(GRAPHIC APPEARS HERE)
Communications
Fund
Annual Report
December 31, 1999
<PAGE>
REPORT HIGHLIGHTS
o We are pleased to report that our total return for fiscal year ended December
31, 1999 was 45.47% for Class A Shares. Morningstar also awarded your fund a
five-star overall rating among 3,469 domestic equity funds.(2)
o Regulation and consolidation continue to be industry-shaping issues.
However, we believe other important trends like applications development and
globalization will become increasingly important influences on the growth of
the industry.
o Concerns regarding commoditization of long distance voice service and local
telephone competition during fiscal 1999 caused weakness in the stock
performance of our large long distance and telephone company holdings. We view
these concerns as short-term in nature and look to the long-term strength of
the underlying Internet and international-related services revenue growth.
o We have been successful in identifying and capitalizing on emerging
technologies and trends within key segments. Our investment in Novell
demonstrates a conviction that its emerging directory-based technology will
address the challenge of managing resources on the Internet. We will continue
to work towards finding more developing trends and emerging technologies.
<PAGE>
FUND PERFORMANCE
Growth of a $10,000 Investment in Class A Shares(1)
January 18, 1984-December 31, 1999
(GRAPHIC APPEARS HERE)
Value of Total
original value of
investment + investment
income (income +
distributions appreciation)
$19,944 $266,610
1/84 10,000 10,000
"1984" 10,557 11,503
12/85 11,392 14,850
"1986" 12,227 18,517
12/87 12,946 18,795
"1988" 13,650 22,530
12/89 14,508 33,534
"1990" 15,196 31,001
12/91 15,909 38,216
"1992" 16,559 42,972
12/93 17,209 50,756
"1994" 17,890 47,546
12/95 18,408 63,445
"1996" 18,996 71,982
12/97 19,615 98,874
"1998" 19,781 183,270
6/99 19,797 224,438
"1999" 19,944 266,610
Average Annual Total Return(1)
Class A Class B Class C
For the periods ended 12/31/99 Shares Shares Shares
- ----------------------------------------------------------------------------
One Year 45.47 % 44.42 % 44.33%
Five Years 41.16 % -- --
Ten Years 23.03 % -- --
Since Inception 1/18/84 1/3/95 11/1/98
22.85 % 40.20 % 84.21%
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gain distributions and exclude the
impact of any sales charge. If the maximum 4.50% sales charge were reflected
for Class A Shares, 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. Please review the Additional Performance
Information on page 10.
1
<PAGE>
LETTER TO SHAREHOLDERS
Fellow Shareholders:
We are pleased to report our total return for fiscal year ended
December 31, 1999 was 45.47% for Class A Shares. Your fund was also awarded a
five-star overall rating from Morningstar(2).
After four consecutive years of outstanding performance against other
communications funds, we lagged our peer group in 1999, despite our solid
absolute total return. The under performance of our major large service provider
holdings consisting of local telephone and long distance companies that include
SBC Communications, Inc., MCI WorldCom, Inc., AT&T Corp., Bell Atlantic Corp.,
and GTE Corp., created a significant drag on the fund's performance. We will go
into issues related to the group later but would like to emphasize our
confidence in the long-term prospects of our large carrier investments.
Industry Trends
Regulation and consolidation continue to be important industry-shaping
issues; but we believe that there are other emerging trends that are becoming
increasingly important influences on the growth of the industry. Applications
development and globalization are two developments that will increasingly shape
telecommunications.
Applications Development
We define an application as the use of communications and information
technology to redesign a business process and thereby achieve significant
improvement in business performance. Examples of applications include electronic
commerce (E-commerce), and enterprise resource planning (ERP). Applications are
increasingly influencing a business's strategy in pricing, distributing, and
servicing products. The underlying element of all business applications is the
improved flow of information among multiple users within a given universe. The
need to link diverse interests in a business process whether purchasers and
suppliers or consumers and retailers makes telecommunications an enabler of all
business applications.
- ----------
(2) Morningstar proprietary ratings reflect historical risk-adjusted performance
as of December 31, 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 received a 5 star rating for the 3-year,
5-year, and 10-year periods, respectively. The top 10% of the funds in an
investment class receive 5 stars. The fund was rated among 3,469, 2,180 and
770 Domestic Equity Funds for the 3, 5, and 10 year periods, respectively.
2
<PAGE>
The greater acceptance and deployment of business applications has
introduced a new platform known as network based applications for accessing the
technology and driving greater volumes of traffic over communications networks.
Users would pay for the service but not the people or hardware and software
necessary to run a particular application. Service providers own the
infrastructure that hosts applications and ensures customers have the necessary
access to conduct their business. This growing process of network-based
applications benefits both the customer, by reducing total cost of ownership, as
well as the service provider with growing "hosting" fees and network revenues.
We are looking for network providers to become active in the "hosting"
environment and collaborate more with applications service providers (ASPs).
Globalization
The benefits of widely available, low-cost telecommunications
technology is not unique to the United States. With the Internet as a catalyst
for growth, communications has expanded beyond U.S. boundaries and truly set the
stage for a seemless, global electronic economy. With foreign Internet
subscription rates growing at faster rates than the U.S., international markets
will become an important source of revenue for service and equipment providers.
The European Union's competitive mandate of January 1998 set the stage
for a major overseas market transition from monopoly to competition. The end of
national telephone monopolies has created opportunities for new players in the
Pan European market.
We are very excited about the affect of the growth of the Internet
overseas and the opening of foreign markets, and continue to follow the
developments of these markets. Our investment in Royal KPN N.V. and Global
Telesystems Group, Inc. has benefited from the changing environment overseas.
Both Royal KPN N.V. and Global Telesystems Group, Inc. have performed well
and we intend to selectively evaluate additional potential overseas
investments. Overseas markets also provide significant growth opportunities for
our established equipment companies like Sun Microsystems, Inc.
Regulation
Although the shift from regulation to competition has taken longer than
we anticipated, the regulatory influence on our major telephone company holdings
is beginning to decrease. In December of 1999, Bell Atlantic Corp. received
permission from The Federal Communications Commission (FCC) to provide
long-distance service to customers in the State of New York. Although
3
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
local telephone company entry into all major long distance markets will not
occur until about mid 2001, Bell Atlantic Corp.'s entry into the New York
long-distance market is the final step toward transitioning the Regional Bell
Operating Companies (RBOC's) from local telephone companies to full service
telecommunications providers.
While traditional telephone company regulation is declining, new, more
complex regulatory issues are arising from the proliferation of the Internet.
Issues such as open cable access which is a potential regulatory requirement for
cable companies to offer wholesale access to competing network service providers
are taking a prominent role on the regulatory agenda. Implementation of open
access on cable companies would result in the loss of the ability to exclusively
provide broadband Internet access through cable modem offerings. Clearly, the
loss of this exclusivity would have a negative effect on the value of a cable
franchise. Questions surrounding open access are further complicated by the
FCC's stated commitment to avoid any regulatory oversight of the Internet. Since
open access is related to the Internet, it will force the FCC to make tough
choices outside their traditional regulatory universe. Open access is just one
example of the complicated Internet-related issues facing not only the
regulators, but investors as well. It will receive a great deal of our attention
going forward.
Consolidation
The pending mergers of MCI WorldCom, Inc. and Sprint Corp., and AT&T
Corp. and Media One are receiving increased scrutiny from both the FCC and the
Department of Justice. A major concern by regulators is the ability of one
single company to exercise monopolistic influence over the Internet.
Mergers among large carriers may not be as active, but consolidation
activity will continue. We see that the large carriers' focus will shift toward
filling in holes in critical service areas like web hosting and ISP service.
Smaller Internet players must decide whether to serve a market niche or
aggregate subscriber traffic through a merger.
Established Carriers
Concerns surrounding the commoditization of long-distance voice service
and local telephone competition caused weakness in the stock performance of our
large long-distance and telephone company holdings. We view these concerns as
short-term in nature and look more towards their long-term positioning in the
context of the market's strong growth trends. Just as quickly as the price
4
<PAGE>
revisions started, we saw a quick return to rationality and price stabilization.
The new long-distance market entrant in New York State, Bell Atlantic Corp.,
announced pricing plans that were consistent with ones offered by existing
carriers. Long-distance voice pricing pressure also overshadows the underlying
strength of revenue growth derived from Internet and international-related
services.
We recognize that no carrier has the facilities in place to provide
end-to-end solutions that include local service, Internet, wireless,
international and long-distance. Each company has expertise in several key
service areas and the ability to complement core network strengths with
affiliations and joint ventures to complete a service mix. For example, when SBC
Communications, Inc. is eventually permitted to provide long-distance service in
local markets, the company will not have to build or purchase long-distance
facilities. A joint venture with Williams Communications Group will enable them
to meet customer service needs without having to make the capital investment in
their own long-distance network. The large carrier customer base and the ability
to support that base with strong customer service and back office support is a
key asset in retaining and growing that base. The one thing that is certain
about the telecommunications business is unless you're doing a great deal of it,
it is not very profitable.
The evolving telecommunications market is not completely devoid of new
business opportunities. Changes in other industries, like network-hosted
applications, create new sources of revenue. Network service companies can add
additional value for their customers by supplementing network services with web
hosting. SAP America, an applications service provider (ASP) has teamed with
Qwest Communications International, Inc. to offer professional, transportation,
and human resources service software to businesses. Qwest Com-munications
International, Inc. is just one example of a carrier leveraging core network
expertise into the new business of web hosting and the formation of a mutually
beneficial joint venture.
Although we still make the distinction, we believe in the not too
distant future, it will be difficult to distinguish between local telephone and
long-distance service. We are very enthusiastic about the positioning and
available growth opportunities of our holdings in both long-distance and local
telephone.
Looking to the Future
Although the rate of change is becoming faster, our view is that
telecommunications is evolutionary rather than revolutionary. As we have
followed the evolution of this industry, we have been able to identify the
long-term trends and concentrate our investments in segments that we felt
provided the most
5
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
opportunity. After seeing early Internet growth, we were able to find leaders
in Internet infrastructure such as our ownership of Sun Microsystems, Inc., a
company, at the time of our investments, not readily associated with the
Internet.
We have been successful in identifying and capitalizing on emerging
technologies and trends within key segments. However, there is always room to
improve our investment efforts. Digging deeper to identify additional
shorter-term cycles or smaller, potential high-growth markets, without
compromising our investment discipline, will be a major focus for us in the
future. With the build-out of the Internet, we uncovered an emerging technology
directory service through our investment in Novell, Inc. In the future we will
work towards finding more developing trends.
Best Performers
We felt it was important to highlight the major factors behind some of
the fund's holdings that posted disappointing results this year. However,
offsetting weakness in the large carrier segment has been strong performances in
communications equipment, communications software, international, and specialty
services.
You might notice that Clearnet Communications, Inc. was among the
fund's top performers in fiscal 1999. Clearnet, a Canadian wireless provider,
was a subject of last year's annual letter because it was one of our weakest
performers. In our 1998 letter we discussed how we believed that business
fundamentals and skilled management would yield the desired long-term results.
Clearly, we were rewarded for looking past short-term issues and concentrating
on important long-term fundamentals.
Top Ten Best Performers Percent
Security Gain
- ------------------------------------------------------------------
Sprint Corp. (PCS Group) 343.2%
Clearnet Communications 323.1%
XM Satellite Radio (a) 217.7%
Global Crossing Ltd. (a) 201.5%
Sun Microsystems (a) 195.2%
Telefonos De Mexico 131.1%
Novell Incorporated 120.3%
Royal KPN Nederlands (a) 117.9%
America Online 95.6%
Winstar Communications 92.9%
- ------------------------------------------------------------------
- ----------
(a) Added mid-period.
6
<PAGE>
As we anticipated, the list changed substantially from last year.
Only Novell, Inc. and America Online, Inc. remain from last year's top ten
performers. New additions Sun Microsystems, Inc. and Royal KPN N.V. represent
our interest in selectively increasing our weightings in key segments like
Internet infrastructure and international. We expect that emerging trends
will favor industry segments represented in the fund going forward but we will
continue to look for new investments to further increase our investment return.
Conclusion
Thank you, again, for your continued support. We are very
enthusiastic about the future of your fund. We believe our holdings are well
positioned in key growth areas of the industry and offer great value. We have
the flexibility to identify and invest in areas of opportunity which will
generate attractive long-term results.
Sincerely,
/s/ Bruce E. Behrens /s/ Liam D. Burke
Bruce E. Behrens Liam D. Burke
Co-Portfolio Manager Co-Portfolio Manager
January 19, 2000
7
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Dividend Declaration
1999 Year-End Dividend
The Board of Directors declared a year-end per share distribution payable on
December 13, 1999 to shareholders of record on December 6, 1999.
Class A Class B Class C Institutional
Shares Shares Shares Shares
Long-term capital gains $3.74 $3.74 $3.74 $3.74
Short-term capital gains 0.12 0.12 0.12 0.12
----- ------ ----- ------
Total distributions $3.86 $3.86 $3.86 $3.86
Dividends for Calendar 1999
Total dividends declared for calendar 1999 are as follows:
Class A Class B Class C Institutional
Shares Shares Shares Shares
Long-term capital gains $5.31 $5.31 $5.31 $5.31
Short-term capital gains 0.12 0.12 0.12 0.12
Income 0.21 0.07 0.07 0.28
----- ----- ----- -----
Total distributions $5.64 $5.50 $5.50 $5.71
Shareholders who have elected to participate in the Fund's dividend
reinvestment plan have received their distribution in additional shares of
the Fund. If you are not currently a plan participant but would like to have
your dividends reinvesting at net asset value, please contact your investment
representative or the Fund at 1-800-553-8080.
8
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Communications Holdings Percent of Net Assets
I. Regional Bell Operating Companies
(RBOCs):
Bell Atlantic Corp. 1.8%
SBC Communications, Inc. 10.2
U.S. West, Inc. 4.7
----
16.7
II. Independent Local Exchange Carriers:
Alltel Corp. 1.4
GTE Corp. 3.6
----
5.0
III. Long Distance Telephone Companies:
AT&T Corp. 1.4
General Communication, Inc. 0.1
MCI Worldcom, Inc. 5.0
Qwest Communications International, Inc. 2.5
Sprint Corp. 1.3
Williams Communications Group 2.7
----
13.0
IV. Foreign Telephone Companies:
Clearnet Communications - Class A 1.0
Global Crossing Ltd. 3.4
Global Telesystems Group, Inc. 2.4
Royal KPN N.V. 2.2
Telefonica de Espana ADR 1.1
Telefonos de Mexico SA ADR 1.1
Teleglobe, Inc. 2.5
Vodafone Airtouch PLC ADR 1.2
----
14.9
V. Communication Equipment Providers:
3Com Corp. 1.9
Black Box Corp. 1.6
Lucent Technologies, Inc. 2.8
Storage Technology Corp. 0.4
Sun Microsystems, Inc. 5.4
----
12.1
VI. Specialty Communication Services:
America Online, Inc. 11.5
American Mobile Satellite Corp. 0.6
Comsat Corp. 0.3
Convergys Corp. 1.8
First Data Corp. 0.8
General Motors Corp. - Class H (Hughes Electronics) 2.5
News Ltd. ADR 0.8
Novell, Inc. 4.5
Orbital Sciences Corp. 0.4
Paging Network, Inc. 0.1
Sprint Corp. (PCS Group) 0.4
Winstar Communications, Inc. 2.2
XM Satellite Radio Holdings - Class A 0.7
----
26.6
Total Communications Industry 88.3%
====
9
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Additional Performance Information
The shareholder letter included in this report contains statistics
designed to help you evaluate the performance of your Fund's management. To
further assist in this evaluation, the Securities and Exchange Commission (SEC)
requires that we include, on an annual basis, a line graph comparing the
performance of each of the the Fund's classes to that of an appropriate market
index. This graph measures the growth of a $10,000 hypothetical investment from
the inception date of the respective class through the end of the most recent
fiscal year-end. TheSEC also requires that we report the total return of each
class, according to a standardized formula, for various time periods through the
end of the most recent calendar quarter.
Both the line graph and 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 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.
While the graphs and 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.
10
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Change in Value of a $10,000 Investment in Class A Shares(1)
January 18, 1984-December 31, 1999
(GRAPHIC APPEARS HERE)
S&P 500 Flag Investors
Index $143,843 Communications Fund $254,613
1983 10,687 9,550
1984 10,687 10,985
1985 14,081 14,182
1986 16,714 17,684
1987 17,587 17,949
1988 20,501 21,516
1989 26,920 32,025
1990 26,085 29,606
1991 34,109 36,496
1992 36,715 41,038
1993 40,405 48,472
1994 40,918 45,406
1995 56,275 60,590
1996 69,212 68,743
1997 92,343 94,425
1998 118,852 175,023
1999 143,843 254,613
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years 10 Years Since Inception(2)
Class A Shares 38.92% 39.87% 22.47% 22.35%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's 4.50% maximum sales charge. The S&P 500 Index is an unmanaged index
that is a widely recognized indicator of general market performance.
(2) January 18, 1984.
11
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class B Shares(1)
January 3, 1995-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors S&P 500
Communication Index
Fund $53,461 $35,112
1/95 10,000 10,000
6/95 11,697 12,021
12/95 13,397 13,758
6/96 14,743 15,147
12/96 16,477 16,917
6/97 19,854 20,404
12/97 21,984 22,561
6/98 25,886 26,557
12/98 37,090 29,008
6/99 45,431 32,603
12/99 53,461 35,112
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Class B Shares 38.64% -- 39.76%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's applicable sales charge. The S&P 500 Index is an unmanaged index that
is a widely recognized indicator of general market performance.
(2) January 3, 1995.
12
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Additional Performance Information
Change in Value of a $10,000 Investment in Class C Shares(1)
November 1, 1998-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors S&P 500
Communications Index
Fund $20,494 $13,577
11/1/98 10,000 10,000
12/31/98 14,199 11,217
6/30/99 17,324 12,607
12/31/99 20,494 13,577
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Class C Shares 42.89% -- 84.14%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's applicable sales charge. The S&P 500 Index is an unmanaged index that
is a widely recognized indicator of general market performance.
(2) November 1, 1998.
13
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Institutional Shares(1)
June 4, 1998-December 31, 1999
(GRAPHIC APPEARS HERE)
Flag Investors S&P 500
Communications Index
Fund $22,459 $13,759
6/4/98 10,000 10,000
6/30/98 10,615 10,406
12/31/98 15,395 11,367
6/30/99 18,876 12,776
12/31/99 22,459 13,759
Average Annual Total Return(1)
Periods Ended 12/31/99 1 Year 5 Years Since Inception(2)
Institutional Shares 45.89% -- 67.19%
- ----------
(1) Past performance is not an indicator of future results. These figures assume
the reinvestment of dividends and capital gain distributions. The S&P 500
Index is an unmanaged index that is a widely recognized indicator of general
market performance.
(2) June 4, 1998.
14
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Statement of Net Assets December 31, 1999
Shares Security Market Value
- -------------------------------------------------------------------------------
Common Stock - 88.9%
Communication Equipment Providers - 12.1%
1,146,300 3Com Corp.(1) $ 53,876,100
666,428 Black Box Corp.(1) 44,650,676
1,060,940 Lucent Technologies, Inc. 79,371,574
630,000 Storage Technology Corp.(1) 11,615,625
1,960,000 Sun Microsystems, Inc.(1) 151,777,500
--------------
341,291,475
--------------
Foreign Telephone Companies - 14.9%
850,000 Clearnet Communications, Inc. -- Class A 29,218,750
1,894,610 Global Crossing Ltd.(1) 94,730,500
1,950,000 Global Telesystems Group, Inc.(1) 67,518,750
658,757 Royal KPN N.V. 63,323,017
407,503 Telefonica de Espana ADR(1) 32,116,330
285,000 Telefonos de Mexico SA ADR 32,062,500
3,085,200 Teleglobe, Inc. 69,995,475
676,020 Vodafone Airtouch PLC ADR 33,462,990
--------------
422,428,312
--------------
Independent Local Exchange Carriers - 5.0%
480,000 ALLTEL Corp. 39,690,000
1,425,000 GTE Corp. 100,551,562
--------------
140,241,562
--------------
Long Distance telephone companies - 13.0%
800,000 AT&T Corp 40,600,000
500,000 General Communication, Inc.(1) 2,187,500
2,631,003 MCI Worldcom, Inc.(1) 139,607,597
1,649,800 Qwest Communications International, Inc.(1) 70,941,400
556,000 Sprint Corp. 37,425,750
2,649,200 Williams Communications Group(1) 76,661,225
--------------
367,423,472
--------------
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Statement of Net Assets (concluded) December 31, 1999
Shares/
Par (000) Security Market Value
- -------------------------------------------------------------------------------
Non - Telephone Industry - 0.6%
626,900 Centertrust Retail Properties $ 6,073,094
620,548 Conseco, Inc. 11,092,295
--------------
17,165,389
--------------
Regional Bell Operating Companies - 16.7%
833,216 Bell Atlantic Corp. 51,294,860
5,923,789 SBC Communications, Inc. 288,784,714
1,848,200 U.S. West, Inc. 133,070,400
--------------
473,149,974
--------------
SPecialty Communication Services - 26.6%
4,308,000 America Online, Inc.(1) 324,984,750
853,900 American Mobile Satellite Corp.(1) 17,985,269
368,927 COMSAT Corp. 7,332,424
1,668,000 Convergys Corp.(1) 51,291,000
470,300 First Data Corp. 23,191,669
725,000 General Motors Corp. -
Class H (Hughes Electronics) 69,600,000
600,000 News Ltd. ADR 22,950,000
3,185,000 Novell, Inc.(1) 127,200,937
645,347 Orbital Sciences Corp.(1) 11,979,254
3,000,000 Paging Network, Inc.(1) 2,437,500
100,000 Sprint Corp. (PCS Group) 10,250,000
825,000 WinStar Communications, Inc. 62,081,250
500,000 XM Satellite Radio Holdings-- Class A(1) 19,062,500
--------------
750,346,553
--------------
Total Common Stock (Cost $1,132,551,816) 2,512,046,737
--------------
Repurchase Agreements - 10.9%
126,131 Goldman Sachs & Co., dated 12/31/99, 2.00%,
principal and interest in the amount of
$126,152,022 due 1/3/00, collateralized by
U.S. Treasury Bonds, par value of $143,384,000,
coupon rate from 0% to 13.875%, due from
1/31/00 to 8/15/17, market value of
$128,654,040. 126,131,000
16
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Par (000) Security Market Value
- -------------------------------------------------------------------------------
126,131 J.P. Morgan Securities, Inc., dated 12/31/99,
3.25%, principal and interest in the amount of
$126,165,160, due 1/3/00, collateralized by
U.S. Treasury Bonds, par value of $122,361,000,
coupon rate from 0% to 10.375%, due from
3/2/00 to 11/15/09, market value of
$128,653,858 $ 126,131,000
57,303 Morgan Stanley & Co., dated 12/31/99, 2.50%,
principal and interest in the amount of
$57,314,938, due 1/3/00, collateralized by U.S.
Treasury Bond, par value of $49,084,000, coupon
rate of 11.875%, due 11/15/03, market value of
$58,825,548 57,303,000
--------------
Total Repurchase Agreements (Cost $309,565,000) 309,565,000
--------------
Total Investments - 99.8% (Cost $1,442,116,816)(2) 2,821,611,737
Other Assets in Excess of Liabilities - 0.2% 6,122,422
--------------
Net Assets - 100.0% $2,827,734,159
==============
Net Asset Value and Redemption Price Per:
Class A Share
($2,115,884,710 / 48,471,002 shares) $43.65
======
Class B Share
($592,520,460 / 13,828,972 shares) $42.85(3)
======
Class C Share
($91,175,734 / 2,126,250 shares) $42.88(4)
======
Institutional Share
($28,153,255 / 643,324 shares) $43.76
======
Maximum Offering Price Per:
Class A Share ($43.65 / 0.955) $45.71
======
Class B Share $42.85
======
Class C Share $42.88
======
Institutional Share $43.76
======
- ----------
(1) Non-income producing security.
(2) Aggregate cost for federal tax purposes was $1,438,011,516.
(3) Redemption value is $41.14 following a 4% maximum contingent deferred sales
charge.
(4) Redemption value is $42.45 following a 1% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
December 31,
- ------------------------------------------------------------------------------------------
1999
<S><C>
Investment Income:
Dividends (net of foreign withholding tax $61,197) $ 18,014,503
Interest 14,404,064
-------------
Total income 32,418,567
Expenses:
Investment advisory fee 11,892,502
Distribution fee
Class A 4,108,483
Class B 3,571,656
Class C 412,375
Transfer agent fee 1,639,648
Registration fee 324,555
Printing and postage 184,399
Accounting fee 153,996
Custodian fee 146,539
Professional fees 119,155
Directors' fees 60,493
-------------
Miscellaneous 75,969
-------------
Total expenses 22,689,770
-------------
Net investment income 9,728,797
-------------
Realized and unrealized gain on investments:
Net realized gain from security transactions 246,532,613
Change in unrealized appreciation/depreciation of investments 542,251,518
-------------
Net gain on investments 788,784,131
-------------
Net increase in net assets resulting from operations $ 798,512,928
=============
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
1999 1998
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 9,728,797 $ 3,605,198
Net realized gain from security
transactions 246,532,613 109,209,276
Change in unrealized appreciation/
depreciation of investments 542,251,518 510,943,527
-------------- --------------
Net increase in net assets resulting
from operations 798,512,928 623,758,001
-------------- --------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares (14,398,569) (13,223,970)
Class B Shares (2,243,422) (1,158,104)
Class C Shares (313,813) (8,002)
Class D Shares(1) -- (216,796)
Institutional Class (177,344) (3,699)
Net realized long-term gains:
Class A Shares (228,017,933) (31,466,328)
Class B Shares (56,779,941) (3,523,412)
Class C Shares (7,495,878) (25,235)
Class D Shares(1) -- (397,182)
Institutional Class (2,435,534) (10,896)
-------------- --------------
Total distributions (311,862,434) (50,033,624)
-------------- --------------
Capital Share Transactions
Proceeds from sale of shares 1,037,923,365 298,419,515
Value of shares issued in reinvestment
of dividends 277,388,583 42,901,943
Cost of shares redeemed (419,371,458) (156,173,099)
-------------- --------------
Increase in net assets derived from
capital share transactions 895,940,490 185,148,359
-------------- --------------
Total increase in net assets 1,382,590,984 758,872,736
Net Assets:
Beginning of year 1,445,143,175 686,270,439
-------------- --------------
End of year, (including distributions in excess of
net investment income of $161,307 and $0
respectively) $2,827,734,159 $1,445,143,175
============== ==============
</TABLE>
- ----------
(1) 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.
19
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Financial Highlights -- Class A Shares
(For a share outstanding throughout each year)
For the
Year Ended
December 31,
- -----------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of year $ 34.23
----------
Income from Investment Operations:
Net investment income 0.23
Net realized and unrealized gain on investments 14.83
----------
Total from Investment Operations 15.06
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.33)
Distributions from net realized long-term gains (5.31)
----------
Total distributions (5.64)
----------
Net asset value at end of year $ 43.65
==========
Total Return(1) 45.47%
Ratios to Average Daily Net Assets:
Expenses 0.96%
Net investment income 0.62%
Supplemental Data:
Net assets at end of year (000) $2,115,885
Portfolio turnover rate 17%
- ----------
(1) Total return excludes the effect of sales charge.
(2) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.99% for the year ended December 31, 1995.
20
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
For the Years Ended December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995
$ 19.37 $ 15.59 $ 14.87 $ 12.30
---------- -------- -------- --------
0.12 0.27 0.27 0.40
16.05 5.41 1.67 3.58
---------- -------- -------- --------
16.17 5.68 1.94 3.98
(0.40) (0.40) (0.38) (0.41)
(0.91) (1.50) (0.84) (1.00)
---------- -------- -------- --------
(1.31) (1.90) (1.22) (1.41)
---------- -------- -------- --------
$ 34.23 $ 19.37 $ 15.59 $ 14.87
========== ======== ======== ========
85.30% 37.36% 13.46% 33.44%
1.05% 1.11% 1.14% 0.93%(2)
0.48% 1.07% 1.74% 2.85%
$1,275,775 $622,865 $505,371 $492,454
14% 26% 20% 24%
See Notes to Financial Statements.
21
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
For the
Year Ended
December 31,
- -----------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of period $ 33.80
--------
Income from Investment Operations:
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 14.58
--------
Total from Investment Operations 14.55
--------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.19)
Distributions from net realized long-term gains (5.31)
--------
Total distributions (5.50)
--------
Net asset value at end of period $ 42.85
========
Total Return(2) 44.42%
Ratios to Average Daily Net Assets:
Expenses 1.71%
Net investment income/(loss) (0.15)%
Supplemental Data:
Net assets at end of period (000) $592,520
Portfolio turnover rate 17%
- ----------
(1) Commencement of operations.
(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 1.74% (annualized) for the period ended December
31, 1995.
(4) Annualized.
22
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
For the Period
January 3, 1995(1)
For the Years Ended December 31, through December 31,
- ----------------------------------------------------------------------------
1998 1997 1996 1995
$ 19.22 $ 15.51 $ 14.83 $12.28
-------- ------- ------- ------
(0.02) 0.18 0.19 0.30
15.83 5.34 1.63 3.56
-------- ------- ------- ------
15.81 5.52 1.82 3.86
-------- ------- ------- ------
(0.32) (0.31) (0.30) (0.31)
(0.91) (1.50) (0.84) (1.00)
-------- ------- ------- ------
(1.23) (1.81) (1.14) (1.31)
-------- ------- ------- ------
$ 33.80 $ 19.22 $ 15.51 $14.83
======== ======= ======= ======
83.91% 36.36% 12.60% 32.42%
1.80% 1.86% 1.92% 1.70%(3),(4)
(0.35)% 0.29% 0.95% 2.13%(4)
$165,308 $32,474 $17,661 $7,504
14% 26% 20% 24%
See Notes to Financial Statements.
23
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Financial Highlights -- Class C Shares
(For a share outstanding throughout each period)
For the For the Period
Year Ended Nov. 1, 1998(1)
December 31, through Dec. 31,
- --------------------------------------------------------------------------------
1999 1998
Per Share Operating Performance:
Net asset value at beginning of period $ 33.84 $25.50
------- ------
Income from Investment Operations:
Net investment income/(loss) (0.02) (0.01)
Net realized and unrealized gain
on investments 14.56 9.21
------- ------
Total from Investment Operations 14.54 9.20
------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.19) (0.21)
Distributions from net realized
long-term gains (5.31) (0.65)
------- ------
Total distributions (5.50) (0.86)
------- ------
Net asset value at end of period $ 42.88 $33.84
======= ======
Total Return(2) 44.33% 36.70%
Ratios to Average Daily Net Assets:
Expenses 1.70% 1.85%(3)
Net investment income/(loss) (0.20)% (0.61)%(3)
Supplemental Data:
Net assets at end of period (000) $91,176 $3,247
Portfolio turnover rate 17% 14%
- ----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
See Notes to Financial Statements.
24
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the June 4, 1998(1)
Year Ended through
December 31, December 31,
1999 1998
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 34.27 $23.26
------- ------
Income from Investment Operations:
Net investment income 0.27 0.06
Net realized and unrealized gain on investments 14.93 12.17
------- ------
Total from Investment Operations 15.20 12.23
------- ------
Less Distributions:
Distributions from net investment
income and net realized
short-term gains (0.40) (0.31)
Distributions from net realized
long-term gains (5.31) (0.91)
------- ------
Total distributions (5.71) (1.22)
------- ------
Net asset value at end of period $ 43.76 $34.27
======= ======
Total Return 45.89% 53.95%
Ratios to Average Daily Net Assets:
Expenses 0.72% 0.83%(2)
Net investment income 0.86% 0.49%(2)
Supplemental Data:
Net assets at end of period (000) $28,153 $ 813
Portfolio turnover rate 17% 14%
</TABLE>
- ----------
(1) Commencement of operations.
(2) Annualized.
See Notes to Financial Statements.
25
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Communications Fund, Inc. (the "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. Its objective is to seek to maximize
total return through long-term growth of capital and, to a lesser extent,
current income. The Fund invests primarily in common stocks of companies in the
communications field.
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. At December 31, 1999 there were
no Board valued securities. The Fund values short-term obligations
with maturities of 60 days or less at amortized cost.
26
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
NOTE 1--continued
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 broker's 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, gains 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.
27
<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
Deutsche Bank AG, is the Fund's investment advisor. On June 4, 1999, Bankers
Trust Corporation, then the parent company of ICC, was acquired by Deutsche
Bank AG. As a result, ICC became an indirect wholly owned subsidiary of Deutsche
Bank AG.
As compensation for its advisory services, the Fund pays ICC an annual
fee based on the Fund's average daily net assets. This fee is calculated daily
and paid monthly at the following annual rates: 0.85% of the first $100 million,
0.75% of the next $100 million, 0.70% of the next $100 million, 0.65% of the
next $200 million, 0.58% of the next $500 million, 0.53% of the next $500
million and 0.50% of the amount over $1.5 billion. For the year ended December
31, 1999, ICC's advisory fee was $11,892,502 of which $1,302,185 was payable at
the end of the year.
Alex. Brown Investment Management ("ABIM") is the Fund's sub-advisor.
As compensation for its sub-advisory services, ICCpays ABIM a fee based on the
Fund's average daily net assets. This fee is calculated daily and paid monthly
at the following annual rates:0.60% of the first $100 million, 0.55% of the next
$100 million, 0.50% of the next $100 million, 0.45% of the next $200 million,
0.40% of the next $500 million, 0.37% of the next $500 million and 0.35% of the
amount over $1.5 billion.
ICC provides accounting services to the Fund for which the Fund pays
ICCan annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the year ended December 31, 1999, ICC's fee was
$153,996 of which $13,365 was payable at the end of the year.
ICC also provides transfer agency services to the Fund for which the
Fund pays ICCa per account fee that is calculated and paid monthly. For the
year ended December 31, 1999, ICC's fee was $1,639,648 of which $223,167 was
payable at the end of the year.
Certain officers and directors of the Fund are also officers or
directors of ICC.
28
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
NOTE 2--continued
ICC Distributors, Inc., provides distribution services to the Fund for
which the Fund pays ICCDistributors 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. For the year ended December 31, 1999,
the distribution fee was $8,092,514, of which $987,662 was payable at the end of
the year.
Bankers Trust Company, an affiliate of the advisor, is the Fund's
custodian. For the year ended December 31, 1999, custody fees amounted to
$146,539, of which $18,276 was payable at the end of the year.
The Fund participates along with other Flag Investor Funds in a
retirement plan for eligible Directors. The actuarially computed pension
expense allocated to the Fund for the year ended December 31, 1999 was $29,022
and the accrued liability was $94,913.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 127 million shares of $.001 par
value capital stock (75 million Class A Shares, 20 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:
Class A Shares
------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Shares sold 15,431,133 7,977,108
Shares issued to shareholders on
reinvestment of dividends 5,099,826 1,383,390
Shares redeemed (9,333,388) (4,236,213)
------------ ------------
Net increase in shares outstanding 11,197,571 5,124,285
============ ============
Proceeds from sale of shares $602,295,609 $208,050,462
Value of reinvested dividends 211,096,175 37,846,228
Cost of shares redeemed (366,305,193) (100,876,700)
------------ ------------
Net increase from capital share transactions $447,086,591 $145,019,990
============ ============
29
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Notes to Financial Statements (concluded)
NOTE 3--continued
Class B Shares
-------------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Shares sold 8,689,423 3,461,232
Shares issued to shareholders on
reinvestment of dividends 1,379,540 162,054
Shares redeemed (1,131,119) (421,723)
------------ -------------
Net increase in shares outstanding 8,937,844 3,201,563
============ =============
Proceeds from sale of shares $332,813,853 $ 86,906,479
Value of reinvested dividends 56,356,025 4,455,460
Cost of shares redeemed (43,429,347) (10,210,390)
------------ -------------
Net increase from capital share
transactions $345,740,531 $ 81,151,549
============ =============
Class C Shares
----------------------------------
For the Period
For the Nov. 1, 1998(1)
Year Ended through
Dec. 31, 1999 Dec. 31, 1998
-------------- ----------------
Shares sold 2,010,012 96,807
Shares issued to shareholders on
reinvestment of dividends 180,808 1,030
Shares redeemed (160,531) (1,875)
------------ ------------
Net increase in shares outstanding 2,030,289 95,962
============ ============
Proceeds from sale of shares $ 77,856,408 $ 2,839,788
Value of reinvested dividends 7,417,986 29,394
Cost of shares redeemed (6,384,715) (54,186)
------------ ------------
Net increase from capital share
transactions $ 78,889,679 $ 2,814,996
============ ============
- ----------
(1) Commencement of operations.
30
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
NOTE 3--concluded
Institutional Shares
--------------------------------
For the period
For the June 4, 1998(1)
Year Ended through
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Shares sold 640,450 23,201
Shares issued to shareholders on
reinvestment of dividends 60,123 521
Shares redeemed (80,971) --
----------- --------
Net increase in shares outstanding 619,602 23,722
=========== ========
Proceeds from sale of shares $24,957,495 $622,784
Value of reinvested dividends 2,518,397 14,595
Cost of shares redeemed (3,252,203) --
----------- --------
Net increase from capital share transactions $24,223,689 $637,379
=========== ========
- ----------
(1) Commencement of operations.
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $789,197,015 and sales of investment securities
aggregated $311,378,591 for the year ended December 31, 1999.
At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,429,510,409 and aggregate unrealized depreciation for all securities in
which there is an excess of tax cost over value was $45,910,188.
NOTE 5--Net Assets
On December 31, 1999, net assets consisted of:
Paid-in capital:
Class A Shares $ 870,858,269
Class B Shares 453,320,728
Class C Shares 81,704,675
Institutional Shares 24,861,067
Distributions in excess of net investment income (161,307)
Accumulated net realized gain from security transactions 17,655,806
Net unrealized appreciation of investments 1,379,494,921
--------------
$2,827,734,159
==============
31
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Report of Independent Accountants
To the Board of Directors and Shareholders of
Flag Investors Communications Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Flag Investors Communications Fund, Inc. (hereafter referred to as the
"Fund") at December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for each of the fiscal periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 11, 2000
32
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Tax Information (Unaudited)
For the Tax Year Ended December 31, 1999
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report because
of differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $294,729,286 from
long-term capital gains.
Of ordinary distributions made during the fiscal year ended December
31, 1999, 91.61% qualifies for the dividends received deduction available to
corporate shareholders.
Of the ordinary distributions made during the fiscal year ended
December 31, 1999, .13% has been derived from investments in U.S. Government and
Agency Obligations. All or a portion of the distributions from the income may be
exempt from taxation at the state level. Consult your tax advisor for state
specific information.
33
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Special Meeting (Unaudited)
A Special Meeting of Shareholders (the "Special Meeting") was held on
October 7, 1999, at which time shareholders voted to approve a new investment
advisory agreement with ICC and a new sub-advisory agreement with ABIM.
Additionally, shareholders elected the Board of Directors. The Special Meeting
was reconvened on October 22, 1999, at which time shareholders voted to
eliminate or modify certain fundamental investment restrictions of the Fund.
The results of the shareholder voting at the Special Meeting are as
follows:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Non-Votes
- ------------------------------------------------------------------------------------------------------
<S><C>
Elect Truman T. Semans 30,410,578 574,969
Elect Richard R. Burt 30,386,642 598,905
Elect Richard T. Hale 30,454,253 531,294
Elect Joseph R. Hardiman 30,415,255 570,292
Elect Louis E. Levy 30,432,199 553,348
Elect Eugene J. McDonald 30,377,545 608,002
Elect Rebecca W. Rimel 30,439,926 545,621
Elect Robert H. Wadsworth 30,387,333 598,214
Investment Advisory Agreement
with ICC 29,634,209 401,978 949,360
Sub-Advisory Agreement with ICC and
Alex. Brown Investment Management. 29,575,067 443,140 967,340
Eliminate policy concerning
short sales 20,901,885 2,285,492 1,177,279 5,875,076
Eliminate policy regarding purchasing
of securities on margin 20,685,598 2,524,362 1,154,697 5,875,075
Eliminate policy regarding purchases of
oil, gas or mineral interests 20,582,000 2,538,740 1,243,917 5,875,075
Modify policy regarding purchase or
sale of commodities or commodity
contracts 20,594,036 2,613,783 1,156,838 5,875,075
Modify policy regarding borrowing 21,117,919 2,097,105 1,149,633 5,875,075
Reclassify illiquid securities from
fundamental to non-fundamental 21,232,171 1,740,001 1,392,485 5,875,075
</TABLE>
34
<PAGE>
FLAG INVESTORS COMMUNICATIONS FUND
Directors and Officers
TRUMAN T. SEMANS
Chairman
RICHARD R. BURT REBECCA W. RIMEL
Director Director
RICHARD T. HALE ROBERT H. WADSWORTH
Director Director
JOSEPH R. HARDIMAN CARL W. VOGT, ESQ.
Director President
LOUIS E. LEVY CHARLES A. RIZZO
Director Treasurer
EUGENE J. MCDONALD AMY M. OLMERT
Director Secretary
DANIEL O. HIRSCH
Assistant Secretary
Investment Objective
This mutual fund (the "Fund") is designed to maximize total return. The Fund
will seek to achieve this objective through a combination of long-term
growth of capital and, to a lesser extent, current income. The Fund invests
primarily in common stocks of companies in the communications field.
35
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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>
(GRAPHIC APPEARS HERE)
Balanced
Value Builder Fund
Growth
Equity Partners Fund
Emerging Growth Fund
Specialty
Communications Fund
Real Estate Securities Fund
International
International Fund
European Mid-Cap Fund
Japanese Equity Fund
Top 50 Strategy
Top 50 World
Top 50 Europe
Top 50 Asia
Top 50 U.S.
Fixed Income
Total Return U.S. Treasury Fund Shares
Short-Intermediate Income Fund
Tax-Free Income
Managed Municipal Fund Shares
Money Market
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
ICC Distributors, Inc.
COMMANN(2/00)
