<PAGE>
As Filed With the Securities and Exchange Commission on February 26, 1997
Registration No. 33-32819
811-6023
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 11 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 13 [x]
MANAGED MUNICIPAL FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
717 Fifth Avenue
New York, New York 10022
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
One South Street
Baltimore, Maryland 21202
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(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on March 1, 1997 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on [Date] pursuant to paragraph (a)(2) of Rule 485.
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<S> <C> <C> <C> <C>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
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Shares of 1,660,848 shares $10.69 $0
Common Stock
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</TABLE>
(1) Registrant has calculated the maximum aggregate offering price
pursuant to Rule 24e-2 under the Investment Company Act of 1940
(the "1940 Act") for its fiscal year ended October 31, 1996.
Registrant had actual aggregate redemptions of 1,660,848 shares
for its fiscal year ended October 31, 1996. Because of credits
for prior net redemptions, Registrant has used no available
redemptions for reductions pursuant to Rule 24f-2(c) under the
1940 Act and has previously used no available redemptions for
reductions pursuant to Rule 24e-2(a) of the 1940 Act during the
current year. Registrant elects to use redemptions in the
aggregate amount of 1,660,848 shares for reductions in its
current amendment.
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Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ended October 31,
1996 was filed with the Commission on December 20, 1996.
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<PAGE>
MANAGED MUNICIPAL FUND, INC.
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
February 26, 1997
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
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<S> <C> <C>
Part A - Information Required in a Prospectus
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Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator; Distributor;
Custodian, Transfer
Agent and Accounting
Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in the
Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1996
Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
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<S> <C> <C>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information and
History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities....................................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares; Semi-
Annual Reports
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.......................................................... Valuation of Shares and
Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
</TABLE>
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
<PAGE>
LOGO
FLAG INVESTORS
MANAGED MUNICIPAL FUND CLASS A SHARES
(A Class of Managed Municipal Fund, Inc.)
Prospectus & Application -- March 1, 1997
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Managed Municipal Fund, Inc. (the "Fund") is designed to provide a high level
of total return with relative stability of principal and, secondarily, high
current income exempt from federal income tax through investment in a
portfolio consisting primarily of tax-free municipal obligations. To achieve
this objective, the Fund invests primarily in municipal obligations rated
within the three highest rating categories of Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group.
Flag Investors Class A Shares of the Fund ("Class A Shares") are available
through Alex. Brown & Sons Incorporated, the distributor of the Class A Shares
(the "Distributor"), as well as Participating Dealers and Shareholder Servicing
Agents. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated March 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is incorporated herein
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
No person has been authorized to give any information or to make
representations not contained in this Prospectus and, if given or made, such
information must not be relied upon as having been authorized by the Fund or
the Distributor.
TABLE OF CONTENTS
Fund Expenses ........................................................ 2
Financial Highlights ................................................. 3
Investment Program ................................................... 4
Investment Restrictions .............................................. 6
How to Invest in the Fund ............................................ 7
How to Redeem Shares ................................................. 9
Telephone Transactions ............................................... 10
Dividends and Taxes .................................................. 11
Management of the Fund ............................................... 12
Investment Advisor ................................................... 12
Administrator ........................................................ 13
Distributor .......................................................... 13
Custodian, Transfer Agent and
Accounting Services ............................................... 13
Performance Information .............................................. 14
General Information .................................................. 14
Application .......................................................... A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[This page intentionally left blank]
<PAGE>
FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............. 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) ... None
Maximum Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) ................................................ 0.50%*
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ..................................................... .25%**
12b-1 Fees ............................................................................... .25%
Other Expenses (net of fee waivers) ...................................................... .40%
----------
Total Fund Operating Expenses (net of fee waivers) ....................................... .90%**
==========
</TABLE>
- ------
* Purchases of $1 million or more by persons not otherwise eligible for
sales load waivers are not subject to an initial sales charge, however, a
contingent deferred sales charge of .50% may be imposed upon redemption.
(See "How to Invest in the Fund -- Offering Price.")
** The Fund's investment advisor and administrator intend, but are not
obligated, to waive their fees proportionately, to the extent required, so
that Total Fund Operating Expenses do not exceed .90% of the Fund's
average daily net assets. Absent fee waivers, Management Fees would be
.40%, Other Expenses (including administration fees) would be .48%, and
Total Fund Operating Expenses would be 1.13%, respectively, of the Fund's
average daily net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
--------- ----------- ----------- ------------
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the
end of each time period:* ................................ $54 $72 $93 $151
</TABLE>
- ------
* The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Class A Shares through a financial institution may be
charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund -- Offering Price", "Investment Advisor", "Administrator" and
"Distributor.") The Expenses and Example appearing in the table above are
based on the Fund's expenses for the fiscal year ended October 31, 1996.
The rules of the SEC require that the maximum sales charge (in the Class A
Shares' case, 4.50% of the offering price) be reflected in the above table.
However, certain investors may qualify for reduced sales charges. (See "How
to Invest in the Fund -- Offering Price".) Due to the continuous nature of
Rule 12b-1 fees, long-term shareholders of the Fund may pay more than the
equivalent of the maximum front-end sales charges permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc.
1
<PAGE>
FINANCIAL HIGHLIGHTS
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The Fund was organized as a corporation under the laws of the State of
Maryland on January 5, 1990 and commenced operations on February 26, 1990.
The Fund commenced offering the Class A Shares on October 23, 1990. The Fund
has offered another class of shares (ISI Class Shares) since February 26,
1990. The financial highlights included in this table are a part of the
Fund's financial statements for the periods indicated and have been audited
by Coopers & Lybrand L.L.P., the Fund's independent accountants. The
financial statements and financial highlights for the fiscal year ended
October 31, 1996 and the report thereon of Coopers & Lybrand L.L.P. are
included in the Statement of Additional Information. Additional performance
information is contained in the Fund's Annual Report for the fiscal year
ended October 31, 1996, which can be obtained at no charge by calling the
Fund at (800) 767-FLAG.
(For a Share outstanding throughout each period)*
==============================================================================
<TABLE>
<CAPTION>
For the
Period
February 26,
1990
Year Ended October 31, through
---------------------------------------------------------------------- October 31,
1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ......................... $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36 $ 9.99 $ 10.00
--------- --------- --------- --------- --------- --------- -------------
Income from Investment
Operations:
Net investment income ............. 0.48 0.48 0.46 0.50 0.50 0.57 0.38
Net realized and unrealized
gain/(loss) on investments ..... -- 0.98 (1.15) 0.94 0.22 0.49 (0.02)
--------- --------- --------- --------- --------- --------- -------------
Total from Investment Operations .. 0.48 1.46 (0.69) 1.44 0.72 1.06 0.36
--------- --------- --------- --------- --------- --------- -------------
Less Distributions:
Distributions from net investment
income and net realized
short-term gains ............... (0.54) (0.54) (0.56) (0.61) (0.65) (0.69) (0.37)
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) (0.69) (0.37)
--------- --------- --------- --------- --------- --------- -------------
Net asset value at end of period .. $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36 $ 9.99
========= ========= ========= ========= ========= ========= =============
Total Return:(1)
Flag Investors Class A Shares ..... 4.67% 15.42% (6.49)% 14.36% 6.06% 10.85% 1.21%(2)
ISI Class Shares .................. 4.67% 15.42% (6.49)% 14.36% 6.06% 10.85% 3.78%
Ratios to Average Daily Net Assets:
Expenses(4) ....................... 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%(3)
Net investment income(5) .......... 4.48% 4.72% 4.37% 4.38% 4.78% 5.57% 6.12%(3)
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares .. $41,193 $45,980 $49,903 $53,486 $45,536 $38,491 $ 5,698
ISI Class Shares ............... $84,712 $86,292 $83,607 $88,378 $51,420 $20,053 $17,290
Portfolio turnover rate ........... 32% 55% 37% 68% 95% 86% 99%
===============================================================================================================================
</TABLE>
* Computed based upon average shares outstanding.
1 Total return excludes the effect of sales charge.
2 Flag Investors Class A Shares commenced operations on October 23, 1990.
3 Annualized.
4 Without the waiver of advisory and administration fees, the ratio of
expenses to average net assets would have been 1.13%, 1.10%, 1.11%, 1.14%,
1.27%, 1.47% and 1.92% for the periods ended October 31, 1996, 1995, 1994,
1993, 1992, 1991 and 1990, respectively.
5 Without the waiver of advisory and administration fees, the ratio of net
investment income to average net assets would have been 4.25%, 4.52%, 4.16%,
4.14%, 4.41%, 4.99% and 5.11% for the periods ended October 31, 1995, 1994,
1993, 1992, 1991 and 1990, respectively.
2
<PAGE>
INVESTMENT PROGRAM
===============================================================================
INVESTMENT OBJECTIVE, POLICIES AND RISK
CONSIDERATIONS
The investment objective of the Fund is a high level of total return with
relative stability of principal, and secondarily, high current income exempt
from federal income tax through investment in a portfolio consisting
primarily of tax-free municipal obligations ("Municipal Obligations").
Municipal Obligations include securities of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, the interest on which
is exempt from federal income tax in the opinion of bond counsel for the
issuer. Under normal market conditions, the Fund will invest at least 80% of
its net assets in Municipal Obligations. This policy is fundamental and may
be changed only by a majority vote of shareholders. The Fund does not
currently intend to acquire Municipal Obligations that are subject to
alternative minimum tax but may so invest up to 20% of its net assets. There can
be no assurance that the Fund will achieve its investment objective.
The Fund will invest at least 75% of its portfolio of Municipal
Obligations in securities rated, on the date of investment, A1 or higher (in
the case of municipal bonds) and higher than MIG 3 (in the case of municipal
notes) by Moody's Investors Service, Inc. ("Moody's") or rated A+ or higher
(in the case of municipal bonds) and higher than SP-2 (in the case of
municipal notes) by Standard & Poor's Ratings Group ("S&P") or, if unrated,
of comparable quality as determined by the Fund's investment advisor under
criteria approved by the Board of Directors. The Fund may invest up to 25% of
its portfolio of Municipal Obligations in securities rated A (in the case of
municipal bonds) or MIG 3 (in the case of municipal notes) by Moody's or
rated A (in the case of municipal bonds) or SP-2 (in the case of municipal
notes) by S&P or, if unrated, of comparable quality as determined by the
investment advisor under criteria approved by the Board of Directors.
Even under normal circumstances the Fund may invest to a limited extent in
taxable obligations depending on market conditions. These obligations may
include U.S. Government and agency, bank and corporate securities and
repurchase agreements collateralized by such securities. For temporary
defensive purposes, the Fund may invest without limit in short-term
obligations of these types. The Fund may also invest in financial futures,
"when-issued" securities, standby commitments of brokers, dealers or banks
and variable and floating rate demand obligations. These investment
practices, which may involve certain special risks, are described below. The
Fund's investment objective may be changed only by the affirmative vote of a
majority of the outstanding shares of all classes of the Fund.
SELECTION OF INVESTMENTS
The Fund's investment advisor (the "Advisor" -- see "Investment Advisor")
buys and sells securities for the Fund's portfolio with a view toward, first, a
high level of total return with relative stability of principal and, second,
high current income that is federally tax exempt. Therefore, in addition to
yield, the potential for capital gains and appreciation resulting from possible
changes in interest rates will be a consideration in selecting investments.
While income distributions to shareholders will generally be tax exempt,
distributions of capital gains will be taxable. Accordingly, to the extent the
Fund achieves its investment objective, a larger portion of its distribution
will be taxable than would be the case if the Fund placed a greater emphasis on
earning tax exempt income. (See "Investment Program -- Taxable Investments" and
"Dividends and Taxes -- Tax Treatment of Dividends and Distributions.") The
Advisor will be free to take full advantage of the entire range of maturities
offered by Municipal Obligations and may adjust the average maturity of the
Fund's portfolio from time to time, depending on its assessment of the relative
yields available on securities of different maturities and its expectations of
future changes in interest rates. Thus, at certain times the average maturity of
the portfolio may be relatively short (under five years, for example) and at
other times may be relatively long (in the 20-30 year range, for example). In
determining which direction interest rates are likely to move, the Advisor
relies on the economic analysis made by its chairman, Edward S. Hyman. There is
no assurance that such economic analysis will accurately predict interest rate
trends or that the portfolio strategies based on Mr. Hyman's economic analysis
will be effective.
SPECIAL RISK CONSIDERATIONS
As with other debt securities, the value of Municipal Obligations changes
as interest rates fluctuate. Changes in the value of portfolio securities
will not affect interest income from those securities but will be reflected
in the Fund's net asset value. Thus, a decrease in interest rates will
generally result in an increase in the value of the Shares. Conversely,
during periods of rising interest rates, the value of the Shares
3
<PAGE>
will generally decline. The magnitude of these fluctuations will generally be
greater at times when the average maturity of the Fund's portfolio securities
is longer.
PURCHASE OF WHEN-ISSUED SECURITIES
New issues of Municipal Obligations are usually offered on a when-issued
basis, which means that delivery and payment for such Municipal Obligations
normally take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on a when-issued security are fixed at the time the purchase commitment is
entered into, although no interest on such security accrues to the Fund prior
to payment and delivery. A segregated account of the Fund consisting of cash
or liquid securities equal at all times to the amount of the when-issued
commitments will be established and maintained by the Fund at the Fund's
custodian. While the Fund will purchase securities on a when-issued basis
only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable to limit the
effects of adverse market action. The value of securities so purchased or
sold is subject to market fluctuation. The Fund will ordinarily invest no
more than 40% of its net assets at any time in Municipal Obligations
purchased on a when-issued basis.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a broker,
dealer or bank is obligated to repurchase, at the Fund's option, specified
securities in the Fund's portfolio at a specified price. In this respect,
stand-by commitments are comparable to put options and thus the Fund's
ability to enforce such obligations is subject to the risk that the seller of
the commitment may default on its obligations. The Fund will acquire stand-by
commitments as a means of changing the average maturity of its portfolio in
response to expected changes in market interest rates.
The Fund anticipates that stand-by commitments will generally be available
from brokers, dealers and banks without the payment of any direct or indirect
consideration, but the Fund may have to pay for stand-by commitments, thus
increasing the cost of acquiring and holding the underlying security and
similarly decreasing such security's yield. Gains realized in connection with
stand-by commitments will be taxable.
VARIABLE AND FLOATING RATE DEMAND
OBLIGATIONS
The Fund may purchase floating and variable rate demand notes and bonds,
which are tax-exempt obligations normally having stated maturities in excess of
one year, but which permit the holder to demand payment of principal either at
any time or at specified intervals. The interest rates on these obligations
fluctuate from time to time in response to changes in the market interest rates.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Each demand note and bond purchased by
the Fund will meet the quality criteria established for the purchase of other
Municipal Obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. The Fund will
not invest more than 10% of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on less than
seven days' notice if there is no secondary market available for these
obligations.
<PAGE>
FUTURES CONTRACTS
The Fund may purchase and sell U.S. exchange traded futures contracts on
bond indices ("Futures Contracts"). At the same time a Futures Contract is
purchased or sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). The initial deposit varies but may be as low as
5% or less of the value of the contract. Daily thereafter, the Futures
Contract is valued and the payment of "variation margin" may be required, so
each day the Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
These instruments will be used only to protect against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely
4
<PAGE>
affect the prices of securities which the Fund intends to purchase at a later
date. Should interest rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of the Futures Contract and may realize a
loss on the Futures Contract in excess of any corresponding gain in the
hedged portfolio positions. Futures transactions involve other risks as well.
For example, a lack of correlation between the index and the assets being
hedged, or unexpected adverse price movements, could render the Fund's
hedging strategy unsuccessful and could result in losses on the Futures
Contract in excess of any corresponding gain in the hedged portfolio
positions. In addition, there can be no assurance that a liquid secondary
market will exist for any Futures Contract purchased or sold, and the Fund
may be required to maintain a position until exercise or expiration, which
could result in losses on the Futures Contract in excess of any corresponding
gain in the hedged portfolio positions.
Regulations of the Commodity Futures Trading Commission (the "CFTC")
permit the use of futures transactions for bona fide hedging purposes without
regard to the percentage of assets committed to futures margin and options
premiums. In addition, CFTC regulations also allow funds to employ futures
transactions for other "non-hedging" purposes to the extent that aggregate
initial futures margins and options premiums do not exceed 5% of total
assets. In addition, the Fund will not enter into Futures Contracts if
obligations under all Futures Contracts would amount to more than 30% of its
total assets.
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury Securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. U.S. Treasury Securities are direct obligations of the U.S.
Government and are supported by the full faith and credit of the United
States. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
TAXABLE INVESTMENTS
From time to time, the Fund may invest in securities, the interest on
which is subject to federal income tax. The Fund may make such investments
(a) pending investment of proceeds from sales of Fund shares or portfolio
securities in tax-exempt securities, (b) pending settlement of purchases of
portfolio securities, (c) to maintain liquidity for meeting anticipated
redemptions, or (d) when in the Advisor's opinion it is advisable because of
adverse conditions affecting the market for Municipal Obligations. The
taxable investments in which the Fund may invest consist of U.S. Treasury
Securities and repurchase agreements fully collateralized by U.S. Treasury
Securities (collectively, the "Taxable Investments"). The Fund may invest up
to 20% of its net assets in Taxable Investments. The Fund may earn taxable
income from other sources. Dividends paid by the Fund that are attributable
to interest earned from Taxable Investments and to taxable income from other
investments will be taxable to investors. (See "Dividends and Taxes -- Tax
Treatment of Dividends and Distributions.")
SIZE OF FUND
The Fund currently intends to limit the size of the Fund and to accept
share purchases only from existing shareholders at such time as the assets of
the Fund are in excess of $200 million but less than $250 million, and
thereafter not to accept any share purchases other than dividend
reinvestments.
<PAGE>
INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will
not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for this purpose, the U.S. Government or any state or
local government or their agencies and instrumentalities are not
considered to be an industry);
2) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for this purpose, the U.S.
Government or its agencies and instrumentalities are not considered to be
an issuer and, in the case of Municipal Obligations, the public or private
entity ultimately responsible for payment of principal and interest on the
security is considered to be the issuer);
3) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time
5
<PAGE>
of such borrowing, provided that, while borrowings by the Fund equalling
5% or more of the Fund's total assets are outstanding, the Fund will not
purchase securities; or
4) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements with maturities of greater than seven days and
floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
HOW TO INVEST IN THE FUND
==============================================================================
Class A Shares may be purchased from the Distributor through any securities
dealer which has entered into a dealer agreement with the Distributor
("Participating Dealers") or through any financial institution which has entered
into a shareholder servicing agreement with the Fund ("Shareholder Servicing
Agents"). Class A Shares may also be purchased by completing the Application
Form attached to this Prospectus and returning it, together with payment of the
purchase price, to the address shown on the Application Form.
The minimum initial investment is $2,000, except that the minimum initial
investment for shareholders of any other Flag Investors fund or class is $500
and the minimum initial investment for participants in the Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100,
except that the minimum subsequent investment under the Fund's Automatic
Investing Plan is $250 for quarterly investments and $100 for monthly
investments. (See "Purchases Through Automatic Investing Plan" below.)
The Fund reserves the right to suspend the sale of Class A Shares at any time
at the discretion of the Distributor. Orders for purchases of Class A Shares are
accepted on any day on which the New York Stock Exchange is open for business
("a Business Day"). Purchase orders for Class A Shares will be executed at a per
share purchase price equal to the net asset value next determined after receipt
of the purchase order plus any applicable front-end sales charge (the "Offering
Price") on the date such net asset value is determined (the "Purchase Date").
Purchases made by mail must be accompanied by payment of the Offering Price.
Purchases made through the Distributor or a Participating Dealer or Shareholder
Servicing Agent must be in accordance with such entity's payment procedures. The
Distributor may, in its sole discretion, refuse to accept any purchase order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing its share of the Fund's assets, deducting all liabilities
attributable to that class, and dividing the resulting amount by the number
of then outstanding shares of the class. For this purpose, portfolio
securities are given their market value where feasible based on quotations
furnished by a pricing service approved by the Board of Directors. Options
and futures are valued at the settlement price, or if no sales are reported,
at the average of the last reported bid and asked prices. Securities or other
assets for which market quotations are not readily available are valued at
their fair value as determined in good faith under procedures established
from time to time and monitored by the Fund's Board of Directors. Debt
obligations with maturities of 60 days or less are valued at amortized cost
which constitutes fair value as determined by the Fund's Board of Directors.
<PAGE>
OFFERING PRICE
Class A Shares may be purchased from the Distributor, Participating Dealers
or Shareholder Servicing Agents at the Offering Price, which includes a sales
charge which is calculated as a percentage of the Offering Price and decreases
as the amount of purchase increases, as shown below:
<TABLE>
<CAPTION>
Sales Charge
as Percentage of Dealer
------------------------------ Retention
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than$ 50,000 ....... 4.50% 4.71% 4.00%
$ 50,000 - $ 99,999 ... 3.50% 3.63% 3.00%
$ 100,000 - $249,999 ... 2.50% 2.56% 2.00%
$ 250,000 - $499,999 ... 2.00% 2.04% 1.50%
$ 500,000 - $999,999 ... 1.50% 1.52% 1.25%
$1,000,000 and over ..... None* None* None*
- ------------------------------------------------------------------------------
</TABLE>
- ------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The Distributor may make payments to dealers in
the amount of .50% of the Offering Price.
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
accumulation. In
6
<PAGE>
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Class A Shares and purchases
of shares of other Flag Investors funds with the same sales charge and
purchases of Class A shares of Flag Investors Short-Intermediate Income Fund,
Inc. (formerly Flag Investors Intermediate-Term Income Fund, Inc.) and Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc. (the "Intermediate
Funds"). The applicable sales charge will be determined based on the total of
(a) the shareholder's current purchase plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of all Class A Shares
and of all Flag Investors shares described above and any Flag Investors Class
D shares held by the shareholder. To obtain the reduced sales charge through
a right of accumulation, the shareholder must provide the Distributor, either
directly or through a Participating Dealer or Shareholder Servicing Agent, as
applicable, with sufficient information to verify that the shareholder has
such a right. The Fund may amend or terminate this right of accumulation at
any time as to subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing Class A Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated on the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is 5% of the full amount.
Shares purchased with the first 5% of the full amount will be held in escrow
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased
if the full amount indicated is not invested. Such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrowed shares will be
released. An investor who wishes to enter into a Letter of Intent in
conjunction with an investment in Class A Shares may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge may be imposed on such investments in the event of a redemption within
24 months following the purchase, at the rate of .50% on the lesser of the
value of the Class A Shares redeemed or the total cost of such shares. No
contingent deferred sales charge will be imposed on purchases of $3 million
or more of Class A Shares redeemed within 24 months of purchase if the
Participating Dealer and the Distributor have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
Class A Shares not subject to such charge are the first redeemed followed by
other Class A Shares held for the longest period of time.
The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing Class A
Shares on behalf of their fiduciary and advisory clients, provided such
clients have paid an account management fee for these services (investors may
be charged a fee if they effect transactions in Fund shares through a broker
or agent); (ii) participants in a Flag Investors fund payroll savings plan
program; (iii) investors who have redeemed Class A Shares, or Class A shares
of any other mutual fund in the Flag Investors family of funds with the same
sales charges, or who have redeemed Class A shares of the Intermediate Funds
which they had held for at least 24 months prior to redemption, in an amount
that is not more than the total redemption proceeds, provided that the
purchase is within 90 days after the redemption; and (iv) current or retired
Directors of the Fund and directors and employees (and their immediate
families) of the Advisor, the Distributor, Participating Dealers and their
respective affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact the
Distributor or a Participating Dealer or Shareholder Servicing Agent.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds that have the same sales load
structure may exchange their Class A shares of those funds for an equal
dollar amount of Class A Shares. Except as provided below, Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge. In addition, shareholders of Class A
shares of the Intermedi-
7
<PAGE>
ate Funds may exchange into Class A Shares upon payment of the difference in
sales charges, as applicable, except that the exchange will be made at net
asset value if the shares of such funds have been held for more than 24
months. Shareholders of Flag Investors Cash Reserve Prime Class A Shares may
also exchange into Class A Shares upon payment of the difference in sales
charges, as applicable.
When a shareholder acquires Class A Shares through an exchange from
another fund in the Flag Investors family of funds, the Fund will combine the
period for which the original shares were held prior to the exchange with the
holding period of the Class A Shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time). Exchange requests received after 4:00 p.m. (Eastern Time) or the close
of the New York Stock Exchange, whichever is earlier, will be effected on the
next Business Day.
Shareholders of any mutual fund not affiliated with the Fund who have paid
a sales charge may exchange shares of such fund for an equal dollar amount of
Class A Shares by submitting to the Distributor or a Participating Dealer the
proceeds of the redemption of such shares, together with evidence of the
payment of a sales charge and the source of such proceeds. Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.) The Fund may
modify or terminate this offer of exchange at any time upon 60 days' prior
written notice to the shareholder.
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Class A Shares regularly by means of an
Automatic Investing Plan with a pre-authorized check drawn on their checking
accounts. Under this plan, the shareholder may elect to have a specified
amount invested monthly or quarterly in Class A Shares. The amount specified
will be withdrawn from the shareholder's checking account using the
pre-authorized check and will be invested in Class A Shares at the applicable
Offering Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by
the Fund or the shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investing Plan or
who wishes to obtain additional purchase information may do so by completing
the appropriate section of the Application Form attached to this Prospectus.
PURCHASES THROUGH DIVIDEND REINVESTMENT
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Class A Shares.
Unless the shareholder elects otherwise, all income dividends and capital
gains distributions will be reinvested in additional Class A Shares at net
asset value, without a sales charge. Shareholders may elect to terminate
automatic reinvestment by giving written notice to the Fund's transfer agent
(the "Transfer Agent") (see "Custodian, Transfer Agent and Accounting
Services"), either directly or through their Participating Dealer or
Shareholder Servicing Agent, at least five days before the next date on which
dividends or distributions will be paid.
Alternately, shareholders may have their distributions invested in Class A
shares of other funds in the Flag Investors family of funds. Shareholders who
are interested in this option should call the Transfer Agent for additional
information.
HOW TO REDEEM SHARES
==============================================================================
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem Class A Shares by telephone (in
amounts up to $50,000). (See "Telephone Transactions" below.) A redemption
order is effected at the net asset value per share (reduced by any applicable
contingent deferred sales charge) next determined after receipt of the order
(or, if stock certificates have been issued for the Class A Shares to be
redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. Payment for
redeemed Class A Shares will be made by check and will be mailed within seven
days after receipt of a duly authorized telephone redemption request or of a
redemption order fully completed and, as applicable, accompanied by the
documents described below:
8
<PAGE>
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer or Shareholder Servicing Agent, if applicable, and
the number of Class A Shares or dollar amount to be redeemed, signed by
all owners of the Class A Shares in the exact names in which their account
is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Class A Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for Class
A Shares to be redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Class A Shares will be
paid on the next dividend payable date. If all of the Class A Shares in a
shareholder's account have been redeemed on a dividend payable date, the
dividend will be remitted by check to the shareholder.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares having a value of $10,000 or more may
arrange to have a portion of their Class A Shares redeemed monthly or
quarterly under the Fund's Systematic Withdrawal Plan. Such payments are
drawn from income dividends, and, to the extent necessary, from share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of Class A Shares. A shareholder who wishes to participate in the
Systematic Withdrawal Plan may do so by completing the appropriate section of
the Application Form attached to this Prospectus.
TELEPHONE TRANSACTIONS
==============================================================================
Shareholders may exercise the exchange privilege with respect to other Flag
Investors funds, or redeem Class A Shares in amounts up to $50,000, by notifying
the Transfer Agent by telephone on any Business Day between the hours of 8:30
a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its address
listed under "Custodian, Transfer Agent and Accounting Services." Telephone
transaction privileges are automatic. Shareholders may specifically request that
no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred
sales charge on redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. If
these procedures are employed, neither the Fund nor the Transfer Agent will
be responsible for any loss, liability, cost or expense for following
instructions received by telephone that either of them reasonably believes to
be genuine. During periods of extreme economic or market changes,
shareholders may experience difficulty in effecting telephone transactions.
In such event, requests should be made by regular or express mail. Class A
Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund -- Purchases by Exchange" and "How
to Redeem Shares.")
9
<PAGE>
DIVIDENDS AND TAXES
==============================================================================
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends. The Fund may
distribute to shareholders any net capital gains (the excess of net long-term
capital gains over net short-term capital losses) on an annual basis or,
alternatively, may elect to retain such net capital gains and pay tax
thereon.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As long as the Fund qualifies for this tax
treatment, it will be relieved of federal income tax on amounts distributed
to shareholders. The Fund also intends to make sufficient distributions prior
to the end of each calendar year to avoid liability for federal excise tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from federal income
tax.
As long as this and certain other requirements are met, dividends derived
from the Fund's net tax-exempt interest income will be "exempt-interest
dividends" that are excluded from the gross income of the Fund's shareholders
for federal income tax purposes. Exempt-interest dividends may, however,
have collateral federal income tax consequences, including alternative
minimum tax consequences. Furthermore, the Fund may not be an appropriate
investment for persons who are "substantial users" of facilities financed
with industrial development bonds or private activity bonds (or related
parties to "substantial users"). (See the Statement of Additional
Information.)
Current federal tax law limits the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Fund to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirements for the payment of exempt
interest dividends.
Distributions to shareholders of net investment income of the Fund that is
not tax-exempt interest and of net short-term capital gains of the Fund will
be taxable to shareholders as ordinary income, whether such distributions are
received in cash or in additional Class A Shares.
Distributions to shareholders of net capital gains of the Fund are taxable
to shareholders as long-term capital gains, whether received in cash or
additional Class A Shares, and regardless of how long a shareholder has held
the shares. Shareholders will be advised annually as to the federal income
tax status of distributions made during the year.
Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in one year, but paid in the following year, will be
deemed for tax purposes to have been received by the shareholders and paid by
the Fund in the year in which the dividends were declared.
The sale, exchange or redemption of Class A Shares is a taxable event for
the shareholder.
<PAGE>
Any gain or loss recognized on a sale, exchange or redemption of Class A
Shares by a shareholder who is not a dealer in securities will generally be
treated as a long-term capital gain or loss if the Class A Shares have been
held for more than twelve months and otherwise will be generally treated as a
short-term capital gain or loss. Any loss recognized by a shareholder upon
the sale or redemption of Class A Shares held for six months or less,
however, will be disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such Shares. If Class A Shares on
which a capital gains distribution has been received are subsequently sold or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long term capital loss to the extent of the
capital gains distribution.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry Class A Shares will not be deductible for federal income tax
purposes.
The Fund may not be a suitable investment for tax-exempt shareholders and
plans, because such shareholders and plans would not gain any additional
benefit from the receipt of exempt-interest dividends.
10
<PAGE>
Shareholders are encouraged to consult with their tax advisors concerning
the application of the rules set forth above to their particular
circumstances and the application of state and local taxes to an investment
in the Fund.
MANAGEMENT OF THE FUND
==============================================================================
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributors, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Distributor, to the Advisor and to the Fund's
administrator. Three Directors and all of the officers of the Fund are officers
or employees of the Distributor, the Advisor or the Fund's administrator. The
other Directors of the Fund have no affiliation with the Distributor, the
Advisor or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman Edward J. Veilleux Vice President
Richard T. Hale Vice Chairman Scott J. Liotta Vice President
R. Alan Medaugh Director and Nancy Lazar Vice President
President Carrie L. Butler Vice President
James J. Cunnane Director Joseph A. Finelli Treasurer
John F. Kroeger Director Edward J. Stoken Secretary
Louis E. Levy Director Laurie D. Collidge Assistant
Eugene J. McDonald Director Secretary
INVESTMENT ADVISOR
===============================================================================
International Strategy and Investment Inc. ("ISI" or the "Advisor"), a
registered investment advisor, serves as investment advisor to the Fund pursuant
to an investment advisory agreement dated as of April 1, 1991. ISI employs
Messrs. Edward S. Hyman and R. Alan Medaugh. Due to their stock ownership,
Messrs. Hyman and Medaugh may be deemed to be controlling persons of ISI. As of
December 31, 1996, the Advisor had approximately $1 billion under management
representing both tax-free and taxable accounts. The Advisor also acts as
investment advisor to Total Return U.S. Treasury Fund, Inc. and North American
Government Bond Fund, Inc., open-end investment companies with approximately
$385 million of aggregate net assets as of December 31, 1996.
For the fiscal year ended October 31, 1996, ISI received a fee (net of fee
waivers) equal to .25% of the Fund's average daily net assets. ISI and the
Fund's administrator, have voluntarily agreed to reduce proportionately their
respective annual fees if necessary, so that the Fund's annual expenses do
not exceed .90% of its average daily net assets. (See "Fund Expenses.")
The address of the Advisor is 717 Fifth Avenue, New York, New York 10022.
PORTFOLIO MANAGERS
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh,
President of ISI and President and a Director of the Fund, have shared direct
portfolio management responsibility for the Fund since its inception. Mr.
Hyman is responsible for developing the economic analysis upon which the
Fund's selection of investments is based. (See "Investment Program.") Before
joining ISI, Mr. Hyman was a vice chairman and member of the Board of C.J.
Lawrence Inc. and prior thereto, an economic consultant at Data Resources. He
writes a variety of international and domestic economic research reports
which follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis has rated
Mr. Hyman as its "first team" economist, which is its highest rating, in each
of the last seventeen years.
<PAGE>
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and prior thereto Senior Vice President and bond portfolio manager
at Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam
Management Company and Fidelity Management and Research.
11
<PAGE>
ADMINISTRATOR
===============================================================================
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, an indirect subsidiary of Alex. Brown Incorporated, provides
administration services to the Fund.
ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which
the shares are distributed and oversight of the relationship between the Fund
and its other service providers. For its services as administrator of the
Fund for the fiscal year ended October 31, 1996, ICC received a fee (net of
fee waivers) equal to .12% of the Fund's average daily net assets. ICC and
ISI have voluntarily agreed to reduce proportionately their respective annual
fees if necessary, so that the Fund's annual expenses do not exceed .90% of
its average daily net assets. (See "Fund Expenses.")
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
DISTRIBUTOR
===============================================================================
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor"), One
South Street, Baltimore, Maryland 21202, acts as distributor of the Class A
Shares. Alex. Brown is an investment banking firm which offers a broad range of
investment services to individual, institutional, corporate and municipal
clients. It is a wholly-owned subsidiary of Alex. Brown Incorporated which has
engaged directly and through subsidiaries and affiliates in the investment
business since 1800. Alex. Brown is a member of the New York Stock Exchange and
other leading securities exchanges. Headquartered in Baltimore, Maryland, Alex.
Brown has offices throughout the United States and, through subsidiaries,
maintains offices in London, England, Geneva, Switzerland and Tokyo, Japan.
The Fund has adopted a Distribution Plan for the Class A Shares (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. As compensation for its services for the fiscal year ended October
31, 1996, Alex. Brown received a fee equal to .25% of the Class A Shares'
average daily net assets. Alex. Brown expects to allocate on a proportional
basis most of its annual fee to its investment representatives or up to all
of its fee to selected Participating Dealers as compensation for their
ongoing shareholder services, including processing redemption and sale
requests and responding to shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Alex. Brown will allocate on a
proportional basis up to all of its distribution fee as compensation for such
financial institutions' ongoing shareholder services. Such financial
institutions may impose separate fees in connection with these services and
investors should review this Prospectus in conjunction with any such
institution's fee schedule. Amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown
under the Plan.
Payments under the Plan are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is
less than .25% of the average daily net assets invested in Class A Shares for
any period, the unexpended portion of the distribution fee may be retained by
Alex. Brown. Alex. Brown will from time to time and from its own resources
pay or allow additional discounts or promotional incentives in the form of
cash or other compensation (including merchandise or travel) to Participating
Dealers.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- -------------------------------------------------------------------------------
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080) is the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. As compensation for providing
accounting services for the fiscal year ended October 31, 1996, ICC received
from the Fund a fee equal to .05% of the Fund's average daily net assets. (See
the Statement of Additional Information.)
PNC Bank, National Association, a national banking association with offices
at Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania 19113, acts as
custodian of the Fund's assets.
12
<PAGE>
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
relevant indices. All such advertisements will show the average annual total
return, net of the Fund's maximum sales charge, over one, five and ten year
periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding the average annual compounded rates of return over such
periods that would equate an assumed initial investment of $1,000 to the
ending redeemable value, net of the maximum sales charge and other fees,
according to the required standardized calculation. The standardized
calculation is required by the SEC to provide consistency and comparability
in investment company advertising and is not equivalent to a yield
calculation.
The Fund may also advertise yield and tax-equivalent yield quotations.
Any yield quotation of the Fund is based on the annualized net investment
income per share of the Fund over a 30 day period. The yield for the Fund is
calculated by dividing the net investment income per share of the Fund earned
during the period by the maximum offering price per share of the Fund on the
last day of that period. The resulting figure is then annualized. The Fund's
yield calculations assume a maximum sales charge of 4.50% for the Class A
Shares. The Fund's taxable-equivalent yield is calculated by determining the
rate of return that would have to be achieved on a fully taxable investment
to produce the after tax equivalent of the Fund's yield. In calculating
taxable-equivalent yield, the Fund assumes certain tax brackets for
shareholders.
If the Fund compares its performance to other funds or to relevant
indices, its performance will be stated in the same terms in which such
comparative data and indices are stated.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Municipal
Bond Index, the Consumer Price Index, the return on 90 day U.S. Treasury
Bills, long-term U.S. Treasury bonds, bank certificates of deposit, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal. For
these purposes, the performance of the Fund, as well as the performance of
such indices, may not reflect sales charges, the inclusion of which would
reduce performance results.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of investments held by the Fund,
operating expenses and market conditions. Any fees charged by banks with respect
to customer accounts through which Class A Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
GENERAL INFORMATION
===============================================================================
CAPITAL SHARES
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on January 5, 1990, and is
authorized to issue 40 million shares of capital stock, with a par value of
$.001 per share. Shares of the Fund have equal rights with respect to voting.
Voting rights are not cumulative, so the holders of more than 50% of the
outstanding shares of capital stock voting together for election of Directors
may elect all the members of the Board of Directors of the Fund. In the event
of liquidation or dissolution of the Fund, each share is entitled to its
portion of the Fund's assets after all debts and expenses have been paid. The
fiscal year end of the Fund is October 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests
in a separate portfolio of securities, and separate classes of each series of
the Fund. The shares offered by this Prospectus have been designated "Flag
Investors Managed Municipal Fund Class A Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have another class of shares in addition to the shares offered hereby, "ISI
Managed Municipal Fund Shares." Shares of that class are sold through
broker-dealers and have similar 12b-1 fees and front-end sales charges as the
Class A Shares. Different classes of the Fund may be offered to certain
investors and holders of such shares may be
13
<PAGE>
entitled to certain exchange privileges not offered to Class A Shares. All
classes of the Fund share a common investment objective, portfolio and
advisory fee, but the classes may have different distribution expenses and
sales charges and, accordingly, performance may differ.
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the
Fund will assist with shareholder communications in connection with the
meeting.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
SHAREHOLDERS INQUIRIES
Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, the Fund at (800) 767-FLAG, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND CLASS A SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Managed Municipal Fund Class A Shares"
and mail with this Application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Managed Municipal Fund Class A Shares
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 to request an IRA information
kit.
I enclose a check for $____________ payable to "Flag Investors Managed Municipal
Fund Class A Shares" for the purchase of Flag Investors Managed Municipal Fund
Class A Shares. The minimum initial purchase is $2,000, except that the minimum
initial purchase for shareholders of any other Flag Investors Fund or class is
$500 and the minimum initial purchase for participants in the Fund's Automatic
Investing Plan is $250. The Fund reserves the right not to accept checks for
more than $50,000 that are not certified or bank checks.
- ------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: ________________________________________________
INDIVIDUAL OR JOINT TENANT
______________________________________________________________________________
First Name Initial Last Name
______________________________________________________________________________
Social Security Number
______________________________________________________________________________
Joint Tenant Initial Last Name
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
______________________________________________________________________________
Name of Corporation, Trust or Partnership
______________________________________________________________________________
Tax ID Number Date of Trust
______________________________________________________________________________
Name of Trustees (If to be included in the Registration)
______________________________________________________________________________
For the Benefit of
GIFTS TO MINORS
______________________________________________________________________________
Custodian's Name (only one allowed by law)
______________________________________________________________________________
Minor's Name (only one)
______________________________________________________________________________
Social Security Number of Minor
under the ___________________Uniform Gifts to Minors Act
State of Residence
MAILING ADDRESS
______________________________________________________________________________
Street
______________________________________________________________________________
City State Zip
( )
______________________________________________________________________________
Daytime Phone
<PAGE>
==============================================================================
LETTER OF INTENT (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Flag Investors Managed Municipal Fund Class A
Shares, as shown below, in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
==============================================================================
RIGHT OF ACCUMULATION (OPTIONAL)
List the Account numbers of other Flag Investors Funds (except Class B Shares)
that you or your immediate family already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
A-1
<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional Class A Shares of the Fund at no
sales charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
Call (800)553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
- ------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ for me, on a monthly or quarterly basis, on or
about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment
against my checking account. (Bank drafts may be drawn on commercial banks
only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
______________________________________________________________________________
Bank Name
______________________________________________________________________________
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
______________________________________________________________________________
Depositor's Signature Date
______________________________________________________________________________
Depositor's Signature Date
(if joint acct., both must sign)
- ------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of ______, 19____ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $______, from
Class A Shares that I own, payable to the account registration address as
shown above. (Participation requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July, and October)
<PAGE>
- ------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below.
No, I/we do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: _________________________ Account No.: ______________________
Address: _________________________ Bank Account Name: ________________
- ------------------------------------------------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
[The following information appears in a box.]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this application, I hereby certify under penalties of perjury that
the information on this application is complete and correct and that as required
by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:_______________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[end of box]
I have received a copy of the Fund's prospectus dated March 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
<PAGE>
[The following information appears in a box.]
The Internal Revenue Service does not require your consent to any provision
of this document other than the certifications required to avoid backup
withholding.
[end of box]
_____________________________________________________________________________
Signature Date
______________________________________________________________________________
Signature (if joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name: ____________________ Dealer Code: __________________________
Dealer's Address: ____________________ Branch Code: __________________________
____________________
Representative: ____________________ Rep. No.: __________________________
A-2
<PAGE>
MANAGED MUNICIPAL FUND, INC.
ISI MANAGED MUNICIPAL FUND SHARES
February 26, 1997
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator; Distributor;
Custodian, Transfer
Agent and Accounting
Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in the
Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1996
Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------
<S> <C> <C>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information and
History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.............. Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent and Accounting
Services; Independent
Accountants
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares; Semi-
Annual Reports
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.......................................................... Valuation of Shares and
Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
</TABLE>
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
<PAGE>
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
No person has been authorized to give any information or to make
representations not contained in this Prospectus and, if given or made, such
information must not be relied upon as having been authorized by the Fund or
the Distributor.
TABLE OF CONTENTS
PAGE
1. Fund Expenses ................................................. 2
2. Financial Highlights .......................................... 3
3. Investment Program ............................................ 4
4. Investment Restrictions ....................................... 7
5. How to Invest in the Fund ..................................... 7
6. How to Redeem Shares .......................................... 9
7. Telephone Transactions ........................................ 10
8. Dividends and Taxes ........................................... 10
9. Management of the Fund ........................................ 12
10. Investment Advisor ............................................ 12
11. Administrator ................................................. 12
12. Distributor ................................................... 13
13. Custodian, Transfer Agent and
Accounting Services ........................................... 13
14. Performance Information ....................................... 13
15. General Information ........................................... 14
<PAGE>
LOGO
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
A mutual fund with the investment objective of a high level of total
return with relative stability of principal and secondarily, high current
income through investment in a portfolio consisting primarily of municipal
obligations the interest on which is exempt from federal income tax.
MARCH 1, 1997
LOGO
<PAGE>
ISI MANAGED MUNICIPAL FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
717 Fifth Avenue
New York, NY 10022
For information call (800) 955-7175
The investment objective of this mutual fund (the "Fund") is a high level
of total return with relative stability of principal and, secondarily, high
current income through investment in a portfolio consisting primarily of
municipal obligations the interest on which is exempt from federal income
tax. To achieve this objective, the Fund invests primarily in municipal
obligations rated within the three highest rating categories of Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group.
Shares of the ISI class of the Fund ("Shares") are available through
Armata Financial Corp., the distributor of the Shares (the "Distributor"), as
well as Participating Dealers and Shareholder Servicing Agents. (See "How to
Invest in the Fund.") This Prospectus sets forth basic information that
investors should know about the Fund prior to investing and should be retained
for future reference. A Statement of Additional Information dated March 1, 1997,
has been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by contacting the Fund at the above address or telephone number.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK. THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES
INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 1, 1997.
<PAGE>
[This page intentionally left blank]
<PAGE>
1. Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases .................... 4.45%
Maximum Sales Charge Imposed on Reinvested Dividends ......... None
Maximum Deferred Sales Charge ................................ None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ........................... .25%*
12b-1 Fees ..................................................... .25%
Other Expenses (net of fee waivers) ............................ .40%*
---
Total Fund Operating Expenses (net of fee waivers) ............. .90%*
===
</TABLE>
- ------
*The Fund's investment advisor and administrator intend, but are not
obligated, to waive their fees proportionately to the extent required so
that Total Fund Operating Expenses do not exceed .90% of the Fund's average
daily net assets. Absent fee waivers, Management Fees would be .40%, Other
Expenses (including administration fees) would be .48% and Total Fund
Operating Expenses would be 1.13%, respectively, of the Fund's average daily
net assets.
EXAMPLE:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* $53 $72 $92 $150
</TABLE>
- ------
*The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Shares through a financial institution may be charged
separate fees by the financial institution. (For more complete descriptions
of the various costs and expenses, see "How to Invest in the Fund -- Offering
Price", "Investment Advisor", "Administrator" and "Distributor.") The
Expenses and Example appearing in the table above are based on the Fund's
expenses for the fiscal year ended October 31, 1996. The rules of the SEC
require that the maximum sales charge (in the Shares' case, 4.45% of the
offering price) be reflected in the above table. However, certain investors
may qualify for reduced sales charges. (See "How to Invest in the Fund --
Offering Price.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc.
2
<PAGE>
2. Financial Highlights
The Fund was organized as a corporation under the laws of the State of
Maryland on January 5, 1990 and commenced operations on February 26, 1990.
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., the Fund's independent accountants. The financial
statements and financial highlights for the fiscal year ended October 31,
1996 and the report thereon of Coopers & Lybrand L.L.P. are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended October 31,
1996, which is available at no cost by calling the Fund at (800) 955-7175.
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended October 31, February 26, 1990*
--------------------------------------------------------------- through
1996 1995 1994 1993 1992 1991 October 31, 1990
--------- --------- --------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period .......................... $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36 $ 9.99 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income ............ 0.48 0.48 0.46 0.50 0.50 0.57 0.38
Net realized and unrealized
gain/(loss) on investments ...... -- 0.98 (1.15) 0.94 0.22 0.49 (0.02)
--------- --------- --------- --------- --------- --------- ---------
Total from Investment Operations .. 0.48 1.46 (0.69) 1.44 0.72 1.06 0.36
--------- --------- --------- --------- --------- --------- ---------
Less Distributions:
Distributions from net investment
income and net realized short-
term gains....................... (.054) (0.54) (0.56) (0.61) (0.65) (0.69) (0.37)
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) (0.69) (0.37)
--------- --------- --------- --------- --------- --------- ---------
Net asset value at end of period .. $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36 $ 9.99
========= ========== ========= ========= ========= ========= =========
Total Return:**
ISI Class Shares .................. 4.67% 15.42% (6.49)% 14.36% 6.06% 10.85% 3.78%
Flag Investors Class A Shares ..... 4.67% 15.42% (6.49)% 14.36% 6.06% 10.85% 1.21%***
Ratios to Average Daily Net Assets:
Expenses(2) ....................... 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%(1)
Net investment income(3) .......... 4.48% 4.72% 4.37% 4.38% 4.78% 5.57% 6.12%(1)
Supplemental Data:
Net assets at end of period (000):
ISI Class Shares ............... $84,712 $86,292 $83,607 $88,378 $51,420 $20,053 $17,290
Flag Investors Class A Shares .. $41,193 $45,980 $49,903 $53,486 $45,536 $38,491 $ 5,698
Portfolio turnover rate ........... 32% 55% 37% 68% 95% 86% 99%
</TABLE>
- ------
* Commencement of operations
** Total return excludes the effect of sales charge.
*** Flag Investors Class A Shares commenced operations on October 23, 1990.
(1) Annualized.
(2) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been 1.13%, 1.10%, 1.11%,
1.14%, 1.27%, 1.47% and 1.92% for the periods ended October 31, 1996,
1995, 1994, 1993, 1992, 1991 and 1990, respectively.
(3) Without the waiver of advisory and administration fees, the ratio of net
investment income to average daily net assets would have been 4.25%,
4.52%, 4.16%, 4.14%, 4.41%, 4.99% and 5.11% for the periods ended October
31, 1995, 1994, 1993, 1992, 1991 and 1990, respectively.
3
<PAGE>
3. Investment Program
INVESTMENT OBJECTIVE, POLICIES AND RISK
CONSIDERATIONS
The investment objective of the Fund is a high level of total return, with
relative stability of principal, and secondarily, high current income,
through an investment in a portfolio consisting primarily of municipal
obligations the interest on which is exempt from federal income tax
("Municipal Obligations"). Municipal Obligations include securities of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies and instrumentalities,
the interest on which is exempt from federal income tax in the opinion of
bond counsel for the issuer. Under normal market conditions, the Fund will
invest at least 80% of its net assets in Municipal Obligations. This policy
is fundamental and may be changed only by a majority vote of shareholders.
The Fund does not currently intend to acquire Municipal Obligations that are
subject to alternative minimum tax but may so invest up to 20% of its net
assets. There can be no assurance that the Fund will achieve its investment
objective.
The Fund will invest at least 75% of its portfolio of Municipal Obligations
in securities rated, on the date of investment, A1 or higher (in the case of
municipal bonds) and higher than MIG 3 (in the case of municipal notes) by
Moody's Investors Service, Inc. ("Moody's") or rated A+ or higher (in the
case of municipal bonds) and higher than SP-2 (in the case of municipal
notes) by Standard & Poor's Ratings Group ("S&P") or, if unrated, of
comparable quality as determined by the Fund's investment advisor under
criteria approved by the Board of Directors. The Fund may invest up to 25% of
its portfolio of Municipal Obligations in securities rated A (in the case of
municipal bonds) or MIG 3 (in the case of municipal notes) by Moody's or
rated A (in the case of municipal bonds) or SP-2 (in the case of municipal
notes) by S&P or, if unrated, of comparable quality as determined by the
investment advisor under criteria approved by the Board of Directors.
Even under normal circumstances the Fund may invest to a limited extent in
taxable obligations depending on market conditions. These obligations may
include U.S. Government and agency, bank and corporate securities and
repurchase agreements collateralized by such securities. For temporary
defensive purposes, the Fund may invest without limit in short-term
obligations of these types. The Fund may also invest in financial futures,
"when-issued" securities, standby commitments of brokers, dealers or banks
and variable and floating rate demand obligations. These investment
practices, which may involve certain special risks, are described below. The
Fund's investment objective may be changed only by the affirmative vote of a
majority of the outstanding shares of all classes of the Fund.
SELECTION OF INVESTMENTS
The Fund's investment advisor (the "Advisor"--see "Investment Advisor") buys and
sells securities for the Fund's portfolio with a view toward, first, a high
level of total return with relative stability of principal and, second, high
current income that is federally tax exempt. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible changes
in interest rates will be a consideration in selecting investments. While income
distributions to shareholders will generally be tax exempt, distributions of
capital gains will be taxable. Accordingly, to the extent the Fund achieves its
investment objective, a larger portion of its distributions will be taxable than
would be the case if the Fund placed a greater emphasis on earning tax exempt
income. (See "Investment Program--Taxable Investments" and "Dividends and
Taxes--Tax Treatment of Dividends and Distributions.")
The Advisor will be free to take full advantage of the entire range of
maturities offered by Municipal Obligations and may adjust the average maturity
of the Fund's portfolio from time to time, depending on its assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. Thus, at certain times the
average maturity of the portfolio may be relatively short (under five years, for
example) and at other times may be relatively long (in the 20-30 year range, for
example). In determining which direction interest rates are likely to move, the
Advisor relies on the economic analysis made by its chairman, Edward S. Hyman.
There is no assurance that such economic analysis will accurately predict
interest rate trends or that the portfolio strategies based on Mr. Hyman's
economic analysis will be effective.
4
<PAGE>
SPECIAL RISK CONSIDERATIONS
As with other debt securities, the value of Municipal Obligations changes as
interest rates fluctuate. Changes in the value of portfolio securities will
not affect interest income from those securities but will be reflected in the
Fund's net asset value. Thus, a decrease in interest rates will generally
result in an increase in the value of the Shares. Conversely, during periods
of rising interest rates, the value of the Shares will generally decline. The
magnitude of these fluctuations will generally be greater at times when the
average maturity of the Fund's portfolio securities is longer.
PURCHASE OF WHEN-ISSUED SECURITIES
New issues of Municipal Obligations are usually offered on a when-issued
basis, which means that delivery and payment for such Municipal Obligations
normally take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on a when-issued security are fixed at the time the purchase commitment is
entered into, although no interest on such security accrues to the Fund prior
to payment and delivery. A segregated account of the Fund consisting of cash
or liquid securities equal at all times to the amount of the when-issued
commitments will be established and maintained by the Fund at the Fund's
custodian. While the Fund will purchase securities on a when-issued basis
only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable to limit the
effects of adverse market action. The value of securities so purchased or
sold is subject to market fluctuation. The Fund will ordinarily invest no
more than 40% of its net assets at any time in Municipal Obligations
purchased on a when-issued basis.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a broker,
dealer or bank is obligated to repurchase, at the Fund's option, specified
securities in the Fund's portfolio at a specified price. In this respect,
stand-by commitments are comparable to put options and thus the Fund's
ability to enforce such obligations is subject to the risk that the seller of
the commitment may default on its obligations. The Fund will acquire stand-by
commitments as a means of changing the average maturity of its portfolio in
response to expected changes in market interest rates.
The Fund anticipates that stand-by commitments will generally be available
from brokers, dealers and banks without the payment of any direct or indirect
consideration, but the Fund may have to pay for stand-by commitments, thus
increasing the cost of acquiring and holding the underlying security and
similarly decreasing such security's yield. Gains realized in connection with
stand-by commitments will be taxable.
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS
The Fund may purchase floating and variable rate demand notes and bonds, which
are tax-exempt obligations normally having stated maturities in excess of one
year, but which permit the holder to demand payment of principal either at any
time or at specified intervals. The interest rates on these obligations
fluctuate from time to time in response to changes in the market interest rates.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Each demand note and bond purchased by
the Fund will meet the quality criteria established for the purchase of other
Municipal Obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. The Fund will
not invest more than 10% of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on less than
seven days' notice if there is no secondary market available for these
obligations.
FUTURES CONTRACTS
The Fund may purchase and sell U.S. exchange traded futures contracts on bond
indices ("Futures Contracts"). At the same time a Futures Contract is
purchased or sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). The initial deposit varies but may be as low as
5% or less of the value of the contract. Daily thereafter, the Futures
Contract is valued and the payment of
5
<PAGE>
"variation margin" may be required, so each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.
These instruments will be used only to protect against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date. Should
interest rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of the Futures Contract and may realize a loss on the
Futures Contract in excess of any corresponding gain in the hedged portfolio
positions. Futures transactions involve other risks as well. For example, a
lack of correlation between the index and the assets being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses on the Futures Contract in excess of
any corresponding gain in the hedged portfolio positions. In addition, there
can be no assurance that a liquid secondary market will exist for any Futures
Contract purchased or sold, and the Fund may be required to maintain a
position until exercise or expiration, which could result in losses on the
Futures Contract in excess of any corresponding gain in the hedged portfolio
positions.
Regulations of the Commodity Futures Trading Commission (the "CFTC") permit
the use of futures transactions for bona fide hedging purposes without regard
to the percentage of assets committed to futures margin and options premiums.
In addition, CFTC regulations also allow funds to employ futures transactions
for other "non-hedging" purposes to the extent that aggregate initial futures
margins and options premiums do not exceed 5% of total assets. In addition,
the Fund will not enter into Futures Contracts if obligations under all
Futures Contracts would amount to more than 30% of its total assets.
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury Securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. U.S. Treasury Securities are direct obligations of the U.S.
Government and are supported by the full faith and credit of the United
States. Default by or bankruptcy proceedings with respect to the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
TAXABLE INVESTMENTS
From time to time, the Fund may invest in securities, the interest on which is
subject to federal income tax. The Fund may make such investments (a) pending
investment of proceeds from sales of Shares or portfolio securities in
tax-exempt securities, (b) pending settlement of purchases of portfolio
securities, (c) to maintain liquidity for meeting anticipated redemptions, or
(d) when in the Advisor's opinion it is advisable because of adverse conditions
affecting the market for Municipal Obligations. The taxable investments in which
the Fund may invest consist of U.S. Treasury Securities and repurchase
agreements fully collateralized by U.S. Treasury Securities (collectively, the
"Taxable Investments"). The Fund may invest up to 20% of its net assets in
Taxable Investments. The Fund may earn taxable income from other sources.
Dividends paid by the Fund that are attributable to interest earned from Taxable
Investments and to taxable income from other investments will be taxable to
investors. (See "Dividends and Taxes -- Tax Treatment of Dividends and
Distributions.")
SIZE OF FUND
The Fund currently intends to limit the size of the Fund and to accept share
purchases only from existing shareholders at such time as the assets of the
Fund are in excess of $200 million but less than $250 million, and thereafter
not to accept any share purchases other than dividend reinvestments.
6
<PAGE>
4. Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will
not:
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for this purpose the U.S. Government or any state or
local government or their agencies and instrumentalities are not
considered to be an industry);
2) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for this purpose, the U.S.
Government or its agencies and instrumentalities are not considered to be
an issuer and, in the case of Municipal Obligations, the public or private
entity ultimately responsible for payment of principal and interest on the
security is considered to be the issuer);
3) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase
securities; or
4) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements with maturities of greater than seven days and
floating or variable rate demand obligations as to which the Fund cannot
exercise the demand feature on less than seven days' notice if there is no
secondary market available for these obligations.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
5. How To Invest in the Fund
Shares may be purchased from the Distributor, through any securities dealer
which has entered into a dealer agreement with the Distributor ("Participating
Dealers") or through any financial institution which has entered into a
shareholder servicing agreement with the Fund ("Shareholder Servicing Agents").
Shares may also be purchased by completing the Application Form attached to this
Prospectus and returning it, together with payment of the purchase price
(including any applicable front-end sales charge), to the address shown on the
Application Form. As used herein, the "Fund" refers to Managed Municipal Fund,
Inc., whereas references to the "Shares" shall mean ISI Managed Municipal Fund
Shares which is a class of shares of the Fund.
The minimum initial investment is $5,000, except that the minimum initial
investment for participants in the Fund's Automatic Investing Plan is $250.
Each subsequent investment must be at least $250, except that the minimum
subsequent investment for participants in the Fund's Automatic Investing Plan
is $100 for monthly investments and $250 for quarterly investments. (See
"Purchases through Automatic Investing Plan" below.) Orders for purchases of
Shares are accepted on any day on which the New York Stock Exchange is open
for business (a "Business Day"). The Fund reserves the right to suspend the
sale of Shares at any time at the discretion of Armata. Purchase orders for
Shares will be executed at a per Share purchase price equal to the net asset
value next determined after receipt of the purchase order plus any applicable
front-end sales charge (the "Offering Price") on the date such net asset
value is determined (the "Purchase Date"). Purchases made by mail must be
accompanied by payment of the Offering Price. Purchases made through Armata
or a Participating Dealer or Shareholder Servicing Agent must be in
accordance with such entity's payment procedures. Armata may, in its sole
discretion, refuse to accept any purchase order.
The net asset value per Share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing
its share of the Fund's assets, deducting all liabilities attributable to
that class, and dividing the resulting amount by the number of then
outstanding shares of the class. For this purpose, portfolio securities will
be given their market value where feasible based on quotations furnished by a
pricing service approved by the Board of Directors. Options and futures are
valued at the settlement price, or if no sales are reported, at the average
of the last reported bid and asked prices. Securities or other assets for
which market quotations are not readily available are valued at their fair
value as determined in good faith under procedures established
7
<PAGE>
from time to time and monitored by the Fund's Board of Directors. Debt
obligations with maturities of 60 days or less are valued at amortized cost
which constitutes fair value as determined by the Fund's Board of Directors.
OFFERING PRICE
Shares may be purchased from Armata, Participating Dealers or Shareholder
Servicing Agents at the Offering Price which includes a sales charge which is
calculated as a percentage of the Offering Price and decreases as the amount
of purchase increases as shown below:
<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as Dealer
Percentage Percentage Retention as
of of Net Percentage
Offering Amount of Offering
Amount of Purchase Price Invested Price*
--------------------------- -------------- -------------- ----------------
<S> <C> <C> <C>
Less than $ 50,000 ...... 4.45% 4.66% 4.00%
$50,000 - $ 99,999 ...... 3.50% 3.63% 3.00%
$100,000 - $ 249,999 ...... 2.50% 2.56% 2.00%
$250,000 - $ 499,999 ...... 2.00% 2.04% 1.50%
$500,000 - $ 999,999 ...... 1.50% 1.52% 1.25%
$1,000,000 - $1,999,999 ...... 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 ...... 0.50% 0.50% 0.50%
$3,000,000 and over .......... None None None
</TABLE>
- ------
* The Distributor may from time to time reallow to Participating Dealers up to
100% of the sales charge included in the Offering Price of Shares. Dealers
that receive a reallowance of 100% of the sales charge may be considered
underwriters for purposes of the federal securities laws.
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Shares and purchases of
shares of other mutual funds in the ISI family of funds. The applicable sales
charge will be determined based on the total of (a) the investor's current
purchase plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of all Shares and of all shares of such other
mutual funds in the ISI family of funds held by the shareholder. To obtain
the reduced sales charge through a right of accumulation, the shareholder
must provide Armata, either directly or through a Participating Dealer or
Shareholder Servicing Agent, as applicable, with sufficient information to
verify that the shareholder has such a right. The Fund may amend or terminate
this right of accumulation at any time as to subsequent purchases. The term
"purchase" refers to an individual purchase by a single purchaser, or to
concurrent purchases, which will be aggregated, by a purchaser, the
purchaser's spouse and their children under the age of 21 years purchasing
Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Shares. Each purchase of
Shares under a Letter of Intent will be made at the Offering Price applicable
at the time of such purchase to the full amount indicated on the Letter of
Intent. A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of the full amount. Shares purchased with the first 5%
of the full amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales charge applicable
to the Shares actually purchased if the full amount indicated is not
invested. Such escrowed Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. When the full amount indicated has
been purchased, the escrowed Shares will be released. An investor who wishes
to enter into a Letter of Intent in conjunction with an investment in Shares
may do so by completing the appropriate section of the Application Form
attached to this Prospectus.
The Fund may sell Shares at net asset value (without sales charge) to the
following: (i) banks, bank trust departments, registered investment advisory
companies, financial planners and broker-dealers purchasing Shares on behalf of
their fiduciary and advisory clients, provided such clients have paid an account
management fee for these services; (ii) investors who have redeemed Shares, or
shares of any other mutual fund in the ISI family of funds that have similar
sales charges, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within six months after the redemption and the
amount of the purchase is at least $5,000; and (iii) current or retired
Directors of the Fund, directors and employees (and their immediate families) of
the Advisor, the Fund's administrator, and their respective affiliates, and
employees of Participating Dealers. In addition, investors who have redeemed
shares of funds in the ISI family of funds that have lower sales charges may
purchase Shares at net asset value in an amount that is not more than the total
redemption proceeds, provided that they held the shares of such funds for more
8
<PAGE>
than 24 months prior to the redemption, the purchase is within six months
after the redemption and the amount of the purchase is at least $5,000.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other mutual funds in the ISI family of funds that have
similar sales charges may exchange their shares of those funds for an equal
dollar amount of Shares. Shares issued pursuant to this offer will not be
subject to the sales charges described above or any other charge. In
addition, shareholders of funds in the ISI family of funds that have lower
sales charges may exchange into other funds in the family upon payment of the
difference in sales charges, except that the exchange will be made at net
asset value if the shares have been held for at least 24 months. The net
asset value of shares purchased and redeemed in an exchange request received
on a Business Day will be determined on the same day, provided that the
exchange request is received prior to 4:00 p.m. (Eastern Time) or the close
of the New York Stock Exchange, whichever is earlier. Exchange requests
received after 4:00 p.m. (Eastern Time) will be effected on the next Business
Day.
Until February 28, 1998, shareholders of any other mutual fund who have paid
a sales charge on their shares of such fund, and shareholders of any
closed-end fund, may exchange shares of such funds for an equal dollar amount
of Shares by submitting to Armata or a Participating Dealer, the proceeds of
the redemption or sale of shares of such funds, together with evidence of the
payment of a sales charge (for mutual funds only) and the source of such
proceeds. Shares issued pursuant to this offer will not be subject to the
sales charges described above or any other charge.
The Fund may modify or terminate these offers of exchange at any time and
will provide shareholders with 60 days' written notice prior to any such
modification or termination. The exchange privilege with respect to other ISI
funds may also be exercised by telephone. (See "Telephone Transactions"
below.)
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Shares regularly by means of an Automatic Investing
Plan with a pre-authorized check drawn on their checking accounts. Under this
plan, the shareholder may elect to have a specified amount invested monthly
or quarterly in Shares. The minimum initial investment is $250. Each
subsequent investment must be at least $100 for monthly investments and $250
for quarterly investments. The amount specified will be withdrawn from the
shareholder's checking account using the pre-authorized check and will be
invested in Shares at the applicable Offering Price determined on the date
the amount is available for investment. Participation in the Automatic
Investing Plan may be discontinued either by the Fund or the shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investing Plan or who wishes to obtain additional
purchase information may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
PURCHASES THROUGH DIVIDEND REINVESTMENT
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Shares. Unless the
shareholder elects otherwise, all income dividends and capital gains
distributions will be reinvested in additional Shares at net asset value,
without a sales charge. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Fund's transfer agent (the
"Transfer Agent") (see "Custodian, Transfer Agent and Accounting Services"),
either directly or through their Participating Dealer or Shareholder
Servicing Agent, at least five days before the next date on which dividends
or distributions will be paid.
Alternately, shareholders may have their distributions invested in shares of
other funds in the ISI family of funds. Shareholders who are interested in
this option should call the Transfer Agent for additional information.
6. How to Redeem Shares
Shareholders may redeem all or part of their investment on any Business Day by
transmitting a redemption order through Armata, a Participating Dealer, a
Shareholder Servicing Agent or by regular or express mail to the Transfer
Agent. Shareholders may also redeem Shares by telephone (in amounts up to
9
<PAGE>
$50,000). (See "Telephone Transactions" below.) A redemption order is
effected at the net asset value per Share next determined after receipt of
the order (or, if stock certificates have been issued for the Shares to be
redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. Payment for
redeemed Shares will be made by check and will ordinarily be mailed within
seven days after receipt of a duly authorized telephone redemption request or
of a redemption order fully completed and, as applicable, accompanied by the
documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer or Shareholder Servicing Agent, if applicable, and
the number of Shares or dollar amount to be redeemed, signed by all owners
of the Shares in the exact names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for Shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Shares will be paid on the
next dividend payable date. If all of the Shares in a shareholder's account
have been redeemed on a dividend payable date, the dividend will be remitted
by check to the shareholder.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
7. Telephone Transactions
Shareholders may exercise the exchange privilege with respect to other ISI
funds, or redeem Shares in amounts up to $50,000, by notifying the Transfer
Agent by telephone on any Business Day between the hours of 8:30 a.m. and 5:30
p.m. (Eastern Time) or by regular or express mail at its address listed under
"Custodian, Transfer Agent and Accounting Services." Telephone transaction
privileges are automatic. Shareholders may specifically request that no
telephone redemptions or exchanges be accepted for their accounts. This election
may be made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected
at the net asset value as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
telecopied written instructions of such transaction requests. If these
procedures are employed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following
instructions received by telephone that either of them reasonably believes to
be genuine. During periods of extreme economic or market changes,
shareholders may experience difficulty in effecting telephone transactions.
In such event, requests should be made by regular or express mail. Shares
held in certificate form may not be exchanged or redeemed by telephone. (See
"How to Invest in the Fund -- Purchases by Exchange" and "How to Redeem
Shares.")
8. Dividends and Taxes
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of its
net investment income in the form of monthly dividends. The Fund may
distribute to shareholders any net capital gains (the excess of net long-term
capital gains over net short-term capital losses) on an annual basis or,
alternatively, may elect to retain such net capital gains and pay tax
thereon.
10
<PAGE>
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders,
and the discussion here is not intended as a substitute for careful tax
planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial, or administrative action. The Statement
of Additional Information sets forth further information concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As long as the Fund qualifies for this tax
treatment, it will be relieved of federal income tax on amounts distributed
to shareholders. The Fund also intends to make sufficient distributions prior
to the end of each calendar year to avoid liability for federal excise tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders, by satisfying the Code's requirements that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from federal income
tax.
As long as this and certain other requirements are met, dividends derived
from the Fund's net tax-exempt interest income will be "exempt-interest
dividends" that are excluded from the gross income of the Fund's shareholders
for federal income tax purposes. Exempt-interest dividends may, however, have
collateral federal income tax consequences, including alternative minimum tax
consequences. Furthermore, the Fund may not be an appropriate investment for
persons who are "substantial users" of facilities financed with industrial
development bonds or private activity bonds (or related parties to
"substantial users"). (See the Statement of Additional Information.)
Current federal tax law limits the types and volumes of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt interest
dividends.
Distributions to shareholders of net investment income of the Fund that is
not tax-exempt interest and of net short-term capital gains of the Fund will
be taxable to shareholders as ordinary income, whether such distributions are
received in cash or in additional Shares.
Distributions to shareholders of net capital gains of the Fund are taxable to
shareholders as long-term capital gains, whether received in cash or
additional Shares, and regardless of how long a shareholder has held the
Shares. Shareholders will be advised annually as to the federal income tax
status of distributions made during the year.
Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
The sale, exchange or redemption of Shares is a taxable event for the
shareholder.
Any gain or loss recognized on a sale, exchange or redemption of Shares of
the Fund by a shareholder who is not a dealer in securities will generally be
treated as a long-term capital gain or loss if the Shares have been held for
more than twelve months and otherwise will be treated as a short-term capital
gain or loss. Any loss recognized by a shareholder upon the sale of Shares of
the Fund held six months or less, however, will be disallowed to the extent
of any exempt-interest dividends received by the shareholder with respect to
such Shares. If Shares on which a capital gains distribution has been
received are subsequently sold or redeemed and such Shares have been held for
six months or less, any loss recognized will be treated as long-term capital
loss to the extent of the capital gains distribution.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry Shares will not be deductible for federal income tax purposes.
The Fund may not be a suitable investment for tax-exempt shareholders and
plans, because such shareholders and plans would not gain any additional
benefit from the receipt of exempt-interest dividends.
11
<PAGE>
Shareholders are encouraged to consult with their tax advisors concerning the
application of the rules set forth above to their particular circumstances
and the application of state and local taxes to an investment in the Fund.
9. Management of the Fund
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributors, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Distributor, to the Advisor and to the Fund's
administrator. Three Directors and all of the officers of the Fund are officers
or employees of the Distributor, the Advisor or the Fund's administrator. The
other Directors of the Fund have no affiliation with the Distributor, the
Advisor or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman
Richard T. Hale Vice Chairman
R. Alan Medaugh Director and President
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Edward J. Veilleux Vice President
Scott J. Liotta Vice President
Nancy Lazar Vice President
Carrie L. Butler Vice President
Joseph A. Finelli Treasurer
Edward J. Stoken Secretary
Laurie D. Collidge Assistant Secretary
10. Investment Advisor
International Strategy and Investment Inc. ("ISI" or the "Advisor"), a
registered investment advisor, serves as investment advisor to the Fund pursuant
to an investment advisory agreement dated as of April 1, 1991. ISI employs
Messrs. Edward S. Hyman and R. Alan Medaugh. Due to their stock ownership,
Messrs. Hyman and Medaugh may be deemed to be controlling persons of ISI. As of
December 31, 1996, the Advisor had approximately $1 billion under management
representing both tax-free and taxable accounts. The Advisor also acts as
investment advisor to Total Return U.S. Treasury Fund, Inc. and North American
Government Bond Fund, Inc., open-end investment companies with approximately
$385 million of net assets as of December 31, 1996.
For the fiscal year ended October 31, 1996, the Advisor received a fee (net
of fee waivers) equal to .25% of the Fund's average daily net assets. ISI and
the Fund's administrator have voluntarily agreed to reduce their respective
annual fees proportionately, if necessary, so that the Fund's annual expenses
do not exceed .90% of it's average daily net assets. (See "Fund Expenses.")
The address of the Advisor is 717 Fifth Avenue, New York, New York 10022
(telephone: (800) 955-7175).
<PAGE>
PORTFOLIO MANAGERS
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh, President
of ISI and President and a Director of the Fund, have shared direct portfolio
management responsibility for the Fund since its inception. Mr. Hyman is
responsible for developing the economic analysis upon which the Fund's
selection of investments is based. (See "Investment Program.") Before joining
ISI, Mr. Hyman was a vice chairman and member of the Board of C.J. Lawrence
Inc. and prior thereto, an economic consultant at Data Resources. He writes a
variety of international and domestic economic research reports which follow
trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated
Mr. Hyman as its "first team" economist, which is its highest rating, in each
of the last seventeen years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to joining
ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income Management
and prior thereto Senior Vice President and bond portfolio manager at Fiduciary
Trust International. While at Fiduciary Trust International, Mr. Medaugh led
their Fixed-Income Department which managed $5 billion of international fixed
income portfolios for institutional clients. Mr. Medaugh also had prior
experience as a bond portfolio manager at both Putnam Management Company and
Fidelity Management and Research.
11. Administrator
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, provides administration services to the Fund. ICC is an
indirect subsidiary of Alex. Brown Incorporated and an affiliate of the
Distributor.
12
<PAGE>
ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which
the Shares are distributed and oversight of the relationship between the Fund
and its other service providers. For its services as administrator of the
Fund for the fiscal year ended October 31, 1996, ICC received a fee (net of
fee waivers) equal to .12% of the Fund's average daily assets. ICC and ISI
have voluntarily agreed to reduce their respective annual fees
proportionately, if necessary, so that the Fund's annual expenses do not
exceed .90% of it's average daily net assets. (See "Fund Expenses.")
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
12. Distributor
Armata Financial Corp. ("Armata" or the "Distributor"), P.O. Box 515, Baltimore,
Maryland 21203, acts as distributor of the Shares pursuant to a Distribution
Agreement and related Plan of Distribution (the "Plan") adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended. Armata is a
broker-dealer that was formed in 1983 and is an affiliate of the Administrator.
As compensation for its services for the fiscal year ended October 31, 1996,
Armata received a fee equal to .25% of the Shares' average daily net assets.
Armata expects to allocate on a proportional basis up to all of its fee to
selected Participating Dealers as compensation for their ongoing shareholder
services, including processing redemption and sale requests and responding to
shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Armata will allocate on a proportional
basis up to all of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
impose separate fees in connection with these services and investors should
review this Prospectus in conjunction with any such institution's fee
schedule. Amounts allocated to Participating Dealers and Shareholder
Servicing Agents may not exceed amounts payable to Armata under the Plan.
Payments under the Plan are made as described above regardless of Armata's
actual cost of providing distribution services and may be used to pay
Armata's overhead expenses. If the cost of providing distribution services to
the Fund in connection with the sale of the Shares is less than .25% of the
average daily net assets invested in Shares for any period, the unexpended
portion of the distribution fee may be retained by Armata. Armata or its
associated persons will from time to time and from its own resources pay or
allow additional discounts or promotional incentives in the form of cash or
other compensation (including merchandise or travel) to Participating
Dealers.
13. Custodian, Transfer Agent and Accounting Services
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202
(telephone: (800) 882-8585), is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services for the fiscal year ended October 31, 1996, ICC
received from the Fund a fee equal to .05% of the Fund's average daily net
assets. (See the Statement of Additional Information.)
PNC Bank, National Association, a national banking association with offices at
Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania 19113, acts as
custodian of the Fund's assets.
14. Performance Information
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
relevant indices. All such advertisements will show the average annual total
return, net of the Fund's maximum sales charge, over one, five and ten year
periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding the average annual compounded rates of return over such
periods that would equate an assumed initial investment of $1,000 to the
ending redeemable value, net of the maximum sales charge and other fees,
according to the required standardized calculation. The standardized
calculation is required by the SEC to provide consistency and comparability
in investment company advertising and is not equivalent to a yield
calculation.
The Fund may also advertise yield and tax-equivalent yield quotations. Any
yield quotation of the Fund is based on the
13
<PAGE>
annualized net investment income per share of the Fund over a 30 day period.
The yield for the Fund is calculated by dividing the net investment income
per share of the Fund earned during the period by the maximum offering price
per share of the Fund on the last day of that period. The resulting figure is
then annualized. The Fund's yield calculations assume a maximum sales charge
of 4.45% for the Shares. The Fund's taxable-equivalent yield is calculated by
determining the rate of return that would have to be achieved on a fully
taxable investment to produce the after tax equivalent of the Fund's yield.
In calculating taxable-equivalent yield, the Fund assumes certain tax
brackets for shareholders.
If the Fund compares its performance to other funds or to relevant indices,
its performance will be stated in the same terms in which such comparative
data and indices are stated.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Municipal
Bond Index, the Consumer Price Index, the return on 90 day U.S. Treasury
Bills, long-term U.S. Treasury bonds, bank certificates of deposit, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal. For
these purposes, the performance of the Fund, as well as the performance of
such indices, may not reflect sales charges, the inclusion of which would
reduce performance results.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of investments held by the Fund,
operating expenses and market conditions. Any fees charged by banks with respect
to customer accounts through which Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
15. General Information
CAPITAL SHARES
The Fund is an open-end diversified management investment company organized
under the laws of the State of Maryland on January 5, 1990 and is authorized
to issue 40 million shares of capital stock, with a par value of $.001 per
share. Shares have equal rights with respect to voting. Voting rights are not
cumulative, so the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In the event of liquidation or dissolution of the
Fund, each Share is entitled to its portion of the Fund's assets after all
debts and expenses have been paid. The fiscal year end of the Fund is October
31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests
in a separate portfolio of securities, and separate classes of each series of
the Fund. The shares offered by this Prospectus have been designated "ISI
Managed Municipal Fund Shares." The Board has no present intention of
establishing any additional series of the Fund but does have another class of
shares in addition to the Shares offered hereby, "Flag Investors Managed
Municipal Fund Class A Shares." Shares of that class are sold through
broker-dealers and have similar 12b-1 fees and front-end sales charges as the
Shares. Different classes of the Fund may be offered to certain investors and
holders of such shares may be entitled to certain exchange privileges not
offered to Shares. All classes of the Fund share a common investment
objective, portfolio and advisory fee, but the classes may have different
distribution expenses and sales charges and, accordingly, performance may
differ.
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that
14
<PAGE>
a meeting of shareholders be held for the purpose of considering the removal
of a Director from office, and if such a request is made, the Fund will
assist with shareholder communications in connection with the meeting.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the Transfer
Agent at (800) 882-8585, the Fund at (800) 955-7175, the Advisor, a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
15
<PAGE>
ISI MANAGED MUNICIPAL FUND SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "ISI Managed Municipal Fund Shares" and mail with this
Application to:
Armata Financial Corp./ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at
(800) 882-8585.
The minimum initial purchase is $5,000, except that the minimum initial
purchase for participants in the Fund's Automatic Investing Plan is $250.
Each subsequent purchase requires a $250 minimum, except that the minimum
subsequent purchase under the Fund's Automatic Investing Plan is $100 for
monthly purchases and $250 for quarterly purchases. The Fund reserves the
right not to accept checks for more than $50,000 that are not certified or
bank checks.
- ------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
INDIVIDUAL OR JOINT TENANT
_____________________________________________________________________________
First Name Initial Last Name
_____________________________________________________________________________
Social Security Number
_____________________________________________________________________________
Joint Tenant Initial Last Name
_____________________________________________________________________________
Social Security Number
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
_____________________________________________________________________________
Name of Corporation, Trust or Partnership
_____________________________________________________________________________
Tax ID Number
_____________________________________________________________________________
Name of Trustees (If to be included in the Registration)
_____________________________________________________________________________
Existing Account No., if any
GIFTS TO MINORS
_____________________________________________________________________________
Custodian's Name (only one allowed by law)
_____________________________________________________________________________
Minor's Name (only one)
_____________________________________________________________________________
Social Security Number of Minor
under the ___________________ Uniform Gifts to Minors Act
State of Residence
MAILING ADDRESS
_____________________________________________________________________________
Street
_____________________________________________________________________________
City State Zip
( )
_____________________________________________________________________________
Daytime Phone
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF INTENTION (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares
of ISI Managed Municipal Fund Shares in an aggregate amount at least equal
to:
__ $50,000 __ $100,000 __ $250,000 __ $500,000 __ $1,000,000 __ $2,000,000
__ $3,000,000
- --------------------------------------------------------------------------------
RIGHT OF ACCUMULATION (OPTIONAL)
List the Account numbers of other ISI Funds that you or your immediate family
already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options is selected, all distributions will be
reinvested.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
Call (800) 882-8585 for information about reinvesting your dividends in other
funds in the ISI Family of Funds.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_______ for me, on a monthly or quarterly basis, on or about the 20th of
each month or if quarterly, the 20th of January, April, July and October, and to
draw a bank draft in payment of the investment against my checking account.
(Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
________________________________________________________________________________
Bank Name
________________________________________________________________________________
Existing ISI Managed Municipal Fund Account No., if any
Please attach a voided check.
________________________________________________________________________________
Depositor's Signature Date
________________________________________________________________________________
Depositor's Signature Date
(if joint acct., both must sign)
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other ISI Funds) unless I mark one or both of the boxes below.
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: _____________________ Bank Account No.: ____________________
Address: _____________________ Bank Account Name: ____________________
<PAGE>
SIGNATURE AND TAXPAYER CERTIFICATION
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this application, I hereby certify under penalties of perjury that
the information on this application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may
request such form by calling the Transfer Agent at 800-882-8585.)
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: ________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[end of box]
I have received a copy of the Fund's prospectus dated March 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision
of this document other than the certifications required to avoid backup
withholding.
[end of box]
________________________________________________________________________________
Signature Date
________________________________________________________________________________
Signature (if a joint account, both must sign) Date
- --------------------------------------------------------------------------------
FOR DEALER USE ONLY
Dealer's Name: _______________________________ Dealer Code: ________________
Dealer's Address: _______________________________ Branch Code: ________________
_______________________________
Representative: _______________________________ Rep. No.: ________________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
MANAGED MUNICIPAL FUND, INC.
One South Street
Baltimore, Maryland 21202
----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS, WHICH MAY
BE OBTAINED FROM YOUR PARTICIPATING DEALER OR SHAREHOLDER
SERVICING AGENT OR BY WRITING OR CALLING ALEX. BROWN & SONS
INCORPORATED, ONE SOUTH STREET, BALTIMORE, MARYLAND 21202,
(800) 767-FLAG (FOR THE FLAG INVESTORS CLASS A SHARES CLASS)
OR BY WRITING OR CALLING ARMATA FINANCIAL CORP., P.O. BOX 515,
MARYLAND 21203, (410) 727-1700 (FOR THE ISI SHARES).
Statement of Additional Information Dated: March 1, 1997
Relating to Prospectuses
of
Flag Investors Managed Municipal Fund Class A Shares Dated: March 1, 1997
and
ISI Managed Municipal Fund Shares Dated: March 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History ..................................1
2. Investment Objective and Policies ................................1
3. Valuation of Shares and Redemption................................6
4. Federal Tax Treatment of Dividends
and Distributions.................................................7
5. Management of the Fund...........................................11
6. Investment Advisory and Other Services...........................16
7. Administration...................................................17
8. Distribution of Fund Shares .................................... 17
9. Portfolio Transactions...........................................20
10. Capital Stock ...................................................21
11. Semi-Annual Reports..............................................22
12. Custodian, Transfer Agent and Accounting Services .............. 22
13. Independent Accountants .........................................23
14. Performance Information .........................................23
15. Control Persons and Principal Holders of
Securities .....................................................26
16. Financial Statements .........................................26
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Managed Municipal Fund, Inc. (the "Fund") is an open-end
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers two classes
of shares: Flag Investors Managed Municipal Fund Class A Shares, (the "Flag
Investors Class A Shares") and ISI Managed Municipal Fund Shares (the "ISI
Shares"). There are two separate prospectuses for the Fund's shares: one for the
Flag Investors Class A Shares and one for the ISI Shares. Each prospectus
contains important information concerning the classes of shares offered thereby
and the Fund, and may be obtained without charge from Alex. Brown & Sons
Incorporated, One South Street, Baltimore, Maryland 21202
(telephone: (800) 767-FLAG), or Armata Financial Corp., P.O. Box 515,
Baltimore, Maryland 21203 (telephone: (410) 727-1700) (collectively, the
"Distributors") or from Participating Dealers which offer shares of the
respective classes of the Fund ("Shares") to prospective investors. As used
herein the term "Prospectus" describes information common to the prospectuses of
the two classes of the Fund's shares. Otherwise the term "Prospectus" will be
modified by the appropriate class designation. As used herein, the "Fund" refers
to Managed Municipal Fund, Inc. and specific references to any class of the
Fund's shares will be made by using the name of such class. Prospectuses may
also be obtained from Shareholder Servicing Agents. Some of the information
required to be in this Statement of Additional Information is also included in
the Fund's current Prospectuses. To avoid unnecessary repetition, references are
made to related sections of the Prospectuses. In addition, the Prospectuses and
this Statement of Additional Information omit certain information about the Fund
and its business that is contained in the Registration Statement respecting the
Fund and its Shares filed with the SEC. Copies of the Registration Statement as
filed, including such omitted items, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of
Maryland on January 5, 1990. The Fund filed a registration statement with the
SEC registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, and commenced operations
on February 26, 1990. The Fund has offered the Flag Investors Class A Shares
since October 23, 1990.
For the period from November 9, 1992 through February 27,
1994, the Fund offered another class of shares: Flag Investors Managed Municipal
Fund Class B Shares. Shares of that class were renamed the Flag Investors
Managed Municipal Fund Class D Shares and are no longer being offered.
Under a License Agreement dated October 23, 1990, between the
Fund and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund
the "Flag Investors" name and logo, but retains rights to that name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is a high level of total
return with relative stability of principal, and secondarily, a high level of
current income exempt from federal income tax through investing in a portfolio
consisting primarily of municipal obligations ("Municipal Obligations"). There
can be no assurance that the Fund will achieve its investment objective.
- 1 -
<PAGE>
Municipal Obligations include debt securities issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from federal income tax. For
a discussion of quality, maturity and other criteria the Fund applies in
investing in Municipal Obligations, see "Investment Objective and Policies" in
the Prospectus.
Municipal Obligations can be classified into three principal
categories: "general obligation bonds", "revenue bonds" and "notes". General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power of the issuer.
Revenue bonds include, in most cases, "tax exempt industrial development bonds",
i.e., bonds issued by or on behalf of public authorities to obtain funds for
privately-operated facilities. Tax-exempt industrial development bonds do not
generally carry the pledge of the credit of the issuing municipality, but are
generally guaranteed by the corporate entity on whose behalf they are issued.
Notes are short-term instruments used to provide for short-term capital needs.
They are obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
At least 75% of the Fund's portfolio of Municipal Obligations
will be invested in securities rated, at the time of purchase, higher than A by
Moody's or S&P or municipal notes rated at the time of purchase, MIG-1 or MIG-2
by Moody's or SP-1 by S&P. The ratings of Moody's for tax-exempt bonds in which
the Fund may invest are Aaa, Aa1, Aa, and A1. Bonds rated Aaa are judged by
Moody's to be of the "best quality". The rating of Aa is assigned by Moody's to
bonds which are of "high quality by all standards" but as to which margins of
protection or other elements make long-term risks appear somewhat larger than
Aaa rated bonds. The Aaa and Aa rated bonds comprise what are generally known as
"high grade bonds". Bonds rated A by Moody's possess many favorable investment
attributes and are considered as upper- medium-grade obligations. The numerical
modifier 1, in the generic rating classifications of A and Aa indicates that the
obligation ranks in the higher end of its generic rating category. The ratings
of S&P for tax-exempt bonds in which the Fund may invest are AAA, AA+, AA, AA-,
and A+. Bonds rated AAA bear the highest rating assigned by S&P to a debt
obligation. Such rating is intended to indicate an extremely strong capacity to
repay principal and pay interest. Bonds rated AA by S&P are also intended to
qualify as high-quality debt obligations. Such rating is intended to indicate a
very strong capacity to repay principal and pay interest, and in the majority of
instances bonds with such rating differ from AAA issues to a small degree. Bonds
rated A by S&P have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the higher rated categories.
The addition of a plus or minus sign to the A or AA categories shows relative
standing within these rating categories. The two highest rating categories by
Moody's for tax-exempt notes are MIG 1 and MIG 2. Notes bearing the designation
MIG 1 are judged by Moody's to be of the best quality, enjoying strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancings. Notes bearing the designation
MIG 2 are judged by Moody's to be of high quality, with margins of protection
ample although not so large as in the preceding group. The highest S&P rating
for municipal notes issued on or after July 29, 1984 is "SP-1". Prior to July
29, 1984, municipal notes carried the same symbols as municipal bonds. The
designation "SP-1" is intended to indicate a very strong capacity to pay
principal and interest. A "+" is added for those issues determined by S&P to
possess very strong characteristics. Only municipal note issues with a rating by
S&P of SP-1 or higher will qualify for the 75% requirement.
The Fund may invest up to 25% of its portfolio of Municipal
Obligations in municipal bonds rated A by Moody's or S&P or in municipal notes
bearing the designation MIG 3 by Moody's
- 2 -
<PAGE>
or SP-2 by S&P. Notes bearing the MIG 3 are judged by Moody's to be of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
S&P grants a rating of SP-2 to a note when it believes the issuer has a
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
The ratings of Moody's and S&P represent each service's
opinion as to the quality of the municipal bonds or notes rated. It should be
emphasized that ratings are general and are not absolute standards of quality or
guarantees as to the creditworthiness of an issuer. Subsequent to its purchase
by the Fund, an issue of municipal bonds or notes may cease to be rated, or its
ratings may be reduced. Neither event requires the elimination of that
obligation from the Fund's portfolio, but will be a factor in determining
whether the Fund should continue to hold that issue in its portfolio.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Obligations. See "Federal Tax Treatment of
Dividends and Distributions" for the effect of current federal tax law on this
exemption.
"When-Issued" Securities: The Fund may purchase securities on
a "when-issued" basis. When the Fund commits to purchase a security on a
"when-issued" basis, it will set up procedures consistent with the General
Statement of Policy of the SEC concerning such purchases. Since that policy
currently recommends that an amount of the Fund's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
the Fund will always have cash, cash equivalents or U.S. Government securities
or other high quality debt securities sufficient to cover any commitments or to
limit any potential risk. However, although the Fund does not intend to make
such purchases for speculative purposes and intends to adhere to the provisions
of the SEC policy, purchases of securities on such basis may involve more risks
than other types of purchases. For example, the Fund may have to sell assets
which have been set aside in order to meet redemptions. Also, if the Fund
determines it is necessary to sell the "when-issued" securities before delivery,
the Fund may incur a loss because of market fluctuations since the time the
commitment to purchase such securities was made and any gain would not be
tax-exempt. At the time the Fund makes the commitment to purchase or sell
securities on a "when-issued" basis, it will record the transaction and
thereafter reflect the value of such security purchased in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price.
Futures Contracts: The Fund may enter into futures contracts
based on municipal bond indices ("Futures Contracts"). Each such Futures
Contract provides for a cash payment, equal to the amount, if any, by which the
value of the index at maturity is above or below the value of the index at the
time the contract was entered into, times a fixed index "multiplier". The index
underlying such a Futures Contract is generally a broad based index of
securities designed to reflect movements in the relevant market as a whole. The
index assigns weighted values to the securities included in the index, and its
composition is changed periodically. Futures Contracts have been designed by
exchanges which have been designated as "contract markets" by the Commodity
Futures Trading Commission (the "CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. The exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
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<PAGE>
At the same time a Futures Contract is purchased or sold, the
Fund must allocate cash or securities as a deposit payment ("initial deposit").
The initial deposit varies but may be as low as 5% or less of the value of the
contract. Daily thereafter, the Futures Contract is valued and the payment of
"variation margin" may be required since each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.
Although Futures Contracts call for the making or acceptance
of a cash settlement at a specified future time, the contractual obligation is
usually fulfilled before such date by buying or selling, as the case may be, on
a commodities exchange, an identical Futures Contract calling for settlement in
the same month, subject to the availability of a liquid secondary market. The
Fund incurs brokerage fees when it purchases and sells Futures Contracts. The
purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio such as that of the Fund which holds or intends to acquire long-term
fixed income securities, is to attempt to protect the Fund from fluctuations in
interest rates without actually buying or selling long-term fixed income
securities. For example, if the Fund owns long-term bonds and interest rates
were expected to increase, the Fund might sell index Futures Contracts. Such a
sale would have much the same effect as selling an equivalent value of the
long-term bonds owned by the Fund. If interest rates did increase, the value of
the debt securities in the portfolio would decline but the value of the Futures
Contracts would increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase. However, the use of Futures Contracts as an investment technique
allows the Fund to maintain a hedging position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may
decline, Futures Contracts may be purchased to attempt to hedge against
anticipated purchases of long-term bonds at higher prices. Since the
fluctuations in the value of Futures Contracts should be similar to that of
long-term bonds, the Fund could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the market had
stabilized. At that time, the Futures Contracts could be liquidated and the Fund
could then buy long-term bonds on the cash market. To the extent the Fund enters
into Futures Contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect to such Futures
Contracts will consist of liquid assets from its portfolio in an amount equal to
the difference between the fluctuating market value of such Futures Contracts
and the aggregate value of the initial and variation margin payments made by the
Fund with respect to such Futures Contracts.
Although the Fund will invest in Futures Contracts for hedging
purposes, Futures Contracts entail risks. Although the Fund believes that use of
such contracts will benefit the Fund, if the investment judgment of the Fund's
investment advisor, (the "Advisor") about the general direction of interest
rates is incorrect, the Fund's overall performance would be poorer than if it
had not entered into any such contract. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of bonds held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its bonds which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell bonds from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
Various additional risks exist with respect to the trading of
futures. For example, the Fund's ability effectively to hedge all or a portion
of its portfolio through transactions in such instruments will depend on the
degree to which price movements in the underlying index correlate
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<PAGE>
with price movements in the relevant portion of the Fund's portfolio. The
trading of futures entails the additional risk of imperfect correlation between
movements in the futures price and the price of the underlying index. The Fund's
ability to engage in futures strategies will also depend on the availability of
liquid markets in such instruments. Transactions in these instruments are also
subject to the risk of brokerage firm or clearing house insolvencies. The
liquidity of a secondary market in a Futures Contract may be adversely affected
by "daily price fluctuation limits", established by exchanges, which limit the
amount of fluctuation in the price of a contract during a single trading day and
prohibit trading beyond such limit. In addition, the exchanges on which futures
are traded may impose limitations governing the maximum number of positions on
the same side of the market and involving the same underlying instrument which
may be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). In addition, the ordinary spreads between prices in the cash and
futures markets, due to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures market are subject to
initial deposit and variation margin requirements. Rather than meeting
additional variation margin requirements, investors may close out Futures
Contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, from the point of
view of speculators, the margin deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest rate trends by the Advisor may still not result in a successful
transaction.
Repurchase Agreements: The Fund may agree to purchase
securities issued by the United States Treasury ("U.S. Treasury Securities")
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Such repurchase agreements will be fully collateralized and the Fund will
enter into such agreements only with banks and broker-dealers which are judged
creditworthy by the Fund's Board of Directors under criteria established with
the assistance of the Advisor. The collateral for these repurchase agreements
will be held by the Fund's custodian or by a duly appointed sub-custodian. The
list of approved banks and broker-dealers will be monitored regularly by the
Advisor and reviewed at least quarterly by the Fund's Board of Directors. The
seller under a repurchase agreement may be required to maintain the value of the
securities subject to the repurchase agreement at not less than the repurchase
price. Default by the seller would, however, expose the Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or limited
in its ability to sell the collateral.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
and state regulatory limitations. The investment restrictions recited below are
in addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. Accordingly, the Fund will not:
1. Invest in real estate or mortgages on real estate, provided
that the Fund may purchase securities secured or otherwise supported by
interests in real estate;
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<PAGE>
2. Purchase or sell commodities or commodities contracts,
provided that for purposes of this restriction financial futures contracts are
not considered commodities or commodities contracts.
3. Act as an underwriter of securities within the meaning of
the U.S. federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
4. Issue senior securities, provided that investments in
financial futures contracts and when-issued securities shall not be deemed to
involve issuance of a senior security;
5. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies;
6. Effect short sales of securities;
7. Purchase securities on margin except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions;
8. Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs or leases; or
9. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining maturities
in excess of seven days.
The following investment restriction may be changed by a vote
of a majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered
under the Investment Company Act, except as permitted by federal law.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the
close of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern
Time) each day on which the New York Stock Exchange is open for business (a
"Business Day"). The New York Stock Exchange is open for business on all
weekdays except for the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value per share of a class is calculated by valuing
its share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given their
market value where feasible. Debt securities (other than short-term
obligations), including listed issues, are valued on the basis of valuations
furnished by a pricing service which utilizes both dealer-supplied valuations
and electronic data processing techniques which take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data, without exclusive reliance upon exchange or over-the-counter
prices, because such valuations are believed to reflect more accurately the fair
value of such securities. Use of the pricing service has been approved by the
Board of Directors. Short-term obligations (i.e., those with maturities of
60 days or
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<PAGE>
less) are valued at amortized cost, which constitutes fair value as
determined by the Board of Directors. Futures Contracts will normally be valued
at the settlement price on the exchange on which they are primarily traded.
Portfolio securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Directors.
Redemption
Under normal circumstances, the Fund will redeem Shares by
check as described in the Prospectus. However, if the Board of Directors
determines that it would be in the best interests of the remaining shareholders
to make payment of the redemption price in whole or in part by a distribution in
kind of securities from the portfolio of the Fund in lieu of cash, in conformity
with applicable rules of the SEC, the Fund will make such distributions in kind.
If Shares are redeemed in kind, the redeeming shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "Valuation of Shares" and such valuation will be
made as of the same time the redemption price is determined. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem Shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
The Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC so that valuation of the net assets of
the Fund is not reasonably practicable.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Qualification as a Regulated Investment Company
The Fund intends to be taxed as a regulated investment company
(a "RIC") under Subchapter M of the Code. In order to qualify as a RIC for any
taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, gains from the sale or other disposition of stocks or
securities, and other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business in investing
in such stocks or securities (the "Income Requirement"), and (2) derive less
than 30% of its gross income from gains on the sale or other disposition of
stocks or securities held for less than three months ("Short-Short Gain Test").
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<PAGE>
In addition, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its assets must consist of cash and
cash items, U.S. government securities, securities of other RICs, and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of its total assets in securities of any one issuer and as to which the
Fund does not hold more than 10% of the outstanding voting securities of any one
issuer). In addition, at the close of each quarter of the Fund's taxable year,
no more than 25% of the value of its total assets may be invested in the
securities (other than U.S. government securities and securities of other RICs),
of any one issuer or of two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses or related trades or
businesses (the "Asset Diversification Test"). The Fund will not lose its status
as a RIC if it fails to meet the Asset Diversification Test solely as a result
of a fluctuation in value of portfolio assets not attributable to a purchase.
Under Subchapter M, the Fund is exempt from federal income tax
on its net investment income and net capital gains (the excess of net long-term
capital gains over net short-term capital losses) which it distributes to
shareholders, provided that it distributes each year at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and 90% of its net
tax-exempt interest income (the "Distribution Requirement"), and complies with
certain other requirements of the Code. The Distribution Requirement for any
year may be waived if the Fund establishes to the satisfaction of the Internal
Revenue Service that it is unable to satisfy the Distribution Requirement by
reason of distributions previously made for the purpose of avoiding liability
for federal excise tax (discussed below).
The Fund will be subject to federal income taxation to the
extent any such income or gains are not distributed.
Fund Distributions
Distributions of investment company taxable income will
generally be taxable to shareholders as ordinary income, regardless of whether
such distributions are paid in cash or are reinvested in Shares. Fund
distributions will not be eligible for the corporate dividends received
deduction.
As noted in the Prospectus, exempt-interest dividends are
excludable from a shareholder's gross income for regular federal income tax
purposes. Exempt-interest dividends may nevertheless be subject to the
alternative minimum tax imposed by Section 55 of the Code (the "Alternative
Minimum Tax") or the environmental tax imposed by Section 59A of the Code (the
"Environmental Tax"). The Alternative Minimum Tax is imposed at a rate of up to
28% in the case of non-corporate taxpayers and at the rate of 20% in the case of
corporate taxpayers, to the extent it exceeds the taxpayer's regular tax
liability. The Environmental Tax is imposed at the rate of 0.12% and applies
only to corporate taxpayers. The Alternative Minimum Tax and the Environmental
Tax may be affected by the receipt of exempt-interest dividends in two
circumstances. First, exempt-interest dividends derived from certain "private
activity bonds" issued after August 7, 1986, will generally be an item of tax
preference and therefore potentially subject to the Alternative Minimum Tax and
the Environmental Tax. The Fund intends, when possible, to avoid investing in
private activity bonds. Second, in the case of exempt-interest dividends
received by corporate shareholders, all exempt-interest dividends, regardless of
when the bonds from which they are derived were issued or whether they are
derived from private activity bonds, will be included in the corporation's
"adjusted current earnings," as defined in Section 56(g) of the Code, in
calculating the corporation's alternative minimum taxable income for purposes of
determining the Alternative Minimum Tax and the Environmental Tax.
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<PAGE>
The percentage of income that constitutes "exempt-interest
dividends" will be determined for each year for the Fund and will be applied
uniformly to all dividends declared with respect to the Fund during that year.
This percentage may differ from the actual percentage for any particular day.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains"). If such gains are distributed as a capital gains distribution,
they are taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has held Fund Shares. Conversely, if the Fund
elects to retain its net capital gains, it will be taxed thereon at the
applicable corporate tax rate. In this event, it is expected that the Fund also
will elect to have shareholders treated as having received a distribution of
such gains, with the result that they will be required to report such gains on
their returns as long-term capital gains, will receive a refundable tax credit
for their allocable share of federal income tax paid by the Fund on the gains,
and will increase the tax basis for their Shares by an amount equal to 65% of
the deemed distribution.
Generally, gain or loss on the sale, exchange or redemption of
a Share will be capital gain or loss which will be long-term if the Share has
been held for more than one year and otherwise will be short-term. However, if a
shareholder recognizes a loss on the sale, exchange or redemption of a Share
held for six months or less, such loss will be treated as a long-term capital
loss to the extent that any capital gains distributions have been paid with
respect to such Share (or any undistributed net capital gains of the Fund with
respect to such Share is included in determining the shareholder's long-term
capital gains). Similarly, any loss recognized by a shareholder with respect to
Shares held for six months or less will be disallowed to the extent of any
exempt-interest dividends received by the shareholder with respect to such
Shares. In addition, any loss recognized on a sale or other disposition of
Shares will be disallowed to the extent an investor repurchases (or enters into
a contract or option to repurchase) Shares within a period of 61 days (beginning
30 days before and ending 30 days after the disposition of the Shares).
This loss disallowance rule will apply to Shares received through the
reinvestment of dividends during the 61-day period.
Investors should be careful to consider the tax implications
of purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend or distribution received, even though the net
asset value per Share on the date of such purchase may have reflected the amount
of such forthcoming dividend or distribution.
If for any taxable year the Fund does not qualify as a RIC,
all of its taxable income will be subject to tax at regular corporate rates
without any deduction for distributions to shareholders, and such distributions
will be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. In this event, such
distributions will generally be eligible for the dividends received deduction in
the case of corporate shareholders.
The Fund generally will be required in certain cases to
withhold and remit to the United States Treasury 31% of distributions payable to
any shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the
Internal Revenue Service for failure to report the receipt of interest or
dividend income property, or (3) who has failed to certify to the Fund that such
shareholder is not subject to backup withholding.
The Fund will provide a statement annually to shareholders as
to the federal tax status of distributions paid (or deemed to be paid) by the
Fund during the year.
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<PAGE>
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a nondeductible 4% federal excise tax on RICs
that do not distribute in each calendar year an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gains net income
for the one-year period ending on October 31 of such calendar year. The excise
tax is imposed on the undistributed part of this required distribution. In
addition, the balance of such income must be distributed during the next
calendar year to avoid liability for the excise tax in that year. For the
foregoing purposes, a company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year. For this purpose, in determining its capital gain net income for the
one-year period ending on October 31 of such calendar year, the Fund must reduce
its capital gain net income by the amount of any net ordinary loss for the
calendar year (but not below the net capital gains for the one-year period
ending on October 31). Because the Fund intends to distribute all of its income
currently (or to retain at most its "net capital gains" and pay tax thereon),
the Fund does not anticipate incurring any liability for this excise tax.
However, investors should note that the Fund may in certain circumstances be
required to liquidate portfolio investments in order to make sufficient
distributions to avoid excise tax liability and, in addition, that the
liquidation of such investments in such circumstances may affect the ability of
the Fund to satisfy the Short-Short Gain Test.
Interest on indebtedness incurred or continued by shareholders
to purchase or carry Shares of the Fund will not be deductible for federal
income tax purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal to
a portion of exempt-interest dividends received or accrued during any taxable
year. Foreign corporations engaged in a trade or business in the United States
will be subject to a "branch profits tax" on their "dividend equivalent amount"
for the taxable year, which will include exempt-interest dividends. Certain
Subchapter S corporations may also be subject to taxes on their "passive
investment income," which could include exempt-interest dividends. Up to 85% of
the Social Security benefits or railroad retirement benefits received by an
individual during any taxable year will be included in the gross income of such
individual if the individual's "modified adjusted gross income" (which includes
exempt-interest dividends) plus one-half of the Social Security benefits or
railroad retirement benefits received by such individual during that taxable
year exceeds the base amount described in Section 86 of the Code.
Entities or persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by industrial development
bonds or private activity bonds should consult their tax advisors before
purchasing Shares. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in trade or business a part of such a
facility.
Issuers of bonds purchased by the Fund (or the beneficiary of
such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Investors should be
aware that exempt-interest dividends derived from such bonds may become subject
to federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
Rules of state and local taxation of distributions from
regulated investment companies often differ from the rules for federal income
taxation described above. Shareholders of the Fund should consult with their tax
advisors regarding the application of the rules set forth above to their
particular circumstances and also regarding the application of state and local
tax laws to an investment in the Fund.
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5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is 717 Fifth Avenue, New York, New York 10022.
*EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy and Investment Inc.
(registered investment advisor), Chairman, ISI Inc.
(investments) and Chairman and President, ISI Group Inc.
(registered investment advisor and registered broker-dealer).
*R. ALAN MEDAUGH, Director and President (8/20/43)
President, International Strategy and Investment Inc.
(registered investment advisor).
*RICHARD T. HALE, Vice Chairman and Director (7/17/45)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Managing Director, Alex. Brown & Sons Incorporated;
Director and President, Investment Company Capital Corp.
(registered investment advisor); Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri
63141. Managing Director, CBC Capital (merchant banking),
1993-Present; Formerly, Senior Vice President and Chief
Financial Officer, General Dynamics Corporation (defense),
1989-1993 and Director, The Arch Fund (registered investment
company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960.
Director/Trustee, AIM Funds (registered investment companies);
Formerly, Consultant, Wendell & Stockel Associates, Inc.
(consulting firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (finance and banking); Chairman of the
Quality Control Inquiry Committee, American Institute of
Certified Public Accountants; Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993; Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992; Partner,
KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West
Main Street, Durham, North Carolina 27705. President, Duke
Management Company (investments); Executive Vice President,
Duke University (education, research and healthcare);
Director, Central Carolina Bank & Trust (banking), Key Funds
(registered investment companies), and AMBAC Treasurers Trust
(registered investment company).
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<PAGE>
EDWARD J. VEILLEUX, Vice President (8/26/43)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Principal, Alex. Brown & Sons Incorporated; Vice
President, Armata Financial Corp. (registered broker-dealer)
and Executive Vice President, Investment Company Capital Corp.
(registered investment advisor).
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy
and Investment Inc. (registered investment advisor).
SCOTT J. LIOTTA, Vice President (3/18/65)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Manager, Fund Administration, Alex. Brown & Sons
Incorporated, July 1996-Present; Formerly, Manager and
Foreign Markets Specialist, Putnam Investments Inc.
(registered investment companies), April 1994-July 1996; and
Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 1994.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy and
Investment Inc. (registered investment advisor).
JOSEPH A. FINELLI, Treasurer (1/24/57)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Vice President, Alex. Brown & Sons Incorporated and
Vice President, Investment Company Capital Corp. (registered
investment advisor), September 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company Inc. (investments), 1980-August 1995.
EDWARD J. STOKEN, Secretary (8/7/47)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Compliance Officer, Alex. Brown & Sons Incorporated,
April 1995-Present; Formerly, Legal Advisor, Federated
Investors (registered investment advisor), 1991-1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
MD 21202. Asset Management Department, Alex. Brown & Sons
Incorporated, 1991 to Present.
- ---------------------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors or
officers of some or all of the other investment companies advised, distributed,
administered or managed by the Distributors, or by any of their respective
affiliates. There are currently twelve funds in the Flag Investors/ISI Funds and
Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hyman
serves as a Chairman of three funds in the Fund Complex. Mr. Medaugh serves as
Director and President of one fund and as President of two other funds in the
Fund Complex. Mr. Hale serves as President and Director of one fund, as Chairman
of three funds and as a director of each of the other funds in the Fund Complex.
Messrs. Cunnane, Kroeger, Levy and McDonald serve as Directors of each of the
funds in the Fund Complex. Ms. Lazar and Ms.
- 12 -
<PAGE>
Butler serve as Vice Presidents of three funds in the Fund Complex. Mr. Veilleux
serves as Executive Vice President of one fund and as Vice President of each of
the other funds in the Fund Complex. Mr. Liotta serves as Vice President, Mr.
Stoken serves as Secretary, Mr. Finelli serves as Treasurer and Ms. Collidge
serves as Assistant Secretary, respectively, of each of the funds in the Fund
Complex.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of the Distributors, the Advisor or the Fund's administrator may be
considered to have received remuneration indirectly. As compensation from the
Fund, each Director who is not an "interested person" of the Fund (as defined in
the Investment Company Act) (a "Non-Interested Director") receives an aggregate
annual fee (plus reimbursement for reasonable out-of-pocket expenses incurred in
connection with his attendance at Board and committee meetings) from all Flag
Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. for which he serves.
In addition, the Chairman of the Fund Complex's Audit Committee receives an
aggregate annual fee from the Fund Complex. Payment of such fees and expenses is
allocated among all such funds described above in direct proportion to their
relative net assets. For the fiscal year ended October 31, 1996, Non-Interested
Directors' fees attributable to the assets of the Fund totalled $10,808. The
following table shows aggregate compensation payable to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
October 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Pension or Total Compensation From the
Position From the Fund for the Retirement Benefits Fund and Fund Complex Payable
Fiscal Year Ended Accrued as Part of to Directors for the Fiscal Year
October 31, 1996 Fund Expenses Ended October 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Edward S. Hyman $0 $0 $0
Chairman
*R. Alan Medaugh $0 $0 $0
Director & President
*Richard T. Hale $0 $0 $0
Vice Chairman
*W. James Price*** $0 $0 $0
Vice Chairman
James J. Cunnane $956(1) + $39,000 for service on
Director 12 Boards in Fund Complex
N. Bruce Hannay** $348(1) + $13,071 for service on
Director 12 Boards in Fund Complex
John F. Kroeger $1,202(1) + $49,000 for service on
Director 12 Boards in Fund Complex
Louis E. Levy $956(1) + $39,000 for service on
Director 12 Boards in Fund Complex
Eugene J. McDonald $956(1) + $39,000 for service on
Director 12 Boards in Fund Complex
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Harry Woolf*** $956(1) + $39,000 for service on
Director 12 Boards in Fund Complex
</TABLE>
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired, effective January 31, 1996 and is now deceased.
*** Retired, effective December 31, 1996.
(1) Of the amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald
and Woolf, $956, $0, $0, $0, $956 and $956, respectively, was deferred
pursuant to a deferred compensation plan.
+ The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense allocated to the
Fund for the period from January 1, 1996 through October 31, 1996 was
approximately $4,543.
The Fund Complex has adopted a retirement plan (the
"Retirement Plan") for Directors who are not employees of the Fund, the Fund's
Advisor or their respective affiliates (the "Participants"). After completion of
six years of service, each Participant will be entitled to receive an annual
retirement benefit equal to a percentage of the fee earned by him in his last
year of service. Upon retirement, each Participant will receive annually 10% of
such fee for each year that he served after completion of the first five years,
up to a maximum annual benefit of 50% of the fee earned by him in his last year
of service. The fee will be paid quarterly, for life, by each Fund for which he
serves. The Retirement Plan is unfunded and unvested. Mr. Kroeger has qualified
but has not received benefits. The Fund has two Participants, a Director who
retired effective December 31, 1994 and a Director who retired effective
December 31, 1996, each of whom has qualified for the Retirement Plan by serving
thirteen years and fourteen years, respectively, as Directors in the Fund
Complex and who will be paid a quarterly fee of $4,875 by the Fund Complex for
the rest of his life. Another Participant, who retired on January 31, 1996 and
died on June 2, 1996, was paid fees of $8,090 by the Fund Complex under the
Retirement Plan for the fiscal year ended October 31, 1996. Such fee is
allocated to each fund in the Fund Complex based upon the relative net assets of
such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his last year
of service, as described above. The approximate credited years of service at
December 31, 1996 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; and for Mr. McDonald, 4 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<C> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
- 14 -
<PAGE>
Any Director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his annual compensation pursuant to a
Deferred Compensation Plan.
Messrs. Cunnane, Kroeger, Levy and McDonald have each executed
a Deferred Compensation Agreement. Currently, the deferring Directors may select
various Flag Investors and Alex. Brown Cash Reserve Funds in which all or part
of their deferral account shall be deemed to be invested. Distributions from the
deferring Directors deferral accounts will be paid in cash, in generally equal
quarterly installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act (the "Code of
Ethics"). The Code of Ethics applies to the personal investing activities of
directors and officers of the Fund, as well as to designated officers, directors
and employees of the Advisor and the Distributors. As described below, the Code
of Ethics imposes significant restrictions on the Advisor's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that covered employees of the Advisor,
certain directors or officers of the Distributors, and all Fund Directors who
are "interested persons" preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases which are part
of an automatic dividend reinvestment plan). The preclearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions
applicable to investment personnel include a ban on acquiring any securities in
an initial public offering, a prohibition from profiting on short-term trading
in securities and special preclearance of the acquisition of securities in
private placements. Furthermore, the Code of Ethics provides for trading
"blackout periods" that prohibit trading by investment personnel and certain
other employees within periods of trading by the Fund in the same security.
Officers, directors and employees of the Advisor and the Distributors may comply
with codes of ethics instituted by those entities so long as they contain
similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
International Strategy and Investment Inc. ("ISI" or the
"Advisor") serves as the Fund's investment advisor pursuant to an investment
advisory agreement dated as of April 1, 1991 (the "Investment Advisory
Agreement"). ISI is a registered investment advisor that was formed in January,
1991. ISI employs Messrs. Edward S. Hyman, the Fund's Chairman and R. Alan
Medaugh, the Fund's President. ISI is also the investment advisor to Total
Return U.S. Treasury Fund, Inc. and North American Government Bond Fund, Inc.
Under the Investment Advisory Agreement, the Advisor obtains
and evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. Any investment program undertaken by
the Advisor will at all times be subject to policies and control of the Fund's
Board of Directors. The Advisor will provide the Fund with office space for
managing its affairs, with the services of required executive personnel and with
certain clerical and bookkeeping services and facilities. These services are
provided by the Advisor without reimbursement by the Fund for any costs. The
Advisor shall not be liable to the Fund or its shareholders for any act or
omission by the Advisor or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence, or
reckless
- 15 -
<PAGE>
disregard of duty. As compensation for its services, the Advisor is
entitled to receive an annual fee from the Fund, payable monthly, at the annual
rate of .40% of the Fund's average daily net assets. The Advisor and the
Administrator have voluntarily agreed to reduce proportionately their respective
annual fees, if necessary, so that the Fund's annual expenses do not exceed .90%
of the average daily net assets of either the Flag Investors Shares or the
ISI Shares Classes. The services of the Advisor to the Fund are not exclusive
and the Advisor is free to render similar services to others.
The Advisor is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. Because purchases and sales of securities by the Fund will
usually be principal transactions, the Fund will incur little, if any, brokerage
commission expense. The Advisor's primary consideration in effecting securities
transactions will be to obtain best price and execution. To the extent that the
execution and prices of more than one dealer are comparable, the Advisor may, in
its discretion, effect transactions with dealers that furnish statistical
research or other information or services that may benefit the Fund's investment
program.
The Investment Advisory Agreement will continue in effect from
year to year after its initial two year term if such continuance is specifically
approved at least annually by the Fund's Board of Directors, including a
majority of the Non-Interested Directors who have no direct or indirect
financial interest in such agreements, by votes cast in person at a meeting
called for such purpose, and by a vote of a majority of the outstanding Shares
(as defined under "Capital Stock"). The Investment Advisory Agreement was most
recently approved by the Board of Directors in the foregoing manner on October
1, 1996. The Fund or the Advisor may terminate the Investment Advisory Agreement
on 60 days' written notice without penalty. The Investment Advisory Agreement
will terminate automatically in the event of assignment (as defined in the
Investment Company Act). For the fiscal years ended October 31, 1996, October
31, 1995 and October 31, 1994, ISI received fees from the Fund of $516,180,
$531,628 and $563,840, respectively and from such amounts waived fees of
$192,777, $177,885 and $191,665, respectively.
7. ADMINISTRATION
Investment Company Capital Corp. ("ICC" or the
"Administrator"), One South Street, Baltimore, Maryland 21202 provides
administration services to the Fund including: monitoring the Fund's regulatory
compliance, supervising all aspects of the Fund's service providers, arranging,
but not paying for, the printing and mailing of prospectuses, proxy materials
and shareholder reports, preparing and filing all documents required by the
securities laws of any state in which the Shares are sold, establishing the
Fund's budgets, monitoring the Fund's distribution plan, preparing the Fund's
financial information and shareholder reports, calculating dividend and
distribution payments and arranging for the preparation of state and federal tax
returns.
As compensation for providing administration services to the
Fund, the Administrator is entitled to receive an annual fee, calculated daily
and paid monthly, at the annual rate of .20% of the Fund's average daily net
assets. The Administrator and the Advisor have voluntarily agreed to reduce
proportionately their respective fees, if necessary, so that the annual expenses
for the Flag Investors Shares and the ISI Shares Classes do not exceed .90% of
such classes' respective average daily net assets. For the fiscal year ended
October 31, 1996, October 31, 1995 and for the period from January 1, 1994
through October 31, 1994, ICC received fees of $258,090, $265,814 and $234,666,
respectively, and from such amounts waived fees of $98,140,
- 16 -
<PAGE>
$88,942 and $80,446, respectively. Prior to January 1, 1994, Alex. Brown
provided administration services to the Fund. For the period from November 1,
1993 through December 31, 1993, Alex. Brown received fees (net of fee waivers)
of $31,868.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. (See "Custodian, Transfer
Agent and Accounting Services.") ICC is a wholly-owned subsidiary of Alex. Brown
Financial Corp. and an indirect subsidiary of Alex. Brown Incorporated. ICC is
an affiliate of Armata Financial Corp.
8. DISTRIBUTION OF FUND SHARES
The Flag Investors Class A Shares Distribution Agreement
provides that Alex. Brown & Sons Incorporated ("Alex. Brown") has the exclusive
right to distribute the Flag Investors Class A Shares either directly or through
other broker-dealers. The ISI Shares Distribution Agreement provides that Armata
Financial Corp. ("Armata") has the exclusive right to distribute ISI Shares,
either directly or through other broker-dealers. Armata is a broker-dealer that
was formed in 1983 and is an affiliate of Alex. Brown and ICC. (The ISI Shares
Distribution Agreement and the Flag Investors Class A Shares Distribution
Agreement are herein collectively referred to as the "Distribution Agreements").
The Distribution Agreements further provide that the distributors on behalf of
the relevant class, will: solicit and receive orders for the purchase of Shares;
accept or reject such orders on behalf of the Fund in accordance with the Fund's
currently effective Prospectus and transmit such orders as are accepted to the
Fund's transfer agent as promptly as possible; receive requests for redemptions
and transmit such redemption requests to the Fund's transfer agent as promptly
as possible; and respond to inquiries from shareholders concerning the status of
their accounts and the operations of the Fund. Neither Alex. Brown nor Armata
have undertaken to sell any specific number of Shares. The Distribution
Agreements further provide that, in connection with the distribution of Shares,
Alex. Brown and Armata will be responsible for all of their respective
promotional expenses. The services provided by Alex. Brown and Armata to the
Fund are not exclusive, and they are free to provide similar services to others.
Alex. Brown and Armata shall not be liable to the Fund or its shareholders for
any act or omission by them or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Alex. Brown and Armata have entered into Sub-Distribution
Agreements with certain broker-dealers ("Participating Dealers") under which the
Participating Dealers have agreed to process investor purchase and redemption
orders and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund.
As compensation for providing distribution services as
described above, Alex. Brown and Armata each receive an annual fee, paid
monthly, equal to .25% of the average daily net assets of the Flag Investors
Class A Shares and the ISI Shares, respectively. Alex. Brown and Armata expect
to allocate most of their annual fees to investment representatives and up to
all of their fees to Participating Dealers who enter into Sub-Distribution
Agreements with Alex. Brown or Armata, respectively.
Pursuant to Rule 12b-1 under the Investment Company Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's board of
directors and approved by its shareholders, the Fund has adopted a Plan of
Distribution for each of its classes of shares (the "Plans"). Under the Plans,
the Fund pays a fee to Alex. Brown and Armata for distribution and other
shareholder servicing assistance as set forth in the Distribution Agreements,
and Alex. Brown and Armata are authorized to make payments out of the fee to
their investment representatives and to Participating Dealers. The Distribution
Agreements, including the Distribution Plans
- 17 -
<PAGE>
were most recently approved by the Fund's Board of Directors, including a
majority of the Non-Interested Directors on October 1, 1996. The Distribution
Agreements and the Plans encompassed therein will remain in effect from year to
year as specifically approved at least annually by the Fund's Board of Directors
and by the affirmative vote of a majority of the Non-Interested Directors by
votes cast in person at a meeting called for such purpose.
In approving the Plans, the Directors concluded, in the
exercise of reasonable business judgment, that there was a reasonable likelihood
that the Plans would benefit the Fund and its shareholders. The Plans will be
renewed only if the Directors make a similar determination in each subsequent
year. The Plans may not be amended to increase materially the fee to be paid
pursuant to the Distribution Agreement without the approval of the shareholders
of the Fund. The Plans may be terminated at any time and the Distribution
Agreements may be terminated at any time upon 60 days' notice, in either case
without penalty, by the vote of a majority of the Fund's Non-Interested
Directors or by a vote of a majority of the outstanding Shares (as defined under
"Capital Stock"). Any Sub-Distribution Agreement may be terminated in the same
manner at any time. The Distribution Agreements and any Sub-Distribution
Agreement shall automatically terminate in the event of assignment.
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plans to Alex. Brown and Armata
pursuant to the Distribution Agreements and to broker-dealers pursuant to
Sub-Distribution Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Non-Interested Directors shall
be committed to the discretion of the Non-Interested Directors then in office.
In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown and Armata will
allocate a portion of their respective distribution fees as compensation for
such financial institutions' ongoing shareholder services. Although banking laws
and regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations from various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the Shareholder Servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. Such financial institutions may impose
separate fees in connection with these services and investors should review this
Prospectus in conjunction with any such institution's fee schedule.
Under the Plans, amounts allocated to Participating Dealers
and Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown
and Armata under the Plans. Payments under the Plans are made as described above
regardless of Alex. Brown's or Armata's actual cost of providing distribution
services and may be used to pay Alex. Brown's and Armata's overhead expenses. If
the cost of providing distribution services to the Fund in connection with the
sale of the Flag Investors Class A Shares or the ISI Shares is less than .25% of
the respective classes' average daily net assets for any period, the unexpended
portion of the distribution fee may be retained by Alex. Brown and Armata, as
appropriate. The Plans do not provide for any charges to the Fund for excess
amounts expended by Alex. Brown and Armata and, if the Plans are terminated in
accordance with their terms, the obligation of the Fund to make payments to
Alex. Brown and Armata pursuant to the Plans will cease and the Fund will not be
required to make any payments past the date the related Distribution Agreement
terminates.
- 18 -
<PAGE>
As compensation for distributing the ISI Shares for the fiscal
years ended October 31, 1996, October 31, 1995 and October 31, 1994, Armata
received from the Fund 12b-1 fees of $213,366, $212,053 and $217,473,
respectively. As compensation for distributing the Flag Investors Class A Shares
for the fiscal years ended October 31, 1996, October 31, 1995 and October 31,
1994, Alex. Brown received from the Fund 12b-1 fees of $109,247, $120,214 and
$130,687, respectively. In return, Alex. Brown and Armata, as appropriate, paid
the distribution-related expenses of the Fund including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sales personnel; and
interest, carrying or other financing charges. For the period from November 9,
1992 through February 28, 1994, Alex. Brown was also distributor for the Flag
Investors Class D Shares (known at such time as the Flag Investors Class B
Shares) pursuant to a Plan of Distribution in effect for such class. For
distribution services for such shares for the period from November 1, 1993
through October 19, 1994, Alex. Brown received from the Fund 12b-1 fees of
$10,173.
For the fiscal years ended October 31, 1996, October 31, 1995
and October 31, 1994, Alex. Brown received sales commissions on the Flag
Investors Class A Shares of $27,710, $63,394 and $128,141, and from such amounts
retained $26,210, $62,002 and $125,181 in each such year, respectively. For the
fiscal years ended October 31, 1996, October 31, 1995 and October 31, 1994,
Armata received sales commissions on the ISI Shares of $92,720, $353,850 and
$184,450 and from such amounts retained $30,319, $18,641 and $28,864 in each
such year, respectively.
Neither Armata nor Alex. Brown received brokerage commissions
from the Fund in the fiscal years ended October 31, 1996, October 31, 1995 or
October 31, 1994.
The Fund has paid all costs associated with its organization
and registration under the Securities Act of 1933 and the Investment Company
Act. Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the
Non-Interested Directors, and of independent public accountants, in connection
with any matter relating to the Fund; a portion of membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by
- 19 -
<PAGE>
Alex. Brown, ICC or Armata. Absent fee waivers for the fiscal year ended October
31, 1996, the Fund's Total Operating Expenses were 1.13% of its average daily
net assets.
9. PORTFOLIO TRANSACTIONS
The Advisor is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection and for negotiation of
commission rates. The Advisor may direct purchase and sale orders to any
broker-dealer.
Municipal obligations and other debt securities are traded
principally in the over-the-counter market on a net basis through dealers acting
for their own account and not as brokers. The cost of securities purchased from
underwriters includes an underwriter's commission or concession, and the prices
at which securities are purchased and sold from and to dealers include a
dealer's mark-up or mark-down. The Advisor attempts to negotiate with
underwriters to decrease the commission or concession for the benefit of the
Fund. The Advisor normally seeks to deal directly with the primary market makers
unless, in its opinion, better prices are available elsewhere. Securities firms
or futures commission merchants may receive brokerage commissions on
transactions involving Futures Contracts. On occasion, certain money market
instruments may be purchased directly from an issuer without payment of a
commission or concession.
The Advisor's primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, the Advisor may, in its discretion, effect
transactions with broker-dealers that furnish statistical, research or other
information or services which are deemed by the Advisor to be beneficial to the
Fund's investment program. Certain research services furnished by broker-dealers
may be useful to the Advisor with clients other than the Fund.
Similarly, any research services received by the Advisor
through placement of portfolio transactions of other clients may be of value to
the Advisor in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to the
Advisor by a broker-dealer. The Advisor is of the opinion that because the
material must be analyzed and reviewed by its staff, its receipt does not tend
to reduce expenses, but may be beneficial in supplementing the Advisor's
research and analysis. Therefore, it may tend to benefit the Fund by improving
the Advisor's investment advice. The Advisor's policy is to pay a broker-dealer
higher commissions for particular brokerage transactions, if any, than might be
charged if a different broker-dealer had been chosen when, in the Advisor's
opinion, this policy furthers the overall objective of obtaining best price and
execution. Subject to periodic review by the Fund's Board of Directors, the
Advisor is also authorized to pay broker-dealers higher commissions on brokerage
transactions for the Fund in order to secure research and investment services
described above. The allocation of orders among broker-dealers and the
commission rates paid by the Fund will be reviewed periodically by the Board.
During the fiscal years ended October 31, 1996, October 31, 1995 and October 31,
1994 no brokerage commissions were paid by the Fund for research services.
The Fund is required to identify any securities of its
"regular brokers or dealers" (as such term is defined in the Investment Company
Act) which the Fund has acquired during its most recent fiscal year. As of
October 31, 1996, the Fund held a 5.45% repurchase agreement issued by Goldman
Sachs & Co. valued at $6,863,000. Goldman Sachs & Co. is a "regular broker or
dealer" of the Fund.
The Advisor manages other investment accounts. It is possible
that, at times, identical securities will be acceptable for the Fund and one or
more of such other accounts;
- 20 -
<PAGE>
however, the position of each account in the securities of the same issuer may
vary and the length of time that each account may choose to hold its investment
in such securities may likewise vary. The timing and amount of purchase by each
account will also be determined by its cash position. If the purchase or sale of
securities consistent with the investment policies of the Fund or one or more of
these accounts is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Advisor. The Advisor may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
10. CAPITAL STOCK
The Fund is authorized to issue 40 million Shares of common
stock, par value $.001 per Share. The Board of Directors may increase or
decrease the number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of shares by the Directors
at any time without shareholder approval. The Fund has created four classes of
Shares: ISI Shares, Flag Investors Class A Shares (formerly known as Flag
Investors Managed Municipal Fund Shares), Flag Investors Managed Municipal Fund
Class B Shares and Flag Investors Managed Municipal Fund Class D Shares. The
Flag Investors Managed Municipal Fund Class B Shares and the Flag Investors
Managed Municipal Fund Class D Shares are not currently being offered. All
Shares of the Fund regardless of class would have equal rights with respect to
voting, except that with respect to any matter affecting the rights of the
holders of a particular series or class, the holders of each series would vote
separately. Any such series would be a separately managed portfolio and
shareholders of each series would have an undivided interest in the net assets
of that series. For tax purposes, the series would be treated as separate
entities. Generally, each class of shares issued by a particular series will be
identical to every other class and expenses of the Fund (other than 12b-1 fees)
are prorated among all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively would be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund. There are no preemptive,
conversion or exchange rights applicable to any of the Shares. The issued and
outstanding Shares are fully paid and non-assessable. In the event of
liquidation or dissolution of the Fund, each Share is entitled to its portion of
the Fund's assets (or the assets allocated to a separate series of shares if
there is more than one series) after all debts and expenses have been paid.
As used in this Statement of Additional Information, the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67% or
more of the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
- 21 -
<PAGE>
11. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants.
12. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, a subsidiary of PNC Bank
Corp. has been retained to act as custodian of the Fund's investments. PNC Bank
receives such compensation from the Fund for its services as custodian as may be
agreed to from time to time by PNC Bank and the Fund. Investment Company Capital
Corp., One South Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080
for the Flag Investors Shares Class and (800) 882-8585 for the ISI Shares Class)
has been retained to act as the Fund's transfer and dividend disbursing agent.
As compensation for these services, ICC receives up to $10.62 per account per
year plus reimbursement for out-of-pocket expenses incurred in connection
therewith. For the fiscal year ended October 31, 1996, such fees totalled
$54,959.
ICC also provides accounting services to the Fund. As
compensation for providing accounting services, ICC is entitled to receive an
annual fee, calculated daily and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000 (fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services: express delivery service, independent pricing and storage. As
compensation for providing accounting services for the fiscal year ended October
31, 1996, ICC received fees of $59,356.
- 22 -
<PAGE>
13. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by
Coopers & Lybrand L.L.P. whose report thereon appears elsewhere herein, and has
been included herein in reliance upon the report of such firm of accountants
given on their authority as experts in accounting and auditing. Coopers &
Lybrand L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103.
14. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the
Fund to that of other open-end diversified management investment companies and
to stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the
1, 5, or 10 year periods (or fractional
portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or
10 year periods.
Under the foregoing formula, the time periods used in
advertising will be based on rolling calendar quarters, updated to the last day
of the most recent quarter prior to submission of the advertising for
publication, and will cover one, five, and ten year periods or a shorter period
dating from the effectiveness of the Fund's registration statement or the date
the Fund (or a series) commenced operations (provided such date is subsequent to
the date the registration statement became effective). In calculating the ending
redeemable value, the maximum sales load is deducted from the initial $1,000
payment and all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. "T" in the formula above is calculated by finding the
average annual compounded rate of return over the period that would equate an
assumed initial payment of $1,000 to the ending redeemable value. Any sales
loads that might in the future be made applicable at the time to reinvestments
would be included as would any recurring account charges that might be imposed
by the Fund.
The Fund may also from time to time include in such
advertising total return figures that are not calculated according to the
formula set forth above in order to compare more accurately the Fund's
performance with other measures of investment return. For example, in comparing
the Fund's total return with data published by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc. or Morningstar, Inc., with the performance of
the Lehman Brothers Municipal Bond Index, the Consumer Price Index, the return
on 90 day U.S. Treasury bills, the Standard and Poor's 500 Stock Index or the
Dow Jones Industrial Average, the Fund calculates its aggregate and average
annual total return for the specified periods of time by assuming the investment
of $10,000
- 23 -
<PAGE>
in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. For the purpose of
other comparisons, the Fund performs a second alternative computation for its
aggregate and average annual total return by assuming the investment of $10,000
in Shares and assuming no reinvestment of dividends or other distributions.
For these alternative computations, the Fund assumes that the
$10,000 invested in Shares is net of all sales charges (as distinguished from
the computation required by the SEC where the $1,000 payment is reduced by sales
charges before being invested in Shares). The Fund will, however, disclose the
maximum sales charges and will also disclose that the performance data do not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules, and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Calculated according to SEC rules, for the one year period
ended September 30, 1996, the ending redeemable value of a hypothetical $1,000
payment for ISI Shares was $1,006, resulting in a total return for such Shares
equal to 0.58%. For the five year period ended September 30, 1996, the ending
redeemable value of a hypothetical $1,000 payment for ISI Shares was $1,360,
resulting in an average annual total return for such Shares equal to 6.34%. For
the period from February 26, 1990 (effectiveness of the Fund's registration
statement) through the end of the Fund's most recent calendar quarter on
September 30, 1996, the ending redeemable value of a hypothetical $1,000 payment
for ISI Shares was $1,485, resulting in an average annual total return for such
Shares equal to 6.18%.
Calculated according to SEC rules for the one year period
ended September 30, 1996, the ending redeemable value of a hypothetical $1,000
payment for Flag Investors Class A Shares was $1,005, resulting in an annual
return for such Shares equal to 0.52%. For the five year period ended September
30, 1996, the ending redeemable value of a hypothetical $1,000 payment for Flag
Investors Class A Shares was $1,300, resulting in an average annual total return
for such shares equal to 5.39%. For the period from October 23, 1990 (initial
public offering of the Flag Investors Class A Shares) through the end of the
Fund's most recent calendar quarter on September 30, 1996, the ending redeemable
value of a hypothetical $1,000 payment for Flag Investors Class A Shares was
$1,448, resulting in an average annual total return for such Shares equal to
6.43%.
Calculated according to the first alternative computation,
which assumes no sales charge and reinvestment of all distributions, for the one
year period ended October 31, 1996, the ending redeemable value of a
hypothetical $10,000 investment in either ISI Shares or Flag Investors Class A
Shares was $10,457, resulting in an average total return equal to 4.57%. For the
five year period ended October 31, 1996, the ending redeemable value of a
hypothetical $10,000 investment in either ISI Shares or Flag Investors Class A
Shares was $13,688, resulting in an average annual total return equal to 6.48%.
For the period from February 26, 1990 (effectiveness of the Fund's registration
statement) through the end of the Fund's most recent fiscal year on October 31,
1996, the ending redeemable value of a hypothetical $10,000 investment in ISI
Shares was $15,747, resulting in an average annual total return for such Shares
equal to 7.03%. For the period from October 23, 1990 (initial public offering of
the Flag Investors Class A Shares) through the end of the Fund's most recent
fiscal year on October 31, 1996, the ending redeemable value of a hypothetical
$10,000 investment in Flag Investors Class A Shares was $15,357, resulting in an
average annual total return for such Shares equal to 7.38%.
-24-
<PAGE>
Any yield quotation of the Fund is based on the annualized net
investment income per share of the Fund over a 30 day period. The yield for the
Fund is calculated by dividing the net investment income per share of the Fund
earned during the period by the maximum offering price per share of the Fund on
the last day of that period. The resulting figure is then annualized. Net
investment income per share is determined by dividing (i) the dividends and
interest earned by the Fund during the period, minus accrued expenses for the
period, by (ii) the average number of Fund shares entitled to receive dividends
during the period multiplied by the maximum offering price per share on the last
day of the period. The Fund's yield calculations assume a maximum sales charge
of 4.45% for the ISI Shares and 4.50% for the Flag Investors Class A Shares. The
Fund's taxable-equivalent yield is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent on the Fund's yield. In calculating taxable-equivalent
yield, the Fund assumes certain brackets for shareholders.
For the 30 day period ended October 31, 1996, the yield for
the ISI Shares was 4.24% and the yield for the Flag Investors Class A Shares was
4.24%. For the same 30 day period, the taxable-equivalent yield (for an investor
in the 31% tax bracket) was 6.14% for the ISI Shares and 6.14% for the Flag
Investors Class A Shares.
The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding U.S. Government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. For the
fiscal years ended October 31, 1996 and October 31, 1995, the Fund's portfolio
turnover rate was 32% and 55%, respectively.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, no one owned beneficially 5%
or more of the Fund's outstanding Shares, as of January 31, 1997.
As of such date directors and officers, as a group, owned
beneficially and of record less than 1% of the Fund's outstanding Shares of
either class.
16. FINANCIAL STATEMENTS.
See next page.
- 25 -
<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> <C> <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>
-26-
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <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>
-27-
<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> <C> <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>
-28-
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market Value
S&P) (000) (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <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.
-29-
<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.
-30-
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <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.
-31-
<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> <C> <C> <C> <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.
See Notes to Financial Statements.
-32-
<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.
-33-
<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.
-34-
<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)
=========== ============
-35-
<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
============
-36-
<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
-37-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration
Statement:
- Statement of Net Assets as of October 31, 1996
Statement of Operations for the fiscal year ended
October 31, 1996
- Statement of Changes in Net Assets for the fiscal
years ended October 31, 1996 and October 31, 1995
- Financial Highlights for the fiscal years ended
October 31, 1996, October 31, 1995, October 31,
1994, October 31, 1993, October 31, 1992, October
31, 1991 and for the period from February 26, 1990
(commencement of operations) through October 31,
1990
- Notes to Financial Statements
- Report of Independent Accountants
(2) All required financial statements are included in
Part B of the Registration Statement. All other
financial statements and schedules are inapplicable.
(b) Exhibits:
(1)(4) (a) Registrant's Articles of Incorporation.
(b) Articles Supplementary to Registrant's
Articles of Incorporation dated December 15,
1993.
(c) Articles Supplementary to Registrant's
Articles of Incorporation dated December 31,
1994.
(2)(1) Registrant's By-Laws, as amended through December 18,
1996.
(3) None.
(4) (a)(2) ISI Managed Municipal Fund Shares, Specimen
Certificate of Common Stock, $.001 par
value.
(b)(3) Flag Investors Managed Municipal Fund Class
A Shares, Specimen Certificate of Common
Stock, $.001 par value.
(c)(2) Flag Investors Managed Municipal Fund Class
B Shares (later renamed Class D Shares),
Specimen Certificate of Common Stock, $.001
par value.
(5)(4) Investment Advisory Agreement dated April 1, 1991
between Registrant and International Strategy and
Investment Inc.
(6) (a)(4) Distribution Agreement for Flag Investors
Managed Municipal Fund Class A Shares dated
October 23, 1990 between Registrant and
Alex. Brown & Sons Incorporated.
(b)(4) Form of Participating Dealer Agreement for
Flag Investors Managed Municipal Fund Shares
between Alex. Brown & Sons and Participating
Dealers.
C-1
<PAGE>
(c)(4) Form of Shareholder Servicing Agreement
between the Registrant and Shareholder
Servicing Agents.
(d)(4) Distribution Agreement for ISI Managed
Municipal Fund Shares dated November 30,
1990 between Registrant and Armata Financial
Corp.
(e)(4) Form of Participating Dealer Agreement for
ISI Managed Municipal Fund Shares between
Armata Financial Corp. and Participating
Dealers as in effect from November 30, 1990.
(f)(1) Form of Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and
Participating Dealer.
(7) None.
(8)(4) Custodian Agreement between Registrant and Provident
National Bank.
(9)(4) (a) Master Services Agreement between Registrant
and Investment Company Capital Corp. and
Appendices for the provision of
Administrative, Accounting and Transfer
Agency Services.
(b) License Agreement between Registrant and
Alex. Brown Incorporated.
(10)(4) Opinion of Counsel.
(11)(1) Consent of Coopers & Lybrand L.L.P.
(12) None.
(13)(4) Form of Subscription Agreement re: initial $100,000
capital.
(14) None.
(15)(4) (a) Distribution Plan for the ISI Managed
Municipal Fund Shares.
(b) Distribution Plan for the Flag Investors
Managed Municipal Fund Class A Shares.
(16)(4) Schedule of Computation of Performance Quotations
(unaudited).
(18) (a)(4) Rule 18f-3 Plan.
(b)(1) Rule 18f-3 Plan.
(24)(1) Powers of Attorney.
(27)(1) Financial Data Schedule
- -------------------
(1) Filed herewith.
(2) Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on
February 24, 1994.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on August
24, 1990.
C-2
<PAGE>
(4) Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on
February 26, 1996.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
FURNISH A LIST OR DIAGRAM OF ALL PERSONS DIRECTLY OR INDIRECTLY
CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT AND AS TO EACH SUCH
PERSON INDICATE (1) IF A COMPANY, THE STATE OR OTHER SOVEREIGN POWER UNDER THE
LAWS OF WHICH IT IS ORGANIZED, AND (2) THE PERCENTAGE OF VOTING SECURITIES OWNED
OR OTHER BASIS OF CONTROL BY THE PERSON, IF ANY, IMMEDIATELY CONTROLLING IT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
STATE IN SUBSTANTIALLY THE TABULAR FORM INDICATED, AS OF A SPECIFIED
DATE WITHIN 90 DAYS PRIOR TO THE DATE OF FILING, THE NUMBER OF RECORD HOLDERS OF
EACH CLASS OF SECURITIES OF THE REGISTRANT.
Number of Record Holders
Title of Class as of January 31, 1997
- -------------- ------------------------
ISI Managed 1,448
Municipal Fund Shares
Flag Investors Managed 625
Municipal Fund Shares - Class A
Item 27. INDEMNIFICATION.
STATE THE GENERAL EFFECT OF ANY CONTRACT, ARRANGEMENTS OR STATUTE UNDER
WHICH ANY DIRECTOR, OFFICER, UNDERWRITER OR AFFILIATED PERSON OF THE REGISTRANT
IS INSURED OR INDEMNIFIED IN ANY MANNER AGAINST ANY LIABILITY WHICH MAY BE
INCURRED IN SUCH CAPACITY, OTHER THAN INSURANCE PROVIDED BY ANY DIRECTOR,
OFFICER, AFFILIATED PERSON OR UNDERWRITER FOR THEIR OWN PROTECTION.
Sections 1,2,3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
SECTION 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the Corporation
shall have any liability to the Corporation or its shareholders for
damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.
SECTION 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as to its directors
and to such further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents in the
ByLaws of the Corporation or by resolution or agreement to the fullest
extent permitted by the Maryland General Corporation Law.
SECTION 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or officer of
the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
C-3
<PAGE>
SECTION 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time amended. No
further amendment to the Charter of the Corporation shall decrease, but
may expand, any right of any person under this Article VIII based on
any event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. In the absence of a determination by a court
of competent jurisdiction, the determinations that indemnification against such
liabilities is proper, and advances can be made, are made by a majority of a
quorum of the disinterested, non-party directors of the Fund, or an independent
legal counsel in a written opinion, based on review of readily available facts.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
DESCRIBE ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A
SUBSTANTIAL NATURE IN WHICH EACH INVESTMENT ADVISOR OF THE REGISTRANT, AND EACH
DIRECTOR, OFFICER OR PARTNER OF ANY SUCH INVESTMENT ADVISOR, IS OR HAS BEEN, AT
ANY TIME DURING THE PAST TWO FISCAL YEARS, ENGAGED FOR HIS OWN ACCOUNT OR IN THE
CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE, PARTNER OR TRUSTEE.
During the past two fiscal years: Edward S. Hyman, Jr., Chairman of the
Investment Advisor, served as Chairman and Member of the Board of Directors of
the Registrant; R. Alan Medaugh, President of the Investment Advisor, served as
President of the Registrant; Nancy Lazar, Executive Vice President and Secretary
of the Investment Advisor, served as a Vice President of the Registrant; and
Carrie L. Butler, Assistant Vice President of the Investment Advisor, served as
Vice President (since March 1996) and as an Assistant Vice President (from 1991
- - 1996) of the Registrant.
Item 29. Principal Underwriter.
ALEX. BROWN
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag
Investors Emerging Growth Fund, Inc., the Flag Investors
Shares of Total Return U.S. Treasury Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc. (formerly
known as Flag Investors Intermediate-Term Income, Inc.), Flag
Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc., Flag Investors Real
Estate Securities Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., all registered open-end management
investment companies.
<TABLE>
<CAPTION>
(b)
Name and Principal Offices with Position and Offices
Business Address* Principal Underwriter with Registrant
----------------- --------------------- ---------------
<S> <C> <C>
Alvin B. Krongard Chairman, Chief Executive Officer, None
Director
Benjamin Howell Griswold, IV Director None
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer and Treasurer None
Robert F. Price Secretary and General Counsel None
</TABLE>
(c) Not Applicable
ARMATA FINANCIAL CORP.
(a) Armata Financial Corp. acts as distributor for the
ISI Total Return U.S. Treasury Fund Shares, a class
of Total Return U.S. Treasury Fund, Inc. and North
American Government Bond Fund, Inc., registered
open-end investment companies.
<TABLE>
<CAPTION>
(b)
Position and
Offices with Position and
Name and Principal Principal Offices with
Business Address* Underwriter Registrant
- ----------------- ----------- ----------
<S> <C> <C>
Jack S. Griswold Chairman and None
Director
F. Barton Harvey, Jr. Director None
John M. Prugh President and None
Director
E. Robert Kent, Jr. Director None
Peter E. Bancroft Secretary None
Timothy M. Gisriel Treasurer None
</TABLE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
WITH RESPECT TO EACH ACCOUNT, BOOK OR OTHER DOCUMENT REQUIRED
TO BE MAINTAINED BY SECTION 31(A) OF THE 1940 ACT [15 U.S.C. 80A-30(A)] AND THE
RULES [17 CFR 270.31A-1 TO 31A-3] PROMULGATED THEREUNDER, FURNISH THE NAME AND
ADDRESS OF EACH PERSON MAINTAINING PHYSICAL POSSESSION OF EACH SUCH ACCOUNT,
BOOK OR OTHER DOCUMENT.
Investment Company Capital Corp., the Registrant's
administrator, transfer and dividend disbursing agent and accounting services
provider, One South Street, Baltimore, Maryland 21202 maintains physical
possession of each such account, book or other document of the Fund, except for
those accounts, books and documents pursuant to Rule 31a-1(b)(1) maintained by
the Registrant's investment advisor, International Strategy and Investment Inc.,
717 Fifth Avenue, New York, New York 10022, and except for those accounts, books
and documents pursuant to Rule 31a-1(b)(1) maintained by the Registrant's
custodian, PNC Bank, Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113.
C-5
<PAGE>
Item 31. MANAGEMENT SERVICES.
FURNISH A SUMMARY OF THE SUBSTANTIVE PROVISIONS OF ANY
MANAGEMENT RELATED SERVICE CONTRACT NOT DISCUSSED IN PART A OR PART B OF THIS
FORM (BECAUSE THE CONTRACT WAS NOT BELIEVED TO BE OF INTEREST TO A PURCHASER OF
SECURITIES OF THE REGISTRANT) UNDER WHICH SERVICES ARE PROVIDED TO THE
REGISTRANT, INDICATING THE PARTIES TO THE CONTRACT, THE TOTAL DOLLARS PAID AND
BY WHOM, FOR THE LAST THREE FISCAL YEARS.
See Exhibit 8.
Item 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) A copy of the Registrant's latest Annual Report to
Shareholders is available upon request, without
charge by contacting the Registrant at (800) 767-3524
(for Flag Investors Shares) or (800) 955-7175 (for
ISI Shares).
C-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 26th day of February, 1997.
MANAGED MUNICIPAL FUND, INC.
By: /s/ R. Alan Medaugh
--------------------------
R. Alan Medaugh,
President and Director
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
* Director February 26, 1997
- -------------------------- --------------------
Edward S. Hyman Date
/s/ R. Alan Medaugh President and February 26, 1997
- -------------------------- Director --------------------
R. Alan Medaugh Date
* Director February 26, 1997
- -------------------------- --------------------
Richard T. Hale Date
* Director February 26, 1997
- -------------------------- --------------------
James J. Cunnane Date
* Director February 26, 1997
- -------------------------- --------------------
John F. Kroeger Date
* Director February 26, 1997
- -------------------------- --------------------
Louis E. Levy Date
* Director February 26, 1997
- -------------------------- --------------------
Eugene J. McDonald Date
/s/ Joseph A. Finelli Chief Financial February 26, 1997
- -------------------------- and Accounting --------------------
Joseph A. Finelli Officer Date
*By: /s/ Edward J. Stoken
-------------------------
Edward J. Stoken
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
(1) (a)(4) Registrant's Articles of Incorporation.
(1) (b)(4) Articles Supplementary to Registrant's Articles of
Incorporation dated December 15, 1993.
(1) (c)(4) Articles Supplementary to Registrant's Articles of
Incorporation dated December 31, 1994.
EX-99.B (2)(1) Registrant's By-Laws as amended through December 18,
1996.
(3) None.
(4) (a)(2) ISI Managed Municipal Fund Shares, Specimen
Certificate of Common Stock, $.001 par value.
(b)(3) Flag Investors Managed Municipal Fund Class A Shares,
Specimen Certificate of Common Stock, $.001 par
value.
(c)(2) Flag Investors Managed Municipal Fund Class
B Shares (later renamed Class D Shares),
Specimen Certificate of Common Stock, $.001
par value.
(5)(4) Investment Advisory Agreement dated April 1, 1991
between Registrant and International Strategy and
Investment Inc.
(6) (a)(4) Distribution Agreement for Flag Investors Managed
Municipal Fund Class A Shares dated October 23, 1990
between Registrant and Alex. Brown & Sons
Incorporated.
(6) (b)(4) Form of Participating Dealer Agreement for Flag
Investors Managed Municipal Fund Shares between Alex.
Brown & Sons and Participating Dealers.
(6) (c)(4) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents.
(6) (d)(4) Distribution Agreement for ISI Managed Municipal Fund
Shares dated November 30, 1990 between Registrant
and Armata Financial Corp.
(6) (e)(4) Form of Participating Dealer Agreement for ISI
Managed Municipal Fund Shares between Armata
Financial Corp. and Participating Dealers as in
effect from November 30, 1990.
EX-99.B (6) (f)(1) Form of Sub-Distribution Agreement between Alex.
Brown & Sons Incorporated and Participating Dealer.
(7) None.
(8)(4) Custodian Agreement between Registrant and Provident
National Bank.
(9) (a)(4) Master Services Agreement between Registrant and
Investment Company Capital Corp. and Appendices for
<PAGE>
the provision of Administration, Accounting and
Transfer Agency Services.
(9) (b)(4) License Agreement between Registrant and Alex.
Brown Incorporated.
(10)(4) Opinion of Counsel.
EX-99.B (11)(1) Consent of Coopers & Lybrand L.L.P.
(12) None.
(13)(4) Form of Subscription Agreement re: initial
$100,000 capital.
(14) None.
(15) (a)(4) Distribution Plan for the ISI Managed
Municipal Fund Shares.
(b)(4) Distribution Plan for the Flag Investors
Managed Municipal Fund Class A Shares.
(16)(4) Schedule of Computation of Performance
Quotations (unaudited).
(18) (a)(4) Rule 18f-3 Plan.
EX-99.B (18) (b)(1) Rule 18f-3 Plan.
EX-99.B (24)(1) Powers of Attorney.
EX-27 (27)(1) Financial Data Schedule.
- -------------------
(1) Filed herewith.
(2) Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on
February 24, 1994.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on August
24, 1990.
(4) Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission on
February 26, 1996.
<PAGE>
EX-99.B(2)
As amended through
December 18, 1996
BY-LAWS
OF
MANAGED MUNICIPAL FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation shall
be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office of
the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Shareholder Meetings. The Corporation may, but shall not be
required to, hold a regular meeting of shareholders in any year in which the
Corporation is not required, under the Investment Company Act of 1940, as
amended (the "1940 Act"), to submit for shareholder approval the election of
director(s). If shareholder approval is required for the purpose set forth
above, the regular meeting shall be held, at which shareholders shall vote on
the proposal necessitating such meeting and shall transact any other business as
may properly be brought before the meeting. Regular meetings of shareholders, if
any, shall be held on such day during the month of June and at such time as
shall be designated by the Board of Directors and stated in the notice of the
meeting.
Section 2. Special Meetings. Special meetings of the shareholders, unless
otherwise provided by law or by the Charter or the Corporation may be called for
any purpose or purposes by a majority of the Board of Directors or the
President, and shall be called by the President or Secretary on the written
1
<PAGE>
request of the shareholders as provided by the Maryland General Corporation Law.
Such request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on at it; provided, however, that unless requested
by shareholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
the shareholders held during the preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and any special
meeting of the shareholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice,, Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the shareholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be deemed waived by
any shareholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting. A meeting of shareholders
convened on the date for which it was called may be adjourned from time to time
without further notice to a date not more than 120 days after the original
record date.
(c) At least five (5) days prior to each meeting of shareholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of shareholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
shareholder.
Section 5. Organization. At each meeting of the shareholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, or in the absence or
the inability to act of the Chairman of the Board, the President and all
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the Vice Presidents, a chairman chosen by the shareholders shall act as chairman
of the meeting. The Secretary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting
of shareholders may authorize another person or persons to act for him by a
proxy signed by such shareholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is permitted by law.
Except as otherwise provided by statute, the Charter or the Corporation or these
By-Laws, any corporate action to be taken by vote of the shareholders shall be
authorized by a majority of the total votes cast at a meeting of shareholders at
which a quorum is present by the holders of shares present in person or
represented by proxy and entitled to vote on such action, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
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request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except as otherwise
provided by statute any action required to be taken at any regular or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
shareholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each shareholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter of
the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the shareholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the corporation are held by fewer than three shareholders) nor more
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than fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be elected by
plurality vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
office of each director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number or Directors; provided, however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
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Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may be held with
notice at such times and places as may be determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board may be called by
the Chairman of the Board, the President, or by a majority of the directors
either in writing or by vote at a meeting, and may be held at any place in or
out of the State of Maryland as the Board may from time to time determine.
Section 9. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and voting. One-third, but not fewer than three members,
of the members of the entire Board shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and except as otherwise expressly required by statute, the Charter
of the Corporation, these By-Laws, the 1940 Act or other applicable statute, the
act of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board; provided, however, that the approval of
any contract with an investment adviser or principal underwriter, as such terms
are defined in the 1940 Act, which the Corporation enters into or any renewal or
amendment thereof, the approval of the fidelity bond required by the 1940 Act,
and the selection of the Corporation's independent public accountants shall each
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require the affirmative vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint one of
its members as Chairman of the Board, who shall serve at the pleasure of the
Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors, the
Chairman of the Board, if one has been selected and is present, shall preside.
In the absence or inability of the Chairman of the Board to preside at a
meeting, the President, or, in his absence or inability to act, another director
chosen by a majority of the directors present, shall act as chairman of the
meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time.
Section 16. Compensation. Any Director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for
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transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by resolution adopted by
a majority of the entire Board, designate an Executive Committee, Compensation
Committee, Audit Committee and Nomination Committee, each of which shall consist
of two or more of the directors of the Corporation, which committee shall have
and may exercise all the powers and authority of the Board with respect to all
matters other than as set forth in Section 3 of this Article IV.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other committees of the Board, each such committee to consist of two
or more directors and to have such powers and duties as the Board of Directors
may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No
committee of the Board shall have power or authority to:
(a) recommend to shareholders any action requiring authorization of
shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment adviser or
principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Directors by the 1940 Act;
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(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital stock of
the Corporation; and
(e) approve any merger or share exchange which does not require
shareholder approval.
Section 4. General. (a) One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
(b) All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one or more
Vice Presidents and may also appoint such other officers, agents and employees
as it may deem necessary or proper. Any two or more offices may be held by the
same person, except the offices of President and Vice President, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
The Board may from time to time elect or appoint, or delegate to the President
the power to appoint, such other officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
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Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such other officers and agents shall have such duties and
shall hold their offices for such terms as may be prescribed by the Board or by
the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Office, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 7. President. The President shall be the chief executive officer of
the Corporation. In the absence of the Chairman of the Board (or if there be
none), he shall preside at all meetings of the shareholders and of the Board of
Directors. He shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation. He may employ and
discharge employees and agents of the Corporation, except such as shall be
appointed by the Board, and he may delegate these powers.
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Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust company or member
of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
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Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
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representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one or
more Transfer Agents and one or more Registrars of its stock, whose respective
duties the Board of Directors may, from time to time, define. No certificate of
stock shall be valid until countersigned by a Transfer Agent, if the Corporation
shall have a Transfer Agent or until registered by a Registrar, if the
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Corporation shall have a Registrar. The duties of Transfer Agent and Registrar
may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
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ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing the name of
the Corporation, which shall be in the charge of the secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of October in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks Notes, Drafts. etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
- 15 -
<PAGE>
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments, bonds
or other securities at any time owned by the Corporation may be held on behalf
of the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws, and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the shareholders in accordance with the
provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by an independent
firm of public accountants at the close of each annual period of the Corporation
and at such other times as may be directed by the Board. A report to the
shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
- 16 -
<PAGE>
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify its directors
to the fullest extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify its officers
to the same extent as its Directors and to such further extent as is consistent
with law. The Corporation shall indemnify its Directors and officers who while
serving as Directors or officers also serve at the request of the Corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. This Article XIII shall
not protect any such person against any liability to the Corporation or any
shareholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law and the 1940 Act, as such statutes are now or hereafter in
force.
Section 3. Procedure. On the request of any current or former director or
officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law and the 1940 Act, as such
statutes are now or hereafter in force, whether the standards required by this
Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article XIII
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of shareholders or disinterested
directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
- 17 -
<PAGE>
Section 5. Maryland Law. References to the Maryland General Corporation Law
in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
- 18 -
<PAGE>
EX-99.B(6)(f)
FLAG INVESTORS FAMILY OF FUNDS
One South Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
<PAGE>
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the Prospectus and provisions of the
Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where
<PAGE>
registration or qualification is required. We will inform you as to the states
or other jurisdictions in which we believe the Shares have been qualified for
sale under, or are exempt from the requirements of, the respective securities
laws of such states. You agree that you will offer Shares to your customers only
in those states where such Shares have been registered, qualified, or an
exemption is available. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated December 2, 1996 on our
audit of the financial statement and financial highlights of Managed Municipal
Fund, Inc. in the Statement of Additional Information with respect to
Post-Effective Amendment No. 11 to the Registration Statement (File Numbers
33-32819 and 811-6023) on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940, respectively, of Managed Municipal, Inc. We also
consent to the reference to our Firm under the headings "Financial Highlights"
and "General Information" in the Prospectus and under the heading "Independent
Accountants" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
February 24, 1997
<PAGE>
EX-99.B(18)(b)
Managed Municipal Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and ISI Class
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Managed Municipal Fund, Inc.
(the "Fund"), including a majority of the Directors of the Fund who are not
"interested persons" of the Fund (the "Independent Directors") pursuant to Rule
18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and ISI
Class) and future classes of Fund shares. The ISI Shares have been offered since
the Fund's inception on February 26, 1990. The Flag Investors Class A Shares
have been offered since October 23, 1990. The Flag Investors Class B Shares have
not yet been offered. (A fourth class of the Fund's shares (the Flag Investors
Class D Shares) are no longer being offered.)
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of
<PAGE>
the Independent Directors, that the Plan as proposed to be amended, including
the expense allocations, is in the best interests of each class individually and
the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
- --------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
EXHIBIT A
Approved: February 7, 1990
Resolutions of Board Creating
ISI Class of Shares (formerly known as C.J. Lawrence Class of Shares)
RESOLVED, that the proposed Distribution Agreement between the Fund and
C. J. Lawrence, Morgan Grenfell Inc. for distribution of the Fund's shares be,
and the same hereby is, approved, in substantially the form presented to this
meeting, and that the appropriate officers of the Fund be, and they hereby are,
authorized and directed to enter into and execute such Distribution Agreement
with such modifications as said officers shall deem necessary or appropriate or
as may be required to conform with the requirements of any applicable statute,
regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
is determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved.
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
be, and the same hereby is, approved.
Approved: September 19, 1990
Resolutions of Board Creating Flag Investors Class of Shares
RESOLVED, that in accordance with the authority granted to the Board of
Directors of Managed Municipal Fund, Inc. (the "Fund") pursuant to Article VI,
Section 4 of the Articles of Incorporation of the Fund, a second class of the
Fund's 25 million authorized shares of common stock, par value $.001, be, and
hereby is, classified and designated as "Flag Investors Managed Municipal Fund
Shares" (the "Flag Investors Class");
FURTHER RESOLVED, that the actions taken by the officers of the Fund in
the name and on behalf of the Fund with respect to the establishment of the Flag
Investors Class, including filing Post-Effective Amendment No. 1 under the
Securities Act of 1933 (the "1933 Act") and Amendment No. 3 under the Investment
Company Act of 1940, as amended (the "1940 Act"), to the Fund's Registration
Statement on Form N-1A (Registration No. 33-32819), and all necessary exhibits
and other instruments relating thereto (collectively the "Registration
Statement"), procuring all other necessary signatures thereon, and filing the
appropriate exhibits thereto with the Securities and Exchange Commission (the
"Commission") under the 1933 Act and the 1940 Act, be and they hereby are
ratified and approved;
<PAGE>
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to appear, together with legal counsel, on
behalf of the Fund before the Commission in connection with any matter relating
to the Registration Statement and to take such other actions, including Blue Sky
filings, as may be required in connection with the establishment of such class;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed in the name and on behalf of the Fund, to
take any other action that the officer so acting may deem necessary or
appropriate in connection with the establishment and registration of the Flag
Investors Class of the Fund, the taking of any such action to establish
conclusively such officer's authority therefor and the approval and ratification
thereof of by the Fund.
<PAGE>
Approved: November 4, 1992
Resolutions of Board Renaming
Flag Investors Class of Shares
WHEREAS, the Board of Directors of Managed Municipal Fund, Inc. has
previusly designated two classes of the Fund's shares: Flag Investors Managed
Municipal Fund Shares and ISI Managed Municipal Fund Shares;
NOW THEREFORE BE IT RESOLVED, that Flag Investors Managed Municipal
Fund Shares be, and they hereby are, further classified and designated as "Flag
Investors Class A Shares;"
Resolutions of Board Creating Flag Investors Class B Shares
FURTHER RESOLVED, that an additional class of shares of Managed
Municipal Fund, Inc. (the "Fund") be, and hereby is, classified and designated
as the "Flag Investors Class B Shares" and that unissued shares of common stock,
par value $.001 per share of the Funds listed below be, and the same hereby are,
reclassified as follows:
<TABLE>
<CAPTION>
Total # Shares Flag Class A Flag Class B Flag Class D ISI Unclassified
<S> <C> <C> <C> <C> <C>
40,000,000 15,000,000 2,500,000 500,000 20,000,000 2,000,000
</TABLE>
FURTHER RESOLVED, that the proper officers of each of the foregoing
Funds be, and each of them hereby is, authorized and directed to file articles
supplementary to the relevant Fund's Articles of Incorporation and to take such
other action as may be necessary to designate and reclassify shares in the
foregoing manner.
RESOLVED, that the Distribution Agreement between Managed Municipal
Fund, Inc. and Alex. Brown & Sons Incorporated for the Flag Investors Class B
Shares (the "Class B Shares") of said Fund be, and the same hereby is, approved;
FURTHER RESOLVED, that at such time as the Fund offers the Class B
Shares, the Plan of Distribution presented at this meeting shall govern the
payment of 12b-1 fees by that class;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of said Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on
<PAGE>
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
Approved: September 22, 1992
Resolution of Board Approving
New Distribution Agreement
With Armata Financial Corp.
RESOLVED, that the proposed Distribution Agreement, in substantially
the form presented to this meeting, between the Fund and Armata Financial Corp.,
for distribution of the Fund's C.J. Lawrence Class of Shares be, and the same
hereby is, approved and that the appropriate officers be, and they hereby are,
authorized and directed to enter into and execute the C.J. Lawrence Class
Distribution Agreement with such modifications as the officers executing the
C.J. Lawrence Class Distribution Agreement shall deem appropriate or as may be
required to conform with the requirements of any applicable statute, regulation
or regulatory body.
<PAGE>
New Class B Shares
MANAGED MUNICIPAL FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 4th day of November, 1992, by and
between MANAGED MUNICIPAL FUND, INC., a Maryland corporation (the "Fund"), and
ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the class of shares of the Fund known as the Flag
Investors Class B Shares (the "Shares") and Alex. Brown wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement. The
Fund may from time to time issue separate series or classes of its shares of
common stock, or classify and reclassify shares of such series as classes, and
the appointment effected hereby shall constitute appointment for the
distribution of such additional series and classes unless the parties shall
otherwise agree in writing. Alex. Brown accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated, of each of the following:
<PAGE>
(a) The Fund's Articles of Incorporation, filed with
the Secretary of State of Maryland on January 5, 1990 and all amendments thereto
(the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on January 8,
1990;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-32819) and under the 1940 Act as filed with the SEC on January 8, 1990
relating to the Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940
Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex.
<PAGE>
Brown. Notwithstanding the provisions of the foregoing sentence, the Fund may
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received from
the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation
of the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
<PAGE>
(c) the Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to Federal, State or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel) except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or members of any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
Shares or in cash; charges and expenses of any outside service used for pricing
of the Shares; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), and of independent accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .75% of the average daily net assets of the shares of the
Fund. Except as hereinafter set forth, continuing compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
<PAGE>
10. Service Fee. The Fund shall pay Alex. Brown a service fee
(as such term is defined in the NASD Rules of Fair Practice) equal to .25% of
the average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial
<PAGE>
interest in the operation of this Agreement, by votes cast in person at a
meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
16. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. Questions of Interpretation.
Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the SEC issued pursuant to the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is revised by rule, regulation or order of the SEC,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] MANAGED MUNICIPAL FUND, INC.
Attest:__________________ By _____________________________________
Title:
<PAGE>
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:__________________ By _____________________________________
<PAGE>
MANAGED MUNICIPAL FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Managed Municipal Fund, Inc. (the "Fund"). Other capitalized terms herein
have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated
("Alex. Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(a) Alex. Brown may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to Alex.
Brown under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to
the Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown as
distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor and
Alex. Brown, the fees of the Fund's administrator; the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with the
<PAGE>
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel); the costs
and expenses of printing, including typesetting, and distributing prospectuses
and statements of additional information of the Fund supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on such
continuance. This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
<PAGE>
Managed Municipal Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Articles of Incorporation filed as Exhibit (1)(a) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-32819), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000078) on February 26, 1996
is herein incorporated by reference.
2. Registrant's Articles Supplementary dated December 31, 1994 filed as
Exhibit (1)(c) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-32819), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-96-000078) on
February 26, 1996 is herein incorporated by reference.
3. Registrant's By-Laws are filed as Exhibit (2) to this Registration
Statement on Form N-1A (Registration No. 33-32819) and are herein incorporated
by reference.
4. Registrant's Distribution Agreement between Registrant and Alex. Brown
& Sons Incorporated with respect to Flag Investors Class A Shares filed as
Exhibit (6)(a) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-32819), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-96-000078) on
February 26, 1996 is herein incorporated by reference.
5. Registrant's Distribution Plan with respect to Flag Investors Class A
Shares filed as Exhibit (15)(b) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000078) on February 26, 1996 is herein incorporated by reference.
6. Registrant's Distribution Agreement between Registrant and Armata
Financial Corp. with respect to ISI Managed Muncipal Fund Shares filed as
Exhibit (6)(e) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-32819), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-96-000078) on
February 26, 1996 is herein incorporated by reference.
7. Registrant's Distribution Plan with respect to ISI Managed Municipal
Fund Shares filed as Exhibit (15)(b) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000078) on February 26, 1996 is herein incorporated by reference.
8. Registrant's Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Dealers is filed as Exhibit (6)(f) to this
Registration Statement on Form N-1A (Registration No. 33-32819) and is herein
incorporated by reference.
<PAGE>
9. Registrant's Prospectus relating to its Flag Investors Class A Shares
is filed as part of this Registration Statement on Form N-1A (Registration No.
33-32819) and, as amended from time to time, is herein incorporated by
reference.
10. Registrant's Prospectus relating to its ISI Managed Municipal Fund
Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-32819) and, as amended from time to time, is herein
incorporated by reference.
<PAGE>
EX-99.B(24)
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
--------------------------
James J. Cunnane
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Chief Financial and Accounting Officer
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
--------------------------
Joseph A. Finelli
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
--------------------------
Richard T. Hale
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Edward S. Hyman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Chairman and a director of the Fund
such Registration Statement and any and all such pre- and post-effective
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or either of them or their substitute or substitutes, shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Edward S. Hyman
-------------------------
Edward S. Hyman
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
--------------------------
Louis E. Levy
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
--------------------------
Eugene J. McDonald
Date: December 18, 1996
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, R. Alan Medaugh, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
pre-and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as President and a director of the Fund
such Registration Statement and any and all such pre- and post-effective
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or either of them or their substitute or substitutes, shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ R. Alan Medaugh
--------------------------
R. Alan Medaugh
Date: December 18, 1996
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