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Previous: INSURED MUNICIPALS INCOME TRUST SERIES 241, 497J, 1996-12-27 |
Next: BARRINGER LABORATORIES INC, SC 13D, 1996-12-27 |
[Flag Investors Logo]
FLAG
INVESTORS
MANAGED MUNICIPAL
FUND
ANNUAL REPORT
OCTOBER 31, 1996
<PAGE>
[Flag Investors Logo]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Intermediate-Term Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
(bullet) Yields in the municipal market were generally unchanged during fiscal
year 1996. As a result, longer maturity municipals performed better
than shorter maturities.
(bullet) The Fund's total return of 4.7% for the year outperformed short
maturity issues.
(bullet) We expect U.S. economic growth to slow to a 1% pace in the fourth
quarter and to remain slow into mid-1997. This slow growth would be the
catalyst for declining rates and Federal Reserve easing.
Portfolio Statistics
Average Maturity 13.7 years
Average Duration 8.3 years
Quality Breakdown:
AAA 40%
AA 60%
IFC
<PAGE>
PORTFOLIO DIVERSIFICATION BY STATE
- --------------------------------------------------------------------------------
[Map appears here]
State Allocation
% of % of
Municipal Municipal
Bonds Bonds
Texas 20.2% Minnesota 3.0%
Florida 17.0 Washington 2.6
Maryland 9.7 Ohio 2.1
North Carolina 6.5 Delaware 1.7
Virginia 4.9 Utah 1.7
South Carolina 4.6 Colorado 1.7
Illinois 4.3 Missouri 1.7
Tennessee 4.0 Hawaii 1.6
Kansas 3.9 Oregon 1.3
Arizona 3.2 Indiana 1.3
Georgia 3.0 Total 100.0%
1
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the fiscal year
ended October 31, 1996. In this year of volatile interest rates, the Fund
recorded a total return of 4.7%. From its inception on October 23, 1990 through
October 31, 1996, the Fund posted a cumulative total return of 53.7%, which
translates into an average annual total return of 7.4%. These figures assume the
reinvestment of dividends and capital gains distributions and exclude the impact
of any sales charge.
Overview
In general, yields in the municipal market were unchanged during fiscal
year 1996. The general rise in tax yields did not create a climb in municipal
rates because the value of tax-free income increased when Republican plans for a
big tax cut fell through. The swing in the relationship of municipal yields to
Treasuries this fiscal year shows the extent of the change in sentiment (see
table below).
Top Quality Municipal Yields as a Percentage of Treasury Yields
Maturity of
AAA-Rated Municipals 10/95 10/96 Change
- --------------------------------------------------------------------------------
15 Years 87.4% 81.7% -5.7%
20 Years 88.8% 83.0% -5.8%
30 Years 88.2% 82.8% -5.4%
Maturity Management
Despite a narrow trading range, there were opportunities for the Fund to
manage maturities because a general change in Treasury yields is typically
reflected in municipal yields. For example, whenTreasury rates began to rise
sharply in March, municipal yields also rose. Influenced by high Treasury rates,
municipal rates remained high until July before falling (see chart, page 3). To
protect the Fund from rising rates, we held more than 10% in cash reserves early
in the fiscal year, then moved to longer maturities, reducing reserves to 6% by
fiscal year-end.
2
<PAGE>
30-Year Municipal AAA General Obligation Yields
[Graph appears here--see plot points below]
DATE YIELD DATE YIELD DATE YIELD
11/ 1 5.55 8/30 5.71 5/31 5.82
8/23 5.61 5/24 5.69
8/16 5.49 5/17 5.73
8/ 9 5.44 5/1O 5.80
8/ 2 5.51 5/ 3 5.86
1O/25 5.62 7/26 5.70 4/26 5.66
10/18 5.57 7/19 5.74 4/19 5.72
10/11 5.55 7/12 5.82 4/12 5.78
10/ 4 5.47 7/ 5 5.94 4/ 5 5.82
9/27 5.60 6/28 5.77 3/29 5.69
9/20 5.69 6/21 5.89 3/22 5.69
9/13 5.64 6/14 5.92 3/15 5.81
9/ 6 5.75 6/ 7 5.97 3/ 8 5.62
3/ 1 5.34
2/23 5.30 11/24 5.53
2/16 5.17 11/17 5.52
2/ 9 5.16 11/10 5.57
2/ 2 5.23 11/ 3 5.54
1/26 5.29
1/19 5.23
1/12 5.32
1/ 5 5.27
12/29 5.28
12/22 5.36
12/15 5.32
12/ 8 5.28
12/ 1 5.39
Source: Bloomberg Inc.
Fund maturity is affected by general moves in interest rates because of the
pressure of early calls, typically 10 years for most long-term municipals. This
year we added new securities with long-call protection to the portfolio. At the
beginning of the fiscal year, the portfolio held only 10.9% of its assets in
issues with calls in 2006 or later. At the end of the fiscal year, long-call
protected issues accounted for 20.4% of the portfolio.
Performance Review
Municipal rates began and ended the fiscal year in roughly the same place.
As a result, unlike Treasuries, longer maturity municipals performed better than
shorter maturity municipals (see table, page 4).
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
Performance Comparison
Long vs. Short Maturity Municipals
Lehman Bros. Total Return
Municipal Bond Index (10/95-10/96)
- -----------------------------------------
1-2 years 4.4%
4-6 years 4.6%
8-10 years 4.9%
22+ years 7.1%
By extending maturities during the year, the Fund outperformed short
maturity issues but lagged behind the longest section of the municipal bond
universe. Please see our Economic Outlook immediately following this letter.
We would like to welcome our new investors to the Fund and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
___________________
R. Alan Medaugh
President
November 18, 1996
4
<PAGE>
ECONOMIC OUTLOOK FOR 1997
- --------------------------------------------------------------------------------
Overview
We expect U.S. economic growth to slow to a 1% pace in the fourth quarter
and to remain slow into mid-1997. This would keep inflation low as capacity
utilization falls and the labor market cools. Slow growth would also be the
catalyst for declining rates and Federal Reserve easing. Near term, we expect
Christmas sales will be adequate but not strong, since early price cutting is
already evident. Please see our forecast table below.
ISI Forecast
96:1Q 96:2Q 96:3Q 96:4Q* 97:1Q* 97:2Q* 97:3Q*
- -------------------------------------------------------------------------------
Real GDP 2.0% 4.7% 2.2% 1.0% 1.0% 1.0% 3.5%
GDP Deflator** 2.2% 1.8% 1.6% 2.0% 1.5% 1.5% 2.0%
30-Year Bond Yields*** 6.7% 6.9% 6.9% 6.3% 6.0% 5.7% 5.9%
Fed Funds Rate*** 5.2% 5.2% 5.2% 5.2% 5.0% 4.8% 4.8%
*Estimated.
**A more accurate cost of living barometer than the CPI.
***End of quarter.
Inflation
Inflation has subsided around the industrial world. This means that "real"
interest rates are high so there is room for "nominal" interest rates to fall
(see chart below).
U.S. REAL GOVT. BOND YIELDS
SEP 4.02%
[Graph appears here--see plot points below]
REAL GOV BOND YIELDS
74:1 -2.12
74:2 -2.54
74:3 -2.41
74:4 -2.06
74:5 -2.57
74:6 -2.76
74:7 -3.28
74:8 -2.29
74:9 -3.35
74:10 -3.47
74:11 -4.21
74:12 -4.19
75:1 -3.87
75:2 -3.50
75:3 -2.47
75:4 -1.83
75:5 -1.04
75:6 -1.14
75:7 -1.36
75:8 -0.12
75:9 0.66
75:10 0.70
75:11 0.90
75:12 1.10
76:1 1.32
76:2 1.76
76:3 1.91
76:4 2.01
76:5 1.92
76:6 2.05
76:7 2.44
76:8 2.19
76:9 2.29
76:10 2.24
76:11 2.58
76:12 2.26
77:1 2.28
77:2 1.56
77:3 1.37
77:4 0.78
77:5 1.06
77:6 0.94
77:7 0.97
77:8 1.05
77:9 1.22
77:10 1.38
77:11 1.14
77:12 1.26
78:1 1.37
78:2 2.01
78:3 1.85
78:4 1.84
78:5 1.29
78:6 1.06
78:7 0.92
78:8 0.61
78:9 -0.01
78:10 -0.26
78:11 -0.12
78:12 -0.11
79:1 -0.31
79:2 -0.84
79:3 -1.22
79:4 -1.41
79:5 -1.51
79:6 -2.16
79:7 -2.52
79:8 -2.86
79:9 -2.71
79:10 -2.22
79:11 -2.29
79:12 -3.13
80:1 -3.27
80:2 -2.03
80:3 -2.25
80:4 -3.19
80:5 -4.07
80:6 -4.46
80:7 -2.91
80:8 -1.89
80:9 -1.43
80:10 -1.04
80:11 -0.26
80:12 0.05
81:1 0.35
81:2 1.41
81:3 2.08
81:4 3.06
81:5 3.81
81:6 3.26
81:7 2.81
81:8 3.35
81:9 3.70
81:10 4.41
81:11 3.77
81:12 4.54
82:1 5.96
82:2 6.61
82:3 6.65
82:4 6.75
82:5 6.33
82:6 6.74
82:7 6.99
82:8 6 81
82:9 7 13
82:10 6.14
82:11 6.06
82:12 6.71
83:1 6.92
83:2 7.40
83:3 7.04
83:4 6.48
83:5 7.09
83:6 8.46
83:7 9.04
83:8 9.36
83:9 8.87
83:10 8.83
83:11 8.59
83:12 8.09
84:1 7.46
84:2 7.26
84:3 7.49
84:4 8.09
84:5 9.09
84:6 9.11
84:7 8.90
84:8 8.24
84:9 8.01
84:10 7.71
84:11 7.41
84:12 7.48
85:1 7.92
85:2 7.86
85:3 8.02
85:4 7.89
85:5 7.48
85:6 6.79
85:7 7.04
85:8 7.21
85:9 7.36
85:10 7.26
85:11 6.55
85:12 5.75
86:1 5.43
86:2 5.73
86:3 5.81
86:4 5.80
86:5 5.84
86:6 5.80
86:7 5.60
86:8 5.75
86:9 5.86
86:10 6.13
86:11 6.24
86:12 6.18
87:1 5.93
87:2 5.54
87:3 4.62
87:4 4.48
87:5 5.02
87:6 4.73
87:7 4.62
87:8 4.59
87:9 5.23
87:10 5.16
87:11 4.33
87:12 4.70
88:1 4.70
88:2 4.59
88:3 4.80
88:4 5.05
88:5 5.25
88:6 5.04
88:7 5.01
88:8 5.30
88:9 4.88
88:10 4.63
88:11 4.78
88:12 4.60
89:1 4.45
89:2 4.28
89:3 4.28
89:4 3.91
89:5 3.56
89:6 3.19
89:7 3.02
89:8 3.41
89:9 3.72
89:10 3.42
89:11 3.33
89:12 3.26
90:1 3.07
90:2 3.24
90:3 3.41
90:4 4.05
90:5 4.37
90:6 3.71
90:7 3.69
90:8 3.16
90:9 2.86
90:10 2.49
90:11 2.27
90:12 1.99
91:1 2.63
91:2 2.72
91:3 3.39
91:4 3.40
91:5 3.24
91:6 3.78
91:7 4.09
91:8 4.34
91:9 4.56
91:10 5.08
91:11 4.86
91:12 4.72
92:1 4.91
92:2 5.11
92:3 4.78
92:4 4.78
92:5 4.87
92:6 4.75
92:7 4.44
92:8 4.32
92:9 4.35
92:10 4.25
92:11 4.49
92:12 4.48
93:1 4.16
93:2 3.77
93:3 3.73
93:4 3.70
93:5 3.70
93:6 3.89
93:7 3.79
93:8 3.48
93:9 3.24
93:10 3.19
93:11 3.54
93:12 3.51
94:1 3.77
94:2 4.05
94:3 4.40
94:4 4.91
94:5 5.12
94:6 4.84
94:7 4.81
94:8 4.59
94:9 4.75
94:10 5.33
94:11 5.41
94:12 5.20
95:1 4.98
95:2 4.75
95:3 4.59
95:4 4.31
95:5 3.83
95:6 3.53
95:7 3.96
95:8 4.24
95:9 4.01
95:10 3.56
95:11 3.66
95:12 3.46
96:1 3.33
96:2 3.52
96:3 3.76
96:4 3.89
96:5 3.97
96:6 4.31
96:7 4.08
96:8 3.96
96:9 4.03
96:10 3.82
96:11 NA
96:12 NA
Source: ISI Inc.
5
<PAGE>
ECONOMIC OUTLOOK FOR 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
The major forces behind the decline of inflation are:
(bullet) Global Competition
(bullet) Technology
(bullet) Demographics
The opening up of world trade has meant new plants can be built in low-wage
areas and the products can be exported to high-wage home markets. As a result,
pressure on U.S. real wages and a drive for corporate efficiency have marked the
last 10 years. The declining cost of technology has also been a factor in
boosting capital spending and lowering the world inflation rate. Technology
represents a growing section of the overall economy, so the percentage of the
U.S. economy experiencing deflation has grown over the last 10 years. Finally,
baby boomers have reached the age when they are beginning to save for
retirement. This change from consumption to savings is an important shift in the
economy.
Reduced Government Spending
Growth in federal outlays has been declining since the mid-1980s. The past
five years have seen an unusually low growth rate of 3.3% (see chart below).
FEDERAL OUTLAYS Y/Y%
5 Yr. Avg. 1996 3.3%
[Graph appears here--see plot points below]
68:1 14.6
69:1 14.6
70:1 15.8
71:1 13.8
72:1 11.7
73:1 7.3
74:1 8.1
75:1 11.4
76:1 11.7
77:1 11.7
78:1 12.2
79:1 12.4
80:1 11.1
81:1 12.4
82:1 12.6
83:1 12.0
84:1 11.3
85:1 10.2
86:1 8.4
87:1 6.6
88:1 5.8
89:1 6.2
90:1 6.0
91:1 6.0
92:1 6.5
93:1 6.0
94:1 5.0
95:1 4.0
96:1 3.3
Source: ISI Inc.
The risk of a Presidential landslide vote that would have put Democrats
back in control of Congress has passed, and the prospects of spending controls
on entitlements without large tax cuts are back in place. The 3% level on
outlays would
6
<PAGE>
bring the budget into balance by 2000 if we don't have a recession. The
pressure on the capital markets from a large and rising government deficit has
passed, so the growth in overall credit demand has moved down to a modest 5%
pace. Because government spending is over 25% of the GDP, slow growth here holds
down overall growth. Similar constraints on government spending in Europe places
a "fiscal drag" there as well.
High Federal Funds Policy
The Federal Reserve moved its key short-term rate up from 3% to 6% in 1993
and 1994. In 1995, the Fed trimmed this rate a bit to 5.25%. Inflation, as
measured by the Consumption Price Deflator, has recently dipped below 2% but the
Fed has maintained a 5.25% Fed Funds rate. This high rate policy has caused
growth in two key areas of the economy to stall. Real construction spending and
vehicles sales have both seen little growth since 1994. The policy emphasis on
fighting inflation has encouraged long-term rates to fall recently. The
flattening of the yield curve implies weak economic growth because of no
monetary stimulus. In part, the modest 125 basis point (1.25%) yield gap between
the Fed Funds rate and long-term Treasury bonds indicates only 1% real economic
growth lies ahead. It has also caused investors to build up their short maturity
investments, with individual investors currently building a $1.5 trillion money
mountain. If slow economic growth allowed the Fed to cut money market rates
there might well be a great deal of investment activity in longer maturity notes
and bonds (see the Money Mountain #2 graph below).
SMALL CDS + MONEY MARKET FUNDS
Oct 28 $1457.8
[Graph appears here--see plot points below]
MONEY MOUNTAIN
07 JAN 85 1,060.8
14 JAN 85 1,061.3
21 JAN 85 1,061.2
28 JAN 85 1,060.5
04 FEB 85 1,059.2
11 FEB 85 1,058.7
18 FEB 85 1,059.2
25 FEB 85 1,058.2
04 MAR 85 1,057.9
11 MAR 85 1,058.1
18 MAR 85 1,058.4
25 MAR 85 1,060.0
01 APR 85 1,061.9
08 APR 85 1,060.9
15 APR 85 1,059.7
22 APR 85 1,062.2
29 APR 85 1,062.3
06 MAY 85 1,062.4
13 MAY 85 1,063.0
20 MAY 85 1,064.0
27 MAY 85 1,064.2
03 JUN 85 1,065.3
10 JUN 85 1,066.1
17 JUN 85 1,067.1
24 JUN 85 1,069.4
01 JUL 85 1,069.8
08 JUL 85 1,067.6
15 JUL 85 1,066.8
22 JUL 85 1,065.2
29 JUL 85 1,064.1
05 AUG 85 1,063.5
12 AUG 85 1,063.8
19 AUG 85 1,063.0
26 AUG 85 1,061.9
02 SEP 85 1,062.2
09 SEP 85 1,061.2
16 SEP 85 1,061.1
23 SEP 85 1,061.2
30 SEP 85 1,062.6
07 OCT 85 1,062.3
14 OCT 85 1,061.7
21 OCT 85 1,061.0
28 OCT 85 1,060.1
04 NOV 85 1,059.6
11 NOV 85 1,059.9
18 NOV 85 1,059.7
25 NOV 85 1,060.5
02 DEC 85 1,061.7
09 DEC 85 1,062.8
16 DEC 85 1,063.0
23 DEC 85 1,064.4
30 DEC 85 1,064.7
06 JAN 86 1,066.9
13 JAN 86 1,068.0
20 JAN 86 1,069.1
27 JAN 86 1,071.4
03 FEB 86 1,071.8
10 FEB 86 1,072.3
17 FEB 86 1,073.3
24 FEB 86 1,073.1
03 MAR 86 1,074.9
10 MAR 86 1,077.4
17 MAR 86 1,079.8
24 MAR 86 1,081.9
31 MAR 86 1,086.0
07 APR 86 1,085.8
14 APR 86 1,087.7
21 APR 86 1,087.8
28 APR 86 1,088.0
05 MAY 86 1,087.7
12 MAY 86 1,088.8
19 MAY 86 1,088.5
26 MAY 86 1,088.3
02 JUN 86 1,087.3
09 JUN 86 1,086.4
16 JUN 86 1,086.9
23 JUN 86 1,088.4
30 JUN 86 1,087.7
07 JUL 86 1,087.9
14 JUL 86 1,087.5
21 JUL 86 1,087.9
28 JUL 86 1,087.6
04 AUG 86 1,087.5
11 AUG 86 1,087.7
18 AUG 86 1,085.2
25 AUG 86 1,083.7
01 SEP 86 1,083.1
08 SEP 86 1,082.6
15 SEP 86 1,082.7
22 SEP 86 1,084.9
29 SEP 86 1,086.1
06 OCT 86 1,085.0
13 OCT 86 1,083.0
20 OCT 86 1,080.6
27 OCT 86 1,079.0
03 NOV 86 1,076.9
10 NOV 86 1,073.4
17 NOV 86 1,072.3
24 NOV 86 1,071.8
01 DEC 86 1,070.0
08 DEC 86 1,068.6
15 DEC 86 1,069.0
22 DEC 86 1,070.2
29 DEC 86 1,069.9
05 JAN 87 1,071.8
12 JAN 87 1,070.7
19 JAN 87 1,067.7
26 JAN 87 1,066.4
02 FEB 87 1,064.8
09 FEB 87 1,064.7
16 FEB 87 1,065.2
23 FEB 87 1,063.3
02 MAR 87 1,062.6
09 MAR 87 1,062.4
16 MAR 87 1,061.9
23 MAR 87 1,060.7
30 MAR 87 1,060.8
06 APR 87 1,059.0
13 APR 87 1,058.1
20 APR 87 1,058.7
27 APR 87 1,058.4
04 MAY 87 1,058.9
11 MAY 87 1,058.4
18 MAY 87 1,058.3
25 MAY 87 1,060.7
01 JUN 87 1,063.5
08 JUN 87 1,067.2
15 JUN 87 1,067.4
22 JUN 87 1,068.6
29 JUN 87 1,070.1
06 JUL 87 1,073.9
13 JUL 87 1,075.8
20 JUL 87 1,076.9
27 JUL 87 1,079.3
03 AUG 87 1,082.3
10 AUG 87 1,085.5
17 AUG 87 1,087.5
24 AUG 87 1,089.2
31 AUG 87 1,090.7
07 SEP 87 1,094.4
14 SEP 87 1,097.7
21 SEP 87 1,099.9
28 SEP 87 1,100.9
05 OCT 87 1,103.8
12 OCT 87 1,107.2
19 OCT 87 1,110.6
26 OCT 87 1,119.3
02 NOV 87 1,123.2
09 NOV 87 1,128.0
16 NOV 87 1,132.2
23 NOV 87 1,135.3
30 NOV 87 1,137.1
07 DEC 87 1,141.4
14 DEC 87 1,145.4
21 DEC 87 1,149.2
28 DEC 87 1,150.6
04 JAN 88 1,152.7
11 JAN 88 1,157.0
18 JAN 88 1,162.6
25 JAN 88 1,167.4
01 FEB 88 1,174.1
08 FEB 88 1,177.7
15 FEB 88 1,182.6
22 FEB 88 1,185.8
29 FEB 88 1,188.5
07 MAR 88 1,191.6
14 MAR 88 1,194.1
21 MAR 88 1,197.4
28 MAR 88 1,199.6
04 APR 88 1,202.0
11 APR 88 1,204.9
18 APR 88 1,206.1
25 APR 88 1,207.9
02 MAY 88 1,209.1
09 MAY 88 1,210.6
16 MAY 88 1,212.5
23 MAY 88 1,214.4
30 MAY 88 1,215.4
06 JUN 88 1,214.5
13 JUN 88 1,214.0
20 JUN 88 1,215.0
27 JUN 88 1,217.6
04 JUL 88 1,218.6
11 JUL 88 1,221.0
18 JUL 88 1,222.9
25 JUL 88 1,224.2
01 AUG 88 1,226.3
08 AUG 88 1,227.2
15 AUG 88 1,229.8
22 AUG 88 1,233.5
29 AUG 88 1,235.3
05 SEP 88 1,238.1
12 SEP 88 1,240.9
19 SEP 88 1,244.3
26 SEP 88 1,247.2
03 OCT 88 1,252.0
10 OCT 88 1,254.7
17 OCT 88 1,257.6
24 OCT 88 1,260.6
31 OCT 88 1,262.8
07 NOV 88 1,267.2
14 NOV 88 1,270.8
21 NOV 88 1,275.0
28 NOV 88 1,277.5
05 DEC 88 1,279.0
12 DEC 88 1,281.7
19 DEC 88 1,284.5
26 DEC 88 1,286.9
02 JAN 89 1,291.1
09 JAN 89 1,293.7
16 JAN 89 1,298.0
23 JAN 89 1,301.2
30 JAN 89 1,304.9
06 FEB 89 1,307.5
13 FEB 89 1,310.8
20 FEB 89 1,315.8
27 FEB 89 1,318.2
06 MAR 89 1,324.2
13 MAR 89 1,328.0
20 MAR 89 1,332.4
27 MAR 89 1,337.4
03 APR 89 1,343.3
10 APR 89 1,349.1
17 APR 89 1,354.4
24 APR 89 1,360.0
01 MAY 89 1,365.2
08 MAY 89 1,371.0
15 MAY 89 1,378.0
22 MAY 89 1,384.9
29 MAY 89 1,388.0
05 JUN 89 1,392.8
12 JUN 89 1,398.1
19 JUN 89 1,403.0
26 JUN 89 1,407.3
03 JUL 89 1,411.5
10 JUL 89 1,417.2
17 JUL 89 1,419.9
24 JUL 89 1,422.8
31 JUL 89 1,426.0
07 AUG 89 1,431.2
14 AUG 89 1,434.7
21 AUG 89 1,438.4
28 AUG 89 1,441.1
04 SEP 89 1,443.6
11 SEP 89 1,445.4
18 SEP 89 1,448.3
25 SEP 89 1,451.2
02 OCT 89 1,454.5
09 OCT 89 1,455.7
16 OCT 89 1,456.7
23 OCT 89 1,461.2
30 OCT 89 1,462.9
06 NOV 89 1,465.7
13 NOV 89 1,468.6
20 NOV 89 1,468.6
27 NOV 89 1,470.2
04 DEC 89 1,472.9
11 DEC 89 1,474.2
18 DEC 89 1,475.3
25 DEC 89 1,478.1
01 JAN 90 1,479.3
08 JAN 90 1,480.7
15 JAN 90 1,479.8
22 JAN 90 1,478.8
29 JAN 90 1,480.8
05 FEB 90 1,483.3
12 FEB 90 1,484.6
19 FEB 90 1,485.0
26 FEB 90 1,487.0
05 MAR 90 1,485.9
12 MAR 90 1,488.1
19 MAR 90 1,489.0
26 MAR 90 1,491.1
02 APR 90 1,493.1
09 APR 90 1,493.6
16 APR 90 1,492.6
23 APR 90 1,494.6
30 APR 90 1,496.4
07 MAY 90 1,496.4
14 MAY 90 1,496.2
21 MAY 90 1,492.8
28 MAY 90 1,493.1
04 JUN 90 1,496.1
11 JUN 90 1,496.4
18 JUN 90 1,501.5
25 JUN 90 1,501.7
02 JUL 90 1,503.9
09 JUL 90 1,504.0
16 JUL 90 1,505.2
23 JUL 90 1,506.2
30 JUL 90 1,509.0
06 AUG 90 1,510.3
13 AUG 90 1,514.6
20 AUG 90 1,514.3
27 AUG 90 1,518.0
03 SEP 90 1,520.0
10 SEP 90 1,520.4
17 SEP 90 1,520.8
24 SEP 90 1,521.8
01 OCT 90 1,524.7
08 OCT 90 1,526.4
15 OCT 90 1,526.1
22 OCT 90 1,526.9
29 OCT 90 1,527.0
05 NOV 90 1,526.4
12 NOV 90 1,527.6
19 NOV 90 1,526.7
26 NOV 90 1,528.3
03 DEC 90 1,530.2
10 DEC 90 1,530.8
17 DEC 90 1,531.2
24 DEC 90 1,533.5
31 DEC 90 1,536.3
07 JAN 91 1,538.1
14 JAN 91 1,541.1
21 JAN 91 1,543.6
28 JAN 91 1,545.4
04 FEB 91 1,546.0
11 FEB 91 1,546.7
18 FEB 91 1,545.1
25 FEB 91 1,548.0
04 MAR 91 1,548.0
11 MAR 91 1,546.6
18 MAR 91 1,546.6
25 MAR 91 1,546.8
01 APR 91 1,544.5
08 APR 91 1,544.1
15 APR 91 1,541.3
22 APR 91 1,540.1
29 APR 91 1,536.8
06 MAY 91 1,534.6
13 MAY 91 1,533.3
20 MAY 91 1,530.2
27 MAY 91 1,527.4
03 JUN 91 1,524.8
10 JUN 91 1,521.5
17 JUN 91 1,520.1
24 JUN 91 1,518.4
01 JUL 91 1,517.4
08 JUL 91 1,514.5
15 JUL 91 1,511.5
22 JUL 91 1,508.8
29 JUL 91 1,504.1
05 AUG 91 1,499.7
12 AUG 91 1,498.4
19 AUG 91 1,495.4
26 AUG 91 1,494.5
02 SEP 91 1,491.5
09 SEP 91 1,489.0
16 SEP 91 1,487.0
23 SEP 91 1,483.9
30 SEP 91 1,479.4
07 OCT 91 1,475.7
14 OCT 91 1,473.7
21 OCT 91 1,470.9
28 OCT 91 1,466.3
04 NOV 91 1,460.7
11 NOV 91 1,460.3
18 NOV 91 1,456.1
25 NOV 91 1,454.1
02 DEC 91 1,450.1
09 DEC 91 1,446.8
16 DEC 91 1,446.5
23 DEC 91 1,438.9
30 DEC 91 1,433.5
06 JAN 92 1,426.8
13 JAN 92 1,419.8
20 JAN 92 1,415.4
27 JAN 92 1,413.1
03 FEB 92 1,408.4
10 FEB 92 1,402.8
17 FEB 92 1,398.3
24 FEB 92 1,395.1
02 MAR 92 1,391.3
09 MAR 92 1,383.2
16 MAR 92 1,376.8
23 MAR 92 1,372.0
30 MAR 92 1,365.8
06 APR 92 1,359.6
13 APR 92 1,356.0
20 APR 92 1,351.4
27 APR 92 1,346.3
04 MAY 92 1,342.7
11 MAY 92 1,338.3
18 MAY 92 1,332.8
25 MAY 92 1,329.1
01 JUN 92 1,327.3
08 JUN 92 1,324.2
15 JUN 92 1,320.3
22 JUN 92 1,317.5
29 JUN 92 1,313.5
06 JUL 92 1,308.7
13 JUL 92 1,305.8
20 JUL 92 1,300.8
27 JUL 92 1,297.1
03 AUG 92 1,293.7
10 AUG 92 1,288.5
17 AUG 92 1,286.6
24 AUG 92 1,284.2
31 AUG 92 1,283.5
07 SEP 92 1,277.6
14 SEP 92 1,274.1
21 SEP 92 1,268.1
28 SEP 92 1,265.1
05 OCT 92 1,258.9
12 OCT 92 1,261.3
19 OCT 92 1,258.8
26 OCT 92 1,254.9
02 NOV 92 1,252.2
09 NOV 92 1,245.5
16 NOV 92 1,240.4
23 NOV 92 1,236.9
30 NOV 92 1,236.3
07 DEC 92 1,233.2
14 DEC 92 1,228.5
21 DEC 92 1,226.5
28 DEC 92 1,223.0
04 JAN 93 1,222.0
11 JAN 93 1,220.8
18 JAN 93 1,217.9
25 JAN 93 1,214.3
01 FEB 93 1,210.9
08 FEB 93 1,208.4
15 FEB 93 1,206.2
22 FEB 93 1,206.8
01 MAR 93 1,205.1
08 MAR 93 1,204.1
15 MAR 93 1,201.5
22 MAR 93 1,199.5
29 MAR 93 1,197.4
05 APR 93 1,192.8
12 APR 93 1,193.2
19 APR 93 1,190.9
26 APR 93 1,189.4
03 MAY 93 1,189.2
10 MAY 93 1,187.8
17 MAY 93 1,185.0
24 MAY 93 1,186.0
31 MAY 93 1,184.4
07 JUN 93 1,182.8
14 JUN 93 1,180.7
21 JUN 93 1,177.5
28 JUN 93 1,173.1
05 JUL 93 1,170.0
12 JUL 93 1,168.8
19 JUL 93 1,168.4
26 JUL 93 1,165.8
02 AUG 93 1,165.0
09 AUG 93 1,161.4
16 AUG 93 1,159.6
23 AUG 93 1,160.0
30 AUG 93 1,157.0
06 SEP 93 1,155.5
13 SEP 93 1,157.3
20 SEP 93 1,154.8
27 SEP 93 1,155.1
04 OCT 93 1,153.0
11 OCT 93 1,152.3
18 OCT 93 1,149.5
25 OCT 93 1,149.2
01 NOV 93 1,150.0
08 NOV 93 1,148.4
15 NOV 93 1,148.4
22 NOV 93 1,151.5
29 NOV 93 1,148.8
06 DEC 93 1,147.9
13 DEC 93 1,148.4
20 DEC 93 1,146.5
27 DEC 93 1,144.9
03 JAN 94 1,144.8
10 JAN 94 1,145.2
17 JAN 94 1,144.2
24 JAN 94 1,141.4
31 JAN 94 1,139.1
07 FEB 94 1,138.0
14 FEB 94 1,137.8
21 FEB 94 1,136.6
28 FEB 94 1,136.2
07 MAR 94 1,136.6
14 MAR 94 1,137.4
21 MAR 94 1,137.5
28 MAR 94 1,135.1
04 APR 94 1,135.0
11 APR 94 1,142.4
18 APR 94 1,142.7
25 APR 94 1,144.5
02 MAY 94 1,145.1
09 MAY 94 1,145.2
16 MAY 94 1,145.9
23 MAY 94 1,147.0
30 MAY 94 1,142.7
06 JUN 94 1,142.0
13 JUN 94 1,142.8
20 JUN 94 1,141.1
27 JUN 94 1,142.6
04 JUL 94 1,144.9
11 JUL 94 1,148.8
18 JUL 94 1,150.8
25 JUL 94 1,151.9
01 AUG 94 1,153.5
08 AUG 94 1,155.5
15 AUG 94 1,157.1
22 AUG 94 1,159.2
29 AUG 94 1,156.3
05 SEP 94 1,157.5
12 SEP 94 1,163.3
19 SEP 94 1,166.1
26 SEP 94 1,168.0
03 OCT 94 1,170.8
10 OCT 94 1,175.7
17 OCT 94 1,178.5
24 OCT 94 1,180.9
31 OCT 94 1,184.6
07 NOV 94 1,188.1
14 NOV 94 1,192.9
21 NOV 94 1,197.2
28 NOV 94 1,199.3
05 DEC 94 1,204.1
12 DEC 94 1,209.4
19 DEC 94 1,211.8
26 DEC 94 1,215.0
02 JAN 95 1,218.2
09 JAN 95 1,223.5
16 JAN 95 1,230.0
23 JAN 95 1,235.1
30 JAN 95 1,239.5
06 FEB 95 1,242.8
13 FEB 95 1,248.7
20 FEB 95 1,252.4
27 FEB 95 1,260.1
06 MAR 95 1,262.0
13 MAR 95 1,271.7
20 MAR 95 1,274.9
27 MAR 95 1,279.7
03 APR 95 1,283.5
10 APR 95 1,290.6
17 APR 95 1,294.1
24 APR 95 1,298.6
01 MAY 95 1,301.7
08 MAY 95 1,307.5
15 MAY 95 1,311.8
22 MAY 95 1,320.4
29 MAY 95 1,323.7
05 JUN 95 1,330.4
12 JUN 95 1,338.7
19 JUN 95 1,342.4
26 JUN 95 1,345.0
03 JUL 95 1,350.1
10 JUL 95 1,354.4
17 JUL 95 1,358.4
24 JUL 95 1,364.3
31 JUL 95 1,366.3
07 AUG 95 1,371.3
14 AUG 95 1,373.8
21 AUG 95 1,377.5
28 AUG 95 1,379.0
04 SEP 95 1,384.0
11 SEP 95 1,385.5
18 SEP 95 1,386.7
25 SEP 95 1,386.3
02 OCT 95 1,389.0
09 OCT 95 1,392.1
16 OCT 95 1,393.2
23 OCT 95 1,395.3
30 OCT 95 1,397.1
06 NOV 95 1,399.5
13 NOV 95 1,403.1
20 NOV 95 1,403.9
27 NOV 95 1,406.5
04 DEC 95 1,407.3
11 DEC 95 1,409.2
18 DEC 95 1,411.6
25 DEC 95 1,412.9
01 JAN 96 1,412.3
08 JAN 96 1,401.4
15 JAN 96 1,408.6
22 JAN 96 1,404.0
29 JAN 96 1,403.4
05 FEB 96 1,400.6
12 FEB 96 1,405.2
19 FEB 96 1,407.8
26 FEB 96 1,415.9
04 MAR 96 1,414.6
11 MAR 96 1,414.2
18 MAR 96 1,416.4
25 MAR 96 1,414.6
01 APR 96 1,414.3
08 APR 96 1,414.3
15 APR 96 1,416.8
22 APR 96 1,417.9
29 APR 96 1,413.1
06 MAY 96 1,413.6
13 MAY 96 1,420.1
20 MAY 96 1,415.0
27 MAY 96 1,412.9
03 JUN 96 1,419.8
10 JUN 96 1,423.0
17 JUN 96 1,426.4
24 JUN 96 1,425.6
01 JUL 96 1,424.4
08 JUL 96 1,429.7
15 JUL 96 1,429.4
22 JUL 96 1,434.1
29 JUL 96 1,434.2
05 AUG 96 1,424.4
12 AUG 96 1,428.2
19 AUG 96 1,431.9
26 AUG 96 1,433.8
02 SEP 96 1,435.5
09 SEP 96 1,440.2
16 SEP 96 1,443.8
23 SEP 96 1,441.6
30 SEP 96 1,441.8
07 OCT 96 1,445.2
14 OCT 96 1,450.2
21 OCT 96 1,452.7
28 OCT 96 1,457.7
04 NOV 96 1,458.7
Source: ISI Inc.
7
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on October
23, 1990 through the most recent fiscal year-end and must reflect the impact of
the Fund's total expenses and its currently effective 4.50% maximum sales
charge.
While the following chart is required by SEC rules, such comparisons are of
limited utility since the indices shown are not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of these indices would have
had to own the securities that they represent. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total returns, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the SEC
calculation includes the impact of the currently effective maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed.
8
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment*
October 23, 1990-October 31, 1996
[Graph appears here--see plot points below]
Lehman Brothers Lehman Brothers
Flag Investors Intermediate Lehman Brothers Long-Term
Managed Municipal Fund Treasury Index Treasury Index Treasury Index
10/90 9,550 10,000 10,000 10,000
10/91 10,715 11,125 11,007 10,290
10/92 11,364 12,032 11,889 10,619
10/93 12,996 13,654 13,116 10,916
10/94 12,152 13,172 12,919 11,200
10/95 14,025 14,996 14,282 11,514
10/96 14,680 15,826 14,938 11,859
Average Annual Total Return*
Periods Ended 9/30/96 1 Year 5 Years Since Inception
Flag Investors Managed Municipal Fund 0.62% 6.45% 5.41%
*These figures assume the reinvestment of dividends and capital gains
distributions. The Lehman Brothers indices listed above are unmanaged.
Although the G.O.Index reflects general municipal market performance, the
Prerefunded Index is a better indicator of the Fund due to its higher quality
characteristics. The Fund is invested entirely in AA-rated or better issues.
Management is not aware of any single index that contains securities with
substantially the same characteristics as those of the Fund. The CPI is a
widely used measure of inflation. Past performance is not an indicator of
future results.
9
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1996
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
MUNICIPAL BONDS--93.4%
General Obligation--61.2%
Arlington, Texas, Independent School
District, 5.75%, 2021 Aaa/NR $5,000 $ 5,015,850
Charlotte, NC:
5.30%, 2011 Aaa/AAA 1,590 1,598,220
5.30%, 2012 Aaa/AAA 1,120 1,119,014
5.30%, 2012 Aaa/AAA 2,325 2,322,954
5.80%, 2016 Aaa/AAA 2,500 2,590,025
Dallas, TX, 5.00%, 2010 Aa1/AAA 1,750 1,692,128
Delaware State, Series "A",
5.125%, 2016 Aa1/AA+ 2,150 2,056,905
DuPage County, IL, Jail Project,
5.60%, 2021 Aaa/AAA 1,600 1,595,664
Florida Board of Education,
Refunding Public Education:
6.125%, 2012 Aa/AA 2,250 2,339,258
5.50%, 2021 Aa/AA 2,000 1,957,700
5.125%, 2022 Aa/AA 5,000 4,653,250
Franklin County, OH:
5.45%, 2009 Aaa/AAA 1,500 1,520,730
5.50%, 2013 Aaa/AAA 1,000 1,003,490
Georgia State, Series "D":
5.25%, 2009 Aaa/AA+ 1,580 1,584,234
5.00%, 2010 Aaa/AA+ 2,000 1,953,220
Grand Prairie, TX, School District,
5.20%, 2018 Aaa/AAA 2,000 1,891,540
Henrico County, VA:
5.20%, 2008 Aaa/AAA 1,200 1,208,592
5.25%, 2009 Aaa/AAA 1,000 1,004,550
Maryland State & Local Facilities,
Second Series, 5.125%, 2010 Aaa/AAA 3,000 2,971,920
Minneapolis, MN, Sports Arena:
5.00%, 2011 Aaa/AAA 1,710 1,650,646
5.00%, 2012 Aaa/AAA 1,920 1,840,570
Missouri State Building,
Series "A", 5.00%, 2010 Aaa/AAA 2,000 1,957,040
</TABLE>
10
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
General Obligation--continued
Montgomery County, MD:
5.60%, 2004 Aaa/AAA $1,000 $ 1,059,290
5.00%, 2009 Aaa/AAA 1,500 1,476,120
5.00%, 2010 Aaa/AAA 1,500 1,464,675
Plano, TX, Independent
School District, 5.00%, 2011 Aaa/AAA 3,000 2,864,070
Salt Lake County, UT, 5.25%, 2010 Aaa/AA+ 2,000 1,995,920
South Carolina Capital
Improvement, 5.00%, 2009 Aaa/AAA 2,700 2,655,909
South Carolina State Highway,
Series "B", 5.625%, 2014 Aaa/AAA 2,700 2,747,169
State of Tennessee:
Series "A", 5.50%, 2009 Aaa/AA+ 1,535 1,564,656
Series "A", 5.55%, 2010 Aaa/AA+ 1,000 1,019,550
Series "B", 6.00%, 2005 Aaa/AA+ 2,000 2,170,260
State of Texas:
5.25%, 2013 Aa/AA 3,250 3,147,203
6.00%, 2014 Aa/AA 2,000 2,062,460
State of Virginia, 5.375%, 2016 Aaa/AAA 2,500 2,484,900
State of Washington:
Series "A", 5.60%, 2010 Aa/AA 1,500 1,518,630
Series "B", 5.50%, 2008 Aa/AA 1,500 1,523,475
Washington Suburban Sanitary
District, MD, 5.375%, 2010 Aa1/AA 1,810 1,817,945
------------
77,099,732
------------
Electric and Gas Utility Revenue--5.4%
Jacksonville Electric Authority
Revenue, FL, St. John's
River Power, 5.25%, 2028 Aa1/AA 2,000 1,890,680
San Antonio, TX, Electric
& Gas Revenue:
Series "A", 4.90%, 2008 Aa1/AA 4,000 3,869,320
Series "A", 6.50%, 2012 Aa1/AA 1,000 1,043,130
------------
6,803,130
------------
Pre-refunded Issues--8.4%
Arizona Highway Transportation
Board, 6.00%, 2010 Aaa/AAA 3,480 3,703,381
</TABLE>
11
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
Pre-refunded Issues--continued
Florida Board of Education,
Refunding Public Education,
6.50%, 2012 Aaa/AA $2,500 $ 2,761,225
Howard County, MD,
Consolidated Public Improvements,
Series "A", 6.90%, 2002 Aaa/AAA 1,000 1,083,810
Jacksonville, FL, Electric
Authority Revenue,
Scherer 4-1-A, 6.75%, 2021 Aaa/AA 1,000 1,098,580
State of Hawaii, General Obligation:
7.00%, 2006 Aaa/AA 750 814,478
6.125%, 2010 NR/AA 1,000 1,069,020
------------
10,530,494
------------
Transportation Revenue--8.5%
Florida Transportation Revenue,
5.80%, 2018 Aa/AA 2,000 2,020,440
Kansas Transportation Revenue:
5.40%, 2009 Aa/AA 2,000 2,012,640
5.40%, 2009 Aa/AA 2,500 2,515,800
Maryland State Department of
Transportation, 5.375%, 2006 Aa/AA 1,500 1,545,240
Portland, OR, Metro, 5.25%, 2007 Aa/AA+ 1,500 1,517,865
Virginia State Transportation
Authority, 6.00%, 2010 Aa/AA 1,000 1,025,780
------------
10,637,765
------------
Water and Sewer Utility Revenue--5.4%
Chicago, IL, 6.30%, 2009 Aa/AA 1,000 1,076,530
DuPage, IL, Water Commission,
5.25%, 2011 Aa1/AA 2,500 2,433,250
Orlando, FL, Utility Commission,
5.125%, 2019 Aa1/AA 3,500 3,252,585
------------
6,762,365
------------
Other Revenue--4.5%
Indianapolis, IN, Local Public
Improvement Board, 6.00%, 2018 Aaa/AA+ 1,500 1,515,300
</TABLE>
12
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
Other Revenue--continued
Lower Colorado River
Authority, Jr. Lien,
4th Supply, 5.25%, 2015 Aaa/AAA $2,000 $ 1,963,120
University of Texas, 6.50%, 2011 Aaa/AAA 2,000 2,199,020
------------
5,677,440
------------
Total Municipal Bonds
(Cost $115,733,425) 117,510,926
------------
REPURCHASE AGREEMENT--5.4%
Goldman Sachs & Co., 5.45%
Dated 10/31/96, to be repurchased
on 11/1/96, collateralized
by U.S. Treasury Notes with
a market value of $7,000,891.
(Cost $6,863,000) 6,863 6,863,000
------------
Total Investment in Securities--98.8%
(Cost $122,596,425)** 124,373,926
Other Assets in Excess of Liabilities, Net--1.2% 1,530,225
------------
Net Assets-100.0% $125,904,151
============
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($41,192,545 / 3,894,438 shares outstanding) $10.58
======
ISI Class Share
($84,711,606 / 8,010,842 shares outstanding) $10.58
======
Maximum Offering Price Per:
Flag Investors Class A Share
($10.58 / .955) $11.08
======
ISI Class Share
($10.58 / .9555) $11.07
======
</TABLE>
- -----------
* The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available as of October 31, 1996. Ratings of issues have
not been audited by Coopers & Lybrand L.L.P.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31,
1996
- --------------------------------------------------------------------------------------
<S> <C>
Investment Income (Note 1):
Interest $6,948,446
----------
Expenses:
Investment advisory fee (Note 2) 516,180
Distribution fee (Note 2) 322,613
Administration fees (Note 2) 258,090
Printing and postage 63,994
Accounting fee (Note 2) 59,356
Transfer agent fee (Note 2) 54,959
Registration fees (Note 1) 46,384
Audit 40,132
Legal 28,676
Custodian fee 25,543
Miscellaneous 22,018
Directors' fees 10,808
Insurance 3,561
----------
Total expenses 1,452,314
Less:Fees waived (Note 2) (290,917)
----------
Net expenses 1,161,397
----------
Net investment income 5,787,049
----------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 281,659
Change in unrealized appreciation or depreciation of investments (272,341)
----------
Net gain on investments 9,318
----------
Net increase in net assets resulting from operations $5,796,367
==========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
1996 1995
- --------------------------------------------------------------------------------------
<S> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 5,787,049 $ 6,268,902
Net realized gain from security transactions 281,659 599,805
Change in appreciation or
depreciation of investments (272,341) 12,223,598
------------ ------------
Net increase in net assets resulting
from operations 5,796,367 19,092,305
------------ ------------
Dividends to Shareholders from:
Net investment income:
Flag Investors Class A Shares (1,958,320) (3,998,176)
ISI Class Shares (3,828,729) (2,270,726)
Net realized short-term gains:
Flag Investors Class A Shares (286,075) (267,415)
ISI Class Shares (545,496) (471,717)
Net realized long-term gains:
Flag Investors Class A Shares (43,313) (418,234)
ISI Class Shares (82,292) (691,139)
------------ ------------
Total distributions (6,744,225) (8,117,407)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 8,278,327 11,188,171
Value of shares issued in
reinvestment of dividends 3,789,940 4,794,976
Cost of shares repurchased (17,488,342) (28,195,599)
------------ ------------
Decrease in net assets derived from capital
share transactions (5,420,075) (12,212,452)
------------ ------------
Total decrease in net assets (6,367,933) (1,237,554)
Net Assets:
Beginning of year 132,272,084 133,509,638
------------ ------------
End of year $125,904,151 $132,272,084
============ ============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each year)(1)
<TABLE>
<CAPTION>
For the Year Ended
October 31, For the Year Ended October 31,
1996 1995 1994 1993 1992
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36
------- ------ ------- ------- -------
Income from Investment Operations:
Net investment income 0.48 0.48 0.46 0.50 0.50
Net realized and unrealized gain/(loss) on investments -- 0.98 (1.15) 0.94 0.22
------- ------ ------- ------- -------
Total from Investment Operations 0.48 1.46 (0.69) 1.44 0.72
------- ------ ------- ------- -------
Less Distributions:
Distributions from net investment income
and short-term gains (0.54) (0.54) (0.56) (0.61) (0.65)
Distributions from net realized long-term gains (0.01) (0.08) (0.04) (0.04) (0.12)
------- ------ ------- ------- -------
Total distributions (0.55) (0.62) (0.60) (0.65) (0.77)
------- ------ ------- ------- -------
Net asset value at end of year $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31
======= ======= ======= ======= =======
Total Return(2) 4.67% 15.42% (6.49)% 14.36% 6.06%
Ratios to Average Daily Net Assets:
Expenses(3) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(4) 4.48% 4.72% 4.37% 4.38% 4.78%
Supplemental Data:
Net assets at end of year:
Flag Investors Class A Shares $41,193 $45,980 $49,903 $53,486 $45,536
ISI Class Shares $84,712 $86,292 $83,607 $88,378 $51,420
Portfolio turnover rate 32% 55% 37% 68% 95%
</TABLE>
- ------------
(1) Computed based on average shares outstanding.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory and administration fees (Note 2), the ratio
of expenses to average daily net assets would have been 1.13%, 1.10%,
1.11%, 1.14% and 1.27% for the years ended October 31, 1996, 1995, 1994,
1993 and 1992, respectively.
(4) Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been
4.25%, 4.52%, 4.16%, 4.14% and 4.41% for the years ended October 31, 1996,
1995, 1994, 1993 and 1992, respectively.
16 See Notes to Financial Statements. 17
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Managed Municipal Fund, Inc. (the "Fund") was organized as a Maryland
Corporation on January 15, 1990 and commenced operations on February 26, 1990.
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. On October 31, 1996, the
Fund consisted of two classes of shares: ISI Managed Municipal Fund Shares ("ISI
Class") and Flag Investors Managed Municipal Fund Class A Shares ("Flag
Investors Class A").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
A. Security Valuation--Municipal bonds are valued on the basis of
quotations provided by a pricing service, which uses information with
respect to transactions on bonds, quotations from bond dealers,
market transactions in comparable securities and various
relationships between securities in determining value.
Securities or other assets for which market quotations are not readily
available are valued at their face value so determined in good faith by
the Investment Advisor under procedures established and monitored
by the Board of Directors. Short-term obligations with maturities of
60 days or less are valued at amortized cost which approximates market.
B. Repurchase Agreements -- The Fund may agree to enter into tri-party
repurchase agreements. Securities held as collateral for tri-party
repurchase agreements are maintained by the broker's custodial bank in
a segregated account until maturity of the repurchase agreement.
The agreement ensures that the market value of the collateral,
including accrued interest thereon, is sufficient in the event of
default. If the counterparty defaults and the value of the
collateral declines or if the counterparty enters into an
insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
C. Federal Income Tax--No provision is made for federal income taxes as it
is the Fund's intention to continue to qualify as a regulated
investment company and to make requisite distributions to the
shareholders that will be sufficient to relieve it from all or
substantially all federal income and excise taxes. The Fund's policy is
to distribute to shareholders substantially all of its taxable net
investment income and net realized capital gains.
18
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
Distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles.
Accordingly, periodic reclassifications are made within the Fund's
capital accounts to reflect income and capital gains available for
distribution under income tax regulations.
D. Other--Security transactions are accounted for on the trade date and
the cost of investments sold or redeemed is determined by use of the
specific identification method for both financial reporting and income
tax purposes. Interest income is recorded on an accrual basis.
NOTE 2--Investment Advisory Fee, Transactions with Affiliates and Other Fees
International Strategy & Investment Inc. ("ISI") serves as the Fund's
advisor and Investment Company Capital Corp. ("ICC") serves as the Fund's
administrator. As compensation for its advisory services, ISI receives from the
Fund an annual fee, calculated daily and paid monthly, at the annual rate of
.40% of the average daily net assets. As compensation for its administrative
services, ICC receives from the Fund an annual fee, calculated daily and paid
monthly, at the annual rate of .20% of the average daily net assets.
ISI and ICC have agreed to reduce their respective annual fees
proportionately, if necessary, so that ordinary expenses of the Fund for any
fiscal year do not exceed .90% of the Fund's daily net assets. For the year
ended October 31, 1996, ISI and ICC waived fees of $192,777 and $98,140,
respectively.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, based on the Fund's average daily
net assets. ICCreceived $59,356 for accounting services for the year ended
October 31, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICCreceived $54,959 for transfer
agent services for the year ended October 31, 1996.
As compensation for providing distribution services, Armata Financial Corp.
receives from the Fund an annual fee, calculated daily and paid monthly, at the
annual rate of .25% of the average daily net assets of the ISI Class Shares.
Alex. Brown & Sons Incorporated receives from the Fund an annual fee, calculated
daily and paid monthly, at an annual rate equal to .25% of the average daily net
assets of the Flag Investors Class A Shares. For the year ended October 31,
1996, distribution fees were $322,613, of which $213,366 were allocated to ISI
Class Shares and $109,247 were allocated to Flag Investors Class A Shares.
19
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 2--concluded
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated to
the Fund for the period January 1, 1996 through October 31, 1996 was
approximately $4,543, and the accrued liability was approximately $17,863.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 40 million shares of capital stock,
par value, $.001 per share, all of which shares are designated as common stock
(15 million Flag Investors Class A, 20 million ISI Class, 2.5 million Flag
Investors Class B, 500,000 Flag Investors Class D and 2 million undesignated).
Transactions in shares of the Fund were as follows:
Flag Investors Class A Shares
For the For the
Year Ended Year Ended
Oct. 31, 1996 Oct. 31, 1995
Shares sold 200,140 323,698
Shares issued to shareholders on
reinvestment of dividends 114,250 161,945
Shares redeemed (736,822) (1,256,958)
----------- ------------
Net decrease in shares outstanding (422,432) (771,315)
=========== ============
Proceeds from sale of shares $ 2,079,607 $ 3,206,244
Value of reinvested dividends 1,200,959 1,628,993
Cost of shares redeemed (7,734,234) (12,775,509)
----------- ------------
Net decrease from capital share
transactions $(4,453,668) $ (7,940,272)
=========== ============
20
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
NOTE 3--concluded
ISI Class Shares
For the For the
Year Ended Year Ended
Oct. 31, 1996 Oct. 31, 1995
Shares sold 585,014 794,506
Shares issued to shareholders on
reinvestment of dividends 246,345 314,194
Shares redeemed (924,026) (1,531,414)
----------- -----------
Net decrease in shares outstanding (92,667) (422,714)
=========== ===========
Proceeds from sale of shares $ 6,198,720 $ 7,981,927
Value of reinvested dividends 2,588,981 3,165,983
Cost of shares redeemed (9,754,108) (15,420,090)
----------- -----------
Net decrease from capital share
transactions $ (966,407) $ (4,272,180)
=========== ===========
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $37,410,967 and $37,816,283, respectively, for the year
ended October 31, 1996.
At October 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$2,651,116 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $873,615.
NOTE 5--Net Assets
At October 31, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $ 39,693,227
ISI Class Shares 84,239,302
Undistributed net realized short-term gains
from security transactions 194,121
Unrealized appreciation of investments 1,777,501
------------
$125,904,151
============
21
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Managed Municipal Fund, Inc.:
We have audited the accompanying statement of net assets of Managed
Municipal Fund, Inc. as of October 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Managed Municipal Fund, Inc. as of October 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and its financial highlights for the
period then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore,Maryland
December 2, 1996
22
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Directors and Officers
EDWARD S. HYMAN
Chairman
RICHARD T. HALE NANCY LAZAR
Vice Chairman Vice President
W. JAMES PRICE EDWARD J. VEILLEUX
Vice Chairman Vice President
R. ALAN MEDAUGH SCOTT J. LIOTTA
Director and President Vice President
JAMES J. CUNNANE CARRIE L. BUTLER
Director Vice President
JOHN F. KROEGER JOSEPH A. FINELLI
Director Treasurer
LOUIS E. LEVY EDWARD J. STOKEN
Director Secretary
EUGENE J. MCDONALD LAURIE D. COLLIDGE
Director Assistant Secretary
HARRY WOOLF
Director
Investment Objective
A mutual fund designed to provide a high level of total return with relative
stability of principal as well as the secondary objective of high current income
through investment in a portfolio consisting primarily of municipal obligations,
the interest on which is exempt from federal income tax.
23
<PAGE>
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<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
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