LOGO
COMMUNICATIONS
FUND
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o We are delighted to report an 85.3% total return earned in the Fund this
past year. From a longer term perspective, your Fund received a Five Star
rating from Morningstar (among 2,802 domestic equity funds) and continues to
be ranked 5 (highest) in the Specialty-Communications Fund category by
Morningstar. Morningstar has additionally ranked our investment performance
among communications funds as number one for the past 1,3,5, and ten year
periods.*
o We remain excited about the industry and are convinced it will continue to
sustain solid growth in 1999 and beyond. As communications-based applications
become more commonplace, domestic markets are seeing growing demand from both
consumers and businesses. Deregulation, competition, and greater personal
computer penetration are also contributing to rapid expansion of overseas
markets.
o The breadth and size of the industry are two of the reasons we refer to the
Flag Investors Communications Fund as a "sector fund with a difference." Our
willingness to focus our investments in the stocks that we believe provide
the best long-term return within the industry is another differentiating
factor.
o It is difficult to ignore the potential of the Internet. With millions of
users around the globe, applications developed for the Internet are saving
time, increasing productivity, and improving quality of life. The Internet is
also setting up an environment for new sets of winners and losers. We are
constantly evaluating the affect of the Internet on both existing companies
owned in the Fund and potential investments.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE FUND
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES*
JANUARY 18, 1984-DECEMBER 31, 1998
GRAPH CHART HERE
Growth chart
1/84 10000 10000 Total Value of Investment
12/84 10557 11503 (Income + Appreciation) $183,270
12/85 11392 14850
12/86 12227 18517 Value of Original
12/87 12946 18795 Investment + Income Distributions $19,781
12/88 13650 22530
12/89 14508 33534
12/90 15196 31001
12/91 15909 38216
12/92 16559 42972
12/93 17209 50756
12/94 17890 47546
12/95 18408 63445
12/96 18996 71982
12/97 19615 98874
12/98 19781 183270
<TABLE>
<CAPTION>
Average Annual Total Return*
Class A Class B Class C
For the periods ended 12/31/98 Shares Shares Shares
- ----------------------------------------------------------------------------------
<S> <C>
One Year 85.30% 83.91% --
..................................................................................
Five Years 29.27% -- --
..................................................................................
Ten Years 23.31% -- --
..................................................................................
Since Inception 1/18/84 1/3/95 11/1/98
-------- ------- --------
(Annualized) 21.47% 39.15% 41.99%
..................................................................................
</TABLE>
* 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 8.
1
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Fellow Shareholders:
For all of us who are shareholders in the Flag Investors Communications
Fund, 1998 will be remembered as a wonderful year. We are delighted to report an
85.3% total return earned in the Fund this past year. We are even more delighted
to have been invested with you for the long term, wherein the Fund has earned an
average annual return of 29.3% for the past five years, and 21.5% since
inception on January 18, 1984. From a longer-term perspective, your fund
received a Five Star overall rating from Morningstar and has received a category
rating of 5 (highest) in the Specialty-Communications Fund category by
Morningstar. Morningstar has additionally ranked our investment performance
among communications funds as number one for the past 1,3, 5 and 10-year
periods.*
The Fund's performance in 1998 was the result of well selected stocks which
have been in the portfolio for some time prior to the recent amendment to the
Fund's investment policy and objective. As we expressed in our Semi-Annual
letter, we appreciate our shareholder support in approving our investment policy
and objective change which will provide more flexibility to take advantage of
future opportunities in the more broadly defined communications field. This
additional flexibility, though, neither changes our investment philosophy nor
diminishes our commitment to choose companies with sound business fundamentals.
CONSISTENCY IN THE PORTFOLIO
The portfolio turnover in fiscal 1998, was 14% and, as said above, reflects
only modest changes in the fund during the course of the year. Over the past few
years the Fund has been evolving and the new policies approved in May merely
increase our ability to evaluate a broader set of opportunities.
One key policy change was the elimination of our minimum current income
requirement. Within an industry of numerous growth opportunities,
- -----------
*Morningstar proprietary ratings reflect historical risk-adjusted performance as
of December 31, 1998. Past performance is no guarantee of future results.
Morningstar ratings are calculated from the fund's three-, five-, and 10-year
average annual returns in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day T-bill returns. Flag Investors Communications Fund received a 5
star rating for the 3-year, 5-year, and 10-year periods, respectively. The top
10% of the funds in an investment class receive 5 stars. The fund was rated
among 2,802, 1,702 and 732 Domestic Equity Funds for the 3, 5, and 10 year
periods, respectively. The Fund was ranked Number 1 out of 25, 15, 10 and 4 in
the Specialty-Communications Fund category for the 1, 3, 5, and 10-year periods,
respectively.
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.
2
<PAGE>
- --------------------------------------------------------------------------------
few communications companies are maintaining high dividend payouts. Even
the established telephone companies are reducing their traditionally high
dividend payout ratios and allocating a greater percentage of available cash to
attractive investment opportunities. We support a company's management's
decision to forego dividend increases if they are reinvesting their cash in
areas that will generate high returns on their invested capital.
OUTLOOK FOR THE FUTURE
A dramatic return in many communications stocks raises the question of
whether we are ahead of ourselves and setting the stage for disappointment. One
reason the Fund's performed so well is the optimism surrounding the
communications industry. We remain excited about the industry and are convinced
it will continue to sustain solid growth in 1999 and beyond. As
communications-based applications become more commonplace, domestic markets are
experiencing growing demand from both consumers and businesses for reliable
telecommunications services. Deregulation, competition, and greater personal
computer penetration are also contributing to the rapid expansion of overseas
markets.
Within this growth industry are a wide spectrum of potential opportunities.
We seek to take advantage of good values among the well capitalized, established
players as well as more specialized companies that service a particular market
segment. Our emphasis, due to our conservative bias, is on the more established
companies. Nevertheless, we look at all areas within the industry and want to
capitalize on selected earlier stage companies that enjoy a unique market
position within critical segments of communications. In our opinion, there
continue to be numerous attractive opportunities.
A SECTOR FUND WITH A DIFFERENCE
The breadth and size of this industry are two of the reasons we refer to
the Flag Investors Communications Fund as a "sector fund with a difference." Our
willingness to focus our investments in the stocks that we believe provide the
best long-term return within the industry is another differentiating factor.
Shareholders should understand, though, that while concentration in an industry
sector (however large and diverse) and in selected stocks within that sector
(however more capable and profitable) can greatly enhance the long-term
investment success, there is potentially greater short-term volatility in the
net asset value of the Fund.
3
<PAGE>
LETTER TO SHAREHOLDERS(CONCLUDED)
- --------------------------------------------------------------------------------
We firmly believe in the concentrated long-term approach we have followed
since the Fund's inception. Our efforts are centered around minimizing real
fundamental business risk in each of our investments while positioning the Fund
for much greater potential long-term rewards. Certainly, this approach has been
very successful to date and we continue to own well-managed companies in
attractive businesses we understand.
ROLE OF THE INTERNET
It is very difficult to ignore the potential of the Internet. With
approximately 90 million users around the globe, it has become a major catalyst
for effective information exchange. Applications developed for the Internet are
saving time, increasing productivity, and improving quality of life. The ability
to improve communication with customers and partners, while reducing costs,
offers a huge competitive advantage for those that choose to seize the
opportunity. The Internet is setting up an environment for new sets of winners
and losers. We are constantly evaluating the affect of the Internet on both
existing companies in the Fund and potential investments.
We are obviously very excited about the catalyst the Internet provides for
the creation of communications applications and the potential as present and
future investments. However, we want to emphasize there is a difference between
opportunistic investing and speculative frenzy. We have benefited from the
exponential growth of the Internet but not at the expense of our basic
investment principals. These principals include strong management, dominant
market share or franchise potential, and a business model which leads to
generation of free cash flow. Two holdings, which have benefited from the growth
of the Internet, America Online and World Com (through its commercial Internet
Service Provider subsidiary UUNET), display these investment characteristics.
BEST PERFORMERS
We are very proud of the performance of your Fund and the contribution of
our ten best equity performers that are listed on the following page. Our
purpose is to demonstrate the contribution from all sectors to the Fund's
performance and not exclusively Internet related companies. Companies operating
in every major segment of the industry are among the year's top performers.
We expect the list to change from year-to-year based on the fundamentals of
individual sectors (and can only hope for similar growth percentages).
4
<PAGE>
{CHART]
Security Pct. Gain
- ----------------------------------------------
America Online 585.6%
..............................................
Lucent Technologies 175.3
..............................................
Novell Incorporated 141.7
..............................................
MCI Worldcom 137.0
..............................................
Teleglobe, Inc. 137.0
..............................................
Sprint Corp. (PCS Group) 80.0
..............................................
AirTouch Communications 74.3
..............................................
QWEST Communications 68.1
..............................................
3COM 64.8
..............................................
Ameritech Corp. 57.5
..............................................
However, we anticipate that our holdings within those sectors will maintain
their business focus and the market positioning to deliver the returns that we,
as investors, seek.
We are very pleased with our top performers but we also understand the
importance of evaluating the Fund's underperforming companies to determine if an
investment has become a fundamental mistake. In fiscal 1998 the negative
contribution from the Fund's weakest performers was modest and we see no reason
why these companies will not contribute to the Fund's future success. For
example, a weaker Canadian dollar caused the share price of Clearnet
Communications, Inc., an emerging Canadian wireless provider, to decline despite
the growth of its customer base and achievement of stated financial goals. Our
view is this was a short-term concern and we continue to believe in management's
long-term strategy for growth. In this case, we added to our position. Business
fundamentals and skilled management are more important to us than short-term
share price fluctuations.
CONCLUSION
The year 1998 will certainly be a year to remember but it is truly just one
segment of a multi-year opportunity in the communications industry. We will
continue to look for the best opportunities and values and invest our money with
you, our shareholder.
Sincerely,
/s/Bruce E. Behrens /s/ Liam D. Burke
Bruce E. Behrens Liam D. Burke
Co-Portfolio Manager Co-Portfolio Manager
January 20, 1999
5
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
DIVIDEND DECLARATION
[CHART]
1998 Year-End Dividend
The Board of Directors has declared a year-end per share distribution
payable on December 11, 1998 to shareholders of record on December 7, 1998.
Class A Class B Class C Institutional
Shares Shares Shares Shares
Long-term capital gains...... $.65 $.65 $.65 $.65
Short-term capital gains..... .21 .21 .21 .21
------ ------ ------- ------
Total distributions.......... $.86 $.86 $.86 $.86
Dividends for Calendar 1998
Total dividends declared for calendar 1998 are as follows:
Class A Class B Class C Institutional
Shares Shares Shares Shares
Long-term capital gains...... $ .91 $ .91 $.65 $ .91
Short-term capital gains..... .27 .27 .21 .27
Income....................... .125 .05 -- .04
------- ------ ------- ------
Total distributions.......... $ 1.305 $1.23 $.86 $1.22
Shareholders who have elected to participate in the Fund's dividend
reinvestment plan have received their distribution in additional shares of the
Fund. If you are not currently a plan participant but would like to have your
dividends reinvesting at net asset value, please contact your investment
representative or the Fund at 1-800-553-8080.
6
<PAGE>
This page intentionally left blank.
7
<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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on January
18, 1984 through the most recent fiscal year-end and must reflect the impact of
the Fund's total expenses. The Class A share graph reflects the impact of its
currently effective 4.50% maximum initial sales charge. The Class B Shares graph
reflects the impact of a 3.00% contingent deferred sales charge which is the
applicable sales charge for the represented time period. The Class C Share graph
represents the impact of a 1.00% contingent deferred sales charge which is the
applicable sales charge for the represented time period.
While the following charts are required by SECrules, such comparisons are
of limited utility since the index shown is not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of this index would have
had to own the securities that it represents. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective maximum sales charge.
The Class A Shares' total returns reflect the 4.50% maximum initial sales
charge. The Class B Shares' one-year total return reflects the applicable 4.00%
contingent deferred sales charge, while the total return since inception
reflects only the applicable 1.50% maximum sales charge. These total returns
correspond to those experienced by individual shareholders only if their shares
were purchased on the first day of each time period and the maximum sales charge
was paid. Any performance figures shown are for the full period indicated. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
8
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES* JANUARY 18,
1984-DECEMBER 31, 1998
LINE CHART
Flag Investors Communications Fund $175,023
S&P 500 Composite $118,852
CLASS A
1983 10687 9550
1984 10687 10985
1985 14081 14182
1986 16714 17684
1987 17587 17949
1988 20501 21516
1989 26920 32025
1990 26085 29606
1991 34109 36496
1992 36715 41038
1993 40405 48472
1994 40918 45406
1995 56275 60590
1996 69212 68743
1997 92343 94425
1998 118852 175023
Average Annual Total Return*
Periods Ended 12/31/98 1 Year 5 Years 10 Years Since Inception**
- --------------------------------------------------------------------------------
Class A Shares 76.96% 28.08% 22.75% 21.10%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's 4.50% maximum sales charge. Past
performance is not an indicator of future results. The S&P 500 Composite is
an unmanaged index that is a widely recognized indicator of general market
performance.
** January 18, 1984.
9
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
Change in Value of a $10,000 Investment in Class B Shares* January 3,
1995-December 31, 1998
LINE CHART
Flag Investors Communications Fund $37,090
S&P 500 Composite $28,274
CLASS B
1/95 10000 10000
3/95 10692 10446
6/95 11697 11263
9/95 12640 12787
12/95 13397 13242
3/96 14119 13474
6/96 14743 14510
9/96 15205 13953
12/96 16477 14910
3/97 16917 14487
6/97 19854 17287
9/97 21365 19005
12/97 21984 20032
6/98 25886 25885
12/98 37090 28274
Average Annual Total Return*
Periods Ended 12/31/98 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class B Shares 79.91% --% 38.87%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's applicable sales charge. Past
performance is not an indicator of future results. The S&P 500 Composite is
an unmanaged index that is a widely recognized indicator of general market
performance.
** January 3, 1995.
10
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
Change in Value of a $10,000 Investment in Class C Shares* November 1,
1998-December 31, 1998
LINE CHART
Flag Investors Communications Fund $14,022
S&P 500 Composite $11,217
CLASS C
11/1/98 10,000 10,000
12/98 14,022 11,217
Average Annual Total Return*
- --------------------------------------------------------------------------------
Periods Ended 12/31/98 1 Year 5 Years Since Inception**
Class C Shares --% --% 40.99%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's applicable sales charge. Past
performance is not an indicator of future results. The S&P 500 Composite is
an unmanaged index that is a widely recognized indicator of general market
performance.
** November 1, 1998.
11
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
Change in Value of a $10,000 Investment in Institutional Shares*
June 4, 1998-December 31, 1998
LINE CHART
Flag Investors Communications Fund $15,395
S&P 500 Composite $11,366
Inst. Class
6/4/98 10000 10000
6/98 10615 10406
12/98 15395 11366
Average Annual Total Return*
Periods Ended 12/31/98 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Institutional Shares --% --% 53.95%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's applicable sales charge. Past
performance is not an indicator of future results.
** June 4, 1998.
12
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- -----------------------------------------------------------------------
STATEMENT OF NET ASSETS December 31, 1998
Shares Security Market Value
- -----------------------------------------------------------------------
COMMON STOCK -- 86.2%
REGIONAL BELL OPERATING COMPANIES -- 22.1%
1,100,000 Ameritech Corp. ......................... $ 69,712,500
833,216 Bell Atlantic Corp. ..................... 47,337,084
3,089,520 SBC Communications, Inc. ................ 165,675,510
573,000 U.S. West Incorporated .................. 37,030,125
------------
319,755,219
------------
INDEPENDENT LOCAL EXCHANGE CARRIERS -- 6.3%
480,000 ALLTEL Corp. ............................ 28,710,000
1,668,000 Cincinnati Bell, Inc. ................... 63,071,250
------------
91,781,250
------------
TELECOMMUNICATION - LONG DISTANCE -- 12.2%
924,200 Frontier ................................ 31,422,800
500,000 General Communication, Inc. * ........... 2,031,250
1,650,080 MCI Worldcom, Inc.* ..................... 118,393,240
150,000 Pacific Gateway Exchange, Inc.* ......... 7,209,375
200,000 Sprint Corp. (FON Group) ................ 16,825,000
------------
175,881,665
------------
SPECIALTY TELECOMMUNICATION SERVICES -- 31.4%
270,408 Airtouch Communications, Inc.* .......... 19,503,177
1,827,000 America Online* ......................... 292,320,000
417,800 Comsat .................................. 15,040,800
470,300 First Data Corp. ........................ 14,902,631
2,055,000 Novell, Inc.* ........................... 37,246,875
645,347 Orbital Sciences Corp.* ................. 28,556,605
514,400 Qwest Communications International, Inc.* 25,720,000
405,000 Skytel Communications* .................. 8,960,625
100,000 Sprint Corp (PCS Group)* ................ 2,312,500
225,000 WinStar Communications, Inc.* ........... 8,775,000
------------
453,338,213
------------
13
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS(concluded) December 31, 1998
Shares/
Par (000) Security Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 8.8%
509,000 3Com Corp.* ................................. $ 22,809,563
733,500 Alcatel Alsthom - ADR* ...................... 17,924,906
666,428 Black Box Corp.* ............................ 25,240,961
345,000 CellStar Corp.* ............................. 2,350,313
530,470 Lucent Technologies, Inc. ................... 58,351,700
--------------
126,677,443
--------------
FOREIGN TELEPHONE COMPANIES -- 3.6%
850,000 Clearnet Communications - Class A* .......... 6,906,250
128,000 Telefonica de Espana ADR .................... 17,328,000
285,000 Telefonos de Mexico SA ADR .................. 13,875,937
368,200 Teleglobe, Inc. ............................. 13,255,200
--------------
51,365,387
--------------
NON-TELEPHONE INDUSTRY COMMON STOCK -- 1.8%
626,900 Centertrust Retail Properties ............... 7,679,525
620,548 Conseco, Inc. ............................... 18,965,498
--------------
26,645,023
--------------
TOTAL COMMON STOCK (Cost $408,200,797) ....................... 1,245,444,200
--------------
REPURCHASE AGREEMENT -- 4.2%
60,305 Goldman Sachs & Co., 4.50% dated 12/31/98,
to be repurchased on 01/04/99, collateralized by
U.S.Treasury Note with a par value of $54,741,000,
coupon rate of 6.50%, due 8/15/05, with a market
value of 60,306,067 (Cost $60,305,000) ........ 60,305,000
--------------
U.S. TREASURY BILL -- 2.1%
30,000 U.S. Treasury Bill, dated 12/31/98, to mature
on 01/21/99, 3.88%
(Cost $29,926,750) ........................... 29,926,750
--------------
14
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- ------------------------------------------------------------------------------------
Shares/
Par (000) Security Market Value
- ------------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER -- 6.9%
50,000 American Express Credit Corp., dated 12/31/98,
to mature on 01/07/99, 5.00%..................... $ 49,956,250
50,000 Ford Motor Credit Corp., dated 12/31/98,
to mature on 01/05/99, 5.00%..................... 49,972,222
---------------
TOTAL COMMERCIAL PAPER (Cost $99,928,472)........................... 99,928,472
---------------
TOTAL INVESTMENTS -- 99.4%
(Cost $598,361,019)** ............................................. $1,435,604,422
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.6%........................ 9,538,753
---------------
TOTAL NET ASSETS-- 100.0% .......................................... $1,445,143,175
===============
NET ASSET VALUE AND REDEMPTION PRICE PER:
Class A Share
($1,275,775,433 divided 37,273,431 shares)..................... $34.23
======
Class B Share
($165,307,878 divided 4,891,128 shares)........................ $33.80***
======
Class C Share
($3,246,874 divided 95,961 shares)............................. $33.84****
======
Institutional Share
($812,990 divided 23,722 shares)............................... $34.27
======
MAXIMUM OFFERING PRICE PER:
Class A Share ($34.23 O 0.955)................................... $35.84
======
Class B Share ................................................... $33.80
======
Class C Share.................................................... $33.84
======
Institutional Share.............................................. $34.27
======
</TABLE>
- -----------
* Non-income producing security.
** Aggregate cost for federal tax purposes was $594,838,164.
*** Redemption value is $32.45 following a 4% maximum contingent deferred sales
charge.
**** Redemption value is $33.50 following a 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
December 31,
- --------------------------------------------------------------------------------
1998
<S> <C>
Investment Income:
Dividends .................................................... $ 11,274,810
Interest ..................................................... 2,433,424
Less: Foreign taxes withheld ............................... (12,313)
-------------
Total income ........................................ 13,695,921
-------------
Expenses:
Investment advisory fee ...................................... 5,927,518
Distribution fee ............................................. 2,898,154
Transfer agent fee ........................................... 577,983
Professional fees ............................................ 159,337
Printing and postage ......................................... 140,755
Accounting fee ............................................... 135,622
Custodian fee ................................................ 101,903
Registration fees ............................................ 97,337
Directors' fees .............................................. 34,921
Miscellaneous ................................................ 17,193
-------------
Total expenses ...................................... 10,090,723
-------------
Net investment income ........................................ 3,605,198
-------------
Realized and unrealized gain on investments:
Net realized gain from security transactions ................. 109,209,276
Change in unrealized appreciation/depreciation of investments. 510,943,527
-------------
Net gain on investments ...................................... 620,152,803
-------------
Net increase in net assets resulting from operations ............ $ 623,758,001
=============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- -----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
- -----------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ..................... $ 3,605,198 $ 6,150,046
Net realized gain from security
transactions ............................ 109,209,276 53,763,750
Change in unrealized appreciation/
depreciation of investments ............. 510,943,527 132,712,907
--------------- ---------------
Net increase in net assets resulting
from operations ......................... 623,758,001 192,626,703
--------------- ---------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares .......................... (13,223,970) (12,292,592)
Class B Shares .......................... (1,158,104) (438,661)
Class C Shares .......................... (8,002) --
Class D Shares .......................... (216,796) (560,042)
Institutional Class ..................... (3,699) --
Net realized mid-term and long-term gains:
Class A Shares .......................... (31,466,328) (45,697,778)
Class B Shares .......................... (3,523,412) (2,233,281)
Class C Shares .......................... (25,235) --
Class D Shares .......................... (397,182) (2,314,208)
Institutional Class ..................... (10,896) --
--------------- ---------------
Total distributions ....................... (50,033,624) (63,536,562)
--------------- ---------------
Capital Share Transactions
Proceeds from sale of shares .............. 298,419,515 32,057,019
Value of shares issued in reinvestment
of dividends ............................ 42,901,943 52,863,614
Cost of shares repurchased ................ (156,173,099) (78,344,677)
--------------- ---------------
Increase in net assets derived from
capital share transactions .............. 185,148,359 6,575,956
--------------- ---------------
Total increase in net assets .............. 758,872,736 135,666,097
Net Assets:
Beginning of period ....................... 686,270,439 550,604,342
--------------- ---------------
End of period ............................. $ 1,445,143,175 $ 686,270,439
=============== ===============
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Year Ended
December 31, For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ........................ $ 19.37 $ 15.59 $ 14.87 $ 12.30 $ 13.70
------------ ------------ ---------- ---------- ------------
Income from Investment Operations:
Net investment income ....................................... 0.12 0.27 0.27 0.40 0.41
Net realized and unrealized gain/(loss) on investments ...... 16.05 5.41 1.67 3.58 (1.27)
------------ ------------ ---------- ---------- ------------
Total from Investment Operations ............................ 16.17 5.68 1.94 3.98 (0.86)
------------ ------------ ---------- ---------- ------------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ......................... (0.40) (0.40) (0.38) (0.41) (0.44)
Distributions from net realized mid-term and long-term gains. (0.91) (1.50) (0.84) (1.00) (0.10)
------------ ------------ ---------- ---------- ------------
Total distributions ......................................... (1.31) (1.90) (1.22) (1.41) (0.54)
------------ ------------ ---------- ---------- ------------
Net asset value at end of year .............................. $ 34.23 $ 19.37 $ 15.59 $ 14.87 $ 12.30
============ ============ ========== ========== ============
Total Return1 .................................................. 85.30% 37.36% 13.46% 33.44% (6.32)%
Ratios to Average Daily Net Assets:
Expenses .................................................... 1.05% 1.11% 1.14% 0.93%2 0.92%2
Net investment income ....................................... 0.48% 1.07% 1.74% 2.85%3 3.14%3
Supplemental Data:
Net assets at end of year (000) ............................. $ 1,275,775 $ 622,865 $ 505,371 $ 492,454 $ 435,805
Portfolio turnover rate ..................................... 14% 26% 20% 24% 23%
</TABLE>
- ------------
1 Total return excludes the effect of sales charge.
2 Without the waiver of advisory fees (Note 2), the ratio of expenses to average
daily net assets would have been 0.99% and 0.99% for the years ended December
31, 1995 and 1994, respectively.
3 Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.79% and 3.07% for the
years ended December 31, 1995 and 1994, respectively.
See Notes to Financial Statements.
18 and 19
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the For the Period
Year Ended For the Years January 3, 1995 1
December 31, Ended December 31, through December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ......... $ 19.22 $ 15.51 $ 14.83 $ 12.28
-------------- ------------- ------------- ------------
Income from Investment Operations:
Net investment income/(loss) ................... (0.02) 0.18 0.19 0.30
Net realized and unrealized gain on investments. 15.83 5.34 1.63 3.56
-------------- ------------- ------------- ------------
Total from Investment Operations ............... 15.81 5.52 1.82 3.86
-------------- ------------- ------------- ------------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ............ (0.32) (0.31) (0.30) (0.31)
Distributions from net realized long-term gains. (0.91) (1.50) (0.84) (1.00)
-------------- ------------- ------------- ------------
Total distributions ............................ (1.23) (1.81) (1.14) (1.31)
-------------- ------------- ------------- ------------
Net asset value at end of period ............... $ 33.80 $ 19.22 $ 15.51 $ 14.83
============== ============= ============= ============
Total Return2 ..................................... 83.91% 36.36% 12.60% 32.42%
Ratios to Average Daily Net Assets:
Expenses ....................................... 1.80% 1.86% 1.92% 1.70% 3,5
Net investment income/(loss) ................... (0.35)% 0.29% 0.95% 2.13% 4,5
Supplemental Data:
Net assets at end of period (000) .............. $ 165,308 $ 32,474 $ 17,661 $ 7,504
Portfolio turnover rate ........................ 14% 26% 20% 24%
</TABLE>
- -----------------
1 Commencement of operations.
2 Total return excludes the effect of sales charge.
3 Without the waiver of advisory fees (Note 2), the ratio of expenses to average
daily net assets would have been 1.74% (annualized) for the period ended
December 31, 1995.
4 Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.09% (annualized) for the
period ended December 31, 1995.
5 Annualized.
See Notes to Financial Statements.
20 and 21
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- -----------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the period
Nov. 1, 19981
Through Dec. 31,
- -----------------------------------------------------------------------------------
1998
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................... $ 25.50
------------
Income from Investment Operations:
Net investment income/(loss) .............................. (0.01)
Net realized and unrealized gain on investments ........... 9.21
------------
Total from Investment Operations .......................... 9.20
------------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ....................... (0.21)
Distributions from net realized long-term gains ........... (0.65)
------------
Total distributions ....................................... (0.86)
------------
Net asset value at end of period .......................... $ 33.84
============
Total Return2 ................................................ 36.70%
Ratios to Average Daily Net Assets:
Expenses .................................................. 1.85%3
Net investment income/(loss) .............................. (0.61)%3
Supplemental Data:
Net assets at end of year (000) ........................... $ 3,247
Portfolio turnover rate ...................................... 14%
</TABLE>
- --------------
1 Commencement of operations.
2 Total return excludes the effect of sales charge.
3 Annualized.
See Notes to Financial Statements.
22
<PAGE>
This page intentionally left blank.
23
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS D SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
January 1, 1998
through
November 20,1 For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year .................. $ 19.36 $ 15.59 $ 14.87 $ 12.30 $ 13.67
----------- ------------- ------------- ------------- -------------
Income from Investment Operations:
Net investment income ................................. 0.09 0.23 0.22 0.34 0.37
Net realized and unrealized gain/(loss) on investments. 9.43 5.40 1.67 3.58 (1.20)
----------- ------------- ------------- ------------- -------------
Total from Investment Operations ...................... 9.52 5.63 1.89 3.92 (0.83)
----------- ------------- ------------- ------------- -------------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ................... (0.15) (0.36) (0.33) (0.35) (0.42)
Distributions in excess of net investment income ...... -- -- -- -- (0.02)
Distributions from net realized long-term gains ....... (0.26) (1.50) (0.84) (1.00) (0.10)
----------- ------------- ------------- ------------- -------------
Total distributions ................................... (0.41) (1.86) (1.17) (1.35) (0.54)
----------- ------------- ------------- ------------- -------------
Net asset value at end of period ...................... $ 28.47 $ 19.36 $ 15.59 $ 14.87 $ 12.30
=========== ============= ============= ============= =============
Total Return2 ............................................ 49.49% 36.94% 13.00% 32.91% (6.13)%
Ratios to Average Daily Net Assets:
Expenses .............................................. 1.44%5 1.46% 1.49% 1.28%3 1.27%3
Net investment income ................................. 0.23%5 0.73% 1.40% 2.50%4 2.81%4
Supplemental Data:
Net assets at end of year (000) ....................... $ -- $ 30,931 $ 27,573 $ 31,317 $ 31,696
Portfolio turnover rate ............................... 14% 26% 20% 24% 23%
</TABLE>
- -------------------
1 Class D shares were converted to Class A Shares on November 20,1998.
2 Total return excludes the effect of sales charge.
3 Without the waiver of advisory fees (Note 2), the ratio of expenses to average
daily net assets would have been 1.34% and 1.34% for the years ended December
31, 1995 and 1994, respectively.
4 Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.44% and 2.74% for the
years ended December 31, 1995 and 1994, respectively.
5 Annualized
See Notes to Financial Statements.
24 and 25
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS COMMUNICATIONS FUND
- -----------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
June 4, 19981
through
December 31,
- -----------------------------------------------------------------------------------
1998
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ........................ $ 23.26
----------
Income from Investment Operations:
Net investment income ......................................... 0.06
Net realized and unrealized gain on investments ............... 12.17
----------
Total from Investment Operations .............................. 12.23
----------
Less Distributions:
Distributions from net investment income and net realized
short-term gains ............................................ (0.31)
Distributions from net realized long-term gains ............... (0.91)
----------
Total distributions ........................................... (1.22)
----------
Net asset value at end of period .............................. $ 34.27
==========
Total Return2 .................................................... 53.95%
Ratios to Average Net Assets:
Expenses ...................................................... 0.83%3
Net investment income ......................................... 0.49%3
Supplemental Data:
Net assets at end of period (000) ............................. $ 813
Portfolio turnover rate ....................................... 14%
</TABLE>
- --------------
1 Commencement of operations.
2 Total return excludes the effect of sales charge.
3 Annualized.
See Notes to Financial Statements.
26
<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 B Shares, which commenced January 3, 1995; Class C
Shares, which commenced November 1, 1998; and Institutional Shares, which
commenced June 4, 1998. Class D Shares 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
Class C Shares have 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 in accordance 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.
27
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
NOTE 1--continued
At December 31, 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 requires that the collateral's market value,
including any accrued interest, exceed the brokers repurchase
obligation. 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. 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.
28
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
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 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.
For the year ended December 31,1998, ICC's advisory fee was $5,927,518 of
which $687,079 was payable at the end of the period.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the year ended December 31, 1998 ICC's fee was
$135,622 of which $13,611 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 December 31, 1998 ICC's fee was $577,983 of which $58,469 was payable at
the end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
Bankers Trust Corporation became the Fund's custodian on September 22,
1997. Prior to September 22, 1997, PNC Bank served as the Fund's custodian. For
the year ended December 31, 1998, custody fees amounted to $101,903, of which
$15,904 was payable at the end of the period.
Alex. Brown Investment Management ("ABIM") is the Fund's sub-advisor. As
compensation for its sub-advisory services, ICC pays ABIM a 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.
29
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS(continued)
NOTE 2--continued
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 pursuant to Rule 12b-1, 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.
Prior to September 1, 1997, Alex. Brown & Sons Incorporated served as the Fund's
distributor for the same compensation and on substantially the same terms as ICC
Distributors.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
December 31, 1998 was $34,921 and the accrued liability was $1,671.
Note 3--Capital Share Transactions
The Fund is authorized to issue up to 110 million shares of $.001 par value
capital stock (63 million Class A Shares, 15 million Class B Shares, 15 million
Class C Shares, 15 million Institutional Shares, 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
Dec. 31, 1998 Dec. 31, 1997
-------------- -------------
<S> <C> <C>
Shares sold ................................... 7,977,108 1,332,424
Shares issued to shareholders on
reinvestment of dividends .................. 1,383,390 2,595,376
Shares redeemed ............................... (4,236,213) (4,200,351)
------------- -------------
Net increase/(decrease) in shares outstanding.. 5,124,285 (272,551)
============= =============
Proceeds from sale of shares .................. $ 208,050,462 $ 23,153,177
Value of reinvested dividends ................. 37,846,228 47,729,473
Cost of shares redeemed ....................... (100,876,700) (71,340,867)
------------- -------------
Net increase/(decrease) from
capital share transactions ................. $ 145,019,990 $ (458,217)
============= =============
</TABLE>
30
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTE 3-continued
Class B Shares
------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
-------------- -------------
Shares sold ................................ 3,461,232 506,254
Shares issued to shareholders on
reinvestment of dividends ............... 162,054 138,015
Shares redeemed ............................ (421,723) (93,315)
------------ ------------
Net increase in shares outstanding ......... 3,201,563 550,954
============ ============
Proceeds from sale of shares ............... $ 86,906,479 $ 8,903,842
Value of reinvested dividends .............. 4,455,460 2,533,345
Cost of shares redeemed .................... (10,210,390) (1,625,592)
------------ ------------
Net increase from capital share
transactions ............................. $ 81,151,549 $ 9,811,595
============ ============
Class C Shares
---------------------
For the period
Nov. 1, 19981 through
Dec. 31, 1998
----------------------
Shares sold ........................................... 96,807
Shares issued to shareholders on
reinvestment of dividends .......................... 1,030
Shares redeemed ....................................... (1,875)
-----------
Net increase in shares outstanding .................... 95,962
===========
Proceeds from sale of shares .......................... $ 2,839,788
Value of reinvested dividends ......................... 29,394
Cost of shares redeemed ............................... (54,186)
-----------
Net increase from capital share transactions .......... $ 2,814,996
===========
- -----------
1 Commencement of operations.
31
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS(CONCLUDED)
Note 3-concluded
Class D Shares 1
--------------------------------
For the period
Jan. 1,1998 For the
through Year Ended
Nov. 20, 1998 Dec. 31, 1997
--------------- --------------
Shares sold ................................ -- --
Shares issued to shareholders on
reinvestment of dividends ............... 22,620 141,577
Shares redeemed ............................ (1,620,465) (312,350)
------------ ------------
Net decrease in shares outstanding ......... (1,597,845) (170,773)
============ ============
Proceeds from sale of shares ............... $ -- $ --
Value of reinvested dividends .............. 556,267 2,600,796
Cost of shares redeemed .................... (45,031,824) (5,378,218)
------------ ------------
Net decrease from capital share
transactions ............................. $(44,475,557) $ (2,777,422)
============ ============
- ---------------
1 Converted to Class A Shares on November 20, 1998.
<TABLE>
<CAPTION>
Institutional
Shares
---------------------
For the period
June 4, 19981 through
Dec. 31, 1998
---------------------
<S> <C>
Shares sold ................................................... 23,201
Shares issued to shareholders on
reinvestment of dividends .................................. 521
Shares redeemed ............................................... --
--------
Net increase in shares outstanding ............................ 23,722
========
Proceeds from sale of shares .................................. $622,784
Value of reinvested dividends ................................. 14,595
Cost of shares redeemed ....................................... --
--------
Net increase from capital share transactions .................. $637,379
========
</TABLE>
- ---------------
1 Commencement of operations.
32
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $119,103,526 and sales of investment securities
aggregated $172,504,529 for the year ended December 31, 1998.
At December 31, 1998, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $843,920,462
and aggregate unrealized depreciation for all securities in which there is an
excess of tax cost over value was ($6,677,059).
NOTE 5--Net Assets
On December 31, 1998, net assets consisted of:
Paid-in capital:
Class A Shares ............................................ $ 423,771,671
Class B Shares ............................................ 107,580,197
Class C Shares ............................................ 2,814,996
Institutional Shares ...................................... 637,379
Accumulated net realized gain from security transactions ..... 73,095,529
Net unrealized appreciation of investments ................... 837,243,403
--------------
$1,445,143,175
==============
33
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Flag Investors Communications 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 Communications Fund, Inc. (the "Fund") at December 31, 1998, 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 December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 5, 1999
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE TAX YEAR ENDED DECEMBER 31, 1998
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 $35,423,054 from
long-term capital gains; of which $35,423,054 was subject to the 20% rate gains
category.
Of ordinary distributions made during the fiscal year ended December 31,
1998, 62.74% qualifies for the dividends received deduction available to
corporate shareholders.
34
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
TRUMAN T. SEMANS
CHAIRMAN
JAMES J. CUNNANE
DIRECTOR
RICHARD T. HALE
DIRECTOR
JOSEPH R. HARDIMAN
DIRECTOR
LOUIS E. LEVY
DIRECTOR
EUGENE J. MCDONALD
DIRECTOR
REBECCA W. RIMEL
DIRECTOR
CARL W. VOGT, ESQ.
DIRECTOR
HARRY WOOLF
PRESIDENT
AMY M. OLMERT
SECRETARY
JOSEPH A. FINELLI
TREASURER
SCOTT J. LIOTTA
ASSISTANT SECRETARY
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.
35
<PAGE>
This page intentionally left blank.
<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>
LOGO
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
SPECIALTY
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
BALANCED
Flag Investors Value Builder Fund
FIXED 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
MONEY MARKET
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
COMMANN
(2/99)
