) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.09% (annualized) for
the period ended December 31, 1995.
(6) Annualized.
14
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
For the Year January 3, 1995(2)
Ended December 31, through December 31,
-----------------------------------------------------
1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 15.51 $ 14.83 $12.28
------- ------- ------
Income from Investment Operations:
Net investment income 0.18 0.19 0.30
Net realized and unrealized gain on investments 5.34 1.63 3.56
------- ------- ------
Total from Investment Operations 5.52 1.82 3.86
------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.31) (0.30) (0.31)
Distributions from net realized long-term gains (1.50) (0.84) (1.00)
------- ------- ------
Total distributions (1.81) (1.14) (1.31)
------- ------- ------
Net asset value at end of period $ 19.22 $ 15.51 $14.83
======= ======= ======
Total Return(3) 36.36% 12.60% 32.42%
Ratios to Average Daily Net Assets:
Expenses 1.86% 1.92% 1.70%(4,6)
Net investment income 0.29% 0.95% 2.13%(5,6)
Supplemental Data:
Net assets at end of period (000) $32,474 $17,661 $7,504
Portfolio turnover rate 26% 20% 24%
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS D SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 19.36
-------
Income from Investment Operations:
Net investment income 0.04
Net realized and unrealized gain/(loss) on investments 5.32
-------
Total from Investment Operations 5.36
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.07)
Distributions in excess of net investment income --
Distributions from net realized long-term gains --
-------
Total distributions (0.07)
-------
Net asset value at end of period $ 24.65
=======
Total Return(3) 27.69%
Ratios to Average Daily Net Assets:
Expenses 1.41%(6)
Net investment income 0.36%(6)
Supplemental Data:
Net assets at end of period (000) $37,357
Portfolio turnover rate 10%
- --------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.34%, 1.34% and 1.31% for the
years ended December 31, 1995, 1994 and the period ended December 31, 1993,
respectively.
(5) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.44%, 2.74% and 1.98%
for the years ended December 31, 1995, 1994 and the period ended December
31, 1993, respectively.
(6) Annualized.
16
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
April 6, 1993(2)
through
For the Year Ended December 31, December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 15.59 $ 14.87 $ 12.30 $ 13.67 $ 13.21
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.23 0.22 0.34 0.37 0.25
Net realized and unrealized gain/(loss) on investments 5.40 1.67 3.58 (1.20) 0.80
------- ------- ------- ------- -------
Total from Investment Operations 5.63 1.89 3.92 (0.83) 1.05
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.36) (0.33) (0.35) (0.42) (0.31)
Distributions in excess of net investment income -- -- -- (0.02) --
Distributions from net realized long-term gains (1.50) (0.84) (1.00) (0.10) (0.28)
------- ------- ------- ------- -------
Total distributions (1.86) (1.17) (1.35) (0.54) (0.59)
------- ------- ------- ------- -------
Net asset value at end of period $ 19.36 $ 15.59 $ 14.87 $ 12.30 $ 13.67
======= ======= ======= ======= =======
Total Return(3) 36.94% 13.00% 32.91% (6.13)% 8.01%
Ratios to Average Daily Net Assets:
Expenses 1.46% 1.49% 1.28%(4) 1.27%(4) 1.27%(4,6)
Net investment income 0.73% 1.40% 2.50%(5) 2.81%(5) 2.73%(5,6)
Supplemental Data:
Net assets at end of period (000) $30,931 $27,573 $31,317 $31,696 $23,481
Portfolio turnover rate 26% 20% 24% 23% 14%
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL CLASS SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
May 1, 1998(2)
through June 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $23.26
------
Income from Investment Operations:
Net investment income 0.01
Net realized and unrealized gain on investments 1.42
------
Total from Investment Operations 1.43
------
Less Distributions:
Distributions from net investment income and net realized
short-term gains --
Distributions from net realized long-term gains --
------
Total distributions 0.00
------
Net asset value at end of period $24.69
======
Total Return(3) 6.15%
Ratios to Average Net Assets:
Expenses 0.81%(4)
Net investment income 0.99%(4)
Supplemental Data:
Net assets at end of period (000) $ 158
Portfolio turnover rate 10%
- ---------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
18
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Communications Fund, Inc. (the "Fund"), previously named
Flag Investors Telephone Income Fund, which is organized as a Maryland
Corporation and commenced operations January 18, 1984, is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
management company. On January 18, 1984 (the exchange date), investors received
five Fund shares for each American Telephone & Telegraph Company (AT&T) share,
with rights to the divested Bell regional operating companies attached, in a
tax-free exchange. The Fund's objective is to maximize total return.
The Fund consists of four share classes: Class A Shares, which commenced
January 18, 1984; Class D Shares, which commenced April 6, 1993; Class B Shares,
which commenced January 3, 1995; and Institutional Shares, which commenced May
1, 1998. The Fund has not sold Class D Shares since November 18, 1994, but
existing shareholders may reinvest their dividends.
The Class A, Class B and Class D Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge, the Class B Shares
have a contingent deferred sales charge and the Class D Shares have both a
front-end sales charge and a contingent deferred sales charge. The Institutional
Shares are not subject to sales charges. In addition, each class has a different
distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported
for the day. If there are no sales or the security is not traded on a
listed exchange, the Fund values the security at the average of the last
bid and asked prices in the over-the-counter market. When a market
quotation is unavailable, the Investment Advisor determines a fair value
using procedures that the Board of Directors establishes and monitors.
19
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--continued
As of June 30, 1998, there were no Board valued securities. The Fund
values short-term obligations with maturities of 60 days or less at
amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement matures.
The agreement ensures that the collateral's market value, including any
accrued interest, is sufficient if the broker defaults. The Fund's
access to the collateral may be delayed or limited if the broker
defaults and the value of the collateral declines or if the broker
enters into an insolvency proceeding.
C. Federal Income Tax--The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially
all of its taxable net investment income and net realized capital gains,
it will be exempt from most, if not all, federal income and excise
taxes. As a result, the Fund has made no provisions for federal income
taxes.
D. Securities Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed. For
financial reporting purposes, the cost includes the value of the
securities received in the exchange. For income tax purposes, the tax
cost is based on the AT&T shares in the hands of the exchanging AT&T
shareholders on the exchange date. Interest income is recorded on an
accrual basis and includes the pro rata 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
20
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
charged directly to each class. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor and Alex. Brown Investment
Management ("ABIM") is the Fund's subadvisor. As compensation for its advisory
services, the Fund pays ICC an annual fee based on the Fund's average daily net
assets. This fee is calculated daily and paid monthly at the following annual
rates: 0.85% of the first $100 million, 0.75% of the next $100 million, 0.70% of
the next $100 million, 0.65% of the next $200 million, 0.58% of the next $500
million, 0.53% of the next $500 million and 0.50% of the amount over $1.5
billion.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee based on the Fund's average daily net assets. This fee is
calculated daily and paid monthly at the following annual rates: 0.60% of the
first $100 million, 0.55% of the next $100 million, 0.50% of the next $100
million, 0.45% of the next $200 million, 0.40% of the next $500 million, 0.37%
of the next $500 million and 0.35% of the amount over $1.5 billion. At June 30,
1998 accrued advisory fees amounted to $470,452.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. At June 30, 1998 the amount owed for accounting services was $10,957.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. At June 30, 1998, the amount
owed for transfer agent services was $38,075.
Effective September 22, 1997, Bankers Trust Corporation became the Fund's
custodian. The amount owed for custody services was $14,370 at June 30, 1998.
As compensation for providing distribution services, the Fund pays ICC
Distributors ("ICC Distributors"), which is not related to ICC, an annual fee
21
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--CONCLUDED
that is calculated daily and paid monthly. This fee is paid at an annual rate
equal to 0.25% of the Class A Shares' average daily net assets, 1.00% (including
a 0.25% shareholder servicing fee) of the Class B Shares' average daily net
assets and 0.60% of the Class D Shares' average daily net assets. There are no
distribution fees on the Institutional Shares. At June 30, 1998 accrued
distribution fees owed by the Fund amounted to $228,068. For the six-month
period ended June 30, 1998, distribution fees aggregated $1,252,949, of which
$901,896 was attributable to the Class A Shares, $247,094 was attributable to
the Class B Shares and $103,959 was attributable to the Class D Shares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period ended
June 30, 1998 was $63,024, and the accrued liability was $82,363.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 85 million shares of $.001 par value
capital stock (60 million Class A Shares, 5 million Class B Shares, 3 million
Class D Shares, 15 million Institutional Shares, and 2 million undesignated).
Transactions in shares of the Fund were as follows:
Class A Shares
------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1998(1) Dec. 31, 1997
---------------- -------------
Shares sold 2,139,222 1,332,424
Shares issued to shareholders on
reinvestment of dividends 87,624 2,595,376
Shares redeemed (2,163,193) (4,200,351)
------------ ------------
Net increase/(decrease) in shares outstanding 63,653 (272,551)
============ ============
Proceeds from sale of shares $ 47,908,856 $ 23,153,177
Value of reinvested dividends 2,132,768 47,729,473
Cost of shares redeemed (48,876,029) (71,340,867)
------------ ------------
Net increase/(decrease) from
capital share transactions $ 1,165,595 $ (458,217)
============ ============
- ----------
(1) Unaudited
22
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTE 3--continued
Class B Shares
------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1998(1) Dec. 31, 1997
---------------- -------------
Shares sold 1,281,842 506,254
Shares issued to shareholders on
reinvestment of dividends 4,205 138,015
Shares redeemed (88,040) (93,315)
----------- -----------
Net increase in shares outstanding 1,198,007 550,955
=========== ===========
Proceeds from sale of shares $29,112,154 $ 8,903,842
Value of reinvested dividends 101,512 2,533,345
Cost of shares redeemed (2,017,652) (1,625,592)
----------- -----------
Net increase from capital share
transactions $27,196,014 $ 9,811,595
=========== ===========
Class D Shares
------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1998(1) Dec. 31, 1997
---------------- -------------
Shares sold -- --
Shares issued to shareholders on
reinvestment of dividends 3,919 141,577
Shares redeemed (86,015) (312,350)
----------- -----------
Net decrease in shares outstanding (82,096) (170,773)
=========== ===========
Proceeds from sale of shares $ -- $ --
Value of reinvested dividends 95,321 2,600,796
Cost of shares redeemed (1,935,599) (5,378,218)
----------- -----------
Net decrease from capital share transactions $(1,840,278) $(2,777,422)
=========== ===========
- --------
(1) Unaudited
23
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--concluded
Institutional
Shares
-------------------
For the period
May 1, 1998 through
June 30, 1998(1)
-------------------
Shares sold 6,449
Shares issued to shareholders on
reinvestment of dividends --
Shares redeemed --
--------
Net increase in shares outstanding 6,449
========
Proceeds from sale of shares $150,000
Value of reinvested dividends --
Cost of shares redeemed --
Net increase from capital share transactions $150,000
========
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $85,721,991 and sales of investment securities
aggregated $80,982,004 for the period ended June 30, 1998.
On June 30, 1998, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $484,866,708
of which $487,274,298 related to appreciated securities and $2,407,590 related
to depreciated securities.
NOTE 5--Net Assets
On June 30, 1998, net assets consisted of:
Paid-in capital:
Class A Shares $303,510,457
Class B Shares 53,624,663
Class D Shares 19,042,097
Institutional Shares 150,000
Accumulated net realized gain from security transactions 42,691,413
Unrealized appreciation of investments 484,866,708
Undistributed net investment income (547,865)
------------
$903,337,473
============
- ---------
(1) Unaudited
24
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTE 6--Shareholder Meeting
At a Special Meeting of Shareholders held on April 3, 1998, shareholders of
the Fund approved a change in the Fund's investment objective from "current
income and long-term growth of capital without undue risk" to "to maximize total
return." Votes were cast as follows: 17,779,891 shares for; 1,241,062 shares
against; 652,114 shares abstained.
At the same meeting, shareholders voted to approve the replacement of the
Fund's fundamental investment policy on industry concentration that required it
to invest at least 65% of the value of its total assets in securities of issuers
in the telephone industry with a fundamental policy requiring it to invest at
least 65% of its total assets in securities of issuers in the communications
field. Votes were cast as follows: 18,282,215 shares for; 724,278 shares
against; 666,574 shares abstained.
The above changes were effective on May 1, 1998, at which time the Board
changed the Fund's name to Flag Investors Communications Fund, Inc., deleted the
Fund's non-fundamental investment policy requiring that at least 65% of the
Fund's total assets to be invested in income-producing securities (including
debt obligations) of issuers in the telephone or other industries, and amended
the Fund's dividend policy to provide that the Fund will continue to pay all net
investment income in quarterly dividends, but that the Fund will not attempt to
maintain a consistent stream of dividend income or pay a dividend that
constitutes a return of capital.
25
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE CARL W. VOGT, ESQ.
Director Director
RICHARD T. HALE HARRY WOOLF
Director President
JOHN F. KROEGER AMY M. OLMERT
Director Secretary
LOUIS E. LEVY JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Assistant Secretary
REBECCA W. RIMEL
Director
Investment Objective
This mutual fund (the "Fund") is designed to maximize total return. The Fund
will seek to achieve this objective through a combination of long-term growth of
capital and, to a lesser extent, current income. In seeking to achieve this
objective, the Fund invests primarily in common stock, securities convertible
thereto and debt obligations of companies in the communications field.
26
<PAGE>
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<PAGE>
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<PAGE>
---------------------------------------------------
This report is prepared for the general
information of shareholders. It is authorized for
distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
For more complete information regarding
any of the Flag Investors Funds, including
charges and expenses, obtain a prospectus from
your investment representative or directly from
the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
---------------------------------------------------
<PAGE>
[FLAG INVESTORS LOGO]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Real Estate Securities Fund
Flag Investors Communications Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
5-A411/412/426/453
