[LOGO]
FLAG INVESTORS
FLAG
INVESTORS
MANAGED
MUNICIPAL
FUND
SHARES
SEMI-ANNUAL REPORT
APRIL 30, 1997
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o The Fund had a total return of 5.7% for the year ended April 30, 1997, and the
average yield to maturity on its bond investments shows that municipals
still have good underlying after-tax income appeal.
o We have maintained the Fund's high credit quality orientation by reducing the
portfolio's electric power issues and increasing its prerefunded and
general obligation bonds.
o Evidence of slower second quarter growth continues to mount, and we believe
that another increase in short-term rates lies ahead.
<PAGE>
PORTFOLIO DIVERSIFICATION BY STATE
- --------------------------------------------------------------------------------
[MAP APPEARS HERE]
State Allocation
% of % of
Municipal Municipal
Bonds Bonds
--------- ---------
Florida 17.9% Minnesota 3.2%
Texas 15.2 Mississippi 2.6
Virginia 8.4 Ohio 2.3
Maryland 7.6 Delaware 1.9
North Carolina 6.9 Utah 1.8
South Carolina 4.9 Colorado 1.8
Illinois 4.6 Hawaii 1.7
Tennessee 4.3 Indiana 1.4
Kansas 4.1 Washington 1.4
Arizona 3.4 Oregon 1.4
-----
Georgia 3.2 Total 100.0%
1
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the period ended
April 30, 1997. As of this date, the Fund recorded a 6-month total return of
1.2% and a 12-month total return of 5.7%. Since its inception on October 23,
1990, the Fund has produced a cumulative total return of 55.6%, which translates
into an average annual total return of 7.0%. These figures assume the
reinvestment of dividends and capital gains distributions and exclude the impact
of any sales charge.
Overview
Over the last 12 months, long-term, high-quality municipal yields moved in
a fairly wide 70 basis point (0.70%) range, but interest rates opened and closed
the period at roughly the same yield (see chart below).
[Graph Appears Here--See Plot Points Below]
30-Year Municipal AAA General Obligation Yields
DATE YIELD
4/30/96 5.73
5/1/96 5.73
5/2/96 5.84
5/3/96 5.86
5/6/96 5.86
5/7/96 5.88
5/8/96 5.87
5/9/96 5.87
5/10/96 5.80
5/13/96 5.78
5/14/96 5.73
5/15/96 5.71
5/16/96 5.76
5/17/96 5.73
5/20/96 5.69
5/21/96 5.67
5/22/96 5.69
5/23/96 5.69
5/24/96 5.69
5/27/96 5.69
5/28/96 5.68
5/29/96 5.72
5/30/96 5.76
5/31/96 5.82
6/3/96 5.87
6/4/96 5.85
6/5/96 5.85
6/6/96 5.82
6/7/96 5.97
6/10/97 5.99
6/11/96 5.97
6/12/96 5.97
6/13/96 5.96
6/14/96 5.92
6/17/96 5.90
6/18/96 5.87
6/19/96 5.87
6/20/96 5.90
6/21/96 5.89
6/24/96 5.89
6/25/96 5.85
6/26/96 5.83
6/27/96 5.82
6/28/96 5.77
7/1/96 5.77
7/2/96 5.80
7/3/96 5.80
7/4/96 5.80
7/5/96 5.94
7/8/96 5.96
7/9/96 5.92
7/10/96 5.87
7/11/96 5.85
7/12/96 5.82
7/15/96 5.83
7/16/96 5.81
7/17/96 5.78
7/18/96 5.73
7/19/96 5.74
7/22/96 5.75
7/23/96 5.73
7/24/96 5.72
7/25/96 5.70
7/26/96 5.70
7/29/96 5.72
7/30/96 5.70
7/31/96 5.67
8/1/96 5.59
8/2/96 5.51
8/5/96 5.51
8/6/96 5.49
8/7/96 5.48
8/8/96 5.47
8/9/96 5.44
8/12/96 5.44
8/13/96 5.48
8/14/96 5.48
8/15/96 5.50
8/16/96 5.49
8/19/96 5.52
8/20/96 5.53
8/21/96 5.55
8/22/96 5.56
8/23/96 5.61
8/26/96 5.64
8/27/96 5.63
8/28/96 5.62
8/29/96 5.66
8/30/96 5.71
9/2/96 5.71
9/3/96 5.73
9/4/96 5.75
9/5/96 5.78
9/6/96 5.75
9/9/96 5.73
9/10/96 5.75
9/11/96 5.76
9/12/96 5.73
9/13/96 5.64
9/16/96 5.61
9/17/96 5.64
9/18/96 5.65
9/19/96 5.69
9/20/96 5.69
9/23/96 5.69
9/24/96 5.67
9/25/96 5.65
9/26/96 5.60
9/27/96 5.60
9/30/96 5.61
10/1/96 5.59
10/2/96 5.56
10/3/96 5.54
10/4/96 5.47
10/7/96 5.50
10/8/96 5.50
10/9/96 5.53
10/10/96 5.56
10/11/96 5.55
10/14/96 5.55
10/15/96 5.56
10/16/96 5.60
10/17/96 5.58
10/18/96 5.57
10/21/96 5.57
10/22/96 5.59
10/23/96 5.60
10/24/96 5.62
10/25/96 5.62
10/28/96 5.63
10/29/96 5.58
10/30/96 5.56
10/31/96 5.54
11/1/96 5.55
11/4/96 5.53
11/5/96 5.48
11/6/96 5.49
11/7/96 5.50
11/8/96 5.49
11/11/96 5.49
11/12/96 5.45
11/13/96 5.45
11/14/96 5.43
11/15/96 5.44
11/18/96 5.46
11/19/96 5.44
11/20/96 5.42
11/21/96 5.41
11/22/96 5.41
11/25/96 5.39
11/26/96 5.36
11/27/96 5.36
11/28/96 5.36
11/29/96 5.32
12/2/96 5.31
12/3/96 5.29
12/4/96 5.31
12/5/96 5.36
12/6/96 5.40
12/9/96 5.37
12/10/96 5.38
12/11/96 5.45
12/12/96 5.45
12/13/96 5.42
12/16/96 5.44
12/17/96 5.49
12/18/96 5.47
12/19/96 5.43
12/20/96 5.42
12/23/96 5.42
12/24/96 5.42
12/25/96 5.42
12/26/96 5.42
12/27/96 5.38
12/30/96 5.36
12/31/96 5.39
1/1/97 5.39
1/2/97 5.45
1/3/97 5.44
1/6/97 5.46
1/7/97 5.48
1/8/97 5.49
1/9/97 5.47
1/10/97 5.55
1/13/97 5.55
1/14/97 5.52
1/15/97 5.53
1/16/97 5.53
1/17/97 5.53
1/20/97 5.53
1/21/97 5.52
1/22/97 5.51
1/23/97 5.51
1/24/97 5.54
1/27/97 5.56
1/28/97 5.52
1/29/97 5.54
1/30/97 5.54
1/31/97 5.51
2/3/97 5.49
2/4/97 5.49
2/5/97 5.48
2/6/97 5.50
2/7/97 5.45
2/10/97 5.43
2/11/97 5.43
2/12/97 5.41
2/13/97 5.38
2/14/97 5.33
2/17/97 5.33
2/18/97 5.33
2/19/97 5.35
2/20/97 5.37
2/21/97 5.39
2/24/97 5.41
2/25/97 5.38
2/26/97 5.44
2/27/97 5.44
2/28/97 5.44
3/3/97 5.46
3/4/97 5.46
3/5/97 5.47
3/6/97 5.49
3/7/97 5.47
3/10/97 5.46
3/11/97 5.49
3/12/97 5.49
3/13/97 5.52
3/14/97 5.50
3/17/97 5.52
3/18/97 5.52
3/19/97 5.54
3/20/97 5.57
3/21/97 5.57
3/24/97 5.57
3/25/97 5.56
3/26/97 5.59
3/27/97 5.63
3/28/97 5.63
3/31/97 5.66
4/1/97 5.63
4/2/97 5.63
4/3/97 5.63
4/4/97 5.66
4/7/97 5.64
4/8/97 5.65
4/9/97 5.63
4/10/97 5.64
4/11/97 5.64
4/14/97 5.67
4/15/97 5.62
4/16/97 5.65
4/17/97 5.62
4/18/97 5.62
4/21/97 5.62
4/22/97 5.61
4/23/97 5.63
4/24/97 5.65
4/25/97 5.67
4/28/97 5.67
4/29/97 5.60
4/30/97 5.59
Source: Bloomberg Inc.
The volatility this year had as much to do with national politics,
specifically the outlook for major tax cuts, as it did with the economy,
inflation, etc. We think rates will be heading lower over the next year, which,
given the Fund's maturity orientation, should produce a competitive total
return. Please see our Economic Outlook that follows this letter for more
details. Municipals have retained their status as one of the few means by which
interest income can be sheltered from federal taxes. Municipal bonds' taxable
equivalent yield at current levels of interest rates and taxes means they also
have good value.
2
<PAGE>
- --------------------------------------------------------------------------------
Municipals Have Good Value
The Fund had an average yield to maturity on its bond investments of 5.39%
and an average maturity of 14.4 years on April 30. To gauge the relative
attractiveness of this asset class versus the taxable bond market it is
necessary to use a tax rate. The top federal bracket is 39.6%, and if that were
used for the analysis, the taxable equivalent yield of a 5.39% tax-free
municipal would be a taxable rate of 8.92%. At the same time, Treasuries in the
15-year maturity range were yielding 6.95%. This comparison indicates that
municipals have good underlying after-tax income appeal.
The outlook for municipals also turns on political and supply analysis. The
political environment since the 1996 election has emphasized budget compromises
that provide some new tax breaks but little danger of a change in municipals'
basic status as the premier interest income tax shelter. The municipal supply
picture is also favorable, pointing to less municipal new issuance going
forward. State and local government operating budgets are solidly in surplus,
$37.4 billion as of year-end 1996, thereby capping new issue volume.
Portfolio Management
The Fund has maintained its high credit quality orientation. We have
continued to reduce the portfolio's electric power issues as they approach
credit problems surrounding rate deregulation. Prerefunded and general
obligation bonds have been increased over the last year. Please see the table
below that focuses on these sections of the portfolio.
Portfolio Structure
April 1997 April 1996 %
Category % of Portfolio % of Portfolio Change
- --------------------------------------------------------------------------------
Prerefunded and General Obligations 73.4% 69.1% +4.3%
................................................................................
Electric Power 5.1% 7.6% -2.5%
................................................................................
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
The Fund's high-quality orientation did not lead to a better total return
over the last year. Credit quality yield spreads narrowed. For example, 20-year
BBB1-quality general obligations had a 60 basis point (0.60%) yield advantage a
year ago but now the spread is close to 44 basis points (0.44%). Please see the
chart below.
[Graph Appears Here--See Plot Points Below]
Historical Yield Spreads
(General Obligation BBB1 Yield -- AAA Yield)
DATE YIELD SPREAD
4/30/96 60
5/1/96 60
5/2/96 60
5/3/96 59
5/6/96 58
5/7/96 58
5/8/96 58
5/9/96 57
5/10/96 57
5/13/96 57
5/14/96 57
5/15/96 56
5/16/96 55
5/17/96 55
5/20/96 55
5/21/96 55
5/22/96 56
5/23/96 56
5/24/96 55
5/27/96 n.a.
5/28/96 55
5/29/96 55
5/30/96 55
5/31/96 56
6/3/96 55
6/4/96 55
6/5/96 55
6/6/96 55
6/7/96 55
6/10/96 55
6/11/96 57
6/12/96 57
6/13/96 57
6/14/96 56
6/17/96 56
6/18/96 56
6/19/96 56
6/20/96 57
6/21/96 57
6/24/96 57
6/25/96 59
6/26/96 59
6/27/96 59
6/28/96 58
7/1/96 58
7/2/96 57
7/3/96 57
7/4/96 n.a.
7/5/96 59
7/8/96 58
7/9/96 59
7/10/96 58
7/11/96 58
7/12/96 58
7/15/96 57
7/16/96 57
7/17/96 57
7/18/96 57
7/19/96 57
7/22/96 57
7/23/96 58
7/24/96 59
7/25/96 59
7/26/96 59
7/29/96 60
7/30/96 60
7/31/96 61
8/1/96 61
8/2/96 62
8/5/96 62
8/6/96 63
8/7/96 62
8/8/96 62
8/9/96 62
8/12/96 n.a.
8/13/96 62
8/14/96 62
8/15/96 61
8/16/96 59
8/19/96 58
8/20/96 57
8/21/96 56
8/22/96 56
8/23/96 54
8/26/96 54
8/27/96 53
8/28/96 54
8/29/96 53
8/30/96 53
9/2/96 n.a.
9/3/96 54
9/4/96 53
9/5/96 52
9/6/96 51
9/9/96 51
9/10/96 51
9/11/96 51
9/12/96 51
9/13/96 53
9/16/96 53
9/17/96 53
9/18/96 54
9/19/96 54
9/20/96 54
9/23/96 54
9/24/96 54
9/25/96 54
9/26/96 55
9/27/96 55
9/30/96 56
10/1/96 56
10/2/96 57
10/3/96 58
10/4/96 57
10/7/96 56
10/8/96 56
10/9/96 55
10/10/96 56
10/11/96 55
10/14/96 55
10/15/96 54
10/16/96 53
10/17/96 52
10/18/96 52
10/21/96 53
10/22/96 53
10/23/96 53
10/24/96 53
10/25/96 52
10/28/96 51
10/29/96 49
10/30/96 49
10/31/96 50
11/1/96 50
11/4/96 50
11/5/96 52
11/6/96 52
11/7/96 53
11/8/96 54
11/11/96 54
11/12/96 55
11/13/96 57
11/14/96 57
11/15/96 57
11/18/96 56
11/19/96 56
11/20/96 56
11/21/96 55
11/22/96 55
11/25/96 55
11/26/96 55
11/27/96 55
11/28/96 n.a.
11/29/96 55
12/2/96 56
12/3/96 57
12/4/96 57
12/5/96 56
12/6/96 56
12/9/96 56
12/10/96 56
12/11/96 56
12/12/96 56
12/13/96 56
12/16/96 56
12/17/96 56
12/18/96 59
12/19/96 59
12/20/96 59
12/23/96 57
12/24/96 57
12/25/96 57
12/26/96 56
12/27/96 58
12/30/96 58
12/31/96 59
1/1/97 59
1/2/97 58
1/3/97 56
1/6/97 56
1/7/97 57
1/8/97 56
1/9/97 56
1/10/97 55
1/13/97 54
1/14/97 54
1/15/97 54
1/16/97 56
1/17/97 56
1/20/97 56
1/21/97 56
1/22/97 58
1/23/97 58
1/24/97 59
1/27/97 58
1/28/97 58
1/29/97 56
1/30/97 55
1/31/97 54
2/3/97 53
2/4/97 53
2/5/97 54
2/6/97 54
2/7/97 56
2/10/97 58
2/11/97 56
2/12/97 56
2/13/97 54
2/14/97 54
2/17/97 54
2/18/97 51
2/19/97 49
2/20/97 48
2/21/97 46
2/24/97 46
2/25/97 47
2/26/97 45
2/27/97 45
2/28/97 45
3/3/97 45
3/4/97 45
3/5/97 44
3/6/97 44
3/7/97 44
3/10/97 45
3/11/97 45
3/12/97 45
3/13/97 45
3/14/97 45
3/17/97 46
3/18/97 46
3/19/97 46
3/20/97 46
3/21/97 47
3/24/97 47
3/25/97 46
3/26/97 46
3/27/97 47
3/28/97 47
3/31/97 46
4/1/97 48
4/2/97 48
4/3/97 48
4/4/97 48
4/7/97 48
4/8/97 49
4/9/97 49
4/10/97 49
4/11/97 49
4/14/97 50
4/15/97 50
4/16/97 49
4/17/97 49
4/18/97 48
4/21/97 48
4/22/97 47
4/23/97 46
4/24/97 45
4/25/97 45
4/28/97 45
4/29/97 45
4/30/97 44
Source: Bloomberg Inc.
We think credit quality will again be an important component of municipal
total return when economic growth slows, which typically leads to the
reemergence of credit problems.
We would like to welcome our new investors to the Fund and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
- -------------------
R. Alan Medaugh
President
May 19, 1997
4
<PAGE>
ECONOMIC OUTLOOK
- --------------------------------------------------------------------------------
Overview
Evidence of slower second quarter growth continues to mount, highlighted
recently by declining auto sales, sluggish department store sales in April and
high initial unemployment claims. The March surge in wholesale inventories
suggests that rising first quarter nonfarm inventories will pull down growth in
the second half of 1997 as excess inventories decline. We lean toward the view
that another 25 basis point (0.25%) increase in short-term rates lies ahead. We
see it as an insurance policy against a tight labor market and high capacity
utilization sparking a return of inflation. Early in 1998 we expect the Fed will
be able to reverse the increase. Please see our forecast table below.
ISI Forecast
96:4Q 97:1Q 97:2Q* 97:3Q* 97:4Q* 98:1Q*
- -------------------------------------------------------------------------------
Real GDP 3.8% 5.6% 2.5% 2.0% 1.5% 1.5%
...............................................................................
GDP Deflator** 1.5% 2.2% 1.5% 1.5% 1.5% 1.5%
...............................................................................
30-Year Bond Yields*** 6.6% 7.1% 6.7% 6.5% 6.5% 6.2%
...............................................................................
Fed Funds Rate*** 5.2% 5.5% 5.7% 5.7% 5.7% 5.5%
...............................................................................
*Estimated.
**A more accurate cost of living barometer than the CPI.
***End of quarter.
Inflation
The Greenspan Federal Reserve has presided over an economy producing strong
job formation but little inflation. The inflation performance has been a
happy surprise for bond investors. So far, strong growth has not
produced price increases; for example, among manufacturing companies, the
strong growth has not given them pricing power. Please see the chart on
page 6 that shows ISI's Manufacturing Company Pricing Power Index.
5
<PAGE>
ECONOMIC OUTLOOK (CONTINUED)
- --------------------------------------------------------------------------------
ISI MANUFACTURING COMPANIES PRICING POWER SURVEY
0=WEAK 100=STRONG MAY 9: 24.7
[Graph Appears Here--See Plot Points Below]
ISI MFG
COMPANIES
PRICING
POWER
SURVEY
1/7/94 20.8
1/14/94 20.8
1/21/94 20.8
1/28/94 21.4
2/4/94 21.4
2/11/94 16.7
2/18/94 16.7
2/25/94 16.7
3/4/94 25.0
3/11/94 25.0
3/18/94 24.1
3/25/94 24.1
4/1/94 24.1
4/8/94 20.8
4/15/94 20.8
4/22/94 20.8
4/29/94 23.6
5/6/94 23.6
5/13/94 23.6
5/20/94 27.8
5/27/94 27.8
6/3/94 32.5
6/10/94 32.5
6/17/94 33.9
6/24/94 33.9
7/1/94 33.9
7/8/94 35.3
7/15/94 35.3
7/22/94 35.3
7/29/94 35.3
8/5/94 33.9
8/12/94 33.9
8/19/94 33.9
8/26/94 43.6
9/2/94 43.6
9/9/94 45.8
9/16/94 45.8
9/23/94 52.8
9/30/94 52.8
10/7/94 52.8
10/14/94 52.8
10/21/94 54.4
10/28/94 54.4
11/4/94 56.9
11/11/94 56.9
11/18/94 57.5
11/25/94 57.5
12/2/94 57.8
12/9/94 57.8
12/16/94 58.9
12/23/94 58.9
12/30/94 60.6
1/6/95 60.6
1/13/95 60.8
1/20/95 60.8
1/27/95 61.4
2/3/95 61.4
2/10/95 56.9
2/17/95 56.9
2/24/95 56.9
3/3/95 58.9
3/10/95 58.9
3/17/95 57.8
3/24/95 57.8
3/31/95 54.4
4/7/95 54.4
4/14/95 57.2
4/21/95 57.2
4/28/95 56.7
5/5/95 56.7
5/12/95 57.2
5/19/95 57.2
5/26/95 52.5
6/2/95 52.5
6/9/95 48.3
6/16/95 48.3
6/23/95 43.1
6/30/95 43.1
7/7/95 41.8
7/14/95 41.8
7/21/95 41.8
7/28/95 41.8
8/4/95 45.7
8/11/95 45.7
8/18/95 45.7
8/25/95 45.7
9/1/95 45.4
9/8/95 45.4
9/15/95 42.5
9/22/95 42.5
9/29/95 42.1
10/6/95 42.1
10/13/95 40.4
10/20/95 40.4
10/27/95 39.9
11/3/95 39.9
11/10/95 37.8
11/17/95 37.8
11/24/95 37.8
12/1/95 37.8
12/8/95 36.7
12/15/95 36.7
12/22/95 34.2
12/29/95 34.2
1/5/96 34.2
1/12/96 34.2
1/19/96 29.4
1/26/96 29.4
2/2/96 28.9
2/9/96 28.9
2/16/96 28.6
2/23/96 28.6
3/1/96 28.1
3/8/96 28.1
3/15/96 28.5
3/22/96 28.5
3/29/96 29.0
4/5/96 29.0
4/12/96 29.0
4/19/96 29.0
4/26/96 29.3
5/3/96 29.3
5/10/96 31.0
5/17/96 31.0
5/24/96 31.5
5/31/96 31.5
6/7/96 34.4
6/14/96 34.4
6/21/96 34.4
6/28/96 34.4
7/5/96 32.5
7/12/96 32.5
7/19/96 32.8
7/26/96 32.8
8/2/96 32.2
8/9/96 32.2
8/16/96 32.2
8/23/96 32.2
8/30/96 32.2
9/6/96 32.2
9/13/96 31.9
9/20/96 31.9
9/27/96 31.1
10/4/96 31.1
10/11/96 30.6
10/18/96 30.6
10/25/96 30.8
11/1/96 30.8
11/8/96 30.3
11/15/96 30.3
11/22/96 30.0
11/29/96 30.0
12/6/96 28.8
12/13/96 28.8
12/20/96 27.2
12/27/96 27.2
1/3/97 27.2
1/10/97 27.2
1/17/97 26.9
1/24/97 26.9
1/31/97 28.1
2/7/97 28.1
2/14/97 28.9
2/21/97 28.9
2/28/97 26.4
3/7/97 26.4
3/14/97 26.4
3/21/97 26.4
3/28/97 25.6
4/4/97 25.6
4/11/97 25.0
4/18/97 25.0
4/25/97 25.0
5/2/97 25.0
5/9/97 24.7
5/16/97 24.7
5/23/97 NA
Source: ISI Inc.
Other leading indicators of inflation have also registered little inflation
in the pipeline today. The closely watched Employment Cost Index for the first
quarter of 1997 showed overall labor costs growing at only 2.9% year over year.
The Journal of Commerce Commodity Index, which tracks raw industrial commodity
prices, hit a two-year low in early May. The Federal Reserve "Beige Book" is a
survey-based analysis approach that covers all 12 Federal Reserve Districts. The
May release also found limited inflation for both prices and wages. If growth
slows in the upcoming quarter, the low inflation picture would prove a good
investing background for bonds.
Economic Growth
Three areas are pointing to slower growth ahead. First, interest rates for
long-term Treasuries are about 7% while 30-year mortgage rates are about 8%. The
relatively higher interest rates when contrasted to inflation have already cut
the pace of mortgage refinancing in half. Second, the slowdown pattern under
6
<PAGE>
- --------------------------------------------------------------------------------
way now in consumer installment debt growth has typically led to a significant
drop in retail sales. As a gauge of the extent consumers are using credit,
credit card chargeoffs just hit a seven-year high. Third, foreign economies are
struggling to retain modest growth. ISI tracks economic activity in 28 foreign
economies. We construct a Foreign (Strength - Weakness) diffusion index. After a
runup in late 1996, foreign activity has returned to a negative reading (please
see chart below).
FOREIGN [STRENGTH - WEAKNESS]
13 Wk. Avg. May 12: -0.1
[Graph Appears Here--See Plot Points Below]
FOREIGN
[STRENGTH -- WEAKNESS]
13 Wk. Avg.
26 SEP 94 3.1
3 OCT 94 3.8
10 OCT 94 4.1
17 OCT 94 4.8
24 OCT 94 6.0
31 OCT 94 5.6
7 NOV 94 4.6
14 NOV 94 5.2
21 NOV 94 5.4
28 NOV 94 5.8
5 DEC 94 6.5
12 DEC 94 7.1
19 DEC 94 6.5
26 DEC 94 6.5
2 JAN 95 8.4
9 JAN 95 7.8
16 JAN 95 7.2
23 JAN 95 6.0
30 JAN 95 5.8
6 FEB 95 6.4
13 FEB 95 5.3
20 FEB 95 5.8
27 FEB 95 6.7
6 MAR 95 7.2
13 MAR 95 6.7
20 MAR 95 7.4
27 MAR 95 7.3
3 APR 95 6.4
10 APR 95 7.4
17 APR 95 6.9
24 APR 95 6.2
1 MAY 95 6.2
8 MAY 95 5.3
15 MAY 95 5.6
22 MAY 95 5.6
29 MAY 95 4.1
5 JUN 95 2.1
12 JUN 95 1.3
19 JUN 95 0.5
26 JUN 95 1.1
3 JUL 95 0.5
10 JUL 95 0.3
17 JUL 95 0.9
24 JUL 95 0.4
31 JUL 95 -0.6
7 AUG 95 -1.2
14 AUG 95 -1.0
21 AUG 95 -2.8
28 AUG 95 -2.7
4 SEP 95 -3.1
11 SEP 95 -2.5
18 SEP 95 -2.5
25 SEP 95 -3.6
2 OCT 95 -3.8
9 OCT 95 -4.8
16 OCT 95 -5.2
23 OCT 95 -5.2
30 OCT 95 -5.4
6 NOV 95 -3.9
13 NOV 95 -4.8
20 NOV 95 -4.9
27 NOV 95 -4.8
4 DEC 95 -4.5
11 DEC 95 -4.4
18 DEC 95 -4.5
25 DEC 95 -5.0
1 JAN 96 -4.8
8 JAN 96 -4.5
15 JAN 96 -5.0
22 JAN 96 -5.8
29 JAN 96 -5.2
5 FEB 96 -5.4
12 FEB 96 -5.9
19 FEB 96 -4.5
26 FEB 96 -4.0
4 MAR 96 -3.6
11 MAR 96 -4.5
18 MAR 96 -5.4
25 MAR 96 -4.7
1 APR 96 -5.7
8 APR 96 -6.4
15 APR 96 -5.8
22 APR 96 -5.3
29 APR 96 -5.6
6 MAY 96 -5.7
13 MAY 96 -5.9
20 MAY 96 -7.2
27 MAY 96 -6.2
3 JUN 96 -6.2
10 JUN 96 -5.7
17 JUN 96 -5.5
24 JUN 96 -5.2
1 JUL 96 -5.0
8 JUL 96 -4.7
15 JUL 96 -4.0
22 JUL 96 -4.4
29 JUL 96 -5.2
5 AUG 96 -6.2
12 AUG 96 -5.7
19 AUG 96 -5.2
26 AUG 96 -5.1
2 SEP 96 -4.6
9 SEP 96 -2.8
16 SEP 96 -2.7
23 SEP 96 -2.4
30 SEP 96 -1.7
7 OCT 96 -0.5
14 OCT 96 -1.3
21 OCT 96 -0.5
28 OCT 96 0.7
4 NOV 96 2.4
11 NOV 96 2.5
18 NOV 96 3.8
25 NOV 96 5.2
2 DEC 96 6.3
9 DEC 96 5.4
16 DEC 96 6.2
23 DEC 96 5.3
30 DEC 96 5.8
6 JAN 97 5.1
13 JAN 97 4.6
20 JAN 97 4.5
27 JAN 97 4.5
3 FEB 97 4.0
10 FEB 97 4.8
17 FEB 97 4.1
24 FEB 97 1.8
3 MAR 97 1.8
10 MAR 97 1.0
17 MAR 97 2.0
24 MAR 97 3.3
31 MAR 97 2.7
7 APR 97 2.7
14 APR 97 2.6
21 APR 97 2.2
28 APR 97 1.5
5 MAY 97 0.5
12 MAY 97 -0.1
19 MAY 97 -0.7
26 MAY 97 NA
Source: ISI Inc.
With foreign economies struggling to hold on to modest growth, U.S. exports
seem unlikely to stimulate near-term economic growth. There are factors working
to improve the U.S. economy, such as high equity prices and high consumer
confidence, but we expect the forces cited earlier will rule, producing slower
growth over the balance of 1997.
7
<PAGE>
ECONOMIC OUTLOOK (CONCLUDED)
- --------------------------------------------------------------------------------
The Impact of Smaller Budget Deficits
A decline in the federal government deficit is a powerful influence on
economic growth and inflation but it also influences the capital markets.
Smaller deficits free up capital for alternative investments. The change in
the annual net financing requirement has been very dramatic (please see table
below).
Federal Government Deficit
12-month Sum in Billions
----------------------------------
August 1992 September 1997*
- --------------------------------------------------------------------------------
Treasury Interest Paid $200 $250
................................................................................
Treasury Issuance $324 $ 70
................................................-----................-----......
Net Financing Requirement +$124 -$180
................................................................................
*Estimated.
We see low inflation and dwindling Treasury issuance as strong secular
forces able to create a declining interest rate environment. They will be
active near-term market influences when the economy is seen slowing.
8
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares.
Average Annual Total Return
Periods Ended 3/31/97 1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Class A Shares -0.30% 5.17% 6.21%
................................................................................
*10/23/90.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
9
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Net Assets April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- -----------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS--92.7%
General Obligation--61.1%
Arlington, Texas, Independent School
District, 5.75%, 2021 Aaa/NR $5,000 $ 4,954,700
Charlotte, NC:
5.30%, 2011 Aaa/AAA 1,590 1,585,278
5.30%, 2012 Aaa/AAA 1,120 1,111,062
5.30%, 2012 Aaa/AAA 2,325 2,306,447
5.80%, 2016 Aaa/AAA 2,500 2,576,825
Chicago, IL, 6.30%, 2009 Aa/AA 1,000 1,078,940
Dallas, TX, 5.00%, 2010 Aaa/AAA 1,750 1,692,075
Delaware State, Series "A",
5.125%, 2016 Aa1/AA+ 2,150 2,029,278
DuPage County, IL, Jail Project,
5.60%, 2021 Aaa/AAA 1,600 1,567,008
Florida Board of Education, Refunding
Public Education:
6.125%, 2012 Aa2/AA+ 2,250 2,337,075
5.50%, 2021 Aa2/AA+ 2,000 1,915,040
5.125%, 2022 Aa2/AA+ 5,000 4,532,050
Franklin County, OH:
5.45%, 2009 Aaa/AAA 1,500 1,519,410
5.50%, 2013 Aaa/AAA 1,000 993,500
Georgia State, Series "D":
5.00%, 2010 Aaa/AA+ 2,000 1,945,080
5.25%, 2009 Aaa/AA+ 1,580 1,588,390
Grand Prairie, TX, School District,
5.20%, 2018 Aaa/AAA 2,000 1,865,080
Henrico County, VA:
5.20%, 2008 Aaa/AAA 1,200 1,205,496
5.25%, 2009 Aaa/AAA 1,000 1,002,430
Maryland State & Local Facilities,
Second Series, 5.125%, 2010 Aaa/AAA 3,000 2,941,680
Minneapolis, MN, Sports Arena:
5.00%, 2011 Aaa/AAA 1,710 1,635,393
5.00%, 2012 Aaa/AAA 1,920 1,822,886
Mississippi State, 5.25%, 2014 Aa3/AA 3,000 2,886,570
</TABLE>
10
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- -----------------------------------------------------------------------------------
<S><C>
General Obligation--concluded
Montgomery County, MD:
5.60%, 2004 Aaa/AAA $1,000 $ 1,041,200
5.00%, 2009 Aaa/AAA 1,500 1,468,710
Plano, TX, Independent School District,
5.00%, 2011 Aaa/AAA 3,000 2,836,650
Portland, OR, Metro, 5.25%, 2007 Aa/AA+ 1,500 1,506,930
Salt Lake County, UT, 5.25%, 2010 Aaa/AA+ 2,000 1,988,340
South Carolina Capital Improvement,
5.00%, 2009 Aaa/AAA 2,700 2,652,534
South Carolina State Highway, Series "B",
5.625%, 2014 Aaa/AAA 2,700 2,723,166
State of Tennessee:
Series "A", 5.50%, 2009 Aaa/AA+ 1,535 1,565,193
Series "A", 5.55%, 2010 Aaa/AA+ 1,000 1,014,500
Series "B", 6.00%, 2005 Aaa/AA+ 2,000 2,136,020
State of Texas, 6.00%, 2014 Aa/AA 2,000 2,047,940
State of Virginia, 5.375%, 2016 Aaa/AAA 2,500 2,451,650
Washington State, Series "A",
5.60%, 2010 Aa2/AA 1,500 1,510,560
------------
72,035,086
------------
Electric and Gas Utility Revenue--5.1%
Jacksonville, FL, Electric Authority Revenue,
St. John's River Power, 5.25%, 2028 Aa1/AA 2,000 1,836,320
Orlando, FL, Utility Commission,
5.125%, 2019 Aa1/AA 3,500 3,185,140
San Antonio, TX, Electric & Gas Revenue,
Series "A", 6.50%, 2012 Aa1/AA 1,000 1,041,790
------------
6,063,250
------------
Prerefunded Issues--12.3%
Arizona Highway Transportation Board,
6.00%, 2010 #AAA/AAA 3,480 3,652,051
Florida Board of Education, Refunding
Public Education, 6.50%, 2012 #AAA/AA+ 2,500 2,705,775
</TABLE>
11
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- -----------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS--concluded
Prerefunded Issues--concluded
Howard County, MD, Consolidated
Public Improvements, Series "A",
6.90%, 2002 #AAA/AAA $1,000 $ 1,064,270
Jacksonville, FL, Electric Authority
Revenue, Scherer 4-1-A, 6.75%, 2021 #AAA/AA 1,000 1,079,110
Lower Colorado River Authority, Jr.
Lien, 4th Supply, 5.25%, 2015 #AAA/AAA 2,000 1,937,200
State of Hawaii, General Obligation:
7.00%, 2006 Aaa/** 750 800,085
6.125%, 2010 NR/** 1,000 1,055,410
University of Texas, 6.50%, 2011 #AAA/AAA 2,000 2,164,500
------------
14,458,401
------------
Transportation Revenue--9.4%
Florida Transportation Revenue,
5.80%, 2018 Aa2/AA+ 2,000 1,999,820
Kansas Transportation Revenue:
5.40%, 2009 Aa/AA 2,000 2,006,680
5.40%, 2009 Aa/AA 2,500 2,508,350
Virginia State Transportation Authority:
5.00%, 2008 Aa/AA 1,100 1,076,250
5.125%, 2009 Aa/AA 2,500 2,450,475
6.00%, 2010 Aa/AA 1,000 1,028,400
------------
11,069,975
------------
Water and Sewer Utility Revenue--3.6%
DuPage, IL, Water Commission,
5.25%, 2011 Aa1/AA 2,500 2,411,150
Washington Suburban Sanitary
District, MD, 5.375%, 2010 Aa1/AA 1,810 1,784,027
------------
4,195,177
------------
Other Revenue--1.3%
Indianapolis Local Public Improvement
Board, IN, 6.00%, 2018 Aaa/AA+ 1,500 1,514,550
------------
Total Municipal Bonds
(Cost $108,842,182) 109,336,439
------------
</TABLE>
12
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Par Market Value
Issuer (000) (Note 1)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--6.0%
Goldman Sachs & Co., 5.25%
Dated 4/30/97, to be repurchased
on 5/1/97, collateralized
by U.S. Treasury Notes with
a market value of $7,191,200.
(Cost $7,120,000) $7,120 $ 7,120,000
------------
Total Investment in Securities--98.8%
(Cost $115,962,182)*** 116,456,439
Other Assets in Excess of Liabilities, Net--1.2% 1,391,690
------------
Net Assets--100.0% $117,848,129
============
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($38,788,768 / 3,717,678 shares outstanding) $10.43
======
ISI Class Share
($79,059,361 / 7,579,385 shares outstanding) $10.43
======
Maximum Offering Price Per:
Flag Investors Class A Share
($10.43 / .955) $10.92
======
ISI Class Share
($10.43 / .9555) $10.92
======
- ----------
* The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available as of April 30, 1997.
** Prerefunded bonds backed by U.S. Treasury Securities. Absent prerefunding,
this obligation is rated Aa3/A+.
*** Also, aggregate cost for federal tax purposes.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Operations
For the Six
Months Ended
April 30,
- --------------------------------------------------------------------------------
1997(1)
Investment Income (Note 1):
Interest $ 3,265,505
-----------
Expenses:
Investment advisory fee (Note 2) 241,980
Distribution fee (Note 2) 152,692
Administration fees (Note 2) 120,990
Accounting fee (Note 2) 28,911
Transfer agent fee (Note 2) 28,100
Printing and postage 17,108
Legal 14,999
Audit 14,321
Registration fees (Note 1) 12,735
Miscellaneous 11,217
Custodian fees 10,594
Directors' fees 5,400
Insurance 2,386
-----------
Total expenses 661,433
Less: Fees waived (Note 2) (116,969)
-----------
Net expenses 544,464
-----------
Net investment income 2,721,041
-----------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 174,825
Change in unrealized appreciation or depreciation of investments (1,283,244)
-----------
Net loss on investments (1,108,419)
-----------
Net increase in net assets resulting from operations $ 1,612,622
===========
- ----------
(1) Unaudited.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Six For the Year
Months Ended Ended
April 30, October 31,
- --------------------------------------------------------------------------------
1997(1) 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 2,721,041 $ 5,787,049
Net realized gain from security transactions 174,825 281,659
Change in appreciation or
depreciation of investments (1,283,244) (272,341)
------------ ------------
Net increase in net assets resulting
from operations 1,612,622 5,796,367
------------ ------------
Dividends to Shareholders from:
Net investment income:
Flag Investors Class A Shares (890,824) (1,958,320)
ISI Class Shares (1,830,220) (3,828,729)
Net realized short-term gains:
Flag Investors Class A Shares (136,103) (286,075)
ISI Class Shares (280,786) (545,496)
Net realized long-term gains:
Flag Investors Class A Shares (38,304) (43,313)
ISI Class Shares (79,536) (82,292)
------------ ------------
Total distributions (3,255,773) (6,744,225)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 1,230,031 8,278,327
Value of shares issued in
reinvestment of dividends 1,824,816 3,789,940
Cost of shares repurchased (9,467,718) (17,488,342)
------------ ------------
Decrease in net assets derived from capital
share transactions (6,412,871) (5,420,075)
------------ ------------
Total decrease in net assets (8,056,022) (6,367,933)
Net Assets:
Beginning of period 125,904,151 132,272,084
------------ ------------
End of period $117,848,129 $125,904,151
============ ============
- ----------
(1) Unaudited.
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each period)(1)
For the Six
Months Ended
April 30,
- --------------------------------------------------------------------------------
1997(2)
Per Share Operating Performance:
Net asset value at beginning of period $ 10.58
-------
Income from Investment Operations:
Net investment income 0.23
Net realized and unrealized gain/(loss) on investments (0.10)
-------
Total from Investment Operations 0.13
-------
Less Distributions:
Distributions from net investment income
and short-term gains (0.27)
Distributions from net realized long-term gains (0.01)
-------
Total distributions (0.28)
-------
Net asset value at end of period $ 10.43
=======
Total Return(3) 1.24%
Ratios to Average Daily Net Assets:
Expenses(4) 0.90%(6)
Net investment income(5) 4.50%(6)
Supplemental Data:
Net assets at end of period:
Flag Investors Class A Shares $38,789
ISI Class Shares $79,059
Portfolio turnover rate 11%(6)
- ----------
(1) Computed based upon average shares outstanding.
(2) Unaudited.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory and administration fees (Note 2), the ratio
of expenses to average daily net assets would have been 1.09%
(annualized), 1.13%, 1.10%, 1.11%, 1.14% and 1.27% for the six months
ended April 30, 1997 and the years ended October 31, 1996, 1995, 1994, 1993
and 1992, respectively.
(5) Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been 4.31%
(annualized), 4.25%, 4.52%, 4.16%, 4.14% and 4.41% for the six months
ended April 30, 1997 and the years ended October 31, 1996, 1995, 1994, 1993
and 1992, respectively.
(6) Annualized.
16
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.65 $ 9.81 $ 11.10 $ 10.31 $ 10.36
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.48 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 period $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31
======= ======= ======= ======= =======
Total Return(3) 4.67% 15.42% (6.49)% 14.36% 6.06%
Ratios to Average Daily Net Assets:
Expenses(4) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(5) 4.48% 4.72% 4.37% 4.38% 4.78%
Supplemental Data:
Net assets at end of period:
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>
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Managed Municipal Fund, Inc. (the "Fund"), which was organized as a
Maryland Corporation on January 15, 1990, commenced operations February 26,
1990. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. It is designed to provide a
high level of total return with relative stability of principal as well as the
secondary objective of high current income through investment in a portfolio
consisting primarily of municipal obligations, the interest on which is exempt
from federal income tax.
The Fund consists of two share classes: ISI Managed Municipal Fund Shares
("ISI Class"), which commenced February 26, 1990, and Flag Investors Managed
Municipal Fund Class A Shares ("Flag Investors Class A"), which commenced
October 23, 1990.
The ISI Class Shares have a 4.45% maximum front-end sales charge and the
Flag Investors Class A Shares have a 4.50% maximum front-end sales charge. Both
classes have a 0.25% distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--Municipal obligations are usually traded in the
over-the-counter market. When there is an available market quotation,
the Fund values a municipal obligation by using the most recent
price provided by an investment dealer. The Fund utilizes the
services of an independent pricing vendor to obtain prices. When a
market quotation is unavailable, the Investment Advisor determines a
fair value using procedures that the Board of Directors establishes
and monitors. The Fund values short-term obligations with maturities of
60 days or less at amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
18
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
NOTE 1--concluded
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. Security Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income
tax purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated
to each class based on its respective average net assets. Class
specific expenses are charged directly to each class. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
International Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor and Investment Company Capital Corp. ("ICC") is the Fund's
administrator. As compensation for its advisory services, the Fund pays ISI an
annual fee based on the Fund's average daily net assets. This fee is calculated
daily and paid monthly at the annual rate of 0.40%. As compensation for its
19
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FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
administrative services, the Fund pays ICC an annual fee based on the Fund's
average daily net assets. This fee is calculated daily and paid monthly at the
annual rate of 0.20%.
ISI and ICC have agreed to reduce their fees proportionately when necessary
so that the Fund's annual expenses are no more than 0.90% of the Fund's average
daily net assets. For the six months ended April 30, 1997, ISI waived fees of
$77,979 and ICC waived fees of $38,990.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $28,911 for accounting services for the six months
ended April 30, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $28,100 for
transfer agent services for the six months ended April 30, 1997.
As compensation for providing distribution services for the ISI Class, the
Fund paid Armata Financial Corp., an affiliate of Alex. Brown & Sons
Incorporated ("Alex. Brown"), an annual fee that was calculated daily and paid
monthly. This fee was paid at an annual rate equal to 0.25% of the ISI Class'
average daily net assets. Beginning April 1, 1997, ISI Group Inc. assumed the
role of distributor of the ISI Class. As compensation for providing distribution
services for the Flag Investors Class A Shares, the Fund pays Alex. Brown an
annual fee that is calculated daily and paid monthly. This fee is paid at an
annual rate equal to 0.25% of the Flag Investors Class A Shares' average daily
net assets. For the six months ended April 30, 1997, distribution fees
aggregated $152,692, of which $103,178 was attributable to the ISI Class Shares
and $49,514 was attributable to the Flag Investors Class A Shares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period
November 1, 1996 through April 30, 1997 was $2,046, and the accrued liability
was $18,728.
20
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FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 40 million shares of $.001 par value
capital 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 are listed below.
Flag Investors Class A Shares
--------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1997 October 31,
(Unaudited) 1996
-------------- -----------
Shares sold 22,849 200,140
Shares issued to shareholders on
reinvestment of dividends 53,519 114,250
Shares redeemed (253,027) (736,822)
----------- -----------
Net decrease in shares outstanding (176,659) (422,432)
=========== ===========
Proceeds from sale of shares $ 238,130 $ 2,079,607
Value of reinvested dividends 561,048 1,200,959
Cost of shares redeemed (2,668,242) (7,734,234)
----------- -----------
Net decrease from capital share transactions $(1,869,064) $(4,453,668)
=========== ===========
ISI Class Shares
--------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1997 October 31,
(Unaudited) 1996
-------------- -----------
Shares sold 94,358 585,014
Shares issued to shareholders on
reinvestment of dividends 120,321 246,345
Shares redeemed (646,136) (924,026)
----------- -----------
Net decrease in shares outstanding (431,457) (92,667)
=========== ===========
Proceeds from sale of shares $ 991,901 $ 6,198,720
Value of reinvested dividends 1,263,768 2,588,981
Cost of shares redeemed (6,799,476) (9,754,108)
----------- -----------
Net decrease from capital share transactions $(4,543,807) $ (966,407)
=========== ===========
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FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $6,551,646 and sales of investment securities aggregated $13,600,943
for the six months ended April 30, 1997.
On April 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $1,875,728 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $1,381,471.
NOTE 5--Net Assets
On April 30, 1997, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $ 37,824,163
ISI Class Shares 79,695,495
Overdistribution of net realized gains from security transactions (165,786)
Unrealized appreciation of investments 494,257
------------
$117,848,129
============
NOTE 6--Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
22
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Directors and Officers
EDWARD S. HYMAN
Chairman
RICHARD T. HALE NANCY LAZAR
Vice Chairman Vice President
R. ALAN MEDAUGH EDWARD J. VEILLEUX
Director and President Vice President
JAMES J. CUNNANE SCOTT J. LIOTTA
Director Vice President and Secretary
JOHN F. KROEGER CARRIE L. BUTLER
Director Vice President
LOUIS E. LEVY JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD LAURIE D. COLLIDGE
Director Assistant Secretary
Investment Objective
A mutual fund designed to provide a high level of total return with relative
stability of principal as well as the secondary objective of high current income
through investment in a portfolio consisting primarily of municipal obligations,
the interest on which is exempt from federal income tax.
23
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<PAGE>
This report is prepared for the general
information of shareholders. It is authorized for
distribution to prospective investors only when
preceded or accompanied by an effective
prospectus.
For more complete information regarding any
of the Flag Investors Funds, including charges and
expenses, obtain a prospectus from your invest-
ment representative or directly from the Fund at
1-800-767-FLAG. Read it carefully before you
invest.
<PAGE>
[LOGO]
FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
