<PAGE>
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[GRAPHIC OMITTED]
COMMUNICATIONS FUND, INC.
(Class A, Class B and Class C Shares) (formerly, Flag
Investors Telephone Income Fund, Inc.)
Prospectus & Application -- May 1, 1998 as supplemented through March 31, 1999
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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.
Shares of the Fund are available through your securities dealer or the Fund's
transfer agent. This Prospectus relates to Flag Investors Class A Shares ("Class
A Shares"), Flag Investors Class B Shares ("Class B Shares") and Flag Investors
Class C Shares ("Class C Shares") of the Fund. The separate classes provide you
with alternatives as to sales load and Fund expenses. (See "How to Buy Shares.")
This Prospectus sets forth basic information that you should know about the Fund
prior to investing. You should retain it for future reference. A Statement of
Additional Information dated May 1, 1998, as supplemented through October 19,
1998 has been filed with the Securities and Exchange Commission (the "SEC") and
is hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fee Table .................................. 1
Financial Highlights ....................... 2
Investment Program ......................... 5
Investment Restrictions .................... 7
The Fund's Net Asset Value ................. 7
How to Buy Shares .......................... 7
How to Redeem Shares ....................... 9
Telephone Transactions ..................... 10
How to Choose the Class That Is
Right For You ........................... 11
Dealer Compensation ........................ 11
Dividends and Taxes ........................ 12
Management of the Fund ..................... 12
Investment Advisor and Sub-Advisor ......... 12
Distributor ................................ 14
Custodian, Transfer Agent and
Accounting Services ..................... 14
Performance Information .................... 14
General Information ........................ 15
Application ................................ A-1
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank. The shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other government agency.
Investment in the shares involves risk, including possible loss of principal.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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The Securities and Exchange Commission has neither approved nor disapproved
these securities
nor has it passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
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<PAGE>
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FEE TABLE
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Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Class A
Shares
Initial Sales
Charge
Alternative
-------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ...... 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends ............................... None
Maximum Deferred Sales Charge for purchases made before May 1, 1999 (as a per-
centage of original purchase price or redemption proceeds, whichever is lower).... 0.50%*
Maximum Deferred Sales Charge for purchases made on or after May 1, 1999 (as a
percentage of original purchase price or redemption proceeds, whichever is lower). 1.00%*
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees. ................................................................... 0.63%
12b-1 Fees ......................................................................... 0.25%
Other Expenses (including a 0.25% shareholder servicing fee for Class B and Class C
Shares) ........................................................................... 0.18%
-------
Total Fund Operating Expenses ...................................................... 1.06%*****
=======
<CAPTION>
Class B Class C
Shares Shares
Deferred Level
Sales Charge Sales Charge
Alternative Alternative
------------------- -------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ....... None None
Maximum Sales Charge Imposed on Reinvested Dividends ................................ None None
Maximum Deferred Sales Charge for purchases made before May 1, 1999 (as a per-
centage of original purchase price or redemption proceeds, whichever is lower)..... 4.00%** 1.00%***
Maximum Deferred Sales Charge for purchases made on or after May 1, 1999 (as a
percentage of original purchase price or redemption proceeds, whichever is lower).. 4.00%** 1.00%***
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees. .................................................................... 0.63% 0.63%
12b-1 Fees .......................................................................... 0.75% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for Class B and Class C
Shares) ............................................................................ 0.43%**** 0.43%****
------- -------
Total Fund Operating Expenses ....................................................... 1.81%***** 1.81%*****
======= =======
</TABLE>
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* If you purchase $1 million or more of Class A Shares, you will not have
to pay an initial sales charge. You may, however, be required to pay a
contingent deferred sales charge when you redeem your shares. (See "How
to Buy Shares" and "How to Redeem Shares.")
** You will be required to pay a contingent deferred sales charge if you
redeem your Class B Shares within six years of purchase. The amount of
the charge declines in relation to the time you hold your shares. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Redeem Shares.")
*** You will be required to pay a contingent deferred sales charge if you
redeem your Class C Shares within one year after purchase. (See "How to
Redeem Shares.")
**** A portion of the shareholder servicing fee is allocated to your
securities dealer and qualified banks for services provided and expenses
incurred in maintaining your account, responding to your inquiries and
providing you with information about your investment.
***** Total Fund Operating Expenses have been restated to reflect current
expenses.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- -------- --------- --------- ------------
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
Class A Shares ......................................... $55 $77 $101 $ 169
Class B Shares* ........................................ $60 $90 $121 $ 175*
Class C Shares ......................................... $29 $57 N/A N/A
You would pay the following expenses on the same
investment, assuming no redemption:
Class A Shares ......................................... $55 $77 $101 $ 169
Class B Shares* ........................................ $18 $57 $ 98 $ 175*
Class C Shares ......................................... $18 $57 N/A N/A
</TABLE>
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* Expenses assume that Class B Shares are converted to Class A Shares at
the end of six years. Therefore, the expense figures assume six years of
Class B expenses and four years of Class A expenses.
The Expenses and Example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear directly and indirectly when you invest in the Fund.
If you purchase shares of any class through a financial institution, you may be
charged separate fees by that institution. The Expenses and Example for the
Class C Shares, which have not been offered prior to the date of this
Prospectus, are expected to be the same as those incurred by the Class B Shares.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, you may qualify for reduced sales charges or no sales
charge at all. (See "How to Buy Shares.") Due to the continuous nature of Rule
12b-1 fees, you may pay more than the equivalent of the maximum sales charges
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD Rules") if you hold your shares for a long time.
1
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<PAGE>
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FINANCIAL HIGHLIGHTS
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The financial highlights included in the following tables are a part of the
Fund's financial statements for the Class A and Class B Shares for the periods
indicated and have been audited by PricewaterhouseCoopers LLP (formerly, Coopers
& Lybrand L.L.P.), independent accountants. The financial statements and
financial highlights for the year ended December 31, 1997 and the report thereon
of PricewaterhouseCoopers LLP are included in the Statement of Additional
Information. Additional performance information for the Class A Shares and the
Class B Shares is contained in the Fund's Annual Report for the fiscal year
ended December 31, 1997, which can be obtained at no charge by calling the Fund
at (800) 767-FLAG. The Class C Shares were not offered prior to the date of this
Prospectus.
(For a Class A Share outstanding throughout each year)
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<TABLE>
<CAPTION>
----------------------------------------------
1997 1996 1995
------------ ------------ ----------------
Per Share Operating Performance:
<S> <C> <C> <C>
Net asset value at beginning of year ......... $ 15.59 $ 14.87 $ 12.30
-------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.27 0.27 0.40
Net realized and unrealized gain/(loss) on
investments ................................ 5.41 1.67 3.58
-------- -------- --------
Total from Investment Operations ............. 5.68 1.94 3.98
-------- -------- --------
Less Distributions:
Dividends from net investment income and net
realized short-term gains .................. (0.40) (0.38) (0.41)
Distributions from net realized mid-term and
long-term gains ............................ (1.50) (0.84) (1.00)
--------- --------- --------
Total distributions .......................... (1.90) (1.22) (1.41)
--------- --------- --------
Net asset value at end of year ............... $ 19.37 $ 15.59 $ 14.87
========= ========= ========
Total Return(3) ............................... 37.36% 13.46% 33.44%
Ratios to Average Daily Net Assets:
Expenses ..................................... 1.11% 1.14% 0.93%(4)
Net investment income ........................ 1.07% 1.74% 2.85%(5)
Supplemental Data:
Net assets at end of year (000) .............. $622,865 $505,371 $492,454
Portfolio turnover rate ...................... 26% 20% 24%
Average commissions per share(6) ............. $ 0.0598 $ 0.0696 --
</TABLE>
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(1) Restated for two-for-one stock split, effected in the form of a stock
dividend to shareholders of record on October 27, 1989.
(2) Investment Company Capital Corp. became Investment Advisor to the Fund on
January 19, 1989.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.99%, 0.99%, 0.98%, 1.07%, 1.17%, 1.13% and
1.07% for the years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990
and 1989, respectively.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 2.79%, 3.07%, 3.06%, 3.66%, 4.13%,
4.32% and 4.28% for the years ended December 31, 1995, 1994, 1993, 1992,
1991, 1990 and 1989, respectively.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
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<PAGE>
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FINANCIAL HIGHLIGHTS(continued)
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<TABLE>
<CAPTION>
For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989(1)(2) 1988(1)
- ----------------- ---------------- ---------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 13.70 $ 12.20 $ 11.28 $ 9.57 $ 10.98 $ 8.24 $ 7.50
--------- -------- -------- -------- -------- -------- --------
0.41 0.42 0.42 0.45 0.46 0.52 0.46
( 1.27) 1.78 0.93 1.74 ( 1.29) 3.38 0.97
--------- -------- -------- -------- -------- -------- --------
( 0.86) 2.20 1.35 2.19 ( 0.83) 3.90 1.43
--------- -------- -------- -------- -------- -------- --------
( 0.44) ( 0.42) ( 0.42) ( 0.46) ( 0.45) ( 0.52) ( 0.46)
( 0.10) ( 0.28) ( 0.01) ( 0.02) ( 0.13) ( 0.64) ( 0.23)
--------- -------- -------- -------- -------- -------- --------
( 0.54) ( 0.70) ( 0.43) ( 0.48) ( 0.58) ( 1.16) ( 0.69)
--------- -------- -------- -------- -------- -------- --------
$ 12.30 $ 13.70 $ 12.20 $ 11.28 $ 9.57 $ 10.98 $ 8.24
========= ======== ======== ======== ======== ======== ========
( 6.32)% 18.12% 12.35% 23.08% ( 7.55)% 48.86% 19.90%
0.92%(4) 0.92%(4) 0.92%(4) 0.92%(4) 0.92%(4) 0.93%(4) 0.92%
3.14%(5) 3.12%(5) 3.81%(5) 4.38%(5) 4.54%(5) 4.41%(5) 5.35%
$ 435,805 $469,163 $307,641 $238,571 $177,963 $162,449 $102,483
23% 14% 6% 7% 2% 27% 11%
-- -- -- -- -- -- --
</TABLE>
3
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<PAGE>
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FINANCIAL HIGHLIGHTS (concluded)
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(For a Class B Share outstanding throughout each period)
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<TABLE>
<CAPTION>
For the Year Ended For the Period
December 31, January 3, 1995(1)
--------------------------- through
1997 1996 December 31, 1995
------------ ------------ ----------------------
<S> <C> <C> <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:
Dividends from net investment income and net
realized short-term gains ............................. ( 0.31) ( 0.30) ( 0.31)
Distributions from net realized mid-term and 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(2) .......................................... 36.36% 12.60% 32.42%
Ratios to Average Daily Net Assets:
Expenses ................................................ 1.86% 1.92% 1.70%(3)(4)
Net investment income ................................... 0.29% 0.95% 2.13%(3)(5)
Supplemental Data:
Net assets at end of period (000) ....................... $ 32,474 $ 17,661 $ 7,504
Portfolio turnover rate ................................. 26% 20% 24%
Average commissions per share(6) ........................ $ 0.0598 $ 0.0696 --
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees, 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, 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) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
4
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<PAGE>
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INVESTMENT PROGRAM
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Investment Objective, Policies and Risk
Considerations
The Fund's investment objective is to maximize total return. 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 this objective, the
Fund invests primarily in common stock, securities convertible thereto and debt
obligations of companies in the communications field. For this purpose,
companies would be considered to be in the "communications field" if they were
engaged in the research, development, manufacture or sale of communications
services, technology, equipment or products. Effective communication through the
transmission of voice, pictures and data is becoming increasingly important and
the communications field now embraces a wide variety of products and services,
such as local and long distance telephone service, wireless service (e.g.,
cellular telephone or paging services), video, telecommunications equipment,
media, and information technology. There can be no assurance that the Fund's
investment objective will be met. Concentration in the communications field will
subject the Fund to the risks associated with that field (e.g., regulatory and
technological change) and may result in greater fluctuation in the Fund's net
asset value than is experienced in less concentrated portfolios. The Fund will
be non-diversified for purposes of the Investment Company Act of 1940, as
amended (the "Investment Company Act") which means that the performance of one
or a small number of portfolio holdings can affect overall performance more than
would otherwise be the case.
The Fund's investment advisors believe that investing in a portfolio of
securities of companies in the communications field affords an attractive
opportunity for achieving the Fund's investment objective. The Fund's emphasis
is investment in companies offering products and services that both support
traditional communications and facilitate new information-based applications.
Information technology combines data processing and telecommunications to
support more efficient and economical business processes and consumer
activities. The rapidly improving performance and declining cost of transmission
have helped the global expansion of information technology. For example,
businesses have an increasing need to connect to remote users such as employees,
suppliers and customers. Consumers are increasingly relying on telephone-based
applications like on-line banking and shopping to save time and money.
Worldwide telecommunications market expansion will create opportunities
for established and emerging providers of telecommunications products and
services. Although new, high growth technologies are being adopted at an
increasing rate, commercial acceptance still lags the introduction of new
products and services. Traditional communications companies, such as telephone
companies, are positioned to serve the existing and developing needs of their
customer base with a combination of current and new offerings. Evolving user
requirements have also led to the development of separate industry segments,
outside the local telephone and long distance businesses, which enable
non-traditional telecommunications providers a chance to benefit from the
growing worldwide demand for voice, data and video services.
Under normal market conditions at least 65% of the Fund's total assets
will be invested in common stock, securities convertible thereto and debt
obligations of companies in the communications field, as defined above.
Depending on the circumstances, the Fund may temporarily and for defensive
purposes invest up to 100% of its net assets in money market instruments and in
other income-producing securities.
In general, the Fund will invest in investment grade debt obligations that
are rated, at the time of purchase, BBB or higher by Standard and Poor's Ratings
Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"),
or, if unrated, determined to be of comparable quality by the Fund's investment
advisors, under criteria approved by the Fund's Board of Directors. Investment
grade securities (securities rated BBB or higher by S&P or Baa or higher by
Moody's) are generally thought to provide the highest credit quality and the
smallest risk of default. Securities rated BBB by S&P or Baa by Moody's have
speculative characteristics. Up to 10% of the Fund's total assets (measured at
the time of the investment) may be invested in lower quality debt obligations
(securities rated BB or lower by S&P or Ba or lower by Moody's and unrated
securities of comparable quality). Securities that were investment grade at the
time of purchase but are subsequently downgraded to BB/Ba or lower will be
included in the 10% category. In the event any security owned by the Fund is
downgraded, the Fund's investment advisors will review the situation and take
appropriate action, but will not be automatically required to sell any such
security. If such a downgrade causes the 10% limit to be exceeded, the Fund will
be precluded from investing further in debt obligations that are below
investment grade. (See "Investments in Non-Investment Grade Securities" below.)
5
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<PAGE>
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Investments in Non-Investment Grade Securities
Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. Securities in the lowest rating
category that the Fund may purchase (securities rated C by either S&P or
Moody's) may present a particular risk of default, or may be in default or
arrears in the payment of principal and interest. In addition, C-rated
securities may be regarded as having extremely poor prospects of ever attaining
any real investment standing. Yields and market values of these bonds will
fluctuate over time reflecting changing interest rates and the market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value,
regardless of prevailing interest rates. Accordingly, adverse economic
developments, including a recession or substantial period of rising interest
rates, may disrupt the high-yield bond market, affecting both the value and
liquidity of such bonds. The market prices of these securities may fluctuate
more than those of higher rated securities, and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. An economic downturn could adversely affect the ability of
issuers of such bonds to make payments of principal and interest to a greater
extent than issuers of higher rated bonds might be affected. The ratings
categories of S&P and Moody's are described more fully in the Appendix to the
Statement of Additional Information.
The following table provides a summary of ratings assigned by S&P to debt
obligations in the Fund's portfolio. These figures are dollar-weighted averages
of month-end portfolio holdings during the fiscal year ended December 31, 1997,
presented as a percentage of total investments. These percentages are historical
and are not necessarily indicative of the quality of current or future portfolio
holdings, which may vary.
S&P
Rating Average
- ----------- ----------
AAA 1.68%
AA 0.00%
A 0.00%
BBB 0.00%
BB 0.88%
B 0.00%
Unrated 0.00%
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks or broker-dealers, subject to
the seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
<PAGE>
Investment in Securities of Foreign Issuers
From time to time, the Fund may invest in American Depositary Receipts
("ADRs"), which are interests in securities of foreign companies, and up to 10%
of the Fund's total assets in debt and equity securities of issuers not publicly
traded in the United States, when the Fund's investment advisors believe that
such investments provide good opportunities for achieving income and capital
gains without undue risk.
Loans of Portfolio Securities
The Fund has the right to lend portfolio securities to approved
institutional borrowers for the purpose of increasing its net investment income.
These loans must be secured continuously by cash or equivalent collateral, or by
a letter of credit at least equal to the market value of the securities loaned
plus accrued interest or income. There may be a risk of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund's custodian or another affiliate may act
as securities lending agent.
Other Investments
The Fund may write covered call options if each such option is traded on a
national securities exchange (and may purchase calls in related closing
transactions). The Fund may also invest in securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended ("Rule 144A
Securities") that have been determined to be liquid by the Fund's advisors under
standards approved by the Fund's Board of Directors, and may invest up to 10% of
its net assets in Rule 144A Securities that are illiquid (see "Investment
Restrictions" in the Statement of Additional Information). Rule 144A Securities
may become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not
6
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<PAGE>
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properly process dates on and after January 1, 2000 and distinguish between the
year 2000 and the year 1900. The Fund has asked its service providers whether
they expect to have their computer systems adjusted for the year 2000
transition, and has received assurances from each that its system is expected to
accommodate the year 2000 without material adverse consequences to the Fund. The
Fund and its shareholders may experience losses if these assurances prove to be
incorrect or if issuers of portfolio securities or third parties, such as
custodians, banks, broker-dealers or others, with which the Fund does business
experience difficulties as a result of year 2000 issues.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following investment restriction is a matter of fundamental policy and
may not be changed without shareholder approval. Accordingly, the Fund will not
invest less than 65% of its total assets in the communications field, except as
described in this Pro-spectus (otherwise the Fund will not concentrate more than
25% of its total assets in securities of issuers in any industry).
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The following sections describe how to buy and redeem shares of the Fund.
The price you pay or receive is based on the Fund's net asset value per
share. When you buy Class A Shares, the price you pay may be increased by a
sales charge. When you redeem shares of any of the classes, the price you
receive may be reduced by a sales charge. Read the sections on how to buy shares
and how to redeem shares for details on how and when these charges may or may
not be imposed.
The net asset value per share of each class is determined on each business
day as of the close of trading on the New York Stock Exchange (ordinarily 4:00
p.m. Eastern Time). It is calculated by subtracting the liabilities attributable
to a class from its proportionate share of the Fund's assets and dividing the
result by the outstanding shares of the class. Because the different classes
have different distribution or service fees, their net asset values may differ
from time to time.
In valuing the Fund's assets, its investments are priced at their market
value which is normally based on current prices but which may be determined
according to "fair value" procedures approved by the Fund's Board of Directors.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that day,
the price you pay or receive will be based on the next Business Day's net asset
value per share.
<PAGE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may buy any class of the Fund's shares through your securities dealer
or through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
You may purchase Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may be
as low as $1,000.
7
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<PAGE>
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o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. If you participate in the
monthly plan, your subsequent investments may be as low as $100. If
you participate in the quarterly plan, your subsequent investments may
be as low as $250. Refer to the section on the Fund's Automatic
Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Purchase Price
The price you pay to buy shares will be the Fund's offering price which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
-------------------------
Offering Net Amount Class B Sales Class C Sales
Amount of Purchase Price Invested Charge Charge
- ------------------------------ ---------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Less than $ 50,000......... 4.50% 4.71% None None
$ 50,000 - $ 99,999......... 3.50% 3.63% None None
$ 100,000 - $249,999......... 2.50% 2.56% None None
$ 250,000 - $499,999......... 2.00% 2.04% None None
$ 500,000 - $999,999......... 1.50% 1.52% None None
$1,000,000 and over........... None None None None
- ------------------------------ ---- ---- --------------- --------------
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000
or more in Class A Shares or when you buy any amount of Class B or Class C
Shares, you may pay a sales charge when you redeem your shares. Refer to the
section on how to redeem shares for details.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are also purchasing Class A shares of this
or any other Flag Investors fund or if you already have investments in Class A
or Class D shares, you may combine the value of your purchases with the value of
your existing investments to determine whether you qualify for a reduced sales
charge. (For this purpose your existing investments will be valued at the higher
of cost or current value.) You may also combine your purchases and investments
with those of your spouse and your children under the age of 21 for this
purpose. You must be able to provide sufficient information to verify that you
qualify for this right of accumulation.
<PAGE>
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
2) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
3) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Distributor, the Advisors
and any broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional fee
by your securities dealer or servicing agent if you buy shares in
this manner.
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an equal dollar amount of Class A, Class B or Class C
8
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<PAGE>
- --------------------------------------------------------------------------------
Shares, as applicable, without payment of the sales charges described above or
any other charge. If you exchange Class A shares of any Flag Investors fund with
a lower sales charge structure into Class A Shares, you will be charged the
difference in sales charges unless (with the exception of Flag Investors Cash
Reserve Prime Class A Shares) you have owned the shares for at least 24 months.
You may enter both your redemption and purchase orders on the same Business Day
or, if you have already redeemed the shares of the other fund, you may enter
your purchase order within 90 days of the redemption. The Fund may modify or
terminate these offers of exchange at any time on 60 days' prior written notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in any class of shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Fund shares at net
asset value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase any class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem any class of the Fund's shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If your shares are in an account
with the Fund, you may also redeem shares by contacting the Transfer Agent by
mail or (if you are redeeming less than $50,000) by telephone. The Transfer
Agent will mail your redemption check within seven days after it receives your
order in proper form. Refer to the section on telephone transactions for more
information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. The letter must be signed by
all owners of the shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company,
broker, dealer, securities exchange or association, clearing agency,
savings association or (if authorized by state law) credit union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
9
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<PAGE>
- --------------------------------------------------------------------------------
Redemption Price
The price you receive when you redeem shares will be the net asset value
of the class of shares you are redeeming less any applicable sales charge. The
amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
Sales Charge as a Percentage of the Dollar Amount Subject to
Charge
- --------------------------------------------------------------
Class A Class B Class C
Years Since Purchase Shares Shares Shares
- ---------------------- ------------ --------- ----------
First ................ 1.00%* 4.00% 1.00%
Second ............... 0.50%* 4.00% None
Third ................ None 3.00% None
Fourth ............... None 3.00% None
Fifth ................ None 2.00% None
Sixth ................ None 1.00% None
Thereafter ........... None None None
- ---------------------- ---- ---- ----
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1,000,000 or
more. For purchases of $1,000,000 or more of Class A Shares made before May
1, 1999, you will pay a sales charge of 0.50% if you redeem your shares
within the first year of purchase instead of the 1.00% reflected in the above
chart.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their current market value.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag Investors fund
with the same sales charge structure.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan
are 12% or less of your share balance.
<PAGE>
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
5) If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the
Distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares six years after your purchase. This
conversion will be made on the basis of the relative net asset values of the
classes and will not be a taxable event to you.
Other Redemption Information
If you own Fund shares having a value of at least $10,000, you may arrange
to have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check, whether or not that is the payment option
you have selected.
If you redeem sufficient shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining shares after giving you 60 days'
notice.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to
10
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<PAGE>
- --------------------------------------------------------------------------------
telephone transaction privileges unless you specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information at the time
your account is opened and prior to effecting each telephone transaction. You
may be required to provide additional telecopied instructions. If these
procedures are employed, neither the Fund nor the Transfer Agent will bear any
liability for following instructions received by telephone that they reasonably
believe to be genuine. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your shares in certificate form,
you may not exchange or redeem them by telephone.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
- --------------------------------------------------------------------------------
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares and,
except in the case of investments of $1,000,000 or more, no sales charge if you
redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within six years of purchase,
but the amount of the charge declines the longer you hold your shares and, at
the end of six years, your shares convert to Class A Shares thus eliminating the
higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy
your shares or if you redeem them after holding them for at least a year. On the
other hand, expenses on Class C Shares are the same as those on Class B Shares
and, since there is no conversion to Class A Shares at the end of six years, the
higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $100,000, your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
If you intend to buy less than $100,000 and expect to hold your shares for less
than six years, your combined sales charges and expenses are lower with Class C
Shares.
Your securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy.
<PAGE>
DEALER COMPENSATION
- --------------------------------------------------------------------------------
Your securities dealer is paid a commission when you buy shares and is
paid a servicing fee for as long as you hold your shares.
<TABLE>
<CAPTION>
Dealer Compensation as a % of Offering Price
-----------------------------------------------------
Amount of Purchase Class A Shares Class B Shares Class C Shares
- ------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Less than $ 50,000 ........... 4.00% 4.00% 1.00%
$ 50,000 - $ 99,999 ........... 3.00% 4.00% 1.00%
$ 100,000 - $249,999 .......... 2.00% 4.00% 1.00%
$ 250,000 - $499,999 .......... 1.50% 4.00% 1.00%
$ 500,000 - $999,999 .......... 1.25% 4.00% 1.00%
$1,000,000 and over ......... * 4.00% 1.00%
- -------------------------------- ---- ---- ----
</TABLE>
* Your securities dealer may be paid up to 1.00% of the Offering Price
In addition to the commissions shown above, your securities dealer may be
paid an annual fee equal to 0.25% of the value of your Class A Shares or Class B
Shares and an annual fee equal to 1.00% of the value of your Class C Shares for
as long as you hold them. The annual fee for the Class A and Class B Shares will
begin when you buy your shares. The annual fee for the Class C Shares will begin
one year after you buy your shares.
11
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<PAGE>
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DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The Fund
normally will distribute to shareholders any net capital gains on an annual
basis.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences affecting
the Fund and its shareholders is based on current tax laws and regulations,
which may be changed by legislative, judicial, or administrative action. No
attempt has been made to present a detailed explanation of the federal, state or
local tax treatment of the Fund or its shareholders, and the discussion here is
not intended as a substitute for careful tax planning. Accordingly, you are
advised to consult with your tax advisor regarding specific questions.
There is further information concerning taxes in the Statement of
Additional Information.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will not pay
federal income tax on amounts distributed to shareholders. Unless you are
otherwise exempt, you will be generally subject to federal income tax on the
amounts distributed to you, regardless of whether such distributions are paid in
cash or reinvested in additional shares.
Capital gains distributions from the Fund are classified as either
short-term or long-term depending upon how long the Fund held the securities it
sold to generate the gains. You will be taxed on the distributions according to
the category stipulated by the Fund regardless of how long you have held your
Fund shares. You will be taxed on all other income distributions as ordinary
income.
Dividends declared payable to shareholders of record in December of one
year, but paid in January of the following year, will be deemed for tax purposes
to have been paid by the Fund and received by you in the year in which the
dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Fund shares is a taxable event for
you.
<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Fund's advisors and to the Distributor. A
majority of the Directors have no affiliation with the Fund's advisors or the
Distributor.
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the "Sub-
Advisor") is the Fund's sub-advisor. ICC is the investment advisor to other
mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $7.8
billion of net assets as of August 31, 1998. ABIM is a registered investment
advisor with approximately $7.0 billion under management as of August 31, 1998.
ICC supervises and manages all of the Fund's operations. Under the
Investment Advisory and Sub-Advisory Agreements, ICC delegates to ABIM certain
of its duties, provided that ICC continues to supervise the performance of ABIM
and report thereon to the Fund's Board of Directors. Pursuant to the terms of
the Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates. The Board has established procedures under which ABIM may
allocate transactions to certain affiliates, provided that compensation on each
transaction is reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other broker-dealers in connection
with
12
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<PAGE>
- --------------------------------------------------------------------------------
comparable transactions involving similar securities during a comparable period
of time. In addition, consistent with NASD Rules, and subject to seeking the
most favorable price and execution available and such other policies as the
Board may determine, ABIM may consider services in connection with the sale of
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
As compensation for providing investment advisory services to the Fund for
the fiscal year ended December 31, 1997, ICC received a fee equal to 0.70% of
the Fund's average daily net assets and, for the same period ICC paid ABIM a fee
equal to 0.49% of the Fund's average daily net assets. ICC may from time to time
voluntarily waive a portion of its fee to improve performance.
ICC is an indirect subsidiary of Bankers Trust Corporation. ABIM is a
limited partnership affiliated with the Advisor. Buppert, Behrens & Owen, Inc.,
a company organized and owned by three employees of ABIM, owns a 49% limited
partnership interest and a 1% general partnership interest in ABIM. BT Alex.
Brown Incorporated owns a 1% general partnership interest in ABIM and BT Alex.
Brown Holdings owns the remaining 49% limited partnership interest.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services.")
On November 30, 1998, Bankers Trust Corporation entered into an Agreement
and Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation
would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is
a major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with ICC and sub-advisory relationship with ABIM thereafter is
subject to the approval of Fund shareholders. On March 30, 1999, the Board of
Directors approved, subject to shareholder approval, a new advisory agreement
between ICC and the Fund and a new sub-advisory agreement among the Fund, ICC
and ABIM in the event the merger is approved and completed. If the transaction
is approved and completed, Deutsche Bank AG will control the operations of ICC
and may be deemed to indirectly control ABIM. ICC and ABIM believe that, under
this new arrangement, the services provided to the Fund will be maintained at
their current level.
On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. ICC became a subsidiary of Bankers Trust Corporation in a merger
that occurred after these events took place. Pursuant to its agreement with the
U.S. Attorney's Office, Bankers Trust pleaded guilty to misstating entries in
the bank's books and records and agreed to pay a $60 million fine to federal
authorities. Separately, Bankers Trust agreed to pay a $3.5 million fine to the
State of New York. The events leading up to the guilty pleas did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
<PAGE>
As a result of the plea, absent an order from the SEC, ICC and ABIM may
not be able to continue to provide advisory services to the Fund. The SEC has
granted a temporary order to permit Bankers Trust and its affiliates to continue
to provide investment advisory services to registered investment companies.
There is no assurance that the SEC will grant a permanent order.
Portfolio Managers
Messrs. Bruce E. Behrens and Liam D. Burke have shared primary
responsibility for managing the Fund's assets since May 1, 1997. From the
Fund's inception through April 30, 1997, Mr. Behrens shared that responsibility
with Hobart C. Buppert, II, who remains at ABIM.
Bruce E. Behrens -- 30 Years' Investment Experience
Mr. Behrens has been a Vice President and a Principal of ABIM since 1981.
Prior to joining ABIM, Mr. Behrens was a Senior Vice President and Principal of
Corbyn Associates from 1978 to 1981 and a Vice President at Investment
Counselors of Maryland from 1972 to 1978. Prior thereto, he was a Securities
Analyst at Citibank from 1968 to 1972. Mr. Behrens received his B.A. from
Denison University in 1966 and an M.B.A. from the University of Michigan in
1968. He is a member and past President of the Baltimore Security Analysts
Society and a member of the Financial Analysts Federation.
Liam D. Burke -- 9 Years' Investment Experience
Mr. Burke joined ABIM in 1994 with primary responsibility as a
telecommunications analyst for the Fund. Prior to joining ABIM, Mr. Burke
worked as a telecommunications industry analyst at a regional broker-dealer,
Ferris, Baker, Watts, Inc., from 1992 to
13
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<PAGE>
- --------------------------------------------------------------------------------
1994 and as managing director of Frey & Co., a Baltimore-based private
investment bank, from 1989 to 1992. Mr. Burke began his professional career at
AT&T and spent eight years in positions that included operations, regional staff
management and national account sales. He is a graduate of Georgetown University
and received his MBA from The George Washington University.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as the Fund's distributor since August 31, 1997. The Distributor is a
registered broker-dealer that offers distribution services to a variety of
registered investment companies including other funds in the Flag Investors
family of funds and BT Alex. Brown Cash Reserve Fund, Inc. The Distributor is
not affiliated with the Advisors.
The Fund has adopted a Distribution Agreement and related Plans of
Distribution with respect to the Class A Shares, the Class B Shares and the
Class C Shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company
Act. In addition, the Fund may enter into agreements with certain financial
institutions, including certain banks and BT Alex. Brown Incorporated, to
provide shareholder services, pursuant to which the Distributor may allocate on
a proportional basis up to all of its distribution fee as compensation for such
financial institutions' ongoing shareholder services. Such financial
institutions may charge you separately for these services.
As compensation for providing distribution services for the Class A Shares
for the period from August 31, 1997 through December 31, 1997, the Distributor
received a fee equal to 0.25% (annualized) of the Class A Shares' average daily
net assets.
As compensation for providing distribution and shareholder services for
the Class B Shares for the period from August 31, 1997 through December 31,
1997, the Distributor received a distribution fee equal to 0.75% (annualized) of
the Class B Shares' average daily net assets. As compensation for providing
distribution and shareholder services for the Class C Shares, the Distributor
receives a distribution fee equal to 0.75% and a shareholder servicing fee equal
to 0.25% (annualized) of the Class C Shares' average daily net assets. The
distribution fees are used to compensate the Distributor for its services and
expenses in distributing the Class B Shares and the Class C Shares. The
shareholder servicing fees are used to compensate the Distributor, securities
dealers and servicing agents for services provided and expenses incurred in
maintaining your account, responding to your inquiries and providing you with
information on your investments.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services. If the cost of
providing distribution services is less than the payments received, the
Distributor may retain the unexpended portion of the distribution fee. The
Advisor or the Distributor, and their respective affiliates, may make payments
from their own resources to securities dealers and servicing agents. Payments by
the Distributor may include additional discounts or promotional incentives in
the form of cash or other compensation (including merchandise or travel).
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended December
31, 1997, ICC received a fee equal to 0.02% of the Fund's average daily net
assets. Bankers Trust acts as custodian of the Fund's assets. (See the Statement
of Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares or Class C Shares redeemed at the end of the specified period covered by
the total return figure, over one-, five- and ten-year periods or, if such
periods have not yet elapsed, shorter periods corresponding to the life of the
Fund. Such total return quotations will be computed by finding the average
annual compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value, net of
14
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<PAGE>
- --------------------------------------------------------------------------------
the maximum sales charge and other fees, according to the required standardized
calculation. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation.
If the Fund compares its performance to other funds or to relevant
indices, the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield. For these purposes, the performance of the Fund, as well as the
performance of such investment companies or indices, may not reflect sales
charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar,
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barrons, Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions. Any fees charged by your bank with
respect to your account are not included in calculations of performance and will
reduce your investment returns.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end non-diversified management investment company. The
Fund reorganized as a Maryland corporation on January 19, 1989 and is authorized
to issue 110 million shares of capital stock, with a par value of $.001 per
share. Shares of the Fund have equal rights with respect to voting. Voting
rights are not cumulative, so the holders of more than 50% of the outstanding
shares voting together for election of Directors may elect all the members of
the Board of Directors of the Fund. In the event of liquidation or dissolution
of the Fund, each share is entitled to its pro rata portion of the Fund's assets
after all debts and expenses have been paid. The fiscal year-end of the Fund is
December 31.
<PAGE>
The Board of Directors is authorized to establish additional "series" of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated: "Flag Investors
Communications Fund Class A Shares", "Flag Investors Communications Fund Class B
Shares" and "Flag Investors Communications Fund Class C Shares." The Board has
no present intention of establishing any additional series of the Fund but the
Fund does have two other classes of shares, "Flag Investors Communications Fund
Institutional Shares," which are offered by a separate prospectus and "Flag
Investors Communications Fund Class D Shares," which are not currently being
offered. Additional information concerning the Fund's Institutional Shares may
be obtained by calling the Fund at (800) 767-FLAG. Different classes of the Fund
may be offered to certain investors and holders of such shares may be entitled
to certain exchange privileges not offered to other classes of shares. All
classes of the Fund share a common investment objective, portfolio of
investments and advisory fee, but the classes may have different
distribution/service fees or sales load structures and, accordingly, the net
asset value per share of classes may differ at times.
Annual Meetings
The Fund does not expect to hold annual meetings of shareholders, unless
required by Maryland law.Shareholders of the Fund retain the right, under
certain circumstances, to request that a meeting of shareholders be held for the
purpose of considering the removal of a Director from office, and if such a
request is made, the Fund will assist with shareholder communications in
connection with the meeting.
Reports
You will be furnished with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, PricewaterhouseCoopers LLP.
Shareholder Inquiries
If you have questions concerning your shares, contact the Fund at (800)
767-FLAG, the Transfer Agent at (800) 553-8080, or your securities dealer or
servicing agent.
15
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Make check payable to "Flag Investors Communications Fund, For assistance in completing this Application please call: 1-800-
Inc." and mail with this Application to: 553-8080 Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Flag Investors Funds
P.O. Box 419663 To open an IRA account, please call 1-800-767-3524 for an IRA
Kansas City, MO 64141-6663 information kit.
Attn: Flag Investors Communications Fund, Inc.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate amount of
purchase.)
[_] Class A Shares (4.5% maximum initial sales charge) in the amount of $_________________.
[_] Class B Shares (4.0% maximum contingent deferred sales charge) in the amount of $___________________.
[_] Class C Shares (1.0% maximum contingent deferred sales charge) in the amount of $___________________.
Your Account Registration (Please Print)
Existing Account No., if any: ________________________
Individual or Joint Tenant Gifts to Minors
- ------------------------------------------------------ ------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- ------------------------------------------------------ ------------------------------------------------------
Social Security Number Minor's Name (only one)
- ------------------------------------------------------ ------------------------------- -----------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the __________________ Uniform Gifts to Minors Act
State of Residence
Corporations, Trusts, Partnerships, etc. Mailing Address
- ------------------------------------------------------ ------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- ------------------------------------------------------ ------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- ------------------------------------------------------ ------------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
- ------------------------------------------------------
For the Benefit of
<PAGE>
Letter of Intent (Optional)
[_] I agree to the Letter of Intent and Escrow Agreement set forth in the accompanying prospectus. Although I am not obligated to do
so, I intend to invest over a 13-month period in Class A Shares, as shown below, in an aggregate amount at least equal to:
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your immediate family already own that qualify for reduced sales
charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution Options
Please check the appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional shares
of the same class of the Fund at no sales charge.
Income Dividends Capital Gains
[_] Reinvested in additional shares [_] Reinvested in additional shares
[_] Paid in Cash [_] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other funds in the Flag Investors Family of Funds.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Automatic Investing Plan (Optional)
<S> <C>
[_] I authorize you as Agent for the Automatic Investing Plan to automatically invest $______________ in Class A Shares or
$_________________ in Class B Shares or $________________ in Class C Shares for me, on a monthly or quarterly basis, on or about the
20th of each month or if quarterly, the 20th of January, April, July and October, and to draw a bank draft in payment of the
investment against my checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one): [_] Monthly ($100 minimum per class) [_] Quarterly ($250 minimum per class)
Please attach a voided check.
- -------------------------------------------------- ------------------------------------------------------------------------------
Bank Name Depositor's Signature Date
- -------------------------------------------------- ------------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Depositor's Signature Date
(if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[_) Beginning the month of ____________, 19__ please send me checks on a monthly or quarterly basis, as indicated below, in the
amount of (complete as applicable) $___________ from Class A Shares and/or $____________ from Class B Shares and/or $_____________
from Class C Shares that I own, payable to the account registration address as shown above. (Participation requires minimum account
value of $10,000 per class.)
Frequency (check one): [_] Monthly [_] Quarterly (January, April, July and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for amounts up to $50,000) and telephone exchange
privileges (with respect to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: [_] Telephone redemption privileges [_] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a
pre-designated bank account, please provide the following information:
Bank: ____________________________ Bank Account No.: ___________________________
Address: _________________________ Bank Account Name: __________________________
_________________________
<PAGE>
Signature and Taxpayer Certification
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains distributions and
redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to provide the information and/or
certifications required below. This backup withholding is not an additional tax, and any amounts withheld may be credited against
your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that the information on this Application is complete and
correct and that as required by federal law: (Please check applicable boxes.)
[_] U.S. Citizen/Taxpayer:
[_] I certify that (1) the number shown above on this form is the correct Social Security Number or Tax ID Number and (2) I am
not subject to any backup withholding either because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
[_] If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to the IRS or
the Social Security Administration for a Tax ID Number or a Social Security Number, and I understand that if I do not
provide either number to the Transfer Agent within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide either number on IRS Form W-9. You may request such form by calling
the Transfer Agent at 800-553-8080).
[_] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:______________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as defined by
the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required
to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------ --------------------------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
====================================================================================================================================
For Dealer Use Only
Dealer's Name: ____________________________________________ Dealer Code: _____________________________________________________
Dealer's Address: _________________________________________ Branch Code: _____________________________________________________
_________________________________________
Representative: ___________________________________________ Rep. No.: ________________________________________________________
</TABLE>
A-2
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS COMMUNICATIONS FUND, INC.
(Class A, Class B and Class C Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ICC DISTRIBUTORS, INC.
One South Street Two Portland Square
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
COMMPRS
4/99
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
COMMUNICATIONS FUND, INC.
(Institutional Shares)
(formerly, Flag Investors Telephone Income Fund, Inc.)
Prospectus & Application -- May 1, 1998, as
supplemented through March 31, 1999
- --------------------------------------------------------------------------------
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.
Flag Investors Institutional Shares of the Fund ("Institutional Shares") are
available through your securities dealer or the Fund's transfer agent and may be
purchased only by eligible institutions, certain qualified retirement plans, or
investment advisory affiliates of BT Alex. Brown Incorporated ("BT Alex.
Brown"). (See "How to Buy Institutional Shares.")
This Prospectus sets forth basic information that you should know about the Fund
prior to investing. You should retain it for future reference. A Statement of
Additional Information dated May 1, 1998 has been filed with the Securities and
Exchange Commission (the "SEC") and is hereby incorporated by reference. It is
available upon request and without charge by calling the Fund at (800) 767-FLAG.
<PAGE>
TABLE OF CONTENTS
Fee Table .................................. 1
Financial Highlights ....................... 2
Investment Program ......................... 4
Investment Restrictions .................... 6
The Fund's Net Asset Value ................. 6
How to Buy Institutional Shares ............ 6
How to Redeem Institutional Shares ......... 7
Telephone Transactions ..................... 7
Dividends and Taxes ........................ 7
Management of the Fund ..................... 8
Investment Advisor and Sub-Advisor ......... 8
Distributor ................................ 10
Custodian, Transfer Agent and
Accounting Services ..................... 10
Performance Information .................... 10
General Information ........................ 11
Application ................................ A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases ................................... None
Maximum Sales Charge Imposed on Reinvested Dividends ........................ None
Maximum Deferred Sales Charge ............................................... None
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees ............................................................. 0.63%
12b-1 Fees .................................................................. None
Other Expenses .............................................................. 0.18%
-----
Total Fund Operating Expenses ............................................... 0.81%
=====
</TABLE>
<TABLE>
<S> <C> <C>
Example: 1 Year 3 Years
- --------------------------------------------------------- -------- --------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period: ............................ $8 $26
</TABLE>
The Expenses and Example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear indirectly when you invest in Institutional Shares.
If you purchase Institutional Shares through a financial institution, you may be
charged separate fees by that institution.
1
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund has offered the Institutional Shares since February 26, 1998.
However, the Fund has offered Class A Shares since January 18, 1984. Historical
financial information is not fully applicable to the Institutional Shares
because the expenses paid by the Fund in the past differ from those the
Institutional Shares will incur. (See "Fee Table.") Nevertheless, historical
information about the Fund may be useful to investors if they take into account
the differences in expenses. Accordingly, the financial highlights included in
the following table are a part of the Fund's financial statements for the Class
A Shares for the periods indicated and have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial statements
and financial highlights for the Class A Shares for the year ended December 31,
1997 and the report thereon of PricewaterhouseCoopers LLP are included in the
Statement of Additional Information. Additional performance information for the
Class A Shares is contained in the Fund's Annual Report for the fiscal year
ended December 31, 1997, which can be obtained at no charge by calling the Fund
at (800) 767-FLAG.
(For a share outstanding throughout each year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------
---------------------------------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 15.59 $ 14.87 $ 12.30 $ 13.70
-------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.27 0.27 0.40 0.41
Net realized and unrealized gain/(loss)
on investments ............................. 5.41 1.67 3.58 (1.27)
-------- -------- -------- --------
Total from Investment Operations ............. 5.68 1.94 3.98 (0.86)
-------- -------- -------- --------
Less Distributions:
Dividends from net investment income and net
realized short-term gains .................. (0.40) (0.38) (0.41) (0.44)
Distributions from net realized mid-term and
long-term gains ............................ (1.50) (0.84) (1.00) (0.10)
-------- -------- -------- --------
Total distributions .......................... (1.90) (1.22) (1.41) (0.54)
-------- -------- -------- --------
Net asset value at end of year ............... $ 19.37 $ 15.59 $ 14.87 $ 12.30
======== ======== ======== ========
Total Return(3) ............................... 37.36% 13.46% 33.44% (6.32)%
Ratios to Average Daily Net Assets:
Expenses ..................................... 1.11% 1.14% 0.93%(4) 0.92%(4)
Net investment income ........................ 1.07% 1.74% 2.85%(5) 3.14%(5)
Supplemental Data:
Net assets at end of year (000) .............. $622,865 $505,371 $492,454 $435,805
Portfolio turnover rate ...................... 26% 20% 24% 23%
Average commissions per share(6) ............. $ 0.0598 $ 0.0696 -- --
</TABLE>
- -----------
(1) Restated for two-for-one stock split, effected in the form of a stock
dividend to shareholders of record on October 27, 1989.
(2) Investment Company Capital Corp. became Investment Advisor to the Fund on
January 19, 1989.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.99%, 0.99%, 0.98%, 1.07%, 1.17%, 1.13% and
1.07% for the years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990
and 1989, respectively.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 2.79%, 3.07%, 3.06%, 3.66%, 4.13%,
4.32% and 4.28% for the years ended December 31, 1995, 1994, 1993, 1992,
1991, 1990 and 1989, respectively.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
<PAGE>
FINANCIAL HIGHLIGHTS(concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Class A Shares
- ----------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989(1)(2) 1988(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 12.20 $ 11.28 $ 9.57 $ 10.98 $ 8.24 $ 7.50
-------- -------- -------- -------- -------- --------
0.42 0.42 0.45 0.46 0.52 0.46
1.78 0.93 1.74 (1.29) 3.38 0.97
-------- -------- -------- -------- -------- --------
2.20 1.35 2.19 (0.83) 3.90 1.43
-------- -------- -------- -------- -------- --------
(0.42) (0.42) (0.46) (0.45) (0.52) (0.46)
(0.28) (0.01) (0.02) (0.13) (0.64) (0.23)
-------- -------- -------- -------- -------- --------
(0.70) (0.43) (0.48) (0.58) (1.16) (0.69)
-------- -------- -------- -------- -------- --------
$ 13.70 $ 12.20 $ 11.28 $ 9.57 $ 10.98 $ 8.24
======== ======== ======== ======== ======== ========
18.12% 12.35% 23.08% (7.55)% 48.86% 19.90%
0.92%(4) 0.92%(4) 0.92%(4) 0.92%(4) 0.93%(4) 0.92%
3.12%(5) 3.81%(5) 4.38%(5) 4.54%(5) 4.41%(5) 5.35%
$469,163 $307,641 $238,571 $177,963 $162,449 $102,483
14% 6% 7% 2% 27% 11%
-- -- -- -- -- --
</TABLE>
3
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, Policies and Risk
Considerations
The Fund's investment objective is 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 this objective, the
Fund invests primarily in common stock, securities convertible thereto and debt
obligations of companies in the communications field. For this purpose,
companies would be considered to be in the "communications field" if they were
engaged in the research, development, manufacture or sale of communications
services, technology, equipment or products. Effective communication through the
transmission of voice, pictures and data is becoming increasingly important and
the communications field now embraces a wide variety of products and services,
such as local and long distance telephone service, wireless service (e.g.,
cellular telephone or paging services), video, telecommunications equipment,
media, and information technology. There can be no assurance that the Fund's
investment objective will be met. Concentration in the communications field will
subject the Fund to the risks associated with that field (e.g., regulatory and
technological change) and may result in greater fluctuation in the Fund's net
asset value than is experienced in less concentrated portfolios. The Fund will
be non-diversified for purposes of the Investment Company Act of 1940, as
amended (the "Investment Company Act") which means that the performance of one
or a small number of portfolio holdings can affect overall performance more than
would otherwise be the case.
The Fund's investment advisors believe that investing in a portfolio of
securities of companies in the communications field affords an attractive
opportunity for achieving the Fund's investment objective. The Fund's emphasis
is investment in companies offering products and services that both support
traditional communications and facilitate new information-based applications.
Information technology combines data processing and telecommunications to
support more efficient and economical business processes and consumer
activities. The rapidly improving performance and declining cost of transmission
have helped the global expansion of information technology. For example,
businesses have an increasing need to connect to remote users such as employees,
suppliers and customers. Customers are increasingly relying on telephone-based
applications like on-line banking and shopping to save time and money.
Worldwide telecommunications market expansion will create opportunities
for established and emerging providers of telecommunications products and
<PAGE>
services. Although new, high growth technologies are being adopted at an
increasing rate, commercial acceptance still lags the introduction of new
products and services. Traditional communications companies, such as telephone
companies, are positioned to serve the existing and developing needs of their
customer base with a combination of current and new offerings. Evolving user
requirements have also led to the development of separate industry segments,
outside the local telephone and long distance businesses, which enable
non-traditional telecommunications providers a chance to benefit from the
growing worldwide demand for voice, data and video services.
Under normal market conditions at least 65% of the Fund's total assets
will be invested in common stock, securities convertible thereto and debt
obligations of companies in the communications field, as defined above.
Depending on the circumstances, the Fund may temporarily and for defensive
purposes invest up to 100% of its net assets in money market instruments and in
other income-producing securities.
In general, the Fund will invest in investment grade debt obligations that
are rated, at the time of purchase, BBB or higher by Standard and Poor's Ratings
Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"),
or, if unrated, determined to be of comparable quality by the Fund's investment
advisors, under criteria approved by the Fund's Board of Directors. Investment
grade securities (securities rated BBB or higher by S&P or Baa or higher by
Moody's) are generally thought to provide the highest credit quality and the
smallest risk of default. Securities rated BBB by S&P or Baa by Moody's have
speculative characteristics. Up to 10% of the Fund's total assets (measured at
the time of the investment) may be invested in lower quality debt obligations
(securities rated BB or lower by S&P or Ba or lower by Moody's and unrated
securities of comparable quality). Securities that were investment grade at the
time of purchase but are subsequently downgraded to BB/Ba or lower will be
included in the 10% category. In the event any security owned by the Fund is
downgraded, the Fund's investment advisors will review the situation and take
appropriate action, but will not be automatically required to sell any such
security. If such a downgrade causes the 10% limit to be exceeded, the Fund will
be precluded from investing further in debt obligations that are below
investment grade. (See "Investments in Non-Investment Grade Securities" below.)
Investments in Non-Investment Grade Securities
Lower rated debt obligations, also known as "junk bonds," are considered
to be speculative and involve
4
<PAGE>
greater risk of default or price changes due to changes in the issuer's
creditworthiness. Securities in the lowest rating category that the Fund may
purchase (securities rated C by either S&P or Moody's) may present a particular
risk of default, or may be in default or arrears in the payment of principal and
interest. In addition, C-rated securities may be regarded as having extremely
poor prospects of ever attaining any real investment standing. Yields and market
values of these bonds will fluctuate over time reflecting changing interest
rates and the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, lower rated bonds
may decline in value, regardless of prevailing interest rates. Accordingly,
adverse economic developments, including a recession or substantial period of
rising interest rates, may disrupt the high-yield bond market, affecting both
the value and liquidity of such bonds. The market prices of these securities may
fluctuate more than those of higher rated securities, and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates. An economic downturn could adversely affect
the ability of issuers of such bonds to make payments of principal and interest
to a greater extent than issuers of higher rated bonds might be affected. The
ratings categories of S&P and Moody's are described more fully in the Appendix
to the Statement of Additional Information.
The following table provides a summary of ratings assigned by S&P to debt
obligations in the Fund's portfolio. These figures are dollar-weighted averages
of month-end portfolio holdings during the fiscal year ended December 31, 1997,
presented as a percentage of total investments. These percentages are historical
and are not necessarily indicative of the quality of current or future portfolio
holdings, which may vary.
S&P
Rating Average
------ -------
AAA 1.68%
AA 0.00%
A 0.00%
BBB 0.00%
BB 0.88%
B 0.00%
Unrated 0.00%
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks or broker-dealers, subject to
the seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to the seller may
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
<PAGE>
Investment in Securities of Foreign Issuers
From time to time, the Fund may invest in American Depositary Receipts
("ADRs"), which are interests in securities of foreign companies, and up to 10%
of the Fund's total assets in debt and equity securities of issuers not publicly
traded in the United States, when the Fund's investment advisors believe that
such investments provide good opportunities for achieving income and capital
gains without undue risk.
Loans of Portfolio Securities
The Fund has the right to lend portfolio securities to approved
institutional borrowers for the purpose of increasing its net investment income.
These loans must be secured continuously by cash or equivalent collateral, or by
a letter of credit at least equal to the market value of the securities loaned
plus accrued interest or income. There may be a risk of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund's custodian or another affiliate may act
as securities lending agent.
Other Investments
The Fund may write covered call options if each such option is traded on a
national securities exchange (and may purchase calls in related closing
transactions). The Fund may also invest in securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended ("Rule 144A
Securities") that have been determined to be liquid by the Fund's advisors under
standards approved by the Fund's Board of Directors, and may invest up to 10% of
its net assets in Rule 144A Securities that are illiquid (see "Investment
Restrictions" in the Statement of Additional Information). Rule 144A Securities
may become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and has received
assurances from each that its system is expected to accommodate the year 2000
without material adverse
5
<PAGE>
consequences to the Fund. The Fund and its shareholders may experience losses if
these assurances prove to be incorrect or if issuers of portfolio securities or
third parties, such as custodians, banks, broker-dealers or others, with which
the Fund does business experience difficulties as a result of year 2000 issues.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following investment restriction is a matter of fundamental policy and
may not be changed without shareholder approval. Accordingly, the Fund will not
invest less than 65% of its total assets in the communications field, except as
described in this Prospectus (otherwise the Fund will not concentrate more than
25% of its total assets in securities of issuers in any industry).
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The following sections describe how to buy and redeem shares of the Fund.
The price you pay or receive is based on the Fund's net asset value per
share. The net asset value per share of a class is determined on each business
day as of the close of trading on the New York Stock Exchange (ordinarily 4:00
p.m. Eastern Time). It is calculated by subtracting the liabilities attributable
to a class from its proportionate share of the Fund's assets and dividing the
result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their market
value which is normally based on current prices but which may be determined
according to "fair value" procedures approved by the Fund's Board of Directors.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that day,
the price you pay or receive will be based on the next Business Day's net asset
value per share.
HOW TO BUY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may buy Institutional Shares if you are any of the following:
o An eligible institution (e.g., a financial institution, corporation,
investment counselor, trust, estate or educational, religious or
charitable institution).
o A qualified retirement plan with assets of at least $75 million.
o An investment advisory affiliate of BT Alex. Brown purchasing shares for
the accounts of your investment advisory clients.
You may buy Institutional Shares through your securities dealer or through
any financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy Institutional Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
If you are an eligible institution, your initial investment must be at
least $500,000. There are no minimum initial investments for qualified
retirement plans or investment advisory affiliates of BT Alex. Brown. There are
no minimums for subsequent investments.
Purchases by Exchange
You may exchange Institutional shares of any other Flag Investors fund for
an equal dollar amount of Institutional Shares of the Fund. The Fund may modify
or terminate this offer of exchange at any time on 60 days' prior written notice
to shareholders.
You may request an exchange through your securities dealer or your
servicing agent. Contact them for details on how to enter your order. If your
Institutional
6
<PAGE>
Shares are in an account with the Fund's Transfer Agent, you may also request an
exchange directly through the Transfer Agent by express mail or telephone.
Other Information
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued.
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may redeem your shares through your securities dealer or your
servicing agent. Contact them for details on how to enter your order. If your
shares are in an account with the Fund, you may also redeem them by contacting
the Transfer Agent by telephone (if you are redeeming less than $500,000). You
will be paid for redeemed shares by wire transfer of funds to your securities
dealer, servicing agent or bank upon receipt of a duly authorized redemption
request as promptly as feasible and, under most circumstances, within three
Business Days.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be remitted by wire to your securities dealer, servicing agent or
bank.
If you redeem sufficient shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining shares after giving you 60 days'
notice.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $500,000 or exchange them for Institutional Shares of
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges unless you
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information at the time
your account is opened and prior to effecting each telephone transaction. You
may be required to provide additional telecopied instructions. If these
procedures are employed, neither the Fund nor the Transfer Agent will bear any
liability for following instructions received by telephone that they reasonably
believe to be genuine. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by express mail or facsimile. (See "How to Buy
Institutional Shares -- Purchases by Exchange" and "How to Redeem Institutional
Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends. The Fund
normally will distribute to shareholders any net capital gains on an annual
basis.
Unless you elect otherwise, all income dividends and net capital gains
distributions will be reinvested in additional Institutional Shares at net asset
value. You may elect to terminate automatic reinvestment by giving written
notice to the Transfer Agent, either directly or through your securities dealer
or servicing agent, at least five days before the next date on which dividends
or distributions will be paid.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences affecting
the Fund and its shareholders is based on current tax laws and regulations,
which may be changed by legislative, judicial, or administrative action. No
attempt has been made to present a detailed explanation of the federal, state or
local tax
7
<PAGE>
treatment of the Fund or its shareholders, and the discussion here is not
intended as a substitute for careful tax planning. Accordingly, you are advised
to consult with your tax advisor regarding specific questions.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will not pay
federal income tax on amounts distributed to shareholders. Unless you are
otherwise exempt, you will be generally subject to federal income tax on the
amounts distributed to you, regardless of whether such distributions are paid to
you in cash or reinvested in additional Institutional Shares.
Capital gains distributions from the Fund are classified as either
short-term or long-term depending upon how long the Fund held the securities it
sold to generate the gains. You will be taxed on the distributions according to
the category stipulated by the Fund regardless of how long you have held your
Fund shares. You will be taxed on all other income distributions as ordinary
income. If you are a corporate shareholder, you may be entitled to the dividends
received deduction on a portion of dividends received from the Fund. You will be
advised annually as to the federal income tax status of all distributions.
Dividends declared payable to shareholders of record in December of one
year, but paid in January of the following year, will be deemed for tax purposes
to have been paid by the Fund and received by you in the year in which the
dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Institutional Shares is a taxable
event for you.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Fund's investment advisors and its
distributor. A majority of the Directors are not affiliated with the Fund's
investment advisors or its distributor.
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Alex. Brown Investment Management ("ABIM" or the "Sub-
Advisor") is the Fund's sub-advisor. ICC is the investment advisor to mutual
funds with approximately $7.8 billion of net assets as of August 31, 1998. In
addition to this Fund, these include other funds in the Flag Investors family of
funds and BT Alex. Brown Cash Reserve Fund, Inc. ABIM is a registered investment
advisor with approximately $7.0 billion under management as of August 31, 1998.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ICC delegates to ABIM certain of its duties, provided
that ICC continues to supervise the performance of ABIM and report thereon to
the Fund's Board of Directors. Pursuant to the terms of the Sub-Advisory
Agreement, ABIM is responsible for decisions to buy and sell securities for the
Fund, for broker-dealer selection, and for negotiation of commission rates. The
Board has established procedures under which ABIM may allocate transactions to
certain affiliates, provided that compensation to such affiliates on each
transaction is reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other broker-dealers in connection
with comparable transactions involving similar securities during a comparable
period of time. In addition, consistent with NASD Rules, and subject to seeking
the most favorable price and execution available and such other policies as the
Board may determine, ABIM may consider services in connection with the sale of
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
As compensation for providing investment advisory services to the Fund for
the fiscal year ended December 31, 1997, ICC received a fee equal to 0.70% of
the Fund's average daily net assets and from such fee paid ABIM a sub-advisory
fee equal to 0.49% of the Fund's average daily net assets. ICC may from time to
time voluntarily waive a portion of its fee to improve performance.
8
<PAGE>
ICC is an indirect subsidiary of Bankers Trust Corporation. ABIM is a
limited partnership affiliated with the Advisor. Buppert, Behrens & Owen, Inc.,
a company organized and owned by three employees of ABIM, owns a 49% limited
partnership interest and a 1% general partnership interest in ABIM. BT Alex.
Brown owns a 1% general partnership interest in ABIM and BT Alex. Brown
Holdings, Inc. owns the remaining 49% limited partnership interest.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services.")
On November 30, 1998, Bankers Trust Corporation entered into an Agreement
and Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation
would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is
a major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with ICC and sub-advisory relationship with ABIM thereafter is
subject to the approval of Fund shareholders. On March 30, 1999, the Board of
Directors approved, subject to shareholder approval, a new advisory agreement
between ICC and the Fund and a new sub-advisory agreement among the Fund, ICC
and ABIM in the event the merger is approved and completed. If the transaction
is approved and completed, Deutsche Bank AG will control the operations of ICC
and may be deemed to indirectly control ABIM. ICC and ABIM believe that, under
this new arrangement, the services provided to the Fund will be maintained at
their current level.
On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. ICC became a subsidiary of Bankers Trust Corporation in a merger
that occurred after these events took place. Pursuant to its agreement with the
U.S. Attorney's Office, Bankers Trust pleaded guilty to misstating entries in
the bank's books and records and agreed to pay a $60 million fine to federal
authorities. Separately, Bankers Trust agreed to pay a $3.5 million fine to the
<PAGE>
State of New York. The events leading up to the guilty pleas did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
As a result of the plea, absent an order from the SEC, ICC and ABIM may
not be able to continue to provide advisory services to the Fund. The SEC has
granted a temporary order to permit Bankers Trust and its affiliates to continue
to provide investment advisory services to registered investment companies.
There is no assurance that the SEC will grant a permanent order.
Portfolio Managers
Messrs. Bruce E. Behrens and Liam D. Burke have shared primary
responsibility for managing the Fund's assets since May 1, 1997. From the
Fund's inception through April 30, 1997, Mr. Behrens shared that responsibility
with Hobart C. Buppert, II, who remains at ABIM.
Bruce E. Behrens -- 30 Years' Investment Experience
Mr. Behrens has been a Vice President and a Principal of ABIM since 1981.
Prior to joining ABIM, Mr. Behrens was a Senior Vice President and Principal of
Corbyn Associates from 1978 to 1981 and a Vice President at Investment
Counselors of Maryland from 1972 to 1978. Prior thereto, he was a Security
Analyst at Citibank from 1968 to 1972. Mr. Behrens received his B.A. from
Denison University in 1966 and an M.B.A. from the University of Michigan in
1968. He is a member and past President of the Baltimore Security Analysts
Society and a member of the Financial Analysts Federation.
Liam D. Burke -- 9 Years' Investment Experience
Mr. Burke joined ABIM in 1994 with primary responsibility as a
telecommunications analyst for the Fund. Prior to joining ABIM, Mr. Burke worked
as a telecommunications industry analyst at a regional broker-dealer, Ferris,
Baker, Watts, Inc., from 1992 to 1994 and as managing director of Frey & Co., a
Baltimore-based private investment bank, from 1989 to 1992. Mr. Burke began his
professional career at AT&T and spent eight years in positions that included
operations, regional staff management and national account sales. He is a
graduate of Georgetown University and received his MBA from The George
Washington University.
9
<PAGE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves as
distributor of each class of the Fund's shares. ICC Distributors receives no
compensation for distributing the Institutional Shares. ICC Distributors is a
registered broker-dealer that offers distribution services to a variety of
registered investment companies including other funds in the Flag Investors
family of funds and BT Alex. Brown Cash Reserve Fund, Inc. ICC Distributors is
not affiliated with either the Advisor or the Sub-Advisor.
ICC Distributors bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses to
other than Fund shareholders. The Advisor or its affiliates may make payments
from their own resources to securities dealers and servicing agents.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended December
31, 1997, ICC received a fee equal to 0.02% of the Fund's average daily net
assets. Bankers Trust acts as custodian of the Fund's assets. (See the Statement
of Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one-, five- and ten-year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding the average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value according to the
required standardized calculation. The standardized calculation is required by
the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund compares
its performance to other funds or to relevant indices, the Fund's performance
will be stated in the same terms in which such comparative data and indices are
stated, which is normally total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar,
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index, the Consumer Price Index, the return on 90-day U.S.
Treasury bills, the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barrons, Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions. Any fees charged by your bank with
respect to accounts through which your Institutional Shares may be purchased,
although not included in calculations of performance, will reduce your
performance results.
10
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end non-diversified management investment company. The
Fund reorganized as a Maryland corporation on January 19, 1989 and is authorized
to issue 110 million shares of capital stock, with a par value of $.001 per
share. Shares of the Fund have equal rights with respect to voting. Voting
rights are not cumulative, so the holders of more than 50% of the outstanding
shares voting together for election of Directors may elect all the members of
the Board of Directors of the Fund. In the event of liquidation or dissolution
of the Fund, each share is entitled to its pro rata portion of the Fund's assets
after all debts and expenses have been paid. The fiscal year-end of the Fund is
December 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors
Communications Fund Institutional Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund has three other
classes of shares, "Flag Investors Communications Fund Class A Shares" and "Flag
Investors Communications Fund Class B Shares," which are offered by a separate
prospectus and "Flag Investors Communications Fund Class D Shares," which are
not currently being offered. Additional information concerning the Fund's Class
A and Class B Shares may be obtained by calling the Fund at (800) 767-FLAG.
Different classes of the Fund may be offered to certain investors and holders of
such shares may be entitled to certain exchange privileges not offered to
Institutional Shares. All classes of the Fund share a common investment
objective, portfolio of investments and advisory fee, but to the extent the
classes have different distribution/service fees or sales load structures,
performance may differ.
Annual Meetings
The Fund does not expect to hold annual meetings of shareholders, unless
required by Maryland law. Shareholders of the Fund retain the right, under
certain circumstances, to request that a meeting of shareholders be held for the
purpose of considering the removal of a Director from office, and if such a
request is made, the Fund will assist with shareholder communications in
connection with the meeting.
Reports
You will be furnished with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, PricewaterhouseCoopers LLP.
Shareholder Inquiries
If you have any questions concerning your Institutional Shares, contact
the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or your
securities dealer or servicing agent.
11
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Make check payable to "Flag Investors Communications For assistance in completing this Application please call: 1-800-
Fund, Inc. and mail with this Application to: 553-8080 Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time)
Flag Investors Funds
330 West 9th Street, First Floor
Kansas City, MO 64105
Attn: Flag Investors Communications Fund, Inc.
If you are paying by check, make check payable to "Flag Investors Communications Fund, Inc." and mail with this Application. If you
are paying by wire, see instructions below.
- ------------------------------------------------------------------------------------------------------------------------------------
Your Account Registration (Please Print)
- ------------------------------------------------------------------------------------------------------------------------------------
Name on Account Mailing Address
- ---------------------------------------------------------------- ------------------------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- ---------------------------------------------------------------- ------------------------------------------------------------
Tax ID Number Street
[ ] Corporation [ ] Partnership [ ] Trust ------------------------------------------------------------
City State Zip
[ ] Non-Profit or Charitable Organization [ ] Other_____________
( )
If a Trust, please provide the following: ------------------------------------------------------------
Daytime Phone
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Investment
- ------------------------------------------------------------------------------------------------------------------------------------
Indicate the amount to be invested and the method of payment:
___ A. By Mail: Enclosed is a check in the amount of $___________ payable to Flag Investors Communications Fund, Inc.
___ B. By Wire: A bank wire in the amount of $___________ has been sent from ______________________ __________________________
Name of Bank Wire Control Number
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial investment:
o Send completed Application by overnight carrier to Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust
Company ("IFTC"), as follows:
IFTC
a/c Flag Investors Funds
Acct. # 7519206
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Communications Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to _____________________________________."
(Investor's Fund Account Number)
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Distribution Options
- --------------------------------------------------------------------------------
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- --------------------------------------------------------------------------------
Telephone Transactions
- --------------------------------------------------------------------------------
I understand that I will automatically have telephone redemption privileges (for
amounts up to $500,000) and exchange privileges (with respect to Institutional
Shares of other Flag Investors Funds) unless I mark one or both of the boxes
below:
No, I do not want: [ ] Telephone redemption privileges [ ] Telephone exchange
privileges
Redemptions effected by telephone will be
wired to the bank account designated below.
- --------------------------------------------------------------------------------
Bank Account Designation (This Section Must Be Completed)
- --------------------------------------------------------------------------------
Please attach a blank, voided check to provide account and bank routing
information.
- --------------------------------------------------------------------------------
Name of Bank Branch
- --------------------------------------------------------------------------------
Bank Address City/State/Zip
- --------------------------------------------------------------------------------
Name(s) on Account
- --------------------------------------------------------------------------------
Account Number A.B.A. Number
A-1
<PAGE>
- --------------------------------------------------------------------------------
Acknowledgment, Certificate and Signature
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as required
by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
[ ] If no Tax ID Number has been provided above, I have applied, or intend
to apply, to the IRS for a Tax ID Number, and I understand that if I do
not provide such number to the Transfer Agent within 60 days of the date
of this Application or if I fail to furnish my correct Tax ID Number, I
may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide your Tax ID
Number on IRS Form W-9. You may request such form by calling the
Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax
purposes: ____________________________________________ Under penalties of
perjury, I certify that I am not a U.S. citizen or resident and I am an
exempt foreign person as defined by the Internal Revenue Service.
- --------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be effected
as described in the Fund's current prospectus (see "Telephone Transactions"). I
also acknowledge that I may bear the risk of loss in the event of fraudulent use
of such privileges. If I do not want telephone redemption or exchange
privileges, I have so indicated on this Application.
- --------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
<PAGE>
- --------------------------------------------------------------------------------
Person(s) Authorized to Conduct Transactions
- --------------------------------------------------------------------------------
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
______* of the Authorized Person(s) is, by lawful and appropriate action of the
investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that person's
signature. Investment Company Capital Corp. ("ICC") may, without inquiry, act
upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from any
one Authorized Person. Written instructions will require signatures of the
number of Authorized Persons indicated in this space.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Certificate of Authority
- --------------------------------------------------------------------------------
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board of
Directors or Board of Trustees.)
I __________________, Secretary of the above-named investor, do hereby certify
that at a meeting on ____________, at which a quorum was present throughout, the
Board of Directors (Board of Trustees) of the investor duly adopted a resolution
which is in full force and effect and in accordance with the investor's charter
and by-laws, which resolution did the following: (1) empowered the
officers/trustees executing this Application (or amendment) to do so on behalf
of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names and titles of
the officers of the investor and to notify ICC when changes in officers occur;
and (4) authorized the Secretary to certify that such a resolution has been duly
adopted and will remain in full force and effect until ICC receives a
duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this ___ day of __________, 199__
Secretary_______________________________________________________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
________________________________________________________________________________
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the general
partners/trustees of the investor and to notify ICC when changes in general
partners/trustees occur. This authorization will remain in full force and effect
until ICC receives a further duly-executed certification. (If there are not
enough spaces here for all necessary signatures, complete a separate certificate
containing the language of this Certificate B and attach it to the Application).
________________________________________________________________________________
Signature and title Date
________________________________________________________________________________
Signature and title Date
A-2
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ICC DISTRIBUTORS, INC.
One South Street Two Portland Square
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
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COMMIPRS
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