<PAGE> 1
Supplement dated May 22, 1995
to
Prospectus dated February 28, 1995
of
ISI MANAGED MUNICIPAL FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
The Prospectus dated February 28, 1995 of ISI Managed Municipal Fund Shares
(A Class of Managed Municipal Fund, Inc.) is hereby amended and supplemented by
the following:
The Section entitled "How to Invest in the Fund - Purchases by Exchange" is
amended and supplemented as follows:
Until February 29, 1996, shareholders of any other mutual fund who have paid
a sales charge on their shares of such funds, and shareholders of any closed-end
fund, may exchange shares of such funds for an equal dollar amount of Shares by
submitting to Armata or a Participating Dealer, the proceeds of the redemption
or sale of shares of such funds, together with evidence of the payment of a
sales charge (for mutual funds only) and the source of such proceeds. Shares
issued pursuant to this offer will not be subject to the sales charges described
above or any other charge.
<PAGE> 2
ISI MANAGED MUNICIPAL FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
717 Fifth Avenue
New York, NY 10022
For information call (800) 955-7175
The investment objective of this mutual fund (the "Fund") is a high level
of total return with relative stability of principal and, secondarily, high
current income through investment in a portfolio consisting primarily of
municipal obligations the interest on which is exempt from federal income
tax. To achieve this objective, the Fund invests primarily in municipal
obligations rated within the three highest rating categories of Moody's
Investors Service, Inc. or Standard & Poor's Corporation.
Shares of the ISI class of the Fund ("Shares") are available through
Armata Financial Corp., the distributor of the Shares, as well as
Participating Dealers and Shareholder Servicing Agents. (See "How to Invest
in the Fund.") This Prospectus sets forth basic information that investors
should know about the Fund prior to investing and should be retained for
future reference. A Statement of Additional Information dated February 28,
1995, has been filed with the Securities and Exchange Commission (the "SEC")
and is hereby incorporated by reference. It is available upon request and
without charge by contacting the Fund at the above address or telephone
number.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES
INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 28, 1995
<PAGE> 3
1. Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases .............. 4.45%
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average net assets)
Management Fees (net of fee waivers) ................... .26%
12b-1 Fees ............................................. .25%
Other Expenses (net of fee waivers) .................... .39%
---
Total Fund Operating Expenses (net of fee waivers) ..... .90%
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* $53 $72 $93 $155
</TABLE>
- ------
*Absent fee waivers, expenses for the 1, 3, 5 and 10 year periods would be
$55, $78, $104 and $180, respectively.
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and expenses
that an investor in the Fund will bear directly and indirectly. A person who
purchases Shares through a financial institution may be charged separate fees by
the financial institution. (For more complete descriptions of the various costs
and expenses, see "How to Invest in the Fund -- Offering Price", "Investment
Advisor", "Administrator" and "Distributor.") Absent fee waivers, Management
Fees would be .40%, Other Expenses (including administration fees) would be .46%
and Total Fund Operating Expenses would be 1.11%, respectively, of the Fund's
average net assets. The Fund's investment advisor and administrator intend, but
are not obligated, to waive their fees proportionately to the extent required so
that Total Fund Operating Expenses do not exceed .90% of the Fund's average net
assets. The Example shown in the table is based upon the Fund's expenses for the
fiscal year ended October 31, 1994 which, net of fee waivers, were .90% of its
average net assets. The rules of the SEC require that the maximum sales charge
(in the Shares' case, 4.45% of the offering price) be reflected in the above
table. However, certain investors may qualify for reduced sales charges (see
"How to Invest in the Fund -- Offering Price"). Due to the continuous nature of
Rule 12b-1 fees, long-term shareholders of the Fund may pay more than the
equivalent of the maximum front-end sales charges permitted by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
2
<PAGE> 4
2. Financial Highlights
The Fund was organized as a corporation under the laws of the State of
Maryland on January 5, 1990 and commenced operations on February 26, 1990.
The Financial Highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., the Fund's independent accountants. The financial
statements for the fiscal year ended October 31, 1994 and the report thereon
of Coopers & Lybrand L.L.P. are included in the Statement of Additional
Information. Additional performance information is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1994, which is available
at no cost from the Fund at the address and telephone number noted on the
cover page of this Prospectus.
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
February 26, 1990
(commencement of
Year Ended October 31, operations)
---------------------------------------------- through
1994 1993 1992 1991 October 31, 1990
--------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period . $ 11.10 $ 10.31 $ 10.36 $ 9.99 $ 10.00
Income from Investment Operations:
Net investment income .................. 0.46 0.50 0.50 0.57 0.38
Net realized and unrealized gain/(loss)
on investments ........................ (1.15) 0.94 0.22 0.49 (0.02)
Total from Investment Operations ........ (0.69) 1.44 0.72 1.06 0.36
Less Distributions:
Dividends from net investment income and
short-term gains ..................... (0.56) (0.61) (0.65) (0.69) (0.37)
Distributions from net realized
long-term gains ...................... (0.04) (0.04) (0.12) -- --
Total distributions .................... (0.60) (0.65) (0.77) (0.69) (0.37)
Net asset value at end of period ....... $ 9.81 $ 11.10 $ 10.31 $ 10.36 $ 9.99
Total Return:*
ISI Class Shares ....................... (6.49)% 14.36% 6.06% 10.85% 3.78%
Flag Investors Class A Shares .......... (6.49)% 14.36% 6.06% 10.85% 1.21%**
Ratios to Average Net Assets:
Expenses(2) ............................ 0.90% 0.90% 0.90% 0.90% 0.90%(1)
Net investment income(3) ............... 4.37% 4.38% 4.78% 5.57% 6.12%(1)
Supplemental Data:
Net assets at end of period (000):
ISI Class Shares ..................... $83,607 $88,378 $51,420 $20,053 $17,290
Flag Investors Class A Shares ........ $49,903 $53,486 $45,536 $38,491 $ 5,698
Portfolio turnover rate ................ 37% 68% 95% 86% 99%
</TABLE>
- ------
* Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
** Flag Investors Class A Shares commenced operations on October 23, 1990.
(1) Annualized.
(2) Without the waiver of advisory and administration fees, the ratio of
expenses to average net assets would have been 1.11%, 1.14%, 1.27%, 1.47%
and 1.92% for the periods ended October 31, 1994, 1993, 1992, 1991 and
1990, respectively, for Flag Investors Class A and ISI Class Shares.
(3) Without the waiver of advisory and administration fees, the ratio of net
investment income to average net assets would have been 4.16%, 4.14%, 4.41%,
4.99% and 5.11% for the periods ended October 31, 1994, 1993, 1992, 1991 and
1990, respectively, for Flag Investors Class A and ISI Class Shares.
3
<PAGE> 5
3. Investment Program
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective of the Fund is a high level of total return, with
relative stability of principal, and secondarily, high current income,
through an investment in a portfolio consisting primarily of municipal
obligations the interest on which is exempt from federal income tax
("Municipal Obligations"). Municipal Obligations include securities of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies and instrumentalities,
the interest on which is exempt from federal income tax in the opinion of
bond counsel for the issuer. Under normal market conditions, the Fund will
invest at least 80% of its net assets in Municipal Obligations. This policy
is fundamental and may be changed only by a majority vote of shareholders.
The Fund does not currently intend to acquire Municipal Obligations that are
subject to alternative minimum tax but may so invest up to 20% of its net
assets. Any capital gains from investments in Municipal Obligations will not
be exempt from federal income tax. (See "Dividends and Taxes--Tax Treatment
of Dividends and Distributions.") There can be no assurance that the Fund
will achieve its investment objective.
The Fund will invest at least 75% of its portfolio of Municipal Obligations
in securities rated, on the date of investment, A1 or higher (in the case of
municipal bonds) and higher than MIG 3 (in the case of municipal notes) by
Moody's Investors Service, Inc. ("Moody's") or rated A+ or higher (in the
case of municipal bonds) and higher than SP-2 (in the case of municipal
notes) by Standard & Poor's Corporation ("S&P") or, if unrated, of comparable
quality as determined by the Fund's investment advisor under criteria
approved by the Board of Directors. The Fund may invest up to 25% of its
portfolio of Municipal Obligations in securities rated A (in the case of
municipal bonds) or MIG 3 (in the case of municipal notes) by Moody's or
rated A (in the case of municipal bonds) or SP-2 (in the case of municipal
notes) by S&P or, if unrated, of comparable quality as determined by the
investment advisor under criteria approved by the Board of Directors.
Even under normal circumstances the Fund may invest to a limited extent in
taxable obligations depending on market conditions. These obligations may
include U.S. Government and agency, bank and corporate securities and
repurchase agreements collateralized by such securities. For temporary
defensive purposes, the Fund may invest without limit in short-term
obligations of these types. The Fund may also invest in financial futures,
"when-issued" securities, standby commitments of brokers, dealers or banks
and variable and floating rate demand obligations. These investment
practices, which may involve certain special risks, are described below. The
Fund's investment objective may be changed only by the affirmative vote of a
majority of the outstanding shares of all classes of the Fund.
SELECTION OF INVESTMENTS
The Fund's investment advisor is International Strategy and Investment Inc.
("ISI" or the "Advisor"--see "Investment Advisor"). ISI buys and sells
securities for the Fund's portfolio with a view toward, first, a high level
of total return with relative stability of principal and, second, high
current income that is federally tax exempt. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible
changes in interest rates will be a consideration in selecting investments.
While income distributions to shareholders will generally be tax exempt,
distributions of capital gains will be taxable. Accordingly, to the extent
the Fund achieves its investment objective, a larger portion of its
distributions will be taxable than would be the case if the Fund placed a
greater emphasis on earning tax exempt income. (See "Investment
Program--Taxable Investments" and "Dividends and Taxes--Tax Treatment of
Dividends and Distributions.") ISI will be free to take full advantage of the
entire range of maturities offered by Municipal Obligations and may adjust
the average maturity of the Fund's portfolio from time to time, depending on
its assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. Thus, at
certain times the average maturity of the portfolio may be relatively short
(under five years, for example) and at other times may be relatively long (in
the 20-30 year range, for example). In determining which direction interest
rates are likely to move, the Advisor relies on the economic analysis made by
its chairman, Edward S. Hyman. There is no assurance that such economic
analysis will accurately predict interest rate trends or that the portfolio
strategies based on Mr. Hyman's economic analysis will be effective.
4
<PAGE> 6
SPECIAL RISK CONSIDERATIONS
As with other debt securities, the value of Municipal Obligations changes as
interest rates fluctuate. Changes in the value of portfolio securities will
not affect interest income from those securities but will be reflected in the
Fund's net asset value. Thus, a decrease in interest rates will generally
result in an increase in the value of the Shares. Conversely, during periods
of rising interest rates, the value of the Shares will generally decline. The
magnitude of these fluctuations will generally be greater at times when the
average maturity of the Fund's portfolio securities is longer.
PURCHASE OF WHEN-ISSUED SECURITIES
New issues of Municipal Obligations are usually offered on a when-issued
basis, which means that delivery and payment for such Municipal Obligations
normally take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on a when-issued security are fixed at the time the purchase commitment is
entered into, although no interest on such security accrues to the Fund prior
to payment and delivery. A segregated account of the Fund consisting of cash,
cash equivalents or U.S. Government securities or other high quality liquid
debt securities equal at all times to the amount of the when-issued
commitments will be established and maintained by the Fund at the Fund's
custodian. Additional cash or liquid debt securities will be added to the
account when necessary. While the Fund will purchase securities on a
when-issued basis only with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date if it is deemed
advisable to limit the effects of adverse market action. The securities so
purchased or sold are subject to market fluctuation so, at the time of
delivery of the securities, their value may be more or less than the purchase
or sale price. The Fund will ordinarily invest no more than 40% of its net
assets at any time in Municipal Obligations purchased on a when-issued
basis.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a broker,
dealer or bank is obligated to repurchase, at the Fund's option, specified
securities in the Fund's portfolio at a specified price. In this respect,
stand-by commitments are comparable to put options and thus the Fund's
ability to enforce such obligations is subject to the risk that the seller of
the commitment may default on its obligations. The Fund will acquire stand-by
commitments as a means of changing the average maturity of its portfolio in
response to expected changes in market interest rates.
The Fund anticipates that stand-by commitments will generally be available
from brokers, dealers and banks without the payment of any direct or indirect
consideration, but the Fund may have to pay for stand-by commitments, thus
increasing the cost of acquiring and holding the underlying security and
similarly decreasing such security's yield. Gains realized in connection with
stand-by commitments will be taxable.
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS
The Fund may purchase floating and variable rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess
of one year, but which permit the holder to demand payment of principal
either at any time or at specified intervals. The interest rates on these
obligations fluctuate from time to time in response to changes in the market
interest rates. Frequently, such obligations are secured by letters of credit
or other credit support arrangements provided by banks. Where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem will be dependent on the ability of
the borrower to pay principal and interest on demand. Each demand note and
bond purchased by the Fund will meet the quality criteria established for the
purchase of other Municipal Obligations. The Advisor, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations in the Fund's portfolio.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. The Fund will not
invest more than 10% of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on less
than seven days' notice if there is no secondary market available for these
obligations.
FUTURES CONTRACTS
The Fund may purchase and sell U.S. exchange traded futures contracts on bond
indices ("Futures Contracts"). At the same time a Futures Contract is purchased
5
<PAGE> 7
or sold, the Fund must allocate cash or securities as a deposit payment
("initial deposit"). The initial deposit varies but may be as low as 5% or less
of the value of the contract. Daily thereafter, the Futures Contract is valued
and the payment of "variation margin" may be required, so each day the Fund
would provide or receive cash that reflects any decline or increase in the
contract's value. A Futures Contract based on a municipal bond index provides
for a cash payment equal to the amount, if any, by which the value of the index
at maturity is above or below the value of the index at the time the contract
was entered into times a fixed index "multiplier." The index underlying such a
Futures Contract is generally a broad based index of securities designed to
reflect movements in the relevant market as a whole. The index assigns weighted
values to the securities included in the index, and its composition is changed
periodically.
These instruments will be used only to protect against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date. Should
interest rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of the Futures Contract and may realize a loss on the
Futures Contract in excess of any corresponding gain in the hedged portfolio
positions. Futures transactions involve other risks as well. For example, a
lack of correlation between the index and the assets being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses on the Futures Contract in excess of
any corresponding gain in the hedged portfolio positions. In addition, there
can be no assurance that a liquid secondary market will exist for any Futures
Contract purchased or sold, and the Fund may be required to maintain a
position until exercise or expiration, which could result in losses on the
Futures Contract in excess of any corresponding gain in the hedged portfolio
positions.
Regulations of the Commodity Futures Trading Commission (the "CFTC") require
that the Fund enter into transactions in Futures Contracts for hedging
purposes only, or that in the case of long positions in Futures Contracts, an
alternative test be satisfied, in order to assure that the Fund will not be
deemed to be a "commodity pool" as defined in CFTC regulations. In addition,
under CFTC rules the Fund may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial margin deposits on
existing Futures Contracts would exceed 5% of the Fund's total assets. In
addition, the Fund will not enter into Futures Contracts if obligations under
all Futures Contracts would amount to more than 30% of its total assets.
Gains recognized from futures transactions engaged in by the Fund are taxable
income to shareholders. The Fund reserves the right in the future to invest
in other types of financial futures without obtaining prior shareholder
approval.
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury Securities from financial
institutions, such as banks and broker- dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. U.S.
Treasury Securities include Treasury bills, Treasury notes, Treasury bonds
and Separate Trading of Registered Interest and Principal of Securities
("STRIPS"), all of which are direct obligations of the U.S. Government and
are supported by the full faith and credit of the United States. The Fund
will enter into repurchase agreements only with banks and broker-dealers that
have been determined to be creditworthy by the Fund's Board of Directors
under criteria established with the assistance of the Advisor. Default by the
seller may, however, expose the Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the security, the Fund may be delayed or limited in
its ability to sell the collateral.
TAXABLE INVESTMENTS
Although the Fund intends, to the extent feasible but subject to market
conditions, to invest up to 100% of its assets in tax exempt Municipal
Obligations, it may invest, from time to time, in securities, the interest on
which is subject to federal income tax. The Fund may make such investments
(a) pending investment of proceeds from sales of Shares or portfolio
securities in tax-exempt securities, (b) pending settlement of purchases of
portfolio securities, (c) to maintain liquidity for meeting anticipated
redemptions, or (d) when in the Advisor's opinion it is advisable because of
adverse conditions affecting the market for Municipal Obligations. The
taxable investments in which the Fund may invest consist of U.S. Treasury
Securities and repurchase agreements fully collateralized by U.S. Treasury
6
<PAGE> 8
Securities (collectively, the "Taxable Investments"). The Fund may invest up to
20% of its net assets in Taxable Investments. The Fund may earn taxable income
from other sources. Dividends paid by the Fund that are attributable to interest
earned from Taxable Investments and to taxable income from other investments
will be taxable to investors. (See "Dividends and Taxes -- Tax Treatment of
Dividends and Distributions.")
SIZE OF FUND
The Fund currently intends to limit the size of the Fund and to accept share
purchases only from existing shareholders at such time as the assets of the
Fund are in excess of $200 million but less than $250 million, and thereafter
not to accept any share purchases other than dividend reinvestments.
4. Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will
not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for this purpose the U.S. Government or any state or
local government or their agencies and instrumentalities are not
considered to be an industry);
2) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for this purpose, the U.S.
Government or its agencies and instrumentalities are not considered to be
an issuer and, in the case of Municipal Obligations, the public or private
entity ultimately responsible for payment of principal and interest on the
security is considered to be the issuer);
3) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase
securities; or
4) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements with maturities of greater than seven days and
floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
5. How To Invest in the Fund
Shares may be purchased from Armata Financial Corp. ("Armata"), P.O. Box 515,
Baltimore, Maryland 21203, or through any securities dealer which has entered
into a dealer agreement with Armata ("Participating Dealers") or through any
financial institution which has entered into a shareholder servicing
agreement with the Fund ("Shareholder Servicing Agents"). Shares may also be
purchased directly from the Fund by completing the Application Form attached
to this Prospectus and returning it, together with payment of the purchase
price, to the Fund at the address shown on the Application Form. As used
herein the "Fund" refers to Managed Municipal Fund, Inc., whereas references
to the "Shares" shall mean ISI Managed Municipal Fund Shares which is a class
of shares of the Fund.
The minimum initial investment is $5,000, except that the minimum initial
investment for participants in the Fund's Automatic Investing Plan is $250.
Each subsequent investment must be at least $250, except that the minimum
subsequent investment for participants in the Fund's Automatic Investing Plan
is $100 for monthly investments and $250 for quarterly investments. (See
"Purchases through Automatic Investing Plan" below.) Orders for purchases of
Shares are accepted on any day on which the New York Stock Exchange is open
for business ("Business Day"). The Fund reserves the right to suspend the
sale of Shares at any time at the discretion of Armata. Purchase orders for
Shares will be executed at a per Share purchase price equal to the net asset
value next determined after receipt of the purchase order plus any applicable
front-end sales charge (the "Offering Price") on the date such net asset
value is determined (the "Purchase Date"). Purchases made directly from the
Fund must be accompanied by payment of the purchase price. Purchases made
through Armata or a Participating Dealer or Shareholder Servicing Agent must
7
<PAGE> 9
be in accordance with such entity's payment procedures. Armata may, in its
sole discretion, refuse to accept any purchase order.
The net asset value per Share is determined once daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing all assets held by the Fund, deducting liabilities attributable to
all shares and any liabilities attributable to the Shares, and dividing the
resulting amount by the number of then outstanding Shares. For this purpose,
portfolio securities will be given their market value where feasible based on
quotations furnished by a pricing service approved by the Board of Directors.
Options and futures are valued at the settlement price, or if no sales are
reported, at the average of the last reported bid and asked prices.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Debt obligations with maturities of 60 days or less are valued at
amortized cost which constitutes fair value as determined by the Fund's Board
of Directors.
OFFERING PRICE
Shares may be purchased from Armata, Participating Dealers or Shareholder
Servicing Agents at the Offering Price which includes a sales charge which is
calculated as a percentage of the Offering Price and decreases as the amount
of purchase increases as shown below:
<TABLE>
<CAPTION>
Sales Charge Sales Charge
as Percentage as Percentage Dealer Retention
of Offering of Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price*
--------------------------- -------------- -------------- ----------------
<S> <C> <C> <C>
Less than $ 50,000 .... 4.45% 4.66% 4.00%
$50,000 - $ 99,999 .... 3.50% 3.63% 3.00%
$100,000 - $ 249,999 .... 2.50% 2.56% 2.00%
$250,000 - $ 499,999 .... 2.00% 2.04% 1.50%
$500,000 - $ 999,999 .... 1.50% 1.52% 1.25%
$1,000,000 - $1,999,999 .... 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 .... 0.50% 0.50% 0.50%
$3,000,000 and over ......... None None None
</TABLE>
- ------
* Armata may from time to time reallow to Participating Dealers up to 100% of
the sales charge included in the Offering Price of Shares. Dealers that
receive a reallowance of 100% of the sales charge may be considered
underwriters for purposes of the federal securities laws.
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Shares and purchases of
shares of other mutual funds in the ISI family of funds. The applicable sales
charge will be determined based on the total of (a) the investor's current
purchase plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of all Shares and of all shares of such other
mutual funds in the ISI family of funds held by the shareholder. To obtain
the reduced sales charge through a right of accumulation, the shareholder
must provide Armata, either directly or through a Participating Dealer or
Shareholder Servicing Agent, as applicable, with sufficient information to
verify that the shareholder has such a right. The Fund may amend or terminate
this right of accumulation at any time as to subsequent purchases. The term
"purchase" refers to an individual purchase by a single purchaser, or to
concurrent purchases, which will be aggregated, by a purchaser, the
purchaser's spouse and their children under the age of 21 years purchasing
Shares for their own account.
8
<PAGE> 10
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest not less than $50,000 within a 13-month period in Shares. Each
purchase of Shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Letter of Intent is 5% of the full amount. Shares
purchased with the first 5% of the full amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the Shares actually purchased if the full
amount indicated is not invested. Such escrowed Shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. When the full
amount indicated has been purchased, the escrowed Shares will be released. An
investor who wishes to enter into a Letter of Intent in conjunction with an
investment in Shares may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
The Fund may sell Shares at net asset value (without sales charge) to the
following: (i) banks, bank trust departments, registered investment advisory
companies, financial planners and broker-dealers purchasing Shares on behalf
of their fiduciary and advisory clients, provided such clients have paid an
account management fee for these services; (ii) investors who have redeemed
Shares, or shares of any other mutual fund in the ISI family of funds that
have similar sales charges, in an amount that is not more than the total
redemption proceeds, provided that the purchase is within six months after
the redemption and the amount of the purchase is at least $5,000; and (iii)
current or retired Directors of the Fund, directors and employees (and their
immediate families) of ISI, the Fund's administrator, and their respective
affiliates, and employees of Participating Dealers. In addition, investors
who have redeemed shares of funds in the ISI family of funds that have lower
sales charges may purchase Shares at net asset value in an amount that is not
more than the total redemption proceeds, provided that they held the shares
of such funds for more than 24 months prior to the redemption, and that the
purchase is within six months after the redemption and the amount of the
purchase is at least $5,000.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other mutual funds in the ISI family of funds that have
similar sales charges may exchange their shares of those funds for an equal
dollar amount of Shares. Shares issued pursuant to this offer will not be
subject to the sales charges described above or any other charge. In
addition, shareholders of funds in the ISI family of funds that have lower
sales charges may exchange into other funds in the family upon payment of the
difference in sales charges, except that the exchange will be made at net
asset value if the shares have been held for at least 24 months. The net
asset value of shares purchased and redeemed in an exchange request received
on a Business Day will be determined on the same day, provided that the
exchange request is received prior to 4:00 p.m. (Eastern Time). Exchange
requests received after 4:00 p.m. (Eastern Time) will be effected on the next
Business Day.
The exchange privilege may be exercised only in those states where the class
of shares of such other funds may legally be sold. Investors should receive
and read the applicable prospectus prior to tendering shares for exchange.
The Fund may modify or terminate these offers of exchange at any time and
will provide shareholders with 60 days' written notice prior to any such
modification or termination. The exchange privilege with respect to other ISI
funds may also be exercised by telephone. (See "Telephone Transactions"
below.)
9
<PAGE> 11
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Shares regularly by means of an Automatic Investing
Plan with a pre-authorized check drawn on their checking accounts. Under this
plan, the shareholder may elect to have a specified amount invested monthly
or quarterly in Shares. The minimum initial investment is $250. Each
subsequent investment must be at least $100 for monthly investments and $250
for quarterly investments. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the pre-authorized
check. This amount will be invested in Shares at the applicable Offering
Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by
the Fund or the shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investing Plan may
do so by completing the appropriate section of the Application Form attached
to this Prospectus.
6. How to Redeem Shares
Shareholders may redeem all or part of their investment on any Business Day
by transmitting a redemption order through Armata, a Participating Dealer, a
Shareholder Servicing Agent or by regular or express mail to the Fund's
transfer agent (the "Transfer Agent"). Shareholders may also redeem Shares by
telephone (in amounts up to $50,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per Share next determined
after receipt of the order (or, if stock certificates have been issued for
the Shares to be redeemed, after the tender of the stock certificates for
redemption). Redemption orders received after 4:00 p.m. (Eastern Time) will
be effected at the net asset value next determined on the following Business
Day. Payment for redeemed Shares will be made by check and will be mailed
within seven days after receipt of a duly authorized telephone redemption
request or of a redemption order fully completed and, as applicable,
accompanied by the documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer or Shareholder Servicing Agent, if applicable, and
the number of Shares or dollar amount to be redeemed, signed by all owners
of the Shares in the exact names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power, for Shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Shares will be paid on the
next dividend payable date. If all of the Shares in a shareholder's account
have been redeemed on a dividend payable date, the dividend will be remitted
by check to the shareholder. The Fund has the power, under its Articles of
Incorporation, to redeem shareholder accounts amounting to less than $500
upon 60 days' written notice.
7. Telephone Transactions
Shareholders may exercise the exchange privilege with respect to other ISI
funds, or redeem Shares in amounts up to $50,000, by notifying the Transfer
Agent by telephone at (800) 882-8585 on any Business Day between the hours of
8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its
address listed under "Custodian, Transfer Agent, Accounting Services."
Telephone transaction privileges are automatic. Shareholders may specifically
request that no telephone redemptions or exchanges be accepted for their
accounts. This election may be made on the Application Form or at any time
thereafter by completing and returning appropriate documentation supplied by
the Transfer Agent.
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<PAGE> 12
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected
at the net asset value as determined on the next Business Day. The Fund and
the Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures include
requiring the investor to provide certain personal identification information
at the time an account is opened and prior to effecting each transaction
requested by telephone. In addition, all telephone transaction requests will
be recorded and investors may be required to provide additional telecopied
written instructions of such transaction requests. The Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
telephone instructions if either of them does not employ these procedures.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for following instructions received by telephone
that either of them reasonably believes to be genuine. During periods of
extreme economic or market changes, shareholders may experience difficulty in
effecting telephone transactions. In such event, requests should be made by
regular or express mail. Shares held in certificate form may not be exchanged
or redeemed by telephone. (See "How to Invest in the Fund -- Purchases by
Exchange" and "How to Redeem Shares.")
8. Dividends and Taxes
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of its
net investment income in the form of monthly dividends. The Fund may
distribute to shareholders any net capital gains (the excess of net long-term
capital gains over net short-term capital losses) on an annual basis or,
alternatively, may elect to retain such net capital gains and pay tax
thereon.
Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Shares at net asset value per
Share on payment date. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent (see "Custodian,
Transfer Agent, Accounting Services"), either directly or through their
Participating Dealer or Shareholder Servicing Agent, at least five days
before the next date on which dividends or distributions will be paid.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders.
No attempt is made to present a detailed explanation of the tax treatment of
the Fund or the shareholders, and the discussion here is not intended as a
substitute for careful tax planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial, or administrative action. The Statement
of Additional Information sets forth further information regarding taxes.
The Fund has been and expects to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders. The
Fund also intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders, by satisfying the Code's requirements that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from federal income
tax.
So long as this and certain other requirements are met, dividends derived
from the Fund's net tax-exempt interest income will be "exempt-interest
dividends" that are excluded from the gross income of the Fund's shareholders
for federal income tax purposes. Exempt interest dividends may, however, have
collateral federal income tax consequences, including alternative minimum tax
consequences. Furthermore, the Fund may not be an appropriate investment for
persons who are "substantial users" of facilities financed with industrial
development bonds or private activity bonds (or related parties to
"substantial users"). (See the Statement of Additional Information.)
11
<PAGE> 13
Distributions to shareholders of net investment income of the Fund that is
not tax-exempt interest and of net short-term capital gains of the Fund will
be taxable to shareholders as ordinary income, whether such distributions are
received in cash or in additional Shares.
Current federal tax law limits the types and volumes of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt interest
dividends.
Distributions to shareholders of net capital gains of the Fund are taxable to
shareholders as long-term capital gains, whether received in cash or
additional Shares, and regardless of how long a shareholder has held the
Shares. Shareholders will be advised annually as to the federal income tax
status of distributions made during the year.
Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
Any gain or loss recognized on a sale, exchange or redemption of Shares of
the Fund by a shareholder who is not a dealer in securities will generally be
treated as a long-term capital gain or loss if the Shares have been held for
more than twelve months and otherwise will be treated as a short-term capital
gain or loss. Any loss recognized by a shareholder upon the sale of Shares of
the Fund held six months or less, however, will be disallowed to the extent
of any exempt-interest dividends received by the shareholder with respect to
such Shares. If Shares on which a long-term capital gains distribution has
been received are subsequently sold or redeemed and such Shares have been
held for six months or less, any loss recognized will be treated as long-term
capital loss to the extent of the long-term capital gains distribution.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry Shares will not be deductible for federal income tax purposes.
The Fund may not be a suitable investment for tax-exempt shareholders and
plans, because such shareholders and plans would not gain any additional
benefit from the receipt of exempt-interest dividends.
Shareholders are encouraged to consult with their tax advisors concerning the
application of state and local taxes to an investment in the Fund.
9. Management of the Fund
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributor, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's officers, to Armata, as distributor of the Shares, to the Advisor
and to the Fund's administrator. Four Directors and all of the officers of
the Fund are officers or employees of Armata, ISI or the Fund's
administrator. The other Directors of the Fund have no affiliation with
Armata, ISI or the Fund's administrator.
The Fund's Directors and officers are as follows:
*Edward S. Hyman ...... Chairman and Director
*W. James Price ....... Vice Chairman and Director
*Richard T. Hale ...... Vice Chairman and Director
*R. Alan Medaugh ...... Director and President
N. Bruce Hannay ...... Director
John F. Kroeger ...... Director
Harry Woolf .......... Director
James J. Cunnane ..... Director
Louis E. Levy ........ Director
Eugene J. McDonald ... Director
Edward J. Veilleux ... Vice President
Brian C. Nelson ...... Vice President and Secretary
Nancy Lazar .......... Vice President
Kathleen Simonson .... Vice President
Diana M. Ellis ....... Treasurer
Carrie L. Butler ..... Assistant Vice President
Laurie D. DePrine .... Assistant Secretary
- ------
* Messrs. Hyman, Price, Medaugh and Hale are "interested persons" of the Fund
within the meaning of Section 2(a)(19) under the Investment Company Act of
1940, as amended (the "Investment Company Act").
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<PAGE> 14
10. Investment Advisor
ISI, a registered investment advisor, serves as investment advisor to the
Fund pursuant to an investment advisory agreement dated as of April 1, 1991.
ISI employs Messrs. Edward S. Hyman and R. Alan Medaugh. Due to their stock
ownership, Messrs. Hyman and Medaugh may be deemed to be controlling persons
of ISI. As of January 31, 1995, the Advisor had approximately $1 billion
under management representing both tax-free and taxable accounts. In
addition, the Advisor publishes a variety of economic research reports
including "Weekly Economic Data" which follows the trends that may determine
the direction of interest rates. The Advisor also acts as investment advisor
to Total Return U.S. Treasury Fund, Inc. and North American Government Bond
Fund, Inc., open-end investment companies with approximately $430 million of
net assets as of January 31, 1995.
For the fiscal year ended October 31, 1994, the Advisor received a fee (net
of fee waivers) equal to .26% of the Fund's average daily net assets. ISI and
the Fund's administrator have voluntarily agreed to reduce their respective
annual fees proportionately, if necessary, so that the Fund's annual expenses
do not exceed .90% of the Fund's average daily net assets. (See "Fund
Expenses.")
The address of the Advisor is 717 Fifth Avenue, New York, New York 10022
(telephone: (800) 955-7175).
PORTFOLIO MANAGERS
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh, President
of ISI and President and a Director of the Fund, have shared direct portfolio
management responsibility for the Fund since its inception. Mr. Hyman is
responsible for developing the economic analysis upon which the Fund's
selection of investments is based. (See "Investment Program.") Before joining
ISI, Mr. Hyman was a vice chairman and member of the Board of C.J. Lawrence
Inc. and prior thereto, an economic consultant at Data Resources. He writes
two international economic reports: Weekly International Highlights and the
monthly International Economic Review. He also writes three weekly domestic
reports: Weekly Economic Data, Weekly Money Report and Economic Estimates.
Mr. Hyman also writes a monthly domestic report, The Month's Best Charts. In
addition, he and his staff compile a Daily Economic Fax. These international
and domestic reports are sent to ISI's private institutional clients in the
United States and overseas. The periodical Institutional Investor, which
rates analysts and economists on an annual basis, has rated Mr. Hyman as its
"first team" economist, which is its highest rating, in each of the last
fifteen years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and prior thereto Senior Vice President and bond portfolio manager
at Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam
Management Company and Fidelity Management and Research.
11. Administrator
Investment Company Capital Corp. ("ICC"), 135 East Baltimore Street,
Baltimore, Maryland 21202 provides administration services to the Fund. ICC
is a wholly-owned subsidiary of Alex. Brown and an affiliate of Armata.
ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which
the Shares are distributed and oversight of the relationship between the Fund
and its other service providers. For its services as administrator of the
Fund for the period from January 1, 1994 through October 31, 1994, ICC
received an annualized fee (net of fee waivers) equal to .13% of the Fund's
average daily assets. ICC and ISI have voluntarily agreed to reduce their
respective annual fees proportionately, if necessary, so that the Fund's
annual expenses do not exceed .90% of the Fund's average daily net assets.
(See "Fund Expenses.") Prior to January 1, 1994, Alex. Brown provided
administration services to the Fund and, for the period from November 1, 1993
through December 31, 1993, received an annualized fee (net of fee waivers)
equal to .13% of the Fund's average daily net assets.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
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<PAGE> 15
12. Distributor
Armata acts as distributor of the Shares pursuant to a Distribution Agreement
and related Plan of Distribution (the "Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act. Armata is a broker-dealer that was formed
in 1983 and is an affiliate of the Administrator. As compensation for its
services for the fiscal year ended October 31, 1994, Armata received a fee
equal to .25% of the Shares' average daily net assets. Armata expects to
allocate on a proportional basis up to all of its fee to selected
Participating Dealers as compensation for their ongoing shareholder services,
including processing redemption and sale requests and responding to
shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Armata will allocate on a proportional
basis up to all of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
impose separate fees in connection with these services and investors should
review this Prospectus in conjunction with any such institution's fee
schedule.
Payments under the Plan are made as described above regardless of Armata's
actual cost of providing distribution services and may be used to pay
Armata's overhead expenses. If the cost of providing distribution services to
the Fund in connection with the sale of the Shares is less than .25% of the
average daily net assets invested in Shares for any period, the unexpended
portion of the distribution fee may be retained by Armata. Armata or its
associated persons will from time to time and from its own resources pay or
allow additional discounts or promotional incentives in the form of cash or
other compensation (including merchandise or travel) to Participating
Dealers.
13. Custodian, Transfer Agent, Accounting Services
PNC Bank, National Association ("PNC Bank"), a national banking association
with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 882-8585), is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services for the period from January 1, 1994 through
October 31, 1994, ICC received from the Fund an annualized fee equal to .05%
of the Fund's average daily net assets. (See the Statement of Additional
Information.) Prior to January 1, 1994, Alex. Brown provided accounting
services to the Fund and for the period from November 1, 1993 through
December 31, 1993, received an annualized fee equal to .05% of the Fund's
average daily net assets. ICC also serves as the Fund's administrator.
14. Performance Information
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
relevant indices. All such advertisements will show the average annual total
return, net of the Fund's maximum sales charge, over one, five and ten year
periods or, if such periods have not yet elapsed, shorter periods corresponding
to the life of the Fund. Such total return quotations will be computed by
finding the average annual compounded rates of return over such periods that
would equate an assumed initial investment of $1,000 to the ending redeemable
value, net of the maximum sales charge and other fees, according to the required
standardized calculation. The standardized calculation is required by the SEC to
provide consistency and comparability in investment company advertising and is
not equivalent to a yield calculation.
The Fund may also advertise yield and tax-equivalent yield quotations. Any
yield quotation of the Fund is based on the annualized net investment income
per share of the Fund over a 30 day period. The yield for the Fund is
calculated by dividing the net investment income per share of the Fund earned
during the period by the maximum offering price per share of the Fund on the
last day of that period. The resulting figure is then annualized. The Fund's
yield calculations assume a maximum sales charge of 4.45% for the Shares. The
Fund's taxable-equivalent yield is calculated by determining the rate of
return that would have to be achieved on a fully taxable investment to
produce the after tax equivalent of the Fund's yield. In calculating
taxable-equivalent yield, the Fund assumes certain tax brackets for
shareholders.
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<PAGE> 16
If the Fund compares its performance to other funds or to relevant indices,
the Fund's performance will be stated in the same terms in which such
comparative data and indices are stated.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Shearson Lehman Municipal
Bond Index, the Consumer Price Index, the return on 90 day U.S. Treasury
Bills, long-term U.S. Treasury bonds, bank certificates of deposit, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal. For
these purposes, the performance of the Fund, as well as the performance of
such indices, may not reflect sales charges, the inclusion of which would
reduce performance results.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of investments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which Shares may be purchased, although not included in
calculations of performance, will reduce performance results.
15. General Information
CAPITAL SHARES
The Fund is a Maryland corporation, authorized to issue forty million shares
of capital stock, with a par value of $.001 per share. Shares have equal
rights with respect to voting. Voting rights are not cumulative, so the
holders of more than 50% of the outstanding Shares voting together for
election of Directors may elect all the members of the Board of Directors of
the Fund. In the event of liquidation or dissolution of the Fund, each Share
is entitled to its portion of the Fund's assets after all debts and expenses
have been paid. The Board of Directors of the Fund is authorized to establish
additional "series" of shares of capital stock, each of which would evidence
interests in a separate portfolio of securities, and separate classes of each
series of the Fund. The Board has no present intention of establishing any
additional series of the Fund but does have another class of shares in
addition to the Shares offered hereby, "Flag Investors Managed Municipal Fund
Class A Shares." Shares of that class are sold through broker-dealers and
have similar 12b-1 fees and front-end sales charges as the Shares. Different
classes may be offered to certain investors and holders of such shares may be
entitled to certain exchange privileges not offered to Shares. All classes of
the Fund share a common investment objective, portfolio and advisory fee, but
the classes may have different distribution expenses and sales charges and,
accordingly, performance may differ.
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
REPORTS
The Fund furnishes shareholders with quarterly reports containing information
about the Fund and its operations, including a list of investments held in
the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants, Coopers &
Lybrand L.L.P.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800) 882-8585, Armata, ISI, a Participating Dealer or
Shareholder Servicing Agent, as appropriate.
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<PAGE> 18
ISI MANAGED MUNICIPAL FUND SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "ISI Managed Municipal Fund Shares" and mail with this
application to:
ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at
(800) 882-8585.
The minimum initial purchase is $5,000, except that the minimum initial
purchase for participants in the Fund's Automatic Investing Plan is $250.
Each subsequent purchase requires a $250 minimum, except that the minimum
subsequent purchase under the Fund's Automatic Investing Plan is $100 for
monthly purchases and $250 for quarterly purchases. The Fund reserves the
right not to accept checks for more than $50,000 that are not certified or
bank checks.
- -----------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
INDIVIDUAL OR JOINT TENANT
- -----------------------------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- -----------------------------------------------------------------------------
Tax ID Number
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
---------------------------------
Existing Account No., if any
GIFTS TO MINORS
- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------------------------
Social Security Number of Minor
under the __________________ Uniform Gifts to Minors Act
State of Residence
YOUR MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
<PAGE> 19
- -----------------------------------------------------------------------------
STATEMENT OF INTENTION (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares
of ISI Managed Municipal Fund Shares in an aggregate amount at least equal
to:
_______$50,000 _______$100,000 _______$250,000 ________$500,000
_______$1,000,000 ________$2,000,000 _________$3,000,000
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the Fund(s) set forth below to be applied for a
reduced sales charge. List the Account numbers of other Funds that you or
your immediate family (spouse and children under 21) already own that qualify
for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
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- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE> 20
DISTRIBUTION OPTIONS
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options are elected, all distributions will be
reinvested.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
- -----------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $_______ for me, on a monthly or quarterly basis, on or
about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment
against my checking account. (Bank drafts may be drawn on commercial banks
only.)
Minimum Initial Investment: $250
Subsequent Investments (check one): ------------------------------
[ ] Monthly ($100 minimum) Please attach a voided check.
[ ] Quarterly ($250 minimum) ------------------------------
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing ISI Managed Municipal Fund Account No., if any
- -----------------------------------------------------------------------------
Depositor's Signature Date
- -----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
- -----------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other ISI Funds) unless I mark one or both of the boxes below.
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: ______________________________________________________
Address: ______________________________________________________
______________________________________________________
Bank Account No: ____________________________________________
Bank Account Name: ____________________________________________
<PAGE> 21
- -----------------------------------------------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated February 28, 1995.
Under penalties of perjury, I certify (1) that the number shown on this form
is my correct taxpayer identification number and (2) that I am not subject to
backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me that I am no
longer subject to backup withholding. (Strike out the language in (2) if it
is not correct.)
If a non-resident alien, please indicate country of residence:________________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- -----------------------------------------------------------------------------
Signature Date
- -----------------------------------------------------------------------------
Signature (if a joint acct., both must sign) Date
FOR DEALER USE ONLY
Dealer's Name: ______________________________ Dealer Code: ________________
Dealer's Address:______________________________ Branch Code: ________________
______________________________
Representative: ______________________________ Rep. No. ________________
<PAGE> 22
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<PAGE> 23
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
No person has been authorized to give any information or to make
representations not contained in this Prospectus and, if given or made, such
information must not be relied upon as having been authorized by the Fund or
its distributor. This Prospectus does not constitute an offering by the Fund
or by its distributor in any jurisdiction in which such offering may not
lawfully be made.
TABLE OF CONTENTS
Page
----
1. Fund Expenses ................ 2
2. Financial Highlights ......... 3
3. Investment Program ........... 4
4. Investment Restrictions ...... 7
5. How to Invest in the Fund .... 7
6. How to Redeem Shares ......... 10
7. Telephone Transactions ....... 10
8. Dividends and Taxes .......... 11
9. Management of the Fund ....... 12
10. Investment Advisor ........... 13
11. Administrator ................ 13
12. Distributor .................. 14
13. Custodian, Transfer Agent,
Accounting Services ........... 14
14. Performance Information ...... 14
15. General Information .......... 15
<PAGE> 24
ISI
International Strategy and Investment
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
A mutual fund with the investment objective of a high level of total
return with relative stability of principal and secondarily, high current
income through investment in a portfolio consisting primarily of municipal
obligations the interest on which is exempt from federal income tax.
FEBRUARY 28, 1995
PROSPECTUS
