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Municipal
Equity Income Fund
Flag Investors Real Estate Securities Fund Shares
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 Semi-Annual Report
April 30, 1996
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
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MANAGED MUNICIPAL FUND
Directors and Officers
Edward S. Hyman Harry Woolf
Chairman Director
Richard T. Hale Nancy Lazar
Vice Chairman Vice President
W. James Price Edward J. Veilleux
Vice Chairman Vice President
R. Alan Medaugh Brian C. Nelson
Director and President Vice President and Secretary
James J. Cunnane Carrie L. Butler
Director Vice President
John F. Kroeger Joseph A. Finelli
Director Treasurer
Louis E. Levy Denice DeFlorio
Director Assistant Vice President
Eugene J. McDonald Laurie D. DePrine
Director Assistant Secretary
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.
Investment Advisor
ISI Inc.
717 Fifth Avenue
New York, NY 10022
Custodian
PNC Bank, N.A.
Transfer Agent
Investment Company Capital Corp.
P.O. Box 515
Baltimore, MD 21203
(800) 553-8080
Legal Counsel
Morgan, Lewis & Bockius LLP
Independent Auditors
Coopers & Lybrand L.L.P.
Portfolio Diversification by State
(As of April 30, 1996)
[Map of United States here]
State Allocation
% of % of
Municipal Municipal
Bonds Bonds
Texas 20.3% Minnesota 3.0%
Florida 18.6 Ohio 2.2
Maryland 9.8 Delaware 1.7
North Carolina 9.5 Utah 1.7
Illinois 4.3 Missouri 1.7
Tennessee 4.1 Colorado 1.7
Virginia 3.9 Hawaii 1.6
Kansas 3.9 Oregon 1.3
Arizona 3.2 Indiana 1.3
South Carolina 3.2
Georgia 3.0 Total 100.0%
1
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MANAGED MUNICIPAL FUND
Investment Advisor's Report
We are pleased to report on the progress of your Fund for the period ended
April 30, 1996. As of this date, the Fund recorded a 6-month total return of
0.2% and a 12-month total return of 7.2%. Since its inception on October 23,
1990, the Fund has produced a cumulative total return of 47.1%, which
translates into an average annual total return of 7.2%. These figures assume
the reinvestment of dividends and capital gains distributions and exclude
the impact of any sales charge.
Overview
Municipal interest rates moved lower between April 1995 and January 1996 as
slower economic growth led to a decreased threat of inflation. As 1996 began,
the market became concerned that the economy was accelerating, which brought
back inflation fears and a rise in interest rates. We view the last few months
as a growth scare, which, because of higher rates and a stretched consumer,
should fade in the second half of 1996, reducing rates. Please see our Interest
Rate Outlook on the following page for more details.
30-YEAR MUNICIPAL AAA GENERAL OBLIGATION YIELDS
[Graph appears here--plot points are listed below]
DATE YIELD DATE YIELD DATE YIELD
F F 3/15/96 5.81 F 2/23/96 5.30
T T 3/14 5.71 T 2/22 5.27
W W 3/13 5.71 W 2/21 5.28
T T 3/12 5.69 T 2/20 5.27
M 4/1/96 5.67 M 3/11 5.65 M 2/19 5.17
F 3/29/96 5.69 F 3/8/96 5.62 F 2/16/96 5.17
T 3/28/96 5.70 T 3/7 5.42 T 2/15 5.12
W 3/27/96 5.66 W 3/6 5.40 W 2/14 5.10
T 3/26/96 5.64 T 3/5 5.36 T 2/13 5.12
M 3/25/96 5.64 M 3/4 5.33 M 2/12 5.14
F 3/22/96 5.69 F 3/1/96 5.34 F 2/9/96 5.16
T 3/21/96 5.71 T 2/29 5.37 T 2/8 5.16
W 3/20/96 5.75 W 2/28 5.33 W 2/7 5.18
T 3/19/96 5.78 T 2/27 5.35 T 2/6 5.20
M 3/18/96 5.80 M 2/26 5.35 M 2/5 5.24
DATE YIELD DATE YIELD DATE YIELD
F 2/2/96 5.23 F 1/12/96 5.32 F 12/22/95 5.36
T 2/1 5.22 T 1/11 5.32 T 12/21 5.39
W 1/31 5.20 W 1/10 5.30 W 12/20 5.41
T 1/30 5.22 T 1/9 5.26 T 12/19 5.46
M 1/29 5.27 M 1/8 5.27 M 12/18 5.44
F 1/26/96 5.29 F 1/5/96 5.27 F 12/15/95 5.32
T 1/25 5.29 T 1/4 5.21 T 12/14 5.31
W 1/24 5.25 W 1/3 5.20 W 12/13 5.29
T 1/23 5.27 T 1/2 5.26 T 12/12 5.28
M 1/22 5.25 M 1/1 5.28 M 12/11 5.26
F 1/19/96 5.23 F 12/29/95 5.28 F 12/8/95 5.28
T 1/18 5.23 T 12/28 5.28 T 12/7 5.26
W 1/17 5.27 W 12/27 5.30 W 12/6 5.26
T 1/16 5.29 T 12/26 5.34 T 12/5 5.32
M 1/15 5.32 M 12/25 5.36 M 12/4 5.33
DATE YIELD DATE YIELD DATE YIELD
F 12/1/95 5.39 F 11/10/95 5.57 F 10/20/95 5.62
T 11/30 5.41 T 11/9 5.54 T 10/19 5.58
W 11/29 5.46 W 11/8 5.52 W 10/18 5.58
T 11/28 5.48 T 11/7 5.56 T 10/17 5.58
M 11/27 5.50 M 11/6 5.54 M 10/16 5.60
F 11/24/95 5.53 F 11/3/95 5.54 F 10/13/95 5.62
T 11/23 5.53 T 11/2 5.54 T 10/12 5.68
W 11/22 5.53 W 11/1 5.56 W 10/11 5.69
T 11/21 5.53 T 10/31 5.59 T 10/10 5.69
M 11/20 5.52 M 10/30 5.61 M 10/9 5.71
F 11/17/95 5.52 F 10/27/95 5.65 F 10/6/95 5.71
T 11/16 5.53 T 10/26 5.62 T 10/5 5.72
W 11/15 5.56 W 10/25 5.61 W 10/4 5.74
T 11/14 5.57 T 10/24 5.61 T 10/3 5.76
M 11/13 5.56 M 10/23 5.64 M 10/2 5.78
DATE YIELD DATE YIELD DATE YIELD
F 9/29/95 5.81 F 9/8/95 5.79 F 8/18/95 6.04
T 9/28 5.85 T 9/7 5.79 T 8/17 6.04
W 9/27 5.89 W 9/6 5.81 W 8/16 6.04
T 9/26 5.83 T 9/5 5.81 T 8/15 6.03
M 9/25 5.83 M 9/4 M 8/14 6.01
F 9/22/95 5.81 F 9/1/95 5.85 F 8/11/95 5.99
T 9/21 5.74 T 8/31 5.87 T 8/10 5.96
W 9/20 5.69 W 8/30 5.88 W 8/9 5.96
T 9/19 5.70 T 8/29 5.90 T 8/8 5.96
M 9/18 5.71 M 8/28 5.92 M 8/7 5.99
F 9/15/95 5.69 F 8/25/95 5.97 F 8/4/95 5.96
T 9/14 5.66 T 8/24 5.99 T 8/3 5.93
W 9/13 5.70 W 8/23 6.01 W 8/2 5.88
T 9/12 5.72 T 8/22 6.01 T 8/1 5.92
M 9/11 5.79 M 8/21 6.02 M 7/31 5.87
DATE YIELD DATE YIELD DATE YIELD
F 7/28/95 5.87 F 7/7/95 5.75 F 6/16/95 5.80
T 7/27 5.85 T 7/6 5.79 T 6/15 5.70
W 7/26 5.87 W 7/5 5.85 W 6/14 5.67
T 7/25 5.90 T 7/4 5.87 T 6/13 5.62
M 7/24 5.92 M 7/3 5.87 M 6/12 5.64
F 7/21/95 5.92 F 6/30/95 5.87 F 6/9/95 5.59
T 7/20 5.90 T 6/29 5.87 T 6/8 5.52
W 7/19 5.88 W 6/28 5.77 W 6/7 5.49
T 7/18 5.78 T 6/27 5.77 T 6/6 5.48
M 7/17 5.75 M 6/26 5.75 M 6/5 5.52
F 7/14/95 5.71 F 6/23/95 5.73 F 6/2/95 5.55
T 7/13 5.69 T 6/22 5.71 T 6/1 5.63
W 7/12 5.69 W 6/21 5.76 W 5/31 5.65
T 7/11 5.71 T 6/20 5.73 T 5/30 5.70
M 7/10 5.71 M 6/19 5.78 M 5/29 5.72
DATE YIELD DATE YIELD DATE YIELD
F 5/26/95 5.72 F 5/5/95 5.87 F 4/14/95 5.76
T 5/25 5.69 T 5/4 5.92 T 4/13 5.76
W 5/24 5.69 W 5/3 5.95 W 4/12 5.78
T 5/23 5.71 T 5/2 5.95 T 4/11 5.78
M 5/22 5.75 M 5/1 5.93 M 4/10 5.80
F 5/19/95 5.75 F 4/28/95 5.91 F 4/7/95 5.80
T 5/18 5.75 T 4/27 5.86 T 4/6 5.80
W 5/17 5.73 W 4/26 5.81 W 4/5 5.82
T 5/16 5.73 T 4/25 5.79 T 4/4 5.83
M 5/15 5.76 M 4/24 5.76 M 4/3 5.86
F 5/12/95 5.79 F 4/21/95 5.74 F 3/31/95 5.87
T 5/11 5.76 T 4/20 5.74 T 3/30 5.84
W 5/10 5.79 W 4/19 5.74
T 5/9 5.81 T 4/18 5.72
M 5/8 5.87 M 4/17 5.74
Source: Bloomberg Financial Services
One reason we favor investing in long maturity municipals is that despite a
lack of action on a flat tax, municipals continue to be inexpensive when
compared to Treasuries. Treasury yields were higher six months ago when fears
that an aggressive flat tax might be passed were at their peak. Today, Treasury
yields are still quite high, which, along with our outlook for lower rates,
means that municipals are still inexpensive compared to the yield on taxable
Treasuries. The chart below shows the yield on top quality municipals as a
percentage of U.S. Treasury yields.
AAA-Rated Municipal Yield
as a Percentage of U.S. Treasury Yield
AAA-rated
Municipals 3/31/95 9/30/95 3/31/96
15-year 78.1% 86.3% 85.8%
20-year 79.8% 90.1% 86.1%
30-year 80.1% 89.5% 85.6%
Portfolio Management
In addition to shifting into longer maturity bonds, we sold some of the
Fund's Revenue bonds and moved into General Obligation (GO) bonds (from 37% in
April 1995 to 59% in April 1996). We sold primarily electric revenue issues
because we believe that increased market deregulation and the industry's high
debt levels make them a greater risk for the Fund. In addition, the yield
advantage that revenue issues have held over top quality GO issues has narrowed
(see chart on p. 3).
2
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MANAGED MUNICIPAL FUND
30-YEAR REVENUE BONDS VS 30-YEAR AAA GO
5/1/95-4/30/96
[Graph appears here--plot points are listed below]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/95 55 7/10/95 60 9/15/95 48 11/24/95 48 2/5/96 57 4/12/96 43
5/2/95 58 7/11/95 60 9/18/95 48 11/27/95 52 2/6/96 57 4/15/96 45
5/3/95 58 7/12/95 60 9/19/95 48 11/28/95 53 2/7/96 57 4/16/96 45
5/4/95 58 7/13/95 55 9/20/95 47 11/29/95 55 2/8/96 57 4/17/96 45
5/5/95 58 7/14/95 58 9/21/95 52 11/30/95 55 2/9/96 57 4/18/96 45
5/8/95 55 7/17/95 58 9/22/95 52 12/1/95 60 2/12/96 57 4/19/96 48
5/9/95 53 7/18/95 53 9/25/95 52 12/4/95 60 2/13/96 57 4/22/96 45
5/10/95 52 7/19/95 53 9/26/95 53 12/5/95 65 2/14/96 57 4/23/96 45
5/11/95 52 7/20/95 53 9/27/95 53 12/6/95 67 2/15/96 57 4/24/96 45
5/12/95 52 7/21/95 53 9/28/95 53 12/7/95 62 2/16/96 57 4/25/96 45
5/15/95 52 7/24/95 53 9/29/95 48 12/8/95 62 2/20/96 57 4/26/96 45
5/16/95 52 7/25/95 53 10/2/95 48 12/11/95 62 2/21/96 58 4/29/96 45
5/17/95 55 7/26/95 55 10/3/95 48 12/12/95 60 2/22/96 58 4/30/96 45
5/18/95 53 7/27/95 55 10/4/95 48 12/13/95 60 2/23/96 58 5/1/96 45
5/19/95 53 7/28/95 55 10/5/95 50 12/14/95 60 2/26/96 58 5/2/96 45
5/22/95 53 7/31/95 55 10/6/95 50 12/15/95 60 2/27/96 58 5/3/96 45
5/23/95 53 8/1/95 55 10/10/95 50 12/18/95 60 2/28/96 58 5/6/96 45
5/24/95 55 8/2/95 55 10/11/95 50 12/19/95 60 2/29/96 58 5/7/96 45
5/25/95 55 8/3/95 55 10/12/95 53 12/20/95 63 3/1/96 58 5/8/96 45
5/26/95 55 8/4/95 55 10/13/95 55 12/21/95 63 3/4/96 58 5/9/96 45
5/30/95 55 8/7/95 55 10/16/95 55 12/21/95 63 3/5/96 53 5/10/96 45
5/31/95 55 8/8/95 55 10/17/95 55 12/26/95 63 3/6/96 53 5/13/96 45
6/1/95 55 8/9/95 55 10/18/95 55 12/27/95 63 3/7/96 53 5/14/96 47
6/2/95 55 8/10/95 55 10/19/95 55 12/28/95 63 3/8/96 53 5/15/96 47
6/5/95 58 8/11/95 53 10/20/95 55 12/29/95 63 3/11/96 53 5/16/96 47
6/6/95 58 8/14/95 53 10/23/95 55 1/2/96 63 3/12/96 53 5/17/96 47
6/7/95 58 8/15/95 53 10/24/95 55 1/3/96 63 3/13/96 48 5/20/96 47
6/8/95 58 8/16/95 53 10/25/95 57 1/4/96 63 3/14/96 48 5/21/96 47
6/9/95 53 8/17/95 53 10/30/95 55 1/5/96 63 3/15/96 50 5/22/96 47
6/12/95 53 8/18/95 55 10/27/95 55 1/8/96 63 3/18/96 50 5/23/96 47
6/13/95 53 8/21/95 55 10/30/95 55 1/9/96 63 3/19/96 50 5/24/96 47
6/14/95 53 8/22/95 55 10/31/95 55 1/10/96 63 3/20/96 50 5/28/96 47
6/15/95 55 8/23/95 55 11/1/95 52 1/11/96 63 3/21/96 50 5/29/96 45
6/16/95 57 8/24/95 52 11/2/95 52 1/12/96 63 3/22/96 50 5/30/96 47
6/19/95 53 8/25/95 53 11/3/95 52 1/16/96 63 3/25/96 50 5/31/96 47
6/20/95 53 8/28/95 53 11/6/95 52 1/17/96 60 3/26/96 50 6/3/96 47
6/21/95 53 8/29/95 53 11/7/95 52 1/18/96 60 3/27/96 50 6/4/96 47
6/22/95 50 8/30/95 50 11/8/95 52 1/19/96 60 3/28/96 50 6/5/96 47
6/23/95 50 8/31/95 50 11/9/95 52 1/22/96 58 3/29/96 50 6/6/96 45
6/26/95 50 9/1/95 50 11/10/95 52 1/23/96 58 4/1/96 50 6/7/96 45
6/27/95 53 9/5/95 50 11/13/95 52 1/24/96 58 4/2/96 50 6/10/96 45
6/28/95 53 9/6/95 52 11/14/95 52 1/25/96 58 4/3/96 48 6/11/96 45
6/29/95 53 9/7/95 52 11/15/95 50 1/26/96 58 4/4/96 48 6/12/96 45
6/30/95 55 9/8/95 52 11/16/95 50 1/29/96 57 4/5/96 48
7/3/95 55 9/11/95 52 11/17/95 50 1/30/96 57 4/8/96 48
7/5/95 55 9/12/95 50 11/20/95 50 1/31/96 57 4/9/96 48
7/6/95 55 9/13/95 50 11/21/95 48 2/1/96 57 4/10/96 48
7/7/95 55 9/14/95 48 11/22/95 48 2/2/96 57 4/11/96 48
</TABLE>
Source: Municipal Market Data
The municipal yield curve has also steepened from 150 basis points (1.50%)
between 2-year and 30-year maturities to 175 basis points (1.75%). As a result,
we have moved a greater portion of the Fund's assets into the 10- to 20-year
sector and reduced the Fund's investment in short-term maturities.
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
May 24, 1996
Interest Rate Outlook
The rate of growth in the economy is likely to slow as we move through
1996. The recent interest rate rise, a stretched consumer and a long lag
between Federal Reserve easing and a pick-up in growth should produce a slow
growth profile. Overseas, we expect slow growth to continue, especially
in Europe as these economies struggle with the impact of declining government
spending. Inflation, after picking up in early 1996, should return to a
subdued 1.5% pace. In the U.S., credit demand is moderate, in part because of
work aimed at reducing the government deficit. Slow growth, low inflation and
subdued credit demand should produce lower interest rates in the second half of
1996. Please see our forecast table below for more details.
ISI ECONOMIC FORECAST
95:4Q 96:1Q 96:2Q* 96:3Q* 96:4Q* 97:1Q* 97:2Q*
Real GDP 0.6% 2.0% 2.5% 1.0% 1.0% 1.0% 3.5%
GDP Deflator** 1.9% 1.5% 2.5% 2.0% 1.5% 1.5% 1.5%
30-Year Bond
Yields 6.0% 6.7% 6.6% 6.2% 6.0% 5.5% 5.7%
Fed Funds
Rate 5.5% 5.2% 5.2% 5.0% 4.8% 4.5% 4.5%
*Estimated.
**A more accurate cost of living barometer than the CPI.
Source: ISI Inc.
Growth in the U.S.
We expect growth in the first half of 1996 to be above the level in late
1995. The credit markets are sensitive to fast growth because it reduces excess
capacity in the economy, providing an opportunity for price increases. We expect
growth in the first half of 1996 to be in the 2% to 2.5% range. The inflation
risk from this level of growth is low because new capacity is being added at a
4.0% annual rate. Please see the Capacity Growth chart on p. 4.
3
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MANAGED MUNICIPAL FUND
Interest Rate Outlook (continued)
CAPACITY GROWTH Y/Y %
Mar 3.8%
[GRAPH APPEARS HERE--PLOT POINTS ARE LISTED BELOW]
<TABLE>
<S> <C>
68:1 68:2 68:3 68:4 68:5 68:6 68:7 68:8 68:9 68:10 68:11 68:12
Y/Y % 5.2 5.2 5.3 5.2 5.1 5.1 4.9 4.9 4.9 4.9 4.7 4.7
69:1 69:2 69:3 69:4 69:5 69:6 69:7 69:8 69:9 69:10 69:11 69:12
Y/Y % 4.8 4.7 4.6 4.6 4.6 4.4 4.6 4.4 4.4 4.4 4.4 4.3
70:1 70:2 70:3 70:4 70:5 70:6 70:7 70:8 70:9 70:10 70:11 70:12
Y/Y % 4.2 4.2 4.2 4.1 4.0 4.1 4.0 4.0 3.9 3.8 3.8 3.6
71:1 71:2 71:3 71:4 71:5 71:6 71:7 71:8 71:9 71:10 71:11 71:12
Y/Y % 3.7 3.7 3.5 3.4 3.4 3.3 3.3 3.3 3.1 3.1 3.1 3.1
72:1 72:2 72:3 72:4 72:5 72:6 72:7 72:8 72:9 72:10 72:11 72:12
Y/Y % 3.0 3.0 3.1 3.1 3.1 3.1 3.1 3.0 3.2 3.2 3.1 3.1
73:1 73:2 73:3 73:4 73:5 73:6 73:7 73:8 73:9 73:10 73:11 73:12
Y/Y % 3.1 3.1 3.1 3.2 3.2 3.2 3.2 3.3 3.2 3.2 3.2 3.3
74:1 74:2 74:3 74:4 74:5 74:6 74:7 74:8 74:9 74:10 74:11 74:12
Y/Y % 3.3 3.3 3.4 3.3 3.4 3.4 3.5 3.3 3.4 3.4 3.6 3.4
75:1 75:2 75:3 75:4 75:5 75:6 75:7 75:8 75:9 75:10 75:11 75:12
Y/Y % 3.4 3.4 3.3 3.3 3.1 3.1 3.0 2.9 2.8 2.8 2.6 2.6
76:1 76:2 76:3 76:4 76:5 76:6 76:7 76:8 76:9 76:10 76:11 76:12
Y/Y % 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.7 2.7 2.7 2.7 2.7
77:1 77:2 77:3 77:4 77:5 77:6 77:7 77:8 77:9 77:10 77:11 77:12
Y/Y % 2.7 2.7 2.8 2.8 2.7 2.7 2.8 2.8 2.8 2.8 2.8 2.9
78:1 78:2 78:3 78:4 78:5 78:6 78:7 78:8 78:9 78:10 78:11 78:12
Y/Y % 2.9 2.9 2.9 2.9 3.0 3.0 3.0 3.0 3.1 3.1 3.1 3.0
79:1 79:2 79:3 79:4 79:5 79:6 79:7 79:8 79:9 79:10 79:11 79:12
Y/Y % 3.0 3.0 3.0 3.0 2.9 3.0 2.9 2.9 2.8 2.9 2.9 2.8
80:1 80:2 80:3 80:4 80:5 80:6 80:7 80:8 80:9 80:10 80:11 80:12
Y/Y % 2.9 2.9 2.8 2.9 3.0 3.0 3.1 3.1 3.2 3.2 3.3 3.3
81:1 81:2 81:3 81:4 81:5 81:6 81:7 81:8 81:9 81:10 81:11 81:12
Y/Y % 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.4 3.4 3.4 3.4 3.5
82:1 82:2 82:3 82:4 82:5 82:6 82:7 82:8 82:9 82:10 82:11 82:12
Y/Y % 3.4 3.3 3.2 3.2 3.1 3.0 3.0 2.9 2.9 2.8 2.7 2.7
83:1 83:2 83:3 83:4 83:5 83:6 83:7 83:8 83:9 83:10 83:11 83:12
Y/Y % 2.7 2.6 2.6 2.5 2.6 2.6 2.5 2.5 2.4 2.4 2.4 2.4
84:1 84:2 84:3 84:4 84:5 84:6 84:7 84:8 84:9 84:10 84:11 84:12
Y/Y % 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.4 2.4 2.3
85:1 85:2 85:3 85:4 85:5 85:6 85:7 85:8 85:9 85:10 85:11 85:12
Y/Y % 2.4 2.4 2.5 2.5 2.5 2.5 2.6 2.7 2.8 2.7 2.8 2.9
86:1 86:2 86:3 86:4 86:5 86:6 86:7 86:8 86:9 86:10 86:11 86:12
Y/Y % 2.8 2.8 2.7 2.6 2.5 2.5 2.4 2.3 2.2 2.2 2.1 2.0
87:1 87:2 87:3 87:4 87:5 87:6 87:7 87:8 87:9 87:10 87:11 87:12
Y/Y % 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
88:1 88:2 88:3 88:4 88:5 88:6 88:7 88:8 88:9 88:10 88:11 88:12
Y/Y % 1.9 1.8 1.8 1.8 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.4
89:1 89:2 89:3 89:4 89:5 89:6 89:7 89:8 89:9 89:10 89:11 89:12
Y/Y % 1.4 1.5 1.5 1.6 1.6 1.6 1.7 1.7 1.8 1.8 1.8 1.9
90:1 90:2 90:3 90:4 90:5 90:6 90:7 90:8 90:9 90:10 90:11 90:12
Y/Y % 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
91:1 91:2 91:3 91:4 91:5 91:6 91:7 91:8 91:9 91:10 91:11 91:12
Y/Y % 1.9 1.9 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.9
92:1 92:2 92:3 92:4 92:5 92:6 92:7 92:8 92:9 92:10 92:11 92:12
Y/Y % 1.9 1.9 1.9 1.9 2.0 2.0 2.0 2.0 2.1 2.1 2.1 2.1
93:1 93:2 93:3 93:4 93:5 93:6 93:7 93:8 93:9 93:10 93:11 93:12
Y/Y % 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
94:1 94:2 94:3 94:4 94:5 94:6 94:7 94:8 94:9 94:10 94:11 94:12
Y/Y % 2.2 2.3 2.4 2.4 2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2
95:1 95:2 95:3 95:4 95:5 95:6 95:7 95:8 95:9 95:10 95:11 95:12
Y/Y % 3.2 3.2 3.3 3.3 3.4 3.5 3.5 3.5 3.6 3.6 3.7 3.8
96:1 96:2 96:3 96:4 96:5 96:6
Y/Y % 3.8 3.8 3.8 3.9 N/A N/A
</TABLE>
Source: ISI Inc.
We expect growth in the second half of 1996 to slow to the 1.0% level. The
recent interest rate rise, a high consumer debt burden and the multi-year delay
between Federal Reserve easing and an upturn in economic growth are the
catalysts for the slowdown. A slowdown of this magnitude would reduce the fear
of a return to inflation and help reduce interest rates.
Growth Outside the U.S.
In 1994, the specter of a synchronized global expansion caused a sharp rise
in interest rates. In 1996, European growth prospects are slight. Germany's
growth, for example, is forecast by the German government to be only 0.5% this
year. Japanese growth is likely to pick up, but slow money growth and a fragile
financial system should hold it to 2.0% or less for 1996. We survey 28 countries
to gauge world growth. Currently, these surveys show world growth as slow at
best. Please see our survey results in the following chart.
FOREIGN (STRENGTH-WEAKNESS)
13 WK. AVG.
APR 29 -5.6
[GRAPH APPEARS HERE--PLOT POINTS ARE LISTED BELOW]
<TABLE>
<S> <C>
9/5/94 9/12/94 9/19/94 9/26/94 10/3/94 10/10/94 10/17/94
13 Wk. Avg. NA NA NA 3.1 3.8 4.1 4.8
10/24/94 10/31/94 11/7/94 11/14/94 11/21/94 11/28/94 12/5/94
13 Wk. Avg. 6.0 5.6 4.6 5.2 5.4 5.8 6.5
12/12/94 12/19/94 12/26/94 1/2/95 1/9/95 1/16/95 1/23/95
13 Wk. Avg. 7.1 6.5 6.5 8.4 7.8 7.2 6.0
1/30/95 2/6/95 2/13/95 2/20/95 2/27/95 3/6/95 3/13/95 3/20/95
13 Wk. Avg. 5.8 6.4 5.3 5.8 6.7 7.2 6.7 7.4
3/27/95 4/3/95 4/10/95 4/17/95 4/24/95 5/1/95 5/8/95 5/15/95
13 Wk. Avg. 7.3 6.4 7.4 6.9 6.2 6.2 5.3 5.6
5/22/95 5/29/95 6/5/95 6/12/95 6/19/95 6/26/95 7/3/95 7/10/95
13 Wk. Avg. 5.6 4.1 2.1 1.3 0.5 1.1 0.5 0.3
7/17/95 7/24/95 7/31/95 8/7/95 8/14/95 8/21/95 8/28/95 9/4/95
13 Wk. Avg. 0.9 0.4 -0.6 -1.2 -1.0 -2.8 -2.7 -3.1
9/11/95 9/18/95 9/25/95 10/2/95 10/9/95 10/16/95 10/23/95
13 Wk. Avg. -2.5 -2.5 -3.6 -3.8 -4.8 -5.2 -5.2
10/30/95 11/6/95 11/13/95 11/20/95 11/27/95 12/4/95 12/11/95
13 Wk. Avg. -5.4 -3.9 -4.8 -4.9 -4.8 -4.5 -4.4
12/18/95 12/25/95 1/1/96 1/8/96 1/15/96 1/22/96 1/29/96
13 Wk. Avg. -4.5 -5.0 -4.8 -4.3 -5.0 -5.8 -5.2
2/5/96 2/12/96 2/19/96 2/26/96 3/4/96 3/11/96 3/18/96 3/25/96
13 Wk. Avg. -5.4 -5.9 -4.5 -3.7 -3.5 -4.3 -5.4 -4.7
4/1/96 4/8/96 4/15/96 4/22/96 4/29/96 5/6/96 5/13/96 5/20/96
13 Wk. Avg. -5.7 -6.4 -5.8 -5.3 -5.6 -5.7 -5.9 -7.3
5/27/96 6/3/96 6/10/96 6/17/96
13 Wk. Avg. -6.2 -6.2 -5.7 NA
</TABLE>
Source: ISI Inc.
Outlook for Inflation
The prices of many commodities have increased this year. As a result, there
is likely to be some pressure on consumer prices. Price increases become large
and widespread if money growth has been high. Central banks around the world
have been in an inflation-fighting posture, and money growth, although up
recently, is quite low compared to periods such as 1974, 1979 and 1990 when
commodity prices surged (see chart below).
G7 MONEY Y/Y % U.S., J, G, F, U.K., C Eq. Wts
Mar 5.4%
[GRAPH APPEARS HERE--PLOT POINTS ARE LISTED BELOW]
<TABLE>
<CAPTION>
G7 MONEY U.S.,J,G,F,U.K.,C Eq.Wts= Plot points for G7 Money Y/Y Chart
<S> <C>
72:1 72:2 72:3 72:4 72:5 72:6 72:7 72:8 72:9 72:10 72:11 72:12
Y/Y % 12.8 11.2 12.2 12.8 13.3 13.3 13.6 13.7 14.3 15.2 15.7 16.8
73:1 73:2 73:3 73:4 73:5 73:6 73:7 73:8 73:9 73:10 73:11 73:12
Y/Y % 16.3 16.5 16.2 16.2 16.3 15.2 14.9 14.8 13.9 13.0 13.1 13.0
74:1 74:2 74:3 74:4 74:5 74:6 74:7 74:8 74:9 74:10 74:11 74:12
Y/Y % 13.8 13.0 13.5 13.1 12.5 12.7 12.7 12.7 13.2 13.3 13.6 13.1
75:1 75:2 75:3 75:4 75:5 75:6 75:7 75:8 75:9 75:10 75:11 75:12
Y/Y % 12.6 13.3 13.1 13.0 13.1 13.8 13.8 13.8 14.0 14.1 13.7 14.3
76:1 76:2 76:3 76:4 76:5 76:6 76:7 76:8 76:9 76:10 76:11 76:12
Y/Y % 14.4 14.5 14.2 14.4 14.7 14.7 14.7 15.0 14.2 14.7 14.2 13.3
77:1 77:2 77:3 77:4 77:5 77:6 77:7 77:8 77:9 77:10 77:11 77:12
Y/Y % 13.9 13.2 12.9 12.9 12.6 12.3 12.2 11.8 12.2 11.6 12.3 13.1
78:1 78:2 78:3 78:4 78:5 78:6 78:7 78:8 78:9 78:10 78:11 78:12
Y/Y % 12.6 12.9 12.7 13.0 12.8 13.0 13.7 13.5 13.5 13.4 13.8 12.5
79:1 79:2 79:3 79:4 79:5 79:6 79:7 79:8 79:9 79:10 79:11 79:12
Y/Y % 12.6 12.6 12.6 12.4 12.8 12.5 11.9 12.3 12.2 12.1 11.3 11.7
80:1 80:2 80:3 80:4 80:5 80:6 80:7 80:8 80:9 80:10 80:11 80:12
Y/Y % 11.4 11.3 11.2 10.3 10.0 9.9 9.8 10.1 9.7 9.5 10.0 9.3
81:1 81:2 81:3 81:4 81:5 81:6 81:7 81:8 81:9 81:10 81:11 81:12
Y/Y % 8.8 9.3 9.7 11.1 10.7 10.3 10.5 9.7 9.6 9.3 8.0 9.2
82:1 82:2 82:3 82:4 82:5 82:6 82:7 82:8 82:9 82:10 82:11 82:12
Y/Y % 10.3 9.3 8.7 7.6 7.8 8.1 7.5 7.7 8.1 8.8 8.9 8.9
83:1 83:2 83:3 83:4 83:5 83:6 83:7 83:8 83:9 83:10 83:11 83:12
Y/Y % 8.9 9.1 9.4 9.6 9.2 9.0 9.1 9.0 8.9 8.8 8.9 9.1
84:1 84:2 84:3 84:4 84:5 84:6 84:7 84:8 84:9 84:10 84:11 84:12
Y/Y % 8.4 7.1 6.9 6.9 6.7 6.8 6.3 6.2 6.7 6.3 6.8 7.5
85:1 85:2 85:3 85:4 85:5 85:6 85:7 85:8 85:9 85:10 85:11 85:12
Y/Y % 8.1 8.4 8.7 8.5 8.4 8.7 8.9 9.1 9.0 9.2 9.1 9.2
86:1 86:2 86:3 86:4 86:5 86:6 86:7 86:8 86:9 86:10 86:11 86:12
Y/Y % 8.8 8.6 9.0 8.9 9.7 9.4 9.7 10.2 10.1 10.2 10.6 10.0
87:1 87:2 87:3 87:4 87:5 87:6 87:7 87:8 87:9 87:10 87:11 87:12
Y/Y % 10.8 10.9 10.3 10.7 10.2 9.8 9.5 9.1 9.0 9.2 8.1 7.8
88:1 88:2 88:3 88:4 88:5 88:6 88:7 88:8 88:9 88:10 88:11 88:12
Y/Y % 7.7 7.4 7.4 7.3 7.4 7.5 7.9 8.0 8.0 8.0 8.6 8.7
89:1 89:2 89:3 89:4 89:5 89:6 89:7 89:8 89:9 89:10 89:11 89:12
Y/Y % 8.4 8.5 8.5 8.2 7.9 8.1 8.3 8.3 8.7 8.9 8.9 9.7
90:1 90:2 90:3 90:4 90:5 90:6 90:7 90:8 90:9 90:10 90:11 90:12
Y/Y % 9.8 10.0 9.7 9.9 9.7 11.9 11.1 10.9 11.0 10.3 9.7 9.5
91:1 91:2 91:3 91:4 91:5 91:6 91:7 91:8 91:9 91:10 91:11 91:12
Y/Y % 8.7 8.2 8.6 8.4 8.5 5.9 5.9 5.7 5.2 4.8 5.2 4.2
92:1 92:2 92:3 92:4 92:5 92:6 92:7 92:8 92:9 92:10 92:11 92:12
Y/Y % 4.8 5.1 5.0 5.1 5.4 4.9 5.2 5.3 5.3 5.6 5.3 4.8
93:1 93:2 93:3 93:4 93:5 93:6 93:7 93:8 93:9 93:10 93:11 93:12
Y/Y % 4.7 4.4 4.3 4.2 4.3 4.6 4.2 3.9 3.8 3.9 3.7 4.3
94:1 94:2 94:3 94:4 94:5 94:6 94:7 94:8 94:9 94:10 94:11 94:12
Y/Y % 4.6 4.4 4.2 4.5 3.5 3.3 3.7 3.4 3.5 3.3 3.0 2.7
95:1 95:2 95:3 95:4 95:5 95:6 95:7 95:8 95:9 95:10 95:11 95:12
Y/Y % 2.3 2.3 2.2 1.9 2.4 2.8 2.8 3.1 3.4 3.0 3.5 4.5
96:1 96:2 96:3 96:4 96:5 96:6
Y/Y % 4.5 4.9 5.7 5.3 N/A N/A
</TABLE>
Source: ISI Inc.
4
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Interest Rate Outlook (concluded)
It is likely that individual commodity prices will show gains in
1996 due to specific supply/ demand situations, but we expect that the
entire basket of commodities will show only a modest increase. After a first
half rise that carried the Consumption Price Deflator (an indicator of
price changes and shifts in the GDP) into the 2.5% range, we expect inflation
to return to a low 1.5% rate later in 1996.
Interest Rates
The bond market has reacted to reports of stronger growth in early 1996 by
moving interest rates up 1%. The hike in rates is to prevent a return of
inflation. The interest rate sensitive areas of the economy, such as housing,
have already felt the effect of higher rates, and the refinancing of mortgages
has fallen sharply as rates have climbed. With the Prime Rate already at a high
8.25%, loans to small and mid-sized businesses seem likely to be affected by
cost pressure. The recent jump in rates is another force lowering second half
growth. As the economy slows, interest rates have room to fall from today's 7%
on long-term Treasuries to 6% by year-end.
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
andExchange Commission (SEC)requires that when we report such figures, we also
include the Fund's total return, 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
Fund's currently effective 4.50% maximum sales charge.
AVERAGE ANNUAL TOTAL RETURN
% Return with
Periods ended 3/31/96: Sales Charge
One Year 2.35%
Five Years 6.07%
Since Inception (10/23/90) 6.53%
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. Past performance
is not an indicator of future results.
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.
5
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Net Assets April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer S&P) (000) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
MUNICIPAL BONDS - 90.0%
General Obligation - 59.4%
Arlington, TX--Independent School District, 5.75%, 2021 Aaa/NR** $5,000 $4,870,700
Charlotte, NC:
5.00%, 2007 Aaa/AAA 2,000 1,983,440
5.00%, 2008 Aaa/AAA 1,500 1,473,870
5.30%, 2011 Aaa/AAA 1,590 1,563,876
5.30%, 2012 Aaa/AAA 1,120 1,094,990
5.30%, 2012 Aaa/AAA 2,325 2,273,083
5.80%, 2016 Aaa/AAA 2,500 2,544,050
Chicago, IL, 6.30%, 2009 Aa/AA 1,000 1,051,320
Dallas, TX, 5.00%, 2010 Aa1/AAA 1,750 1,654,713
Delaware State, Series "A", 5.125%, 2016 Aa1/AA+ 2,150 1,991,997
DuPage, IL, County Jail Project, 5.60%, 2021 Aaa/AAA 1,600 1,525,904
Florida Board of Education, Refunding Public Education:
6.125%, 2012 Aa/AA 2,250 2,312,888
5.75%, 2019 Aa/AA 2,000 1,945,140
5.50%, 2021 Aa/AA 2,000 1,890,820
5.125%, 2022 Aa/AA 5,000 4,414,600
Franklin County, OH:
5.45%, 2009 Aaa/AAA 1,500 1,507,935
5.50%, 2013 Aaa/AAA 1,000 985,550
Grand Prairie, TX--School District, 5.20%, 2018 Aaa/AAA 2,000 1,841,320
Henrico County, VA:
5.20%, 2007 Aaa/AAA 1,300 1,304,407
5.20%, 2008 Aaa/AAA 1,200 1,195,536
5.25%, 2009 Aaa/AAA 1,000 992,600
Maryland State & Local Facilities, Second Series, 5.125%, 2010 Aaa/AAA 3,000 2,891,910
Minneapolis, MN, Sports Arena:
5.00%, 2011 Aaa/AAA 1,710 1,609,931
5.00%, 2012 Aaa/AAA 1,920 1,793,357
Missouri State Building, Series "A", 5.00%, 2010 Aaa/AAA 2,000 1,904,000
Montgomery County, MD:
5.60%, 2004 Aaa/AAA 1,000 1,052,780
5.00%, 2009 Aaa/AAA 1,500 1,444,560
5.00%, 2010 Aaa/AAA 1,500 1,422,075
</TABLE>
6
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Net Assets (continued) April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer S&P) (000) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
General Obligation (continued)
Plano, TX--Independent School District, 5.00%, 2011 Aaa/AAA $3,000 $ 2,791,770
Portland, OR, Metro, 5.25%, 2007 Aa/AA+ 1,500 1,505,385
Salt Lake County, UT, 5.25%, 2010 Aaa/AA+ 2,000 1,946,540
South Carolina Capital Improvement:
5.25%, 2007 Aaa/AA+ 1,000 1,007,570
5.00%, 2009 Aaa/AA+ 2,700 2,603,151
State of Georgia, Series "D":
5.25%, 2009 Aaa/AA+ 1,580 1,563,521
5.00%, 2010 Aaa/AA+ 2,000 1,892,660
State of Tennessee:
Series "B", 6.00%, 2005 Aaa/AA+ 2,000 2,158,600
Series "A", 5.50%, 2009 Aaa/AA+ 1,535 1,555,231
Series "A", 5.55%, 2010 Aaa/AA+ 1,000 1,009,230
State of Texas:
5.25%, 2013 Aa/AA 3,250 3,096,535
6.00%, 2014 Aa/AA 2,000 2,002,620
75,670,165
Electric and Gas Utility Revenue - 7.6%
Jacksonville, FL, Electric Authority Revenue, St. John's River Power,
5.25%, 2028 Aa1/AA 2,000 1,771,160
Orlando, FL, Utility Commission, 5.125%, 2019 Aa1/AA 3,500 3,113,214
San Antonio, TX, Electric & Gas Revenue:
Series "A", 4.90%, 2008 Aa1/AA 4,000 3,778,720
Series "A", 6.50%, 2012 Aa1/AA 1,000 1,047,180
9,710,274
Prerefunded Issues - 9.7%
Arizona Transportation Board Highway, 6.00%, 2010 Aaa/AAA 3,480 3,695,551
Florida Board of Education, Refunding Public Education,
6.50%, 2012 Aaa/AA 2,500 2,751,725
Howard County, MD, Consolidated Public Improvements,
Series "A", 6.90%, 2002 Aaa/AAA 1,000 1,085,380
Jacksonville, FL, Electric Authority Revenue, Scherer 4-1-A,
6.75%, 2021 Aaa/AA 1,000 1,099,850
</TABLE>
7
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Net Assets (continued) April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer S&P) (000) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Prerefunded Issues (continued)
Lower Colorado River Authority, Jr. Lien, 4th Supply,
5.25%, 2015 Aaa/AAA $2,000 $ 1,892,840
State of Hawaii, General Obligation:
7.00%, 2006 Aaa/AA 750 817,193
6.125%, 2010 NR**/AA 1,000 1,068,880
12,411,419
Transportation Revenue - 7.1%
Florida Transportation Revenue, 5.80%, 2018 Aa/AA 2,000 1,987,480
Kansas Transportation Revenue:
5.40%, 2009 Aa/AA 2,000 1,992,160
5.40%, 2009 Aa/AA 2,500 2,490,200
Maryland State Department of Transportation, 5.375%, 2006 Aa/AA 1,500 1,526,985
Virginia State Transportation Authority, 6.00%, 2010 Aa/AA 1,000 1,012,500
9,009,325
Water and Sewer Utility Revenue - 3.3%
DuPage, IL, Water Commission, 5.25%, 2011 Aa/AA 2,500 2,382,724
Washington, MD, Suburban Sanitary District,
5.375%, 2010 Aa1/AA 1,810 1,786,886
4,169,610
Other Revenue - 2.9%
Indianapolis, IN, Local Public Improvement Board, 6.00%, 2018 Aaa/AA+ 1,500 1,501,860
University of Texas, 6.50%, 2011 Aaa/AA+ 2,000 2,194,820
3,696,680
Total Municipal Bonds
(Cost $115,411,958) 114,667,473
</TABLE>
8
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Net Assets (concluded) April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market
Par Value
Issuer (000) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT -- 8.9%
Goldman Sachs & Co., 5.20%
Dated 4/30/96, to be repurchased on 5/1/96,
collateralized by U.S. Treasury Notes with a market value of $11,572,805.
(Cost $11,458,000) $11,458 $ 11,458,000
Total Investment in Securities -- 98.9% 126,125,473
(Cost $126,869,958)(1)
Other Assets in Excess of Liabilities, Net -- 1.1% 1,348,173
Net Assets -- 100.0% $127,473,646
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($42,631,624 / 4,098,801 shares outstanding) $10.40
ISI Class Share
($84,842,022 / 8,159,166 shares outstanding) $10.40
Maximum Offering Price Per:
Flag Investors Class A Share
($10.40 / .955) $10.89
ISI Class Share
($10.40 / .9555) $10.88
</TABLE>
* The Moody's and Standard & Poor's ratings indicated are believed to be
the most recent ratings available as of April 30, 1996.
** Not rated.
(1) Also, aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
9
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Operations For the Six Months Ended April 30, 1996
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME (NOTE A):
Interest $ 3,507,219
EXPENSES:
Investment advisory fee (Note B) 263,244
Distribution fee (Note B) 164,527
Administration fees (Note B) 131,622
Transfer agent fees (Note B) 37,679
Accounting fee (Note B) 29,762
Legal 19,696
Custodian fees 18,200
Printing and postage 17,203
Registration fees (Note A) 14,843
Audit 13,472
Miscellaneous 7,332
Directors' fees 3,740
Insurance 2,399
Total expenses 723,719
Less:Fees waived (Note B) (131,425)
Net expenses 592,294
Net investment income 2,914,925
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions 300,853
Change in unrealized appreciation/(depreciation) of investments (2,794,325)
Net loss on investments (2,493,472)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 421,453
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
April 30, 1996 Ended
(Unaudited) October 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 2,914,925 $ 6,268,902
Net realized gain from security transactions 300,853 599,805
Change in appreciation/(depreciation) of investments (2,794,325) 12,223,598
Net increase in net assets resulting from operations 421,453 19,092,305
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Flag Investors Class A Shares (1,149,866) (2,270,726)
ISI Class Shares (2,199,628) (3,998,176)
Net realized short-term gains:
Flag Investors Class A Shares -- (267,415)
ISI Class Shares -- (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 (3,475,099) (8,117,407)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 5,716,686 11,188,171
Value of shares issued in reinvestment of dividends 1,968,281 4,794,976
Cost of shares repurchased (9,429,759) (28,195,599)
Decrease in net assets derived from capital share
transactions (1,744,792) (12,212,452)
Total decrease in net assets (4,798,438) (1,237,554)
NET ASSETS:
Beginning of period 132,272,084 133,509,638
End of period $127,473,646 $132,272,084
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each period)*
<TABLE>
<CAPTION>
For the Six
Months Ended
April 30, 1996 For the Year Ended October 31,
(Unaudited) 1995 1994 1993 1992
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36
Income from Investment Operations:
Net investment income 0.23 0.48 0.46 0.50 0.50
Net realized and unrealized gain/(loss)
on investments (0.20) 0.98 (1.15) 0.94 0.22
Total from Investment Operations 0.03 1.46 (0.69) 1.44 0.72
Less Distributions:
Dividends from net investment income
and short-term gains (0.27) (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 (0.28) (0.62) (0.60) (0.65) (0.77)
Net asset value at end of period $ 10.40 $ 10.65 $ 9.81 $ 11.10 $ 10.31
Total Return** 0.16% 15.42% (6.49)% 14.36% 6.06%
Ratios to Average Daily Net Assets:
Expenses(1) 0.90%(3) 0.90% 0.90% 0.90% 0.90%
Net investment income(2) 4.42%(3) 4.72% 4.37% 4.38% 4.78%
Supplemental Data:
Net assets at end of period:
Flag Investors Class A Shares $42,632 $45,980 $49,903 $53,486 $45,536
ISI Class Shares $84,842 $86,292 $83,607 $88,378 $51,420
Portfolio turnover rate 25% 55% 37% 68% 95%
</TABLE>
* Computed based upon average shares outstanding.
** Total return excludes the effect of sales charge.
(1) Without the waiver of advisory and administration fees (Note B), the ratio
of expenses to average daily net assets would have been 1.10% (annualized),
1.10%, 1.11%, 1.14%, and 1.27% for the six months ended April 30, 1996
and the years ended October 31, 1995, 1994, 1993, and 1992, respectively.
(2) Without the waiver of advisory and administration fees (Note B), the ratio
of net investment income to average daily net assets would have been
4.21% (annualized), 4.52%, 4.16%, 4.14%, and 4.41% for the six months ended
April 30, 1996 and the years ended October 31, 1995, 1994, 1993, and 1992,
respectively.
(3) Annualized.
See accompanying Notes to Financial Statements.
12
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Notes to Financial Statements
A. 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. At April 30, 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:
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.
Repurchase Agreements - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will
be required on a daily basis to maintain the value of the securities subject
to the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book-entry system.
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.
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.
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.
13
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Notes to Financial Statements (continued)
B. Investment Advisory Fees, 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 average daily net assets of Flag
Investors Class A and ISI Class Shares. For the six months ended April 30,
1996, ISI and ICC waived fees of $86,397 and $45,028, 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. ICC received $29,762 for accounting services for the six
months ended April 30, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC received $37,679
for transfer agent services for the six months ended April 30, 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 equal to .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 the annual rate of .25% of
the average daily net assets of the Flag Investors Class A Shares. For the
six months ended April 30, 1996, distribution fees were $164,527, of which
$108,116 were allocated to ISI Class Shares and $56,411 were allocated
to Flag Investors Class A Shares.
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 six months ended April 30, 1996 was $1,307.
C. 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 Six
Months Ended For the Year
April 30, 1996 Ended
(Unaudited) Oct. 31, 1995
Shares sold 71,274 323,698
Shares issued to share-
holders on reinvest-
ment of dividends 58,883 161,945
Shares redeemed (348,226) (1,256,958)
Net decrease in shares
outstanding (218,069) (771,315)
Proceeds from sale
of shares $ 759,966 $ 3,206,244
Reinvested dividends 627,364 1,628,993
Net asset value of
shares redeemed (3,704,961) (12,775,509)
Net decrease from
capital share
transactions $(2,317,631) $ (7,940,272)
14
<PAGE>
[Flag Investors Logo]
MANAGED MUNICIPAL FUND
Notes to Financial Statements (concluded)
ISI Class Shares
---------------------------------------
For the Six
Months Ended For the Year
April 30, 1996 Ended
(Unaudited) Oct. 31, 1995
Shares sold 465,949 794,506
Shares issued to share-
holders on reinvest-
ment of dividends 125,883 314,194
Shares redeemed (536,175) (1,531,414)
Net increase/(decrease)
in shares outstanding 55,657 (422,714)
Proceeds from sale
of shares $ 4,956,720 $ 7,981,927
Reinvested dividends 1,340,916 3,165,983
Net asset value of
shares redeemed (5,724,798) (15,420,090)
Net increase/(decrease)
from capital share
transactions $ 572,838 $ (4,272,180)
D. Investment Transactions - Purchases and sales of investment securities, other
than short-term obligations, aggregated $29,342,146 and
$30,105,573, respectively, for the six months ended April 30, 1996.
At April 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$1,552,188 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $2,296,673.
E. Net Assets - At April 30, 1996, net assets consisted of:
Paid-in capital:
Flag Investors
Class A Shares $ 41,831,800
ISI Class Shares 85,783,500
Undistributed net realized
gain from security
transactions 1,601,305
Overdistribution of net
investment income (998,474)
Unrealized depreciation of
investments (744,485)
$127,473,646
15
