[Flag Investors Logo Omitted]
Communications
Fund
Semi-Annual Report
June 30, 1999
<PAGE>
Report Highlights
- --------------------------------------------------------------------------------
o The Fund's first half total return of 22.5%, after a full year fiscal 1998
total return of 85.3%, supports our belief that the telecommunications
industry truly offers a multiple-year opportunity.
o We have capitalized on opportunities created by the dramatic growth of the
Internet, market liberalization, and technological innovation. While we are
confident in the underlying businesses in the Fund and their ability to
capitalize on these and other growth factors, we are always assessing
individual company valuations.
o We were rewarded for recognizing the huge potential of the Internet and
America Online's (AOL) ability to capitalize on the Internet opportunity.
However, with the dramatic increase in AOL's stock price created by its
success, it became a disproportionately high percentage of the Fund's assets.
At these levels, we felt such a large concentration in one company, regardless
of its wonderful prospects, could result in excessive risk and we chose to
reduce our position.
o We have raised our concentration in traditional local telephone companies
because we believe they are excellent businesses that are well positioned to
capitalize on the growing demand for data, wireless, and international
communications services.
<PAGE>
Fund Performance
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES(1)
JANUARY 18, 1984-JUNE 30, 1999
[GRAPHIC]
In the prnted version of the document, a line graph appears which depicts
the following plot points:
Income Appreciation
------ ------------
1/84 10000 10000
12/84 10557 11503
12/85 11392 14850
12/86 12227 18517
12/87 12946 18795
12/88 13650 22530
12/89 14508 33534
12/90 15196 31001
12/91 15909 38216
12/92 16559 42972
12/93 17209 50756
12/94 17890 47546
12/95 18408 63445
12/96 18996 71982
12/97 19615 98874
12/98 19781 183270
6/99 19797 224438
Total Value of Investment (Income + Appreciation) $224,438
Value of Original Investment + Income Distributions $ 19,797
Average Annual Total Return(1)
Class A Class B Class C
For the periods ended 6/30/99 Shares Shares Shares
- --------------------------------------------------------------------------------
One Year 77.37% 76.27% --
- --------------------------------------------------------------------------------
Five Years 36.42% -- --
- --------------------------------------------------------------------------------
Ten Years 23.20% -- --
- --------------------------------------------------------------------------------
Since Inception 1/18/84 1/3/95 11/1/98
------- ------ -------
(Annualized) 22.31% 40.25% 73.24%(2)
- --------------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the maximum
4.50% sales charge were reflected, the quoted performance would be lower.
Performance figures for the classes differ because each class maintains a
distinct expense structure. For further details on expense structures,
please refer to the Fund's prospectus. Since investment return and
principal value will fluctuate, an investor's shares may be worth more or
less than their original cost when redeemed. Past performance is not an
indicator of future results. Please review the Additional Performance
Information on page 7.
(2) Cumulative; returns for less than one year are not annualized.
1
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Fellow Shareholders:
We are pleased to report on the progress of your Fund for the six month
period ended June 30, 1999. The Flag Investors Communications Fund's six month
total return of 22.5% outperformed the major indices. Our strong first half
performance, after the full year fiscal 1998 total return of 85.3%, supports our
belief that the telecommunications industry truly offers a multiple-year
opportunity.
Morningstar awarded your Fund a Five Star overall rating as well as a
category rating of 5 (highest) in their Specialty Communications
classification.(1) The average annual total return for the one-, three-, and
five-year periods for your Fund was 77.4%, 47.6% and 36.4%, respectively. We are
very excited about the prospects for the industry but returns of this magnitude
are rare. Stock prices may lag business fundamentals and even decline from time
to time despite favorable long-term trends.
Industry Investment Perspective
The dramatic growth of the Internet and data communications, market
liberalization, and technological innovation are key factors contributing to the
rapid expansion of the telecommunications industry. It is difficult to ignore
the influence of communications on how we live and conduct our business. We have
capitalized on opportunities provided by these and other growth factors and look
forward to investing in this rapidly expanding global industry. Clearly, the
public equity markets share our enthusiasm for the telecommunications business
and in some cases have bid up the prices of companies, within certain industry
segments to unrealistic levels. While we are confident in the strength of the
underlying businesses owned by the Fund, we are always assessing individual
company valuations.
- ----------
(1) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of June 30, 1999 and are subject to change monthly. Past
performance is no guarantee of future results. Morningstar ratings are
calculated from the fund's three-, five-, and 10-year average annual
returns in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below 90-day
T-bill returns. Flag Investors Communications Fund receive a 5 star rating
for the 3-year, 5-year, and 10-year periods, respectively. The top 10% of
the funds in an investment class receive 5 stars. The fund was rated among
3,043, 1,878 and 748 Domestic Equity Funds for the 3, 5, and 10 year
periods, respectively.
Morningstar's category rating system of "1" (lowest) to "5" (highest) show
how well a fund has balanced risk and return relative to other funds in its
investment category. It is calculated based on a fund's three-year total
return and excludes the effect of sales charge. A "5" rating indicates that
a fund has an above average return and low risk. The top 10% of funds in an
investment category receive a "5" rating.
2
<PAGE>
- --------------------------------------------------------------------------------
In these times of strong equity market gains and high industry valuations,
it is important to emphasize our investment philosophy. Our disciplined approach
and conservative bias have resulted in the long-term growth of the Fund. We
invest in individual companies with shareholder-oriented managements that have a
unique and sustainable position within a market segment, and strong financial
fundamentals. We focus our energies on discovering these attractive businesses
while concentrating our investment dollars in the best values. As a result of
our investment philosophy, the Fund's assets are currently weighted toward
companies that operate in established telecommunications segments that report
sustainable earnings growth and strong cash flow.
This consistent, long-term approach does not preclude us from investing in
developing industry areas that offer the potential for superior long-term
returns. We believe there is significant opportunity in making a few selective
investments in less traditional industry segments. This is quite different than
speculating on the next hot category of stocks which is inherently less reliable
and often exposes investors to the real risk of owning poorly performing
businesses. Sun Microsystems is one example of an attractive selection in a
developing area of communications which we added during the first quarter of
fiscal 1999. The company is not often identified as a provider of
telecommunications products and services. However, telecommunications related
products represent over 20% of the company's total revenue and this market plays
an integral role in the company's long-term growth strategy. We believe Sun has
the capability of leveraging its existing network computing product offerings to
significantly increase the company's revenues in both the Internet and
traditional telephone network markets.
Portfolio Developments
We have often discussed our emphasis on individual stock selection as a
basis for our investment philosophy. However, we also must manage the Fund in
the context of other factors like industry and market expectations. At times the
rapid appreciation of certain Fund holdings, created, in part, by high investor
optimism, has raised the issue of individual company weightings within the Fund.
We were rewarded for recognizing the huge potential of the Internet and
America Online's (AOL) ability to capitalize on the Internet opportunity. AOL
caught the initial wave of Internet commercialization by anticipating the
consumer's desire to be connected to the World Wide Web and saw the value of
3
<PAGE>
Letter to Shareholders (concluded)
- --------------------------------------------------------------------------------
establishing an online community and a strong consumer brand. As the Internet
develops, AOL is well positioned in emerging Internet-based businesses like
on-line commerce and advertising. With the dramatic increase in its stock price
created by its success in the consumer on-line market, we felt that the public
market had priced AOL well in excess of its near-term intrinsic value. In
addition, AOL became a disproportionately high percentage of the Fund's assets.
At these levels, we felt such a large concentration in one company, regardless
of its wonderful prospects, could result in excessive risk and we chose to
reduce our position.
We remain very excited about the future of the Internet and AOL's ability
to continue to capitalize on Internet-related business opportunities. AOL
remains our largest holding but we believe it is important not to lose sight of
the size of its position in relation to the other assets in the portfolio.
Largest Holdings
The following is our list of the Fund's largest holdings, which are
weighted heavily toward Regional Bell Operating Companies (RBOCs). We have
raised our concentration in traditional local telephone companies because, we
believe, they are excellent businesses that are well positioned to capitalize on
the growing demand for data, wireless, and international communications
services. In addition to their positive return opportunity, the RBOCs also offer
stability in a volatile market and at their current valuations, we believe,
present little downside risk.
Top Ten Percent of
Holdings Portfolio
- ---------------------------------------------
America Online, Inc. 11.0%
- ---------------------------------------------
SBC Communications, Inc. 8.3%
- ---------------------------------------------
Ameritech Corp. 7.3%
- ---------------------------------------------
MCI Worldcom, Inc. 6.6%
- ---------------------------------------------
GTE Corp. 5.0%
- ---------------------------------------------
U.S. West, Inc. 3.3%
- ---------------------------------------------
Lucent Technologies, Inc. 3.3%
- ---------------------------------------------
Sun Microsystems, Inc. 3.1%
- ---------------------------------------------
Bell Atlantic Corp. 2.5%
- ---------------------------------------------
Novell, Inc. 2.5%
- ---------------------------------------------
Our major non-RBOC holdings are companies that meet our investment criteria
and that we view as strategically well positioned in key industry segments. We
discussed AOL and Sun Microsystems, earlier in our letter as two examples of
dominant competitors in their market segments. Other large holdings, such as
Novell and MCI Worldcom, are benefiting from the rapid expansion of the
international, wireless,
4
<PAGE>
- --------------------------------------------------------------------------------
and data communications markets. Whether it is an RBOC or a company in another
industry segment, we emphasize management's ability to capitalize on
opportunities offered by the industry.
As the previous chart indicates, our assets are heavily concentrated among
our top ten holdings. We believe there are significant long-term benefits to
allocating a meaningful percentage of assets to businesses that are well managed
and operate in segments with strong long-term growth prospects.
Conclusion
We want to thank our fellow shareholders for their continued support. The
recent period has been rewarding and we look forward to future industry growth
opportunities.
Sincerely,
/s/ Bruce E. Behrens /s/ Liam D. Burke
- -------------------- --------------------
Bruce E. Behrens Liam D. Burke
Co-Portfolio Manager Co-Portfolio Manager
July 23, 1999
5
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Communications Holdings Percent of Net Assets
- --------------------------------------------------------------------------------
I. Regional Bell Operating Companies
(RBOCs):
Ameritech Corp. 7.3%
Bell Atlantic Corp. 2.5
SBC Communications, Inc. 8.3
U.S. West, Inc. 3.3
-----
21.4
II. Independent Local Exchange Carriers:
ALLTEL Corp. 1.6
Cincinnati Bell, Inc. 1.9
GTE Corp. 5.0
-----
8.5
III. Long Distance Telephone Companies:
AT&T Corp. 2.1
Frontier Corp. 2.5
General Communications, Inc. 0.1
MCI Worldcom, Inc. 6.6
Sprint Corp. 1.0
Qwest Communications International, Inc. 1.6
-----
13.9
IV. Foreign Telephone Companies:
Clearnet Communications - Class A 0.6
Royal KPN N.V. 1.4
Telefonica de Espana ADR 0.9
Telefonos de Mexico SA ADR 1.1
Teleglobe, Inc. 2.5
-----
6.5
V. Communication Equipment Providers:
3Com Corp. 0.6
BlackBox Corp. 1.6
Lucent Technologies, Inc. 3.3
Storage Technology Corp. 0.7
Sun Microsystems, Inc. 3.1
-----
9.3
VI. Specialty Communication Services:
America Online, Inc. 11.0
Comsat 1.2
Convergys Corp. 1.5
First Data Corp. 1.0
News Corp. ADR 1.0
Novell, Inc. 2.5
Orbital Sciences Corp. 0.7
Paging Network, Inc. 0.7
Sprint Corp. (PCS Group) 0.3
Skytel Communications 0.9
Vodafone Airtouch PLC ADR 1.2
Winstar Communications, Inc. 1.3
-----
23.3
Total Communications Industry 82.9%
=====
6
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include the total return of each of the Fund's classes, according to a
standardized formula, for various time periods through the end of the most
recent calendar quarter.
The SEC standardized total return figures include the impact of the maximum
initial sales charge for the Class A Shares and the contingent deferred sales
charge applicable to the specified time period for the Class B Shares and Class
C Shares. Returns would be higher for Class A Shares investors who qualified for
a lower initial sales charge or for Class B or Class C Shares investors who
continued to hold their shares past the end of the specified time period.
Average Annual Total Return(1)
Periods Ended 6/30/99 1 Year 5 Years 10 Years Since Inception(2)
- --------------------------------------------------------------------------------
Class A Shares 69.39% 35.17% 22.63% 21.95%
- --------------------------------------------------------------------------------
Class B Shares 72.27 -- -- 40.11%
- --------------------------------------------------------------------------------
Class C Shares -- -- -- 72.24%(3)
- --------------------------------------------------------------------------------
Institutional Shares 77.83 -- -- 80.96%
- --------------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's applicable sales charge. Past
performance is not an indicator of future results.
(2) Inception dates: Class A 1/18/84, Class B 1/3/95, Class C 11/1/98,
Institutional 6/4/98.
(3) Cumulative; returns for less than one year are not annualized.
While the total return figures are required by SEC rules, such comparisons
are of limited utility since the total return of the Fund's classes are adjusted
for sales charges and expenses while the total return of the indices are not. In
fact, if you wished to replicate the total return of these indices, you would
have to purchase the securities they represent, an effort that would require a
considerable amount of money and would incur expenses that are not reflected in
the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
7
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Statement of Net Assets June 30, 1999
(Unaudited)
Shares Security Market Value
- --------------------------------------------------------------------------------
Common Stock - 84.1%
REGIONAL BELL OPERATING COMPANIES - 21.4%
2,153,700 Ameritech Corp. ...................................... $ 158,296,950
833,216 Bell Atlantic Corp. .................................. 54,471,496
3,089,520 SBC Communications, Inc. ............................. 179,192,160
1,223,000 U.S. West, Inc. ...................................... 71,851,250
--------------
463,811,856
INDEPENDENT LOCAL EXCHANGE CARRIERS - 8.5%
480,000 ALLTEL Corp. ......................................... 34,320,000
1,668,000 Cincinnati Bell, Inc. ................................ 41,595,750
1,425,000 GTE Corp. ............................................ 107,943,750
--------------
183,859,500
--------------
TELECOMMUNICATION - LONG DISTANCE - 13.9%
800,000 AT&T Corp. ........................................... 44,650,000
924,200 Frontier Corp. ....................................... 54,527,800
500,000 General Communications, Inc.* ........................ 3,398,437
1,650,080 MCI Worldcom, Inc.* .................................. 142,319,400
400,000 Sprint Corp. ......................................... 21,125,000
1,028,800 Qwest Communications International, Inc.* ............ 34,014,700
--------------
300,035,337
--------------
SPECIALTY TELECOMMUNICATION SERVICES - 23.3%
2,154,000 America Online, Inc.* ................................ 238,017,000
817,800 Comsat ............................................... 26,578,500
1,668,000 Convergys Corp.* ..................................... 32,109,000
470,300 First Data Corp. ..................................... 23,015,306
600,000 News Corp. ADR ....................................... 21,187,500
2,055,000 Novell, Inc.* ........................................ 54,457,500
645,347 Orbital Sciences Corp.* .............................. 15,246,323
3,000,000 Paging Network, Inc.* ................................ 14,437,500
100,000 Sprint Corp. (PCS Group)* ............................ 5,712,500
934,900 Skytel Communications* ............................... 19,574,469
8
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Shares/
Par (000) Security Market Value
- --------------------------------------------------------------------------------
135,204 Vodafone Airtouch PLC ADR ............................ $ 26,635,188
575,000 WinStar Communications, Inc.* ........................ 28,031,250
--------------
505,002,036
--------------
COMMUNICATION EQUIPMENT PROVIDERS - 9.3%
509,000 3Com Corp.* .......................................... 13,583,938
666,428 Black Box Corp.* ..................................... 33,404,704
1,060,940 Lucent Technologies, Inc. ............................ 71,547,141
630,000 Storage Technology Corp.* ............................ 14,332,500
980,000 Sun Microsystems, Inc.* .............................. 67,497,500
--------------
200,365,783
--------------
FOREIGN TELEPHONE COMPANIES - 6.5%
850,000 Clearnet Communications -- Class A* .................. 11,846,875
653,487 Royal KPN N.V. ....................................... 31,367,376
133,171 Telefonica de Espana ADR ............................. 19,592,783
285,000 Telefonos de Mexico SA ADR ........................... 23,031,562
1,807,100 Teleglobe, Inc. ...................................... 53,761,225
--------------
139,599,821
--------------
NON - TELEPHONE INDUSTRY - 1.2%
626,900 Centertrust Retail Properties ........................ 7,366,075
620,548 Conseco, Inc. ........................................ 18,887,930
--------------
26,254,005
--------------
Total Common Stock (Cost $841,479,171) .......................... 1,818,928,338
--------------
9
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Statement of Net Assets (Concluded) June 30, 1999
(Unaudited)
Par (000) Security Market Value
- --------------------------------------------------------------------------------
Repurchase Agreements - 15.9%
95,981 Goldman Sachs & Co., dated 6/30/99, 4.70%,
principal and interest in the amount of
$95,993,531 due 7/01/99, collateralized by U.S.
Treasury Note with a par value of $100,051,000,
coupon rate of 5.625% due 5/15/08, with a market
value of $97,197,946 ................................. $ 95,981,000
95,981 J.P. Morgan Securities, Inc., dated 6/30/99,
4.70%, principal and interest in the amount of
$95,993,531 due 7/01/99, collateralized by U.S.
Treasury Note with a par value of $46,056,000,
coupon rate of 5.875% due 6/30/00, with a market
value of $46,271,911 and a U.S. Treasury Bill with
a par value of $52,775,000, coupon rate of 4.58%
due 12/09/99, with a market value of $51,629,255 ..... 95,981,000
153,220 Morgan Stanley & Co., dated 6/30/99, 4.75%,
principal and interest in the amount of
$153,240,217, due 7/01/99, collateralized by U.S.
Treasury Note with a par value of $157,735,000,
coupon rates of 4.75% to 7.5%, due from 6/30/99 to
10/15/06, with a market value of $155,936,822 ........ 153,220,000
--------------
Total Repurchase Agreements (Cost $345,182,000) ................ 345,182,000
--------------
Total Investments--100.0%
(Cost $1,186,661,171)** ...................................... 2,164,110,338
Liabilities in Excess of Other Assets--0.0% .................... (251,886)
--------------
Net Assets--100.0% ............................................. $2,163,858,452
==============
10
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Class A Share
($1,735,564,610 divided by 43,041,671 shares) ............. $40.32
======
Class B Share
($378,411,846 divided by 9,539,242 shares) ................ $39.67***
======
Class C Share
($42,672,640 divided by 1,074,677 shares) ................. $39.71****
======
Institutional Share
($7,209,356 divided by 178,441 shares) .................... $40.40
======
Maximum Offering Price Per:
Class A Share ($40.32 divided by 0.955) ..................... $42.22
======
Class B Share ............................................... $39.67
======
Class C Share ............................................... $39.71
======
Institutional Share ......................................... $40.40
======
- ----------
* Non-income producing security.
** Aggregate cost for federal tax purposes.
*** Redemption value is $38.08 following a 4% maximum contingent deferred sales
charge.
**** Redemption value is $39.31 following a 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
11
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Statement of Operations
For the Six
Months Ended
June 30,
- --------------------------------------------------------------------------------
1999(1)
Investment Income:
Dividends ................................................... $ 7,548,409
Interest .................................................... 6,348,810
Less: Foreign taxes withheld .............................. (3,085)
------------
Total income ....................................... 13,894,134
------------
Expenses:
Investment advisory fee ..................................... 5,218,185
Distribution fee ............................................ 3,272,259
Transfer agent fee .......................................... 540,729
Professional fees ........................................... 172,148
Printing and postage ........................................ 76,777
Accounting fee .............................................. 68,018
Custodian fee ............................................... 65,962
Registration fees ........................................... 50,001
Directors' fees ............................................. 24,611
Miscellaneous ............................................... 20,812
------------
Total expenses ..................................... 9,509,502
------------
Net investment income ....................................... 4,384,632
------------
Realized and unrealized gain on investments:
Net realized gain from security transactions ................ 211,906,046
Change in unrealized appreciation/depreciation of investments 140,205,764
------------
Net gain on investments ..................................... 352,111,810
------------
Net increase in net assets resulting from operations ........... $356,496,442
============
- ----------
(1) Unaudited.
See Notes to Financial Statements.
12
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
- ----------------------------------------------------------------------------------------
1999(1) 1998
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ...................... $ 4,384,632 $ 3,605,198
Net realized gain from security
transactions ............................. 211,906,046 109,209,276
Change in unrealized appreciation/
depreciation of investments .............. 140,205,764 510,943,527
--------------- ---------------
Net increase in net assets resulting
from operations .......................... 356,496,442 623,758,001
--------------- ---------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares ........................... (788,155) (13,223,970)
Class B Shares ........................... -- (1,158,104)
Class C Shares ........................... -- (8,002)
Class D Shares(2)......................... -- (216,796)
Institutional Class ...................... (5,830) (3,699)
Net realized long-term gains:
Class A Shares ........................... (61,872,723) (31,466,328)
Class B Shares ........................... (11,190,628) (3,523,412)
Class C Shares ........................... (885,773) (25,235)
Class D Shares(2) ........................ -- (397,182)
Institutional Class ...................... (228,831) (10,896)
--------------- ---------------
Total distributions ........................ (74,971,940) (50,033,624)
--------------- ---------------
Capital Share Transactions
Proceeds from sale of shares ............... 531,909,138 298,419,515
Value of shares issued in reinvestment
of dividends ............................. 65,971,359 42,901,943
Cost of shares redeemed .................... (160,689,722) (156,173,099)
--------------- ---------------
Increase in net assets derived from
capital share transactions ............... 437,190,775 185,148,359
--------------- ---------------
Total increase in net assets ............... 718,715,277 758,872,736
Net Assets:
Beginning of period ........................ 1,445,143,175 686,270,439
--------------- ---------------
End of period, (including undistributed net
investment income of 3,590,647 and -0-
respectively) ............................ $ 2,163,858,452 $ 1,445,143,175
=============== ===============
</TABLE>
- ----------
(1) Unaudited.
(2) Class D Shares were converted to Class A Shares on November 20, 1998.
(See Note 1 to the Financial Statements).
See Notes to Financial Statements.
13
<PAGE>
Flag Investors Communications Fund
- -------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
June 30,
- -------------------------------------------------------------------------------
1999(1)
Per Share Operating Performance:
Net asset value at beginning of period ...................... $ 34.23
----------
Income from Investment Operations:
Net investment income ....................................... 0.10
Net realized and unrealized gain/(loss) on investments ...... 7.58
----------
Total from Investment Operations ............................ 7.68
----------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ......................... (0.02)
Distributions from net realized long-term gains ............. (1.57)
----------
Total distributions ......................................... (1.59)
----------
Net asset value at end of year .............................. $ 40.32
==========
Total Return(2) ................................................ 22.46%
Ratios to Average Daily Net Assets:
Expenses .................................................... 0.96%(5)
Net investment income ....................................... 0.61%(5)
Supplemental Data:
Net assets at end of period (000) ........................... $1,735,565
Portfolio turnover rate ..................................... 16%
- ----------
(1) Unaudited.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.99% and 0.99% for the years ended December 31,
1995 and 1994, respectively.
(4) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 2.79% and 3.07% for the years
ended December 31, 1995 and 1994, respectively.
(5) Annualized.
14
<PAGE>
<TABLE>
<CAPTION>
Flag Investors Communications Fund
- -------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................$ 19.37 $ 15.59 $ 14.87 $ 12.30 $ 13.70
---------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income .................................. 0.12 0.27 0.27 0.40 0.41
Net realized and unrealized gain/(loss) on investments.. 16.05 5.41 1.67 3.58 (1.27)
---------- -------- -------- -------- --------
Total from Investment Operations ....................... 16.17 5.68 1.94 3.98 (0.86)
---------- -------- -------- -------- --------
Less Distributions:
Distributions from net investment income
and net realized short-term gains .................... (0.40) (0.40) (0.38) (0.41) (0.44)
Distributions from net realized long-term gains ........ (0.91) (1.50) (0.84) (1.00) (0.10)
---------- -------- -------- -------- --------
Total distributions .................................... (1.31) (1.90) (1.22) (1.41) (0.54)
---------- -------- -------- -------- --------
Net asset value at end of year .......................$ 34.23 $ 19.37 $ 15.59 $ 14.87 $ 12.30
========== ======== ======== ======== ========
Total Return(2) ........................................... 85.30% 37.36% 13.46% 33.44% (6.32)%
Ratios to Average Daily Net Assets:
Expenses ............................................... 1.05% 1.11% 1.14% 0.93%(3) 0.92%(3)
Net investment income .................................. 0.48% 1.07% 1.74% 2.85%(4) 3.14%(4)
Supplemental Data:
Net assets at end of period (000) ......................$1,275,775 $622,865 $505,371 $492,454 $435,805
Portfolio turnover rate ................................ 14% 26% 20% 24% 23%
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
June 30,
- -------------------------------------------------------------------------
1999(1)
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 33.80
--------
Income from Investment Operations:
Net investment income/(loss) ......................... (0.02)
Net realized and unrealized gain on investments ...... 7.46
--------
Total from Investment Operations ..................... 7.44
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains .................. --
Distributions from net realized long-term gains ...... (1.57)
--------
Total distributions .................................. (1.57)
--------
Net asset value at end of period ..................... $ 39.67
========
Total Return(3) ......................................... 22.03%
Ratios to Average Daily Net Assets:
Expenses ............................................. 1.71%(6)
Net investment income/(loss) ......................... (0.14)%(6)
Supplemental Data:
Net assets at end of period (000) .................... $378,412
Portfolio turnover rate .............................. 16%
- ----------
(1) Unaudited.
(2) Commencement of operations.
(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 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) Annualized.
16
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period
January 3,
1995(2)
For the Years through
Ended December 31, December 31,
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 19.22 $ 15.51 $ 14.83 $12.28
-------- ------- ------- ------
Income from Investment Operations:
Net investment income/(loss) ......................... (0.02) 0.18 0.19 0.30
Net realized and unrealized gain on investments ...... 15.83 5.34 1.63 3.56
-------- ------- ------- ------
Total from Investment Operations ..................... 15.81 5.52 1.82 3.86
-------- ------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains .................. (0.32) (0.31) (0.30) (0.31)
Distributions from net realized long-term gains ...... (0.91) (1.50) (0.84) (1.00)
-------- ------- ------- ------
Total distributions .................................. (1.23) (1.81) (1.14) (1.31)
-------- ------- ------- ------
Net asset value at end of period ..................... $ 33.80 $ 19.22 $ 15.51 $14.83
======== ======= ======= ======
Total Return(3) ......................................... 83.91% 36.36% 12.60% 32.42%
Ratios to Average Daily Net Assets:
Expenses ............................................. 1.80% 1.86% 1.92% 1.70%(4,6)
Net investment income/(loss) ......................... (0.35)% 0.29% 0.95% 2.13%(5,6)
Supplemental Data:
Net assets at end of period (000) .................... $165,308 $32,474 $17,661 $7,504
Portfolio turnover rate .............................. 14% 26% 20% 24%
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Financial Highlights -- Class C Shares
(For a share outstanding throughout each period)
For the Six For the Period
Months Ended Nov. 1, 1998(2)
June 30, through Dec. 31,
- --------------------------------------------------------------------------------
1999(1) 1998
Per Share Operating Performance:
Net asset value at beginning of period ..... $ 33.84 $25.50
------- ------
Income from Investment Operations:
Net investment income/(loss) ............... (0.01) (0.01)
Net realized and unrealized gain
on investments ........................... 7.45 9.21
------- ------
Total from Investment Operations ......... 7.44 9.20
------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ........ -- (0.21)
Distributions from net realized
long-term gains .......................... (1.57) (0.65)
------- ------
Total distributions ........................ (1.57) (0.86)
------- ------
Net asset value at end of period ........... $ 39.71 $33.84
======= ======
Total Return(3) ............................... 22.00% 36.70%
Ratios to Average Daily Net Assets:
Expenses ................................... 1.71%(4) 1.85%(4)
Net investment income/(loss) ............... (0.14)%(4) (0.61)%(4)
Supplemental Data:
Net assets at end of year (000) ............ $42,673 $3,247
Portfolio turnover rate 16% 14%
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
See Notes to Financial Statements.
18
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six June 4, 1998(2)
Months Ended through
June 30, December 31,
- -----------------------------------------------------------------------------------------
1999(1) 1998
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............ $34.27 $23.26
------ ------
Income from Investment Operations:
Net investment income ............................. 0.12 0.06
Net realized and unrealized gain on investments ... 7.62 12.17
------ ------
Total from Investment Operations .................. 7.74 12.23
------ ------
Less Distributions:
Distributions from net investment
income and net realized
short-term gains ................................ (0.04) (0.31)
Distributions from net realized
long-term gains ................................. (1.57) (0.91)
------ ------
Total distributions ............................... (1.61) (1.22)
------ ------
Net asset value at end of period .................. $40.40 $34.27
====== ======
Total Return(3) ...................................... 22.62% 53.95%
Ratios to Average Net Assets:
Expenses .......................................... 0.71%(4) 0.83%(4)
Net investment income ............................. 0.86%(4) 0.49%(4)
Supplemental Data:
Net assets at end of period (000) .................. $7,209 $ 813
Portfolio turnover rate ............................ 16% 14%
</TABLE>
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
See Notes to Financial Statements.
19
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
NOTE 1--Significant Accounting Policies
Flag Investors Communications Fund, Inc. (the "Fund"), previously named
Flag Investors Telephone Income Fund, which is organized as a Maryland
Corporation and began operations January 18, 1984, is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
management company. On January 18, 1984 (the exchange date), investors received
five Fund shares for each American Telephone & Telegraph Company (AT&T) share,
with rights to the divested Bell regional operating companies attached, in a
tax-free exchange. The Fund's objective is to maximize total return.
The Fund consists of four share classes: Class A Shares, which began
operations January 18, 1984; Class B Shares, which began operations January 3,
1995; Class C Shares, which began operations November 1, 1998; and Institutional
Shares, which began operations June 4, 1998. Class D Shares were converted
to Class A Shares on November 20, 1998.
The Class A, Class B and Class C Shares are subject to different sales
charges. The Class A Shares have a front-end sales charge and the Class B and
Class C Shares have a contingent deferred sales charge. In addition, each class
has a different distribution fee. The Institutional Shares have neither a sales
charge nor a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions in accordance with generally accepted accounting principles.
These estimates affect 1) the assets and liabilities that we report at the date
of the financial statements; 2) the contingent assets and liabilities that we
disclose at the date of the financial statements; and 3) the revenues and
expenses that we report for the period. Our estimates could be different from
the actual results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. If there are no sales or the security is not
traded on a listed exchange, the Fund values the security at the
average of the last bid and asked prices in the over-the-counter
market. When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors
establishes and monitors.
20
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
NOTE 1--continued
At June 30, 1999, there were no Board valued securities. The Fund
values short-term obligations with maturities of 60 days or less at
amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement requires that the collateral's market value,
including any accrued interest, exceed the brokers repurchase
obligation. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral
declines or if the broker enters into an insolvency proceeding.
C. Federal Income Tax--The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
D. Securities Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of investments
sold or redeemed. Interest income is recorded on an accrual basis and
includes amortization of premiums and accretion of discounts when
appropriate. Income and common expenses are allocated to each class
based on its respective average net assets. Class specific expenses
are charged directly to each class. Dividend income and distributions
to shareholders are recorded on the ex-dividend date.
21
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. In November 1998 Bankers
Trust Corporation ("BT Corp.") and Deutsche Bank AG ("Deutsche Bank") entered
into an Agreement and Plan of Merger. This merger transaction was consummated on
June 4, 1999. As a result of the transaction, BT Corp. became a wholly-owned
subsidiary of Deutsche Bank.
As compensation for its advisory services, the Fund pays ICC an annual fee
based on the Fund's average daily net assets. This fee is calculated daily and
paid monthly at the following annual rates: 0.85% of the first $100 million,
0.75% of the next $100 million, 0.70% of the next $100 million, 0.65% of the
next $200 million, 0.58% of the next $500 million, 0.53% of the next $500
million and 0.50% of the amount over $1.5 billion.
For the period ended June 30, 1999, ICC's advisory fee was $5,218,185 of
which $983,692 was payable at the end of the period.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the period ended June 30, 1999 ICC's fee was
$68,018 of which $12,381 was payable at the end of the period.
ICC also provides transfer agency services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the period
ended June 30, 1999 ICC's fee was $540,729 of which $287,188 was payable at the
end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
Bankers Trust Company became the Fund's custodian on September 22, 1997.
Prior to September 22, 1997, PNC Bank served as the Fund's custodian. For the
period ended June 30, 1999, custody fees amounted to $65,962, of which $31,256
was payable at the end of the period.
Alex. Brown Investment Management ("ABIM") is the Fund's sub-advisor. As
compensation for its sub-advisory services, ICC pays ABIM a fee based on the
Fund's average daily net assets. This fee is calculated daily and paid monthly
at the following annual rates: 0.60% of the first $100 million, 0.55% of
the next $100 million, 0.50% of the next $100 million, 0.45% of the next
$200 million,
22
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
NOTE 2--continued
0.40% of the next $500 million, 0.37% of the next $500 million and 0.35% of the
amount over $1.5 billion.
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee, pursuant to Rule 12b-1, that is calculated daily and paid monthly at
the following annual rates: 0.25% of the Class A Shares' average daily net
assets and 1.00% of the Class B and Class C Shares' average daily net assets.
The fees for the Class B and Class C Shares include a 0.25% shareholder
servicing fee.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period ended
June 30, 1999 was $6,315 and the accrued liability was $90,505.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 110 million shares of $.001 par value
capital stock (63 million Class A Shares, 15 million Class B Shares, 15 million
Class C Shares, 15 million Institutional Shares, and 2 million undesignated).
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1999(1) Dec. 31, 1998
---------------- -------------
<S> <C> <C>
Shares sold ................................... 8,269,598 7,977,108
Shares issued to shareholders on
reinvestment of dividends .................. 1,352,415 1,383,390
Shares redeemed ............................... (3,853,772) (4,236,213)
------------- -------------
Net increase in shares outstanding ............ 5,768,241 5,124,285
============= =============
Proceeds from sale of shares .................. $ 310,718,003 $ 208,050,462
Value of reinvested dividends ................. 54,221,684 37,846,228
Cost of shares redeemed ....................... (143,215,527) (100,876,700)
------------- -------------
Net increase from capital share transactions... $ 221,724,160 $ 145,019,990
============= =============
</TABLE>
- ----------
(1) Unaudited.
23
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--continued
Class B Shares
----------------------------------
For the Six For the
Months Ended Year Ended
June 30, 1999(1) Dec. 31, 1998
---------------- ------------
Shares sold .......................... 4,830,807 3,461,232
Shares issued to shareholders on
reinvestment of dividends ......... 270,330 162,054
Shares redeemed ...................... (453,023) (421,723)
------------ ------------
Net increase in shares outstanding.... 4,648,114 3,201,563
============ ============
Proceeds from sale of shares ......... $179,092,950 $ 86,906,479
Value of reinvested dividends ........ 10,681,398 4,455,460
Cost of shares redeemed .............. (16,612,610) (10,210,390)
------------ ------------
Net increase from capital share
transactions ....................... $173,161,738 $ 81,151,549
============ ============
Class C Shares
-----------------------------------
For the
Period
For the Six Nov. 1 1998(2)
Months Ended through
June 30, 1999(1) Dec. 31, 1998
------------ -------------
Shares sold .......................... 980,030 96,807
Shares issued to shareholders on
reinvestment of dividends ......... 21,210 1,030
Shares redeemed ...................... (22,524) (1,875)
------------ ------------
Net increase in shares outstanding.... 978,716 95,962
============ ============
Proceeds from sale of shares ......... $ 36,454,825 $ 2,839,788
Value of reinvested dividends ........ 838,860 29,394
Cost of shares redeemed .............. (838,044) (54,186)
------------ ------------
Net increase from capital share
transactions ....................... $ 36,455,641 $ 2,814,996
============ ============
- ----------
(1) Unaudited.
(2) Commencement of operations.
24
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
NOTE 3--concluded
<TABLE>
<CAPTION>
Institutional Shares
-----------------------------------
For the period
For the Six June 4, 1998(1)
Months Ended through
June 30, 1999(2) Dec. 31, 1998
---------------- ---------------
<S> <C> <C>
Shares sold .................................... 149,581 23,201
Shares issued to shareholders on
reinvestment of dividends ................... 5,715 521
Shares redeemed ................................ (577) --
---------- --------
Net increase in shares outstanding ............. 154,719 23,722
========== ========
Proceeds from sale of shares ................... $5,643,360 $622,784
Value of reinvested dividends .................. 229,417 14,595
Cost of shares redeemed ........................ (23,541) --
---------- --------
Net increase from capital share transactions ... $5,849,236 $637,379
========== ========
</TABLE>
- ----------
(1) Commencement of operations.
(2) Unaudited.
Note 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $460,502,324 and sales of investment securities
aggregated $239,992,865 for the period ended June 30, 1999.
At June 30, 1999, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $996,309,004
and aggregate unrealized depreciation for all securities in which there is an
excess of tax cost over value was $18,859,837.
Note 5--Net Assets
On June 30, 1999, net assets consisted of:
Paid-in capital:
Class A Shares ............................................ $ 645,495,831
Class B Shares ............................................ 280,741,936
Class C Shares ............................................ 39,270,637
Institutional Shares ...................................... 6,486,614
Undistributed Net Investment Income .......................... 3,590,647
Accumulated net realized gain from security transactions ..... 210,823,620
Net unrealized appreciation of investments ................... 977,449,167
--------------
$2,163,858,452
==============
25
<PAGE>
Flag Investors Communications Fund
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE REBECCA W. RIMEL
Director Director
RICHARD T. HALE CARL W. VOGT, ESQ.
Director Director
JOSEPH R. HARDIMAN HARRY WOOLF
Director President
LOUIS E. LEVY JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD AMY M. OLMERT
Director Secretary
Investment Objective
This mutual fund (the "Fund") is designed to maximize total return. The Fund
will seek to achieve this objective through a combination of long-term growth of
capital and, to a lesser extent, current income. In seeking to achieve this
objective, the Fund invests primarily in common stock, securities convertible
thereto and debt obligations of companies in the communications field.
26
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
This report is prepared for the general information of
shareholders. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective
prospectus.
For more complete information regarding any of the Flag
Investors Funds, including charges and expenses, obtain a
prospectus from your investment representative or directly from
the Fund at 1-800-767-FLAG. Read it carefully before you invest.
<PAGE>
[Flag Investors Logo Omitted]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
Balanced
Flag Investors Value Builder Fund
Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
COMMSA
(8/99)
