Investment Advisor's Report
We are pleased to report on the progress of your fund for the fiscal year
ended October 31, 1998. In this year of volatile interest rates, the Fund
recorded a total return of 7.5%. From its inception on February 26, 1990 through
October 31, 1998, the Fund has posted a cumulative total return of 82.0%, which
translates into an average annual total return of 7.2%. These figures assume the
reinvestment of dividends and capital gains distributions and exclude the impact
of any sales charge.
Overview
The general level of municipal rates moved lower during the fiscal year,
down about 30 basis points. The rate pattern was quite volatile during the year.
Please see chart below.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
30-Year Municipal AAA General Obligation Yields
THIS PAGE: 10/30/98 TO: 8/31/98
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F 10/30 4.80 F 10/9 4.75 F 9/18 4.86
T 10/29 4.79 T 10/8 4.68 T 9/17 4.87
W 10/28 4.79 W 10/7 4.63 W 9/16 4.88
T 10/27 4.77 T 10/6 4.62 T 9/15 4.89
M 10/26 4.77 M 10/5 4.67 M 9/14 4.89
F 10/23 4.78 F 10/2 4.72 F 9/11 4.88
T 10/22 4.75 T 10/1 4.76 T 9/10 4.87
W 10/21 4.73 W 9/30 4.78 W 9/9 4.88
T 10/20 4.73 T 9/29 4.82 T 9/8 4.89
M 10/19 4.70 M 9/28 4.83 M 9/7 4.88
F 10/16 4.70 F 9/25 4.83 F 9/4 4.88
T 10/15 4.71 T 9/24 4.83 T 9/3 4.88
W 10/14 4.71 W 9/23 4.83 W 9/2 4.88
T 10/13 4.73 T 9/22 4.83 T 9/1 4.87
M 10/12 4.75 M 9/21 4.83 M 8/31 4.86
1
<PAGE>
THIS PAGE: 8/28/98 TO: 6/29/98
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F 8/30 4.86 F 8/7 4.94 F 7/17 5.00
T 8/27 4.86 T 8/6 4.95 T 7/16 5.00
W 8/26 4.86 W 8/5 4.95 W 7/15 4.98
T 8/25 4.88 T 8/4 4.94 T 7/14 4.98
M 8/24 4.88 M 8/3 4.95 M 7/13 4.96
F 8/21 4.88 F 7/31 4.97 F 7/10 4.93
T 8/20 4.92 T 7/30 4.97 T 7/9 4.93
W 8/19 4.93 W 7/29 4.98 W 7/8 4.93
T 8/18 4.93 T 7/28 4.99 T 7/7 4.93
M 8/17 4.93 M 7/27 4.98 M 7/6 4.93
F 8/14 4.93 F 7/24 4.98 F 7/3 4.93
T 8/13 4.94 T 7/23 4.98 T 7/2 4.93
W 8/12 4.93 W 7/22 4.98 W 7/1 4.95
T 8/11 4.93 T 7/21 4.98 T 6/30 4.96
M 8/10 4.94 M 7/20 4.99 M 6/29 4.95
2
<PAGE>
THIS PAGE: 6/26/98 TO: 4/27/98
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F 6/26 4.94 F 6/5 4.96 F 5/15 5.09
T 6/25 4.95 T 6/4 4.97 T 5/14 5.10
W 6/24 4.93 W 6/3 4.97 W 5/13 5.10
T 6/23 4.93 T 6/2 4.97 T 5/12 5.12
M 6/22 4.93 M 6/1 4.96 M 5/11 5.13
F 6/19 4.94 F 5/29 4.97 F 5/8 5.11
T 6/18 4.93 T 5/28 4.98 T 5/7 5.11
W 6/17 4.98 W 5/27 4.98 W 5/6 5.11
T 6/16 4.93 T 5/26 5.00 T 5/5 5.12
M 6/15 4.91 M 5/25 5.03 M 5/4 5.12
F 6/12 4.92 F 5/22 5.03 F 5/1 5.13
T 6/11 4.92 T 5/21 5.03 T 4/30 5.14
W 6/10 4.93 W 5/20 5.03 W 4/29 5.18
T 6/9 4.96 T 5/19 5.06 T 4/28 5.16
M 6/8 4.96 M 5/18 5.06 M 4/27 5.16
3
<PAGE>
THIS PAGE: 4/27/98 TO: 3/2/98
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F F 4/10 5.03 F 3/20 5.01
T T 4/9 5.03 T 3/19 5.02
W W 4/8 5.03 W 3/18 5.02
T T 4/7 5.02 T 3/17 5.02
M 4/27 5.16 M 4/6 5.02 M 3/16 5.03
F 4/24 5.10 F 4/3 5.00 F 3/13 5.04
T 4/23 5.10 T 4/2 5.04 T 3/12 5.04
W 4/22 5.08 W 4/1 5.05 W 3/11 5.04
T 4/21 5.07 T 3/31 5.05 T 3/10 5.05
M 4/20 5.05 M 3/30 5.05 M 3/9 5.04
F 4/17 5.04 F 3/27 5.04 F 3/6 5.04
T 4/16 5.04 T 3/26 5.03 T 3/5 5.05
W 4/15 5.05 W 3/25 5.03 W 3/4 5.02
T 4/14 5.05 T 3/24 5.01 T 3/3 5.02
M 4/13 5.06 M 3/23 5.01 M 3/2 4.99
4
<PAGE>
THIS PAGE: 2/27/98 TO: 12/29/97
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F 2/27 4.96 F 2/6 4.93 F 1/16 4.83
T 2/26 4.94 T 2/5 4.93 T 1/15 4.80
W 2/25 4.94 W 2/4 4.91 W 1/14 4.82
T 2/24 4.95 T 2/3 4.91 T 1/13 4.82
M 2/23 4.91 M 2/2 4.93 M 1/12 4.83
F 2/20 4.89 F 1/30 4.92 F 1/9 4.87
T 2/19 4.88 T 1/29 4.93 T 1/8 4.91
W 2/18 4.86 W 1/28 4.95 W 1/7 4.95
T 2/17 4.85 T 1/27 4.95 T 1/6 4.93
M 2/16 4.89 M 1/26 4.92 M 1/5 4.93
F 2/13 4.89 F 1/23 4.93 F 1/2 4.96
T 2/12 4.89 T 1/22 4.86 T 1/1 4.99
W 2/11 4.91 W 1/21 4.84 W 12/31 4.99
T 2/10 4.94 T 1/20 4.84 T 12/30 5.01
M 2/9 4.94 M 1/19 4.83 M 12/29 4.98
5
<PAGE>
THIS PAGE: 12/26/98 TO: 10/31/97
DATE YIELD DATE YIELD DATE YIELD
- ---------------------------------------------------------------------------
F 12/26 4.98 F 12/5 5.11 F 11/14 5.14
T 12/25 4.98 T 12/4 5.09 T 11/13 5.13
W 12/24 4.98 W 12/3 5.11 W 11/12 5.14
T 12/23 4.98 T 12/2 5.15 T 11/11 5.15
M 12/22 4.98 M 12/1 5.16 M 11/10 5.15
F 12/19 4.98 F 11/28 5.17 F 11/7 5.15
T 12/18 5.02 T 11/27 5.17 T 11/6 5.15
W 12/17 5.03 W 11/26 5.17 W 11/5 5.15
T 12/16 5.01 T 11/25 5.17 T 11/4 5.16
M 12/15 5.01 M 11/24 5.17 M 11/3 5.14
F 12/12 5.01 F 11/21 5.15 F 10/31 5.12
T 12/11 5.03 T 11/20 5.14
W 12/10 5.08 W 11/19 5.14
T 12/9 5.10 T 11/18 5.16
M 12/8 5.12 M 11/17 5.16
Source: Bloomberg Inc.
For additional information, please see our detailed Economic Outlook for
1999, which follows this letter.
Portfolio Management
Over the fiscal year, municipal bonds have had a marked difference from
taxable bonds in two ways. First, the quality spread in municipals remained
stable while taxable corporate bonds saw a doubling of credit quality yield
spread. Please see table below.
- -------------------------------------------------------------------------------
Quality Yield Spread Analysis
- -------------------------------------------------------------------------------
Municipal GO's Corporate Indices
BBB vs. AAA BBB vs. AAA
- -------------------------------------------------------------------------------
10/98 10/97 10/98 10/97
- -------------------------------------------------------------------------------
+34 bp +35 bp +99 bp +50 bp
- -------------------------------------------------------------------------------
The Fund has a high quality orientation, which means it performs best when
a slow economy puts pressure on weaker credits. A robust economy, like the one
we have had recently, eases credit quality concerns and produces better results
for medium quality issues. We would expect some opening of the quality spreads
among municipal bonds during the next year as the U.S. economy slows, causing
lower growth in sales and income tax receipts.
The second notable difference between the municipal and taxable markets was
the outperformance of Treasuries. Over the fiscal year, long municipal bonds
moved down in yield, but much less than Treasuries, producing a sizable jump in
the relative yield of municipals over Treasuries. Please see table below.
- -------------------------------------------------------------------------------
30 year AAA GO Municipal yields
as a percentage of 30 year Treasury Bonds
- -------------------------------------------------------------------------------
ISI Managed Lehman Bros Mun Bond Index Con Price Index
- -------------------------------------------------------------------------------
10/98 10/97
- -------------------------------------------------------------------------------
93.2% 83.2%
- -------------------------------------------------------------------------------
The value of Top Quality Municipal bonds is currently very high versus
taxable Treasuries. We expect this advantage for high income individuals will
draw support for municipals, and cause them to outperform Treasuries over the
next year.
6
<PAGE>
Economic Outlook for 1999
Performance Review
Municipal rates declined modestly during the fiscal year, producing better
total returns for longer-term municipals than short-term issues. During the
fiscal year, the Fund retained a relatively long average maturity profile and
benefited from that general orientation. Please see the table below for a total
return comparison of each maturity range.
- -------------------------------------------------------------------------------
Performance Comparisons
Short to Long Maturity Municipals
- -------------------------------------------------------------------------------
Lehman Brothers Total Return
General Obligations Fiscal Year 1998
Municipal Bond Index (Oct. 31, 1997-Oct. 31, 1998)
- -------------------------------------------------------------------------------
1 year 4.9%
- -------------------------------------------------------------------------------
3 years 5.7%
- -------------------------------------------------------------------------------
5 years 6.5%
- -------------------------------------------------------------------------------
7 years 7.4%
- -------------------------------------------------------------------------------
10 years 8.5%
- -------------------------------------------------------------------------------
Long Term (17+ years) 9.4%
- -------------------------------------------------------------------------------
We would like to welcome our new investors to the Fund and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
- -------------------
R. Alan Medaugh
President
November 19, 1998
Overview
We expect the U.S. economy will slow over the next six months. Of greater
investment importance, we see inflation turning into deflation. The Deflator, a
very broad measure of inflation, is likely to register negative readings in the
first half of 1999. Interest rates are likely to fall, for example the benchmark
long Treasury rate should decline by one-half of a percent during the first half
of 1999. The U.S. Federal Reserve has cut its key short term rate three times
this year and we expect two more cuts in the first half of 1999, reducing the
rate to 4.25% from its starting level of 5.50%. Please see table below.
- -------------------------------------------------------------------------------
ISI ECONOMIC FORECAST
- -------------------------------------------------------------------------------
98:1Q 98:2Q 98:3Q 98:4Q* 99:1Q* 99:2Q*
- -------------------------------------------------------------------------------
Nominal GDP 6.4% 2.7% 4.1% 2.0% 1.5% 1.5%
- -------------------------------------------------------------------------------
GDP Deflator** 1.1% 0.9% 0.8% 0.0% -0.5% -0.5%
- -------------------------------------------------------------------------------
Real GDP 5.4% 1.8% 3.3% 2.0% 2.0% 2.0%
- -------------------------------------------------------------------------------
30 Year Bond Yields** 5.9% 5.6% 5.0% 5.1% 4.7% 4.6%
- -------------------------------------------------------------------------------
Fed Funds Rate*** 5.5% 5.5% 5.2% 4.7% 4.5% 4.2%
- -------------------------------------------------------------------------------
* Estimated.
** A more accurate cost of living barometer than the CPI.
*** End of quarter.
Synchronized Interest Rate Cutting
The strongest current theme is the global flood of Central Bank easings and
calls for more easings. This is not your typical backdrop for financial assets.
We counted 18 Central Bank easings in October, and we're already up to 15
through mid-November. The International Monetary Fund (IMF) has urged French
policymakers to cut rates. Germany's top economic adviser hinted at a
"temporary" relaxation of Maastricht budgetary rigor. We have the feeling that
Japanese policymakers have made more progress recently than they've made in the
past 7 years. The latest stimulus plan could top $180
7
<PAGE>
Economic Outlook for 1999 (continued)
billion. The Liberal Democratic Party(LDP) agreed to a voucher plan designed to
stimulate consumer spending rather than saving. The Bank of Japan (BoJ) has
pushed the overnight call rate below 0.20% from 0.50%. The BoJ recently
announced a host of new steps to inject more liquidity, including buying
corporate bonds for the first time. The Nihon Keizai Shimbun, a Japanese
business newspaper, reported that 15 of Japan's biggest lenders will issue
preferred securities as a first step in the government's capital injection
program. On top of a recent bank bailout program, the Government will also lend
$1 billion to Nissan Motor.
We believe that Central Banks will in large part justify upcoming rate cuts
with "tame inflation outlook" arguments. That's what Sweden's Central Bank did
recently. We believe Central Banks will consider deflation just as destabilizing
as inflation. The Group of 7 Industrialized Nations (G7) composite consumer
inflation measure is likely to slow to a new low of 1.1% year to year when all
the October numbers are in. Odds of lower inflation are very high. Odds of
global deflation are above 50% (more on this below). G7 economic growth is now
clearly slowing. The newly elected German government was successful in large
part because of its call for faster economic growth, i.e. lower rates and more
money growth.
Synchronized Global Cost Cutting
Shades of a deflationary cost-cutting spiral are developing. Japan Air
Lines (JAL) is cutting salaries. GM will "focus on slicing costs" in 1999.
Chrysler wants to cut costs by $1.5 billion. Malaysian oil producers aim to cut
costs by 30%. Also, Singapore announced plans in mid-November to make local
industry more competitive, particularly electronics companies, by cutting
company wage costs an astounding 15%. The value of the cuts equal an incredible
7% of Singapore's GDP. U.S. companies, in an effort to stay profitable, have
accelerated layoffs. It is now estimated that calendar year 1998 will register
the most layoffs in the 1990's. As an example of the fast pace, ISI has counted
49 layoff announcements in the first half of November with a total of 40,000
jobs involved.
Bond Market Support
Institutional investors have become bullish on bonds, extending their
portfolios. This is often a negative indicator because they have invested and
therefore prices reflect a lot of good news. Offsetting this today are two
powerful forces. First, as we have outlined above, short term rates are likely
to fall and that might push individuals out of money funds, etc. into longer
maturities as occurred in the early 1990's. Please see Money Mountain graph
below.
MONEY MARKET FUNDS + SMALL CDs
OCT. 26 $1714.8 BILLION
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
MONEY MONEY MONEY MONEY MONEY
MOUNTAIN MOUNTAIN MOUNTAIN MOUNTAIN MOUNTAIN
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> C> <C> <C>
7 JAN 85 1,059.7 17 MAR 86 1,079.9 25 MAY 87 1,061.1 1 AUG 88 1,224.6 9 OCT 89 1453.5
14 JAN 85 1,061.4 24 MAR 86 1,081.9 1 JUN 87 1,063.2 8 AUG 88 1,225.5 16 OCT 89 1454.1
21 JAN 85 1,061.3 31 MAR 86 1,086.2 8 JUN 87 1,066.7 15 AUG 88 1,227.9 23 OCT 89 1458.8
28 JAN 85 1,061.2 7 APR 86 1,085.4 15 JUN 87 1,066.7 22 AUG 88 1,232.1 30 OCT 89 1460.4
4 FEB 85 1,060.0 14 APR 86 1,086.7 22 JUN 87 1,067.8 29 AUG 88 1,233.6 6 NOV 89 1462.9
11 FEB 85 1,059.8 21 APR 86 1,088.0 29 JUN 87 1,069.4 5 SEP 88 1,236.2 13 NOV 89 1465.6
18 FEB 85 1,060.3 28 APR 86 1,088.6 6 JUL 87 1,073.1 12 SEP 88 1,239.0 20 NOV 89 1465.6
25 FEB 85 1,059.5 5 MAY 86 1,088.5 13 JUL 87 1,074.6 19 SEP 88 1,243.0 27 NOV 89 1467.1
4 MAR 85 1,059.2 12 MAY 86 1,089.0 20 JUL 87 1,075.6 26 SEP 88 1,245.9 4 DEC 89 1470.0
11 MAR 85 1,059.4 19 MAY 86 1,088.4 27 JUL 87 1,078.7 3 OCT 88 1,250.7 11 DEC 89 1470.8
18 MAR 85 1,059.6 26 MAY 86 1,088.3 3 AUG 87 1,081.4 10 OCT 88 1,253.2 18 DEC 89 1472.6
25 MAR 85 1,061.2 2 JUN 86 1,086.9 10 AUG 87 1,084.5 17 OCT 88 1,256.2 25 DEC 89 1474.9
1 APR 85 1,063.2 9 JUN 86 1,086.1 17 AUG 87 1,086.3 24 OCT 88 1,259.3 1 JAN 90 1476.2
8 APR 85 1,062.0 16 JUN 86 1,086.5 24 AUG 87 1,088.2 31 OCT 88 1,261.6 8 JAN 90 1476.6
15 APR 85 1,060.6 23 JUN 86 1,087.9 31 AUG 87 1,089.5 7 NOV 88 1,265.8 15 JAN 90 1476.0
22 APR 85 1,062.7 30 JUN 86 1,087.4 7 SEP 87 1,093.2 14 NOV 88 1,269.3 22 JAN 90 1476.7
29 APR 85 1,062.7 7 JUL 86 1,087.4 14 SEP 87 1,096.7 21 NOV 88 1,273.6 29 JAN 90 1478.4
6 MAY 85 1,063.4 14 JUL 86 1,086.9 21 SEP 87 1,099.1 28 NOV 88 1,275.8 5 FEB 90 1480.8
13 MAY 85 1,064.0 21 JUL 86 1,087.3 28 SEP 87 1,100.1 5 DEC 88 1,277.2 12 FEB 90 1481.8
20 MAY 85 1,064.8 28 JUL 86 1,087.2 5 OCT 87 1,103.5 12 DEC 88 1,279.7 19 FEB 90 1482.1
27 MAY 85 1,064.9 4 AUG 86 1,087.2 12 OCT 87 1,106.3 19 DEC 88 1,283.0 26 FEB 90 1483.8
3 JUN 85 1,066.0 11 AUG 86 1,087.2 19 OCT 87 1,109.5 26 DEC 88 1,285.3 5 MAR 90 1482.7
10 JUN 85 1,066.7 18 AUG 86 1,084.4 26 OCT 87 1,118.1 2 JAN 89 1,289.9 12 MAR 90 1485.0
17 JUN 85 1,067.6 25 AUG 86 1,083.1 2 NOV 87 1,121.8 9 JAN 89 1,291.5 19 MAR 90 1486.2
24 JUN 85 1,069.8 1 SEP 86 1,082.1 9 NOV 87 1,126.4 16 JAN 89 1,296.4 26 MAR 90 1488.2
1 JUL 85 1,070.3 8 SEP 86 1,081.6 16 NOV 87 1,130.7 23 JAN 89 1,299.9 2 APR 90 1490.1
8 JUL 85 1,067.9 15 SEP 86 1,081.7 23 NOV 87 1,133.5 30 JAN 89 1,303.5 9 APR 90 1490.0
15 JUL 85 1,067.0 22 SEP 86 1,083.8 30 NOV 87 1,135.2 6 FEB 89 1,305.9 16 APR 90 1489.1
22 JUL 85 1,065.3 29 SEP 86 1,084.9 7 DEC 87 1,139.6 13 FEB 89 1,309.1 23 APR 90 1491.0
29 JUL 85 1,063.8 6 OCT 86 1,083.5 14 DEC 87 1,143.6 20 FEB 89 1,313.9 30 APR 90 1493.5
5 AUG 85 1,063.0 13 OCT 86 1,081.4 21 DEC 87 1,147.6 27 FEB 89 1,316.3 7 MAY 90 1492.4
12 AUG 85 1,062.9 20 OCT 86 1,079.0 28 DEC 87 1,148.9 6 MAR 89 1,321.9 14 MAY 90 1492.2
19 AUG 85 1,061.9 27 OCT 86 1,077.4 4 JAN 88 1,151.2 13 MAR 89 1,325.9 21 MAY 90 1489.1
26 AUG 85 1,060.8 3 NOV 86 1,075.5 11 JAN 88 1,154.8 20 MAR 89 1,330.3 28 MAY 90 1489.6
2 SEP 85 1,060.8 10 NOV 86 1,072.0 18 JAN 88 1,161.1 27 MAR 89 1,335.3 4 JUN 90 1492.3
9 SEP 85 1,059.7 17 NOV 86 1,071.1 25 JAN 88 1,166.0 3 APR 89 1,341.1 11 JUN 90 1492.5
16 SEP 85 1,059.7 24 NOV 86 1,070.4 1 FEB 88 1,172.2 10 APR 89 1,346.6 18 JUN 90 1497.9
23 SEP 85 1,059.8 1 DEC 86 1,069.0 8 FEB 88 1,176.1 17 APR 89 1,352.0 25 JUN 90 1498.0
30 SEP 85 1,061.2 8 DEC 86 1,067.3 15 FEB 88 1,181.0 24 APR 89 1,357.6 2 JUL 90 1500.8
7 OCT 85 1,060.7 15 DEC 86 1,067.9 22 FEB 88 1,184.2 1 MAY 89 1,362.7 9 JUL 90 1499.7
14 OCT 85 1,060.0 22 DEC 86 1,069.3 29 FEB 88 1,187.0 8 MAY 89 1,369.2 16 JUL 90 1501.9
21 OCT 85 1,059.4 29 DEC 86 1,069.2 7 MAR 88 1,190.2 15 MAY 89 1,375.0 23 JUL 90 1503.1
28 OCT 85 1,058.5 5 JAN 87 1,071.5 14 MAR 88 1,192.5 22 MAY 89 1,382.1 30 JUL 90 1505.9
4 NOV 85 1,058.0 12 JAN 87 1,069.6 21 MAR 88 1,196.1 29 MAY 89 1,385.0 6 AUG 90 1507.5
11 NOV 85 1,058.2 19 JAN 87 1,066.7 28 MAR 88 1,198.2 5 JUN 89 1,389.7 13 AUG 90 1511.4
18 NOV 85 1,058.0 26 JAN 87 1,066.4 4 APR 88 1,200.4 12 JUN 89 1,395.2 20 AUG 90 1511.1
25 NOV 85 1,058.7 2 FEB 87 1,064.6 11 APR 88 1,203.3 19 JUN 89 1,400.5 27 AUG 90 1514.5
2 DEC 85 1,060.2 9 FEB 87 1,064.6 18 APR 88 1,203.6 26 JUN 89 1,404.9 3 SEP 90 1516.5
9 DEC 85 1,061.1 16 FEB 87 1,065.1 25 APR 88 1,207.1 3 JUL 89 1,409.4 10 SEP 90 1516.7
16 DEC 85 1,061.8 23 FEB 87 1,063.2 2 MAY 88 1,208.1 10 JUL 89 1,413.8 17 SEP 90 1517.1
23 DEC 85 1,063.0 2 MAR 87 1,062.5 9 MAY 88 1,208.9 17 JUL 89 1,417.6 24 SEP 90 1518.4
30 DEC 85 1,064.0 9 MAR 87 1,062.4 16 MAY 88 1,210.7 24 JUL 89 1,420.4 1 OCT 90 1521.1
6 JAN 86 1,066.2 16 MAR 87 1,061.8 23 MAY 88 1,213.1 31 JUL 89 1,423.3 8 OCT 90 1522.9
13 JAN 86 1,067.5 23 MAR 87 1,060.7 30 MAY 88 1,213.8 7 AUG 89 1,428.7 15 OCT 90 1522.3
20 JAN 85 1,069.1 30 MAR 87 1,060.7 6 JUN 88 1,212.5 14 AUG 89 1,431.8 22 OCT 90 1523.4
27 JAN 86 1,071.6 6 APR 87 1,059.7 13 JUN 88 1,212.2 21 AUG 89 1,435.9 29 OCT 90 1523.5
3 FEB 86 1,072.0 13 APR 87 1,058.7 20 JUN 88 1,213.4 28 AUG 89 1,438.4 5 NOV 90 1523.3
10 FEB 86 1,072.8 20 APR 87 1,059.6 27 JUN 88 1,216.3 4 SEP 89 1,440.7 12 NOV 90 1524.4
17 FEB 86 1,073.7 27 APR 87 1,060.1 4 JUL 88 1,217.6 11 SEP 89 1,442.6 19 NOV 90 1523.9
24 FEB 86 1,073.5 4 MAY 87 1,061.0 11 JUL 88 1,219.2 18 SEP 89 1,445.9 26 NOV 90 1525.3
3 MAR 86 1,075.2 11 MAY 87 1,058.9 18 JUL 88 1,221.4 25 SEP 89 1,449.0 3 DEC 90 1527.8
10 MAR 86 1,077.6 18 MAY 87 1,059.0 25 JUL 88 1,222.7 2 OCT 89 1,452.5 10 DEC 90 1527.6
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MONEY MONEY MONEY MONEY MONEY
MOUNTAIN MOUNTAIN MOUNTAIN MOUNTAIN MOUNTAIN
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> C> <C> <C>
17 DEC 90 1,528.8 24 FEB 92 1,390.6 3 MAY 93 1,184.6 11 JUL 94 1,145.3 18 SEP 95 1,365.9
24 DEC 90 1,530.2 2 MAR 92 1,386.7 10 MAY 93 1,181.9 18 JUL 94 1,146.2 25 SEP 95 1,365.7
31 DEC 90 1,533.9 9 MAR 92 1,378.7 17 MAY 93 1,179.1 25 JUL 94 1,147.2 2 OCT 95 1,368.2
7 JAN 91 1,534.6 16 MAR 92 1,372.7 24 MAY 93 1,180.6 1 AUG 94 1,148.5 9 OCT 95 1,370.6
14 JAN 91 1,538.6 23 MAR 92 1,368.2 31 MAY 93 1,178.7 8 AUG 94 1,150.7 16 OCT 95 1,371.7
21 JAN 91 1,541.2 30 MAR 92 1,362.4 7 JUN 93 1,177.5 15 AUG 94 1,151.5 23 OCT 95 1,373.3
28 JAN 91 1,542.5 6 APR 92 1,356.3 14 JUN 93 1,175.6 22 AUG 94 1,153.7 30 OCT 95 1,374.7
4 FEB 91 1,543.1 13 APR 92 1,352.8 21 JUN 93 1,172.6 29 AUG 94 1,150.3 6 NOV 95 1,376.6
11 FEB 91 1,544.0 20 APR 92 1,346.8 28 JUN 93 1,168.0 5 SEP 94 1,151.4 13 NOV 95 1,379.8
18 FEB 91 1,542.3 27 APR 92 1,343.3 5 JUL 93 1,163.0 12 SEP 94 1,156.6 20 NOV 95 1,380.6
25 FEB 91 1,545.1 4 MAY 92 1,339.8 12 JUL 93 1,165.1 19 SEP 94 1,159.5 27 NOV 95 1,383.1
4 MAR 91 1,545.0 11 MAY 92 1,333.9 19 JUL 93 1,162.2 26 SEP 94 1,161.3 4 DEC 95 1,384.1
11 MAR 91 1,543.6 18 MAY 92 1,329.0 26 JUL 93 1,160.5 3 OCT 94 1,164.0 11 DEC 95 1,385.3
18 MAR 91 1,543.7 25 MAY 92 1,325.7 2 AUG 93 1,159.2 10 OCT 94 1,168.6 18 DEC 95 1,389.0
25 MAR 91 1,544.3 1 JUN 92 1,323.7 9 AUG 93 1,156.1 17 OCT 94 1,170.9 25 DEC 95 1,390.1
1 APR 91 1,542.5 8 JUN 92 1,320.2 16 AUG 93 1,153.7 24 OCT 94 1,172.8 1 JAN 96 1,389.5
8 APR 91 1,541.3 15 JUN 92 1,316.6 23 AUG 93 1,153.9 31 OCT 94 1,176.3 8 JAN 96 1,391.3
15 APR 91 1,538.3 22 JUN 92 1,313.8 30 AUG 93 1,150.6 7 NOV 94 1,179.6 15 JAN 96 1,398.0
22 APR 91 1,537.1 29 JUN 92 1,310.1 6 SEP 93 1,149.0 14 NOV 94 1,184.3 22 JAN 96 1,394.3
29 APR 91 1,534.5 6 JUL 92 1,303.2 13 SEP 93 1,150.6 21 NOV 94 1,188.4 29 JAN 96 1,394.5
6 MAY 91 1,533.0 13 JUL 92 1,303.5 20 SEP 93 1,148.2 28 NOV 94 1,190.3 5 FEB 96 1,394.0
13 MAY 91 1,531.4 20 JUL 92 1,296.9 27 SEP 93 1,148.6 5 DEC 94 1,195.0 12 FEB 96 1,398.6
20 MAY 91 1,528.2 27 JUL 92 1,293.9 4 OCT 93 1,146.3 12 DEC 94 1,199.5 19 FEB 96 1,400.9
27 MAY 91 1,525.6 3 AUG 92 1,290.3 11 OCT 93 1,145.2 19 DEC 94 1,202.7 26 FEB 96 1,408.6
3 JUN 91 1,523.0 10 AUG 92 1,284.7 18 OCT 93 1,142.2 26 DEC 94 1,205.4 4 MAR 96 1,407.3
10 JUN 91 1,519.1 17 AUG 92 1,282.6 25 OCT 93 1,141.5 2 JAN 95 1,209.5 11 MAR 96 1,407.8
17 JUN 91 1,518.0 24 AUG 92 1,280.3 1 NOV 93 1,142.2 9 JAN 95 1,213.6 18 MAR 96 1,410.6
24 JUN 91 1,516.1 31 AUG 92 1,279.3 8 NOV 93 1,140.4 16 JAN 95 1,220.3 25 MAR 96 1,410.3
1 JUL 91 1,515.4 7 SEP 92 1,273.7 15 NOV 93 1,140.3 23 JAN 95 1,225.8 1 APR 96 1,410.0
8 JUL 91 1,511.6 14 SEP 92 1,270.3 22 NOV 93 1,143.2 30 JAN 95 1,230.4 8 APR 96 1,412.1
15 JUL 91 1,508.8 21 SEP 92 1,264.7 29 NOV 93 1,140.8 6 FEB 95 1,233.6 15 APR 96 1,415.4
22 JUL 91 1,506.5 28 SEP 92 1,261.7 6 DEC 93 1,139.4 13 FEB 95 1,238.9 22 APR 96 1,411.5
29 JUL 91 1,501.9 5 OCT 92 1,256.0 13 DEC 93 1,139.6 20 FEB 95 1,241.9 29 APR 96 1,408.3
5 AUG 91 1,497.5 12 OCT 92 1,257.7 20 DEC 93 1,138.3 27 FEB 95 1,248.9 6 MAY 96 1,411.0
12 AUG 91 1,496.1 19 OCT 92 1,255.0 27 DEC 93 1,136.2 6 MAR 95 1,250.2 13 MAY 96 1,418.5
19 AUG 91 1,493.0 26 OCT 92 1,250.8 3 JAN 94 1,137.3 13 MAR 95 1,259.4 20 MAY 96 1,414.0
26 AUG 91 1,492.2 2 NOV 92 1,248.1 10 JAN 94 1,137.7 20 MAR 95 1,262.2 27 MAY 96 1,412.4
2 SEP 91 1,488.9 9 NOV 92 1,241.1 17 JAN 94 1,133.7 27 MAR 95 1,266.6 3 JUN 96 1,419.1
2 SEP 91 1,486.2 16 NOV 92 1,236.1 24 JAN 94 1,133.7 3 APR 95 1,269.7 10 JUN 96 1,420.5
9 SEP 91 1,484.2 23 NOV 92 1,232.4 31 JAN 94 1,131.3 10 APR 95 1,275.9 17 JUN 96 1,424.7
23 SEP 91 1,481.4 30 NOV 92 1,232.0 7 FEB 94 1,130.3 17 APR 95 1,280.0 24 JUN 96 1,424.5
30 SEP 91 1,476.8 7 DEC 92 1,228.2 14 FEB 94 1,129.7 24 APR 95 1,285.6 1 JUL 96 1,424.3
7 OCT 91 1,473.1 14 DEC 92 1,223.5 21 FEB 94 1,128.6 1 MAY 95 1,288.3 8 JUL 96 1,428.0
14 OCT 91 1,470.8 21 DEC 92 1,221.5 28 FEB 94 1,127.7 8 MAY 95 1,295.8 15 JUL 96 1,428.6
21 OCT 91 1,467.9 28 DEC 92 1,217.8 7 MAR 94 1,128.4 15 MAY 95 1,298.1 22 JUL 96 1,433.6
28 OCT 91 1,463.1 4 JAN 93 1,217.5 14 MAR 94 1,129.0 22 MAY 95 1,307.1 29 JUL 96 1,433.0
4 NOV 91 1,457.8 11 JAN 93 1,215.7 21 MAR 94 1,129.3 29 MAY 95 1,309.6 5 AUG 96 1,433.7
11 NOV 91 1,457.1 18 JAN 93 1,211.0 28 MAR 94 1,127.4 5 JUN 95 1,315.4 12 AUG 96 1,435.8
18 NOV 91 1,452.7 25 JAN 93 1,209.8 4 APR 94 1,127.3 12 JUN 95 1,322.9 19 AUG 96 1,438.6
25 NOV 91 1,450.5 1 FEB 93 1,206.1 11 APR 94 1,134.6 19 JUN 95 1,326.3 26 AUG 96 1,439.7
2 DEC 91 1,446.3 8 FEB 93 1,203.6 18 APR 94 1,135.0 26 JUN 95 1,328.2 2 SEP 96 1,441.8
9 DEC 91 1,442.4 15 FEB 93 1,201.2 25 APR 94 1,138.8 3 JUL 95 1,333.6 9 SEP 96 1,445.4
16 DEC 91 1,442.6 22 FEB 93 1,201.7 2 MAY 94 1,138.9 10 JUL 95 1,338.1 16 SEP 96 1,446.3
23 DEC 91 1,434.8 1 MAR 93 1,199.9 9 MAY 94 1,141.0 17 JUL 95 1,340.9 23 SEP 96 1,446.1
30 DEC 91 1,430.0 8 MAR 93 1,198.9 16 MAY 94 1,140.4 24 JUL 95 1,346.5 30 SEP 96 1,446.2
6 JAN 92 1,420.6 15 MAR 93 1,196.3 23 MAY 94 1,142.2 31 JUL 95 1,347.5 7 OCT 96 1,449.3
13 JAN 92 1,416.7 22 MAR 93 1,194.3 30 MAY 94 1,138.2 7 AUG 95 1,352.6 14 OCT 96 1,453.2
20 JAN 92 1,411.6 29 MAR 93 1,192.3 6 JUN 94 1,137.6 14 AUG 95 1,354.1 21 OCT 96 1,455.4
27 JAN 92 1,409.5 5 APR 93 1,187.6 13 JUN 94 1,138.3 21 AUG 95 1,357.8 28 OCT 96 1,458.9
3 FEB 92 1,404.3 12 APR 93 1,187.5 20 JUN 94 1,136.9 28 AUG 95 1,359.0 4 NOV 96 1,459.9
10 FEB 92 1,398.9 19 APR 93 1,184.7 27 JUN 94 1,138.4 4 SEP 95 1,363.2 11 NOV 96 1,462.2
17 FEB 92 1,393.9 26 APR 93 1,184.4 4 JUL 94 1,141.1 11 SEP 95 1,364.4 18 NOV 96 1,461.6
</TABLE>
9
<PAGE>
MONEY MONEY
MOUNTAIN MOUNTAIN
-------- --------
25 NOV 96 1,461.8 2 FEB 98 1,590.6
2 DEC 96 1,462.0 9 FEB 98 1,595.6
9 DEC 96 1,469.8 16 FEB 98 1,600.1
16 DEC 96 1,470.9 23 FEB 98 1,606.5
23 DEC 96 1,473.9 2 MAR 98 1,605.4
30 DEC 96 1,473.8 9 MAR 98 1,609.9
6 JAN 97 1,475.6 16 MAR 98 1,609.8
13 JAN 97 1,480.4 23 MAR 98 1,611.7
20 JAN 97 1,476.9 30 MAR 98 1,613.6
27 JAN 97 1,478.2 6 APR 98 1,613.9
3 FEB 97 1,483.7 13 APR 98 1,620.4
10 FEB 97 1,485.6 20 APR 98 1,617.4
17 FEB 97 1,487.0 27 APR 98 1,620.6
24 FEB 97 1,485.5 4 MAY 98 1,619.5
3 MAR 97 1,488.8 11 MAY 98 1,624.1
10 MAR 97 1,493.5 18 MAY 98 1,623.6
17 MAR 97 1,493.3 25 MAY 98 1,628.4
24 MAR 97 1,495.0 1 JUN 98 1,632.5
31 MAR 97 1,497.9 8 JUN 98 1,635.8
7 APR 97 1,503.9 15 JUN 98 1,634.7
14 APR 97 1,507.0 22 JUN 98 1,638.2
21 APR 97 1,507.7 29 JUN 98 1,639.0
28 APR 97 1,505.4 6 JUL 98 1,635.0
5 MAY 97 1,501.6 13 JUL 98 1,637.9
12 MAY 97 1,506.9 20 JUL 98 1,634.9
19 MAY 97 1,510.3 27 JUL 98 1,641.7
26 MAY 97 1,513.7 3 AUG 98 1,644.9
2 JUN 97 1,514.8 10 AUG 98 1,650.6
9 JUN 97 1,519.6 17 AUG 98 1,653.5
16 JUN 97 1,518.3 24 AUG 98 1,660.2
23 JUN 97 1,519.3 31 AUG 98 1,665.8
30 JUN 97 1,521.5 7 SEP 98 1,676.5
7 JUL 97 1,528.8 14 SEP 98 1,684.9
14 JUL 97 1,526.9 21 SEP 98 1,690.2
21 JUL 97 1,527.0 28 SEP 98 1,689.8
28 JUL 97 1,528.8 5 OCT 98 1,686.8
4 AUG 97 1,531.3 12 OCT 98 1,696.2
11 AUG 97 1,538.7 19 OCT 98 1,705.9
18 AUG 97 1,544.2 26 OCT 98 1,712.2
25 AUG 97 1,545.1 2 NOV 98 1,712.4
1 SEP 97 1,553.5 9 NOV 98 1,714.5
8 SEP 97 1,555.3 15 NOV 98 1,712.9
15 SEP 97 1,557.3 23 NOV 98 1,711.2
22 SEP 97 1,555.8 30 NOV 98 1,711.1
29 SEP 97 1,557.2 7 DEC 98 1,713.8
6 OCT 97 1,560.8 14 DEC 98 1,718.3
13 OCT 97 1,564.3 21 DEC 98 NA
20 OCT 97 1,564.9 28 DEC 98 NA
27 OCT 97 1,467.0
3 NOV 97 1,467.7
10 NOV 97 1,569.8
17 NOV 97 1,573.0
24 NOV 97 1,570.6
1 DEC 97 1,574.5
8 DEC 97 1,571.3
15 DEC 97 1,571.1
22 DEC 97 1,574.0
29 DEC 97 1,574.0
5 JAN 98 1,576.0
12 JAN 98 1,585.3
19 JAN 98 1,587.4
26 JAN 98 1,589.7
Source: ISI Inc.
10
<PAGE>
Economic Outlook for 1999 (concluded)
And second, Japan, a heavy world saver, has extremely low interest rates
and a major CD rollover problem. The problem is that $100 billion in CDs
purchased 5 years ago at 6% interest rates are coming due. The new 5-year rate
is approximately 0.75%. That means individuals are faced with the prospect of
receiving only one eighth of their current income if they buy a new 5-year
investment. Capital outflows from Japan are likely to result and the U.S. market
with its higher rates is a strong candidate for this investment flow.
Tax Information for the Shareholder
None of the ordinary income distributions paid monthly by the Fund during
the Year ended October 31,1998, qualify for the dividends received deduction for
corporations.
11
<PAGE>
Portfolio Diversification by State
[GRAPHIC]
- -------------------------------------------------------------------------------
State Allocation
- -------------------------------------------------------------------------------
% of % of
Municipal Municipal
Bonds Bonds
--------- ---------
Texas 19.5% Missouri 3.5%
Washington 9.6 Georgia 3.3
Minnesota 8.4 Illinois 2.5
Florida 8.4 Ohio 2.4
North Carolina 7.1 Delaware 1.9
Virginia 5.3 Utah 1.9
South Carolina 5.1 Indiana 1.4
Wisconsin 4.8 Oregon 1.4
Maryland 4.5 Hawaii 0.7
Kansas 4.2 ------
Tennessee 4.1 Total 100.00%
- -------------------------------------------------------------------------------
12
<PAGE>
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on
February 26, 1990 through the most recent fiscal year-end and must reflect the
impact of the Fund's total expenses and its currently effective 4.45% maximum
sales charge.
While the following chart is required by SEC rules, such comparisons are of
limited utility since the indices shown are not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of these indices would have
had to own the securities that they represent. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total 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 4.45% maximum sales
charge. These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN*
% Return with
Periods ended 10/31/98: Sales Charge
- -------------------------------------------------------------------------------
One Year 2.76%
- -------------------------------------------------------------------------------
Five Years 4.51%
- -------------------------------------------------------------------------------
Since Inception (2/26/90) 6.59%
- -------------------------------------------------------------------------------
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
CHANGE IN VALUE OF A $10,000 INVESTMENT*
2/90 9555 10000 10000 10000
10/90 9916 10346 10413 10420
10/91 10992 11510 11462 10722
10/92 11658 12448 12380 11065
10/93 13332 14126 13658 11375
10/94 12466 13627 13453 11671
10/95 14388 15513 14872 11998
10/96 15060 16372 15555 12358
10/97 16178 17733 16535 12618
10/98 16625 19150 17578 12805
- ----------
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's 4.45% maximum sales charge. The Lehman
Brothers indices listed above are unmanaged. Although the G.O. Index
reflects general municipal market performance, the Prerefunded Index is a
better indicator of the Fund due to its higher quality characteristics. The
Fund is invested entirely in AA-rated or better issues. Management is not
aware of any single index that contains securities with substantially the
same characteristics as those of the Fund. The CPI is a widely used measure
of inflation. The CPI performance is based on data released on 11/18/97.
Past performance is not an indicator of future results.
13
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets October 31, 1998
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bonds--97.4%
General Obligation--72.4%
Arlington County, VA
5.000%, 10/01/14 ............................ Aaa/AAA $2,000 $2,063,420
Arlington Texas School District
5.750%, 02/15/21 ............................ Aaa/NR** 1,465 1,542,938
Charlotte, NC:
5.300%, 04/01/11 ............................ Aaa/AAA 1,590 1,698,438
5.300%, 04/01/12 ............................ Aaa/AAA 3,445 3,661,966
Dallas, TX:
5.000%, 02/15/10 ............................ Aaa/AAA 1,750 1,808,993
5.000%, 02/15/13 ............................ Aaa/AAA 1,755 1,795,523
Delaware St., Series "A"
5.120%, 04/01/16 ............................ Aa1/AA+ 2,150 2,191,882
Dupage County, IL, Jail Project
5.600%, 01/01/21 ............................ Aaa/AAA 1,600 1,743,456
Florida Board of Education
6.125%, 06/01/12 ............................ Aa2/AA+ 2,250 2,426,130
Florida State Brd Cap Outlay, Series "C"
5.500%, 06/01/21 ............................ Aa2/AA+ 2,000 2,081,600
Florida State Board of Education GO
5.125%, 06/01/22 ............................ Aa2/AA+ 3,000 3,015,030
Franklin County, OH:
5.450%, 12/01/09 ............................ Aaa/AAA 1,500 1,626,420
5.500%, 12/01/13 ............................ Aaa/AAA 1,000 1,081,840
Georgia State, Series "D":
5.250%, 08/01/09 ............................ Aaa/AAA 1,580 1,726,545
5.000%, 08/01/10 ............................ Aaa/AAA 2,000 2,133,680
Grand Prairie, TX, School District
5.200%, 02/15/18 ............................ Aaa/AAA 2,000 2,029,160
King County, WA:
5.200%, 12/01/15 ............................ Aa1/AA+ 2,500 2,574,325
5.000%, 12/01/17 ............................ Aa1/AA+ 2,565 2,579,774
Maryland State & Local Facilities, Second Series
5.125%, 10/15/10 ............................ Aaa/AAA 3,000 3,197,670
</TABLE>
14
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (continued) October 31, 1998
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
General Obligation--concluded
Metropolitan Government Nashville &
Davidson County, TN
5.125%, 11/15/19 ....................... Aa2/AA $2,000 $ 2,000,720
Minneapolis, MN, Sports Arena Project
5.000%, 10/01/11 ....................... Aaa/AAA 1,710 1,785,685
Minneapolis, MN, Ref - Series "B"
5.200%, 03/01/13 ....................... Aaa/AAA 3,200 3,359,552
Minneapolis, MN, Sports Arena Project
5.000%, 10/01/12 ....................... Aaa/AAA 1,920 1,991,482
Minnesota State
5.000%, 11/01/14 ....................... Aaa/AAA 2,500 2,557,925
Missouri State, Series "A":
5.000%, 06/01/19 ....................... Aaa/AAA 2,000 2,022,700
5.000%, 06/01/23 ....................... Aaa/AAA 2,000 2,005,960
Montgomery County, MD, Cons Pub Series "A"
4.875%, 05/01/18 ....................... Aaa/AAA 2,000 2,000,860
Plano, TX, Independent School District
5.000%, 02/15/11 ....................... Aaa/AAA 3,000 3,064,080
Portland, OR, Metro Regional Government Ult
5.250%, 09/01/07 ....................... Aa/AA+ 1,500 1,602,285
Salt Lake County, UT
5.250%, 12/15/10 ....................... Aaa/AAA 2,000 2,139,500
South Carolina Capital Improvement:
5.000%, 03/01/09 ....................... Aaa/AAA 2,700 2,858,247
5.625%, 07/01/14 ....................... Aaa/AAA 2,700 2,942,595
Tennessee State:
5.500%, 03/01/09 ....................... Aaa/AAA 1,535 1,655,528
5.550%, 03/01/10 ....................... Aaa/AAA 1,000 1,081,290
Washington State:
Series "A", 5.600%, 07/01/10 ........... Aa1/AA+ 1,500 1,623,300
Series "E", 5.000%, 07/01/22 ........... Aa1/AA+ 2,000 1,964,460
Series "R", 5.000%, 07/01/14 ........... Aa1/AA+ 2,250 2,286,248
Wisconsin State:
Series 1, 5.000%, 05/01/15 ............. Aa2/AA 1,000 1,011,850
Series "B", 5.000%, 05/01/16 ........... Aa2/AA 3,500 3,536,925
Series "B", 5.000%, 05/01/18 ........... Aa2/AA 1,000 993,840
-----------
85,463,822
-----------
</TABLE>
15
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (continued) October 31, 1998
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- --------------------------------------------------------------------------------
Electric and Gas Utility Revenue--0.3%
San Antonio,TX, Electric & Gas Revenue
6.500%, 02/01/12 .................... Aaa/AA $ 315 $ 322,056
-----------
Prerefunded Issues--12.9%
Arlington, TX, School District
5.750%, 02/15/21 .................... Aaa/NR** 3,535 3,877,930
Charlotte, NC
5.800%, 02/01/16 .................... Aaa/AAA 2,500 2,765,550
Chicago, IL, Metropolitan Water
Reclamation District-Greater Chicago
6.300%, 12/01/09 .................... Aa2/AA 1,000 1,140,000
Indianapolis, IN, Public Improvement
Board Revenue
6.000%, 01/10/18 .................... Aaa/AAA 1,500 1,622,505
Lower Colorado River Authority, Jr. Lien
5.250%, 01/01/15 .................... #AAA/AAA 2,000 2,125,820
San Antonio, TX, Prerefunded Series "A"
6.500%, 02/01/12 .................... Aaa/AA 685 701,145
State of Hawaii Prerefunded
7.000%, 06/10/06 .................... #AAA/++ 750 790,725
Texas State
6.000%, 10/01/14 .................... Aa2/AA 2,000 2,222,020
-----------
15,245,695
-----------
Transportation Revenue--9.3%
Florida Transportation
5.800%, 07/01/18 .................... Aa2/AA+ 2,000 2,158,300
Kansas Transportation:
5.400%, 03/01/09 .................... Aa2/AA+ 4,500 4,811,900
Virginia State Transportation Board
5.125%, 05/15/21 .................... Aa2/AA 4,000 3,981,360
-----------
10,951,560
-----------
16
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (continued) October 31, 1998
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other Revenue--2.5%
Texas Water Development Board Rev
4.750%, 07/15/20 ........................................ Aa1/AAA $3,000 $ 2,893,440
------------
Total Municipal Bonds
(Cost $108,251,337) ..................................... 114,876,573
------------
U.S. Treasury Bill -- 0.4%
4.17%+, 01/14/99 ........................................ 500 496,057
------------
Total U.S. Treasury Bill
(Cost $496,057) ......................................... 496,057
------------
REPURCHASE AGREEMENT - 0.9%
Goldman Sachs & Co., 5.25%
Dated 10/30/98, to be repurchased @1,042,456 on 11/02/98,
collateralized by U.S. Treasury Bond with a
market value of $1,063,482
(Cost $1,042,000) .......................................... 1,042 1,042,000
------------
Total Investments in Securities - 98.7%
(Cost $109,789,394)*** .................................. 116,414,630
Other Assets in Excess of Liabilities, Net - 1.3% .......... 1,545,991
------------
Net Assets - 100.0% ........................................ $117,960,621
============
</TABLE>
17
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (concluded) October 31, 1998
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
ISI Class Share
($80,749,260 / 7,336,051 shares outstanding) ................ $11.01
======
Flag Investors Class A Share
($37,211,361 / 3,381,290 shares outstanding) ................ $11.01
======
Maximum Offering Price Per:
ISI Class Share
($11.01 / 0.9555) ........................................... $11.52
======
Flag Investors Class A Share
($11.01 / 0.9550) ........................................... $11.53
======
- --------------------------------------------------------------------------------
* The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available as of October 31, 1998. Ratings of issues
have not been audited by PricewaterhouseCoopers L.L.P.
** Not rated.
*** Also aggregate cost for federal tax purposes.
+ Yield as of October 31, 1998.
++ Prerefunded bonds backed by U.S. Treasury securities. Absent prerefunding,
this obligation is rated Aa3/A+.
Moody's Municipal Bond Ratings:
Aaa Judged to be of the best quality.
Aa Judged to be of high quality by all standards. Issues are sometimes rated
with a 1,2 or 3, which denote a high, medium, or low ranking within the
rating.
#AAA Advance refunded issues secured by escrowed funds held in cash, held in a
trust or invested in direct non-callable U.S. government obligations or
non-callable obligations unconditionally guaranteeed by the U.S.
government.
NR Not rated.
S&P Municipal Bond Rating:
AAA Of the highest quality.
AA Second strongest capacity for payments of debt service. Those issues
determined to possess very strong safety characteristics are denoted with
a plus (+) sign.
A The third strongest capacity for payment of debt service. Those determined
to possess very strong safety characteristics are denoted with a plus (+)
sign.
NR Not rated.
See Notes to Financial Statements.
18
<PAGE>
Managed Municipal Fund, Inc.
Statement of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .................................................... $ 5,977,969
-----------
EXPENSES:
Investment advisory fee ..................................... 465,117
Distribution fee ............................................ 290,698
Administration fee .......................................... 232,559
Accounting fee .............................................. 57,444
Transfer agent fee .......................................... 44,009
Printing and postage ........................................ 39,033
Professional Fees ........................................... 104,668
Audit ....................................................... 28,971
Registration fees ........................................... 46,454
Custodian fee ............................................... 17,763
Miscellaneous ............................................... 19,100
-----------
Total expenses ........................................... 1,316,845
Less: Fees waived ........................................... (270,314)
-----------
Net expenses ............................................. 1,046,531
-----------
Net investment income ....................................... 4,931,438
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions ................ 910,737
Change in unrealized appreciation/depreciation of investments 2,598,160
-----------
Net gain on investments ..................................... 3,508,897
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 8,440,335
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
19
<PAGE>
Managed Municipal Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
--------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income .................................. $ 4,931,438 $ 5,357,775
Net realized gain from
security transactions ............................... 910,737 1,002,650
Change in unrealized appreciation/
depreciation of investments ......................... 2,598,160 2,249,576
------------ ------------
Net increase in net assets
resulting from operations ........................... 8,440,335 8,610,001
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income and net realized short-term gains:
ISI Class Shares .................................... (3,912,967) (3,948,488)
Flag Investors Class A Shares ....................... (1,861,540) (1,919,815)
Net realized mid-term and long-term gains:
ISI Class Shares .................................... (218,689) (267,980)
Flag Investors Class A Shares ....................... (106,065) (129,060)
------------ ------------
Total distributions .................................... (6,099,261) (6,265,343)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ........................... 7,880,427 5,846,126
Value of shares issued in reinvestment of dividends .... 3,000,727 3,443,291
Cost of shares repurchased ............................. (12,655,343) (20,144,490)
------------ ------------
Decrease in net assets derived from capital
share transactions ................................. (1,774,189) (10,855,073)
------------ ------------
Total increase/(decrease) in net assets ................ 566,885 (8,510,415)
NET ASSETS:
Beginning of year ...................................... 117,393,736 125,904,151
------------ ------------
End of year ............................................ $117,960,621 $117,393,736
============ ============
- --------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
20
<PAGE>
Managed Municipal Fund, Inc.
Financial Highlights--ISI Class and Flag Investors Class A Shares
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
For the Year Ended October 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...... $ 10.79 $ 10.58 $ 10.65 $ 9.81 $ 11.10
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ..................... 0.46 0.52 0.48 0.48 0.46
Net realized and unrealized
gain/(loss) on investments .............. 0.33 0.24 -- 0.98 (1.15)
------- ------- ------- ------- -------
Total from Investment Operations .......... 0.79 0.76 0.48 1.46 (0.69)
------- ------- ------- ------- -------
Less Distributions:
Net investment income and net realized
short-term gains ........................ (0.54) (0.52) (0.54) (0.54) (0.56)
Net realized mid-term and long-term gains.. (0.03) (0.03) (0.01) (0.08) (0.04)
------- ------- ------- ------- -------
Total distributions ....................... (0.57) (0.55) (0.55) (0.62) (0.60)
------- ------- ------- ------- -------
Net asset value at end of year ............ $ 11.01 $ 10.79 $ 10.58 $ 10.65 $9.81
======= ======= ======= ======= =======
Total Return(1)............................... 7.51% 7.43% 4.67% 15.42% (6.49)%
Ratios to Average Daily Net Assets:
Expenses(2)................................ 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(3)................... 4.24% 4.46% 4.48% 4.72% 4.37%
Supplemental Data:
Net assets at end of year (000):
ISI Class Shares ....................... $80,749 $79,003 $84,712 $86,292 $83,607
Flag Investors Class A Shares .......... $37,212 $38,390 $41,193 $45,980 $49,903
Portfolio turnover rate ................... 18% 26% 32% 55% 37%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return excludes the effect of sales charge.
(2) 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%,
1.13%, 1.10%, and 1.11% for the years ended October 31, 1998, 1997, 1996,
1995 and 1994, respectively.
(3) Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been 4.01%,
4.26%, 4.25%, 4.52% and 4.16% for the years ended October 31, 1998, 1997,
1996, 1995 and 1994, respectively.
See Notes to Financial Statements.
21
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies -- Managed Municipal Fund, Inc. (the
"Fund"), which was organized as a Maryland Corporation on January 5, 1990
and commenced operations February 26, 1990, is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment 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 Shares"), which commenced February 26, 1990, and Flag Investors
Managed Municipal Fund Class A Shares ("Flag Investors Class A Shares"),
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. Under certain circumstances, it is
necessary to reclassify prior year information in order to conform to the
current year's presentation. The Fund's significant accounting policies
are:
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 not readily
available, 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.
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 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.
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.
Security Transactions, Investment Income, Distributions and Other --
The Fund uses the
22
<PAGE>
Notes to Financial Statements (continued)
trade date to account for security transactions and the specific
identification method for financial reporting and income tax purposes to
determine the gain or loss of investments sold or redeemed. Interest income
is recorded on an accrual basis and includes 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.
B. 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"), an indirect
subsidiary of Bankers Trust Corporation, 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%. At October 31, 1998, the Fund
owed $13,760 of advisory fees, net of waived expenses of $26,272. As
compensation for its 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%. At October 31, 1998,
the Fund owed $6,880 of administrative fees, net of waived expenses of
$13,136.
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 year ended October 31, 1998, ISI waived
fees of $180,209 and ICC waived fees of $90,105.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or administrator.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily based upon its average daily net assets and
paid monthly. The Fund paid ICC $57,444 for accounting services for the
year ended October 31, 1998. At October 31, 1998, the Fund owed $4,899 of
accounting services fees.
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 $44,009
for transfer agent services for the year ended October 31, 1998. At October
31, 1998, the Fund owed $10,740 of transfer agent services fees.
As compensation for providing distribution services for the ISI Class, the
Fund pays ISI Group Inc. ("ISI Group"), which is affiliated with ISI, an
annual fee that is calculated daily and paid monthly. This fee is paid at
an annual rate equal to 0.25% of the ISI Class' average daily net assets.
As compensation for providing distribution services for the Flag Investors
Class A Shares, the Fund pays ICC Distributors, Inc. ("ICC Distributors"),
a member of the Forum Financial Group of companies, 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 year ended October 31, 1998, distribution fees aggregated $290,698,
of which $197,149 was attributable to the ISI Class Shares and $93,549 was
attributable to the Flag Investors Class A Shares. At October 31, 1998, the
Fund owed Distribution fees in the amount of $25,020, of which $17,133 was
attributable to the ISI Shares and $7,887 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 year
ended October 31, 1998 was $9,669 and the accrued liability was $22,435.
23
<PAGE>
Notes to Financial Statements (continued)
C. Capital Share Transactions -- The Fund is authorized to issue up to 37
million shares of $.001 par value capital stock (20 million ISI Class, 15
million Flag Investors Class A, and 2 million undesignated). Transactions
in shares of the Fund are listed in the chart below:
ISI Class Shares
---------------------------------
For the Year Ended
October 31,
---------------------------------
1998 1997
----------- ------------
Shares sold ......................... 518,215 382,670
Shares issued to shareholders on
reinvestment of dividends ......... 190,021 224,594
Shares redeemed ..................... (695,012) (1,295,279)
----------- ------------
Net increase/(decrease)
in shares outstanding ............. 13,224 (688,015)
=========== ============
Proceeds from sale of shares ........ $ 5,635,106 $ 4,060,401
Value of reinvested dividends ....... 2,057,230 2,370,561
Cost of shares redeemed ............. (7,540,268) (13,720,577)
----------- ------------
Net increase/(decrease)
from capital share transactions ... $ 152,068 $ (7,289,615)
=========== ============
Flag Investors Class A Shares
--------------------------------
For the Year Ended
October 31,
--------------------------------
1998 1997
----------- -----------
Shares sold .......................... 206,924 167,474
Shares issued to shareholders on
reinvestment of dividends .......... 87,142 101,621
Shares redeemed ...................... (470,241) (606,069)
----------- -----------
Net decrease in shares outstanding ... (176,175) (336,974)
=========== ===========
Proceeds from sale of shares ......... $ 2,245,321 $ 1,785,725
Value of reinvested dividends ........ 943,497 1,072,730
Cost of shares redeemed .............. (5,115,075) (6,423,913)
----------- -----------
Net decrease from capital share
transactions ....................... $(1,926,257) $(3,565,458)
=========== ===========
D. Investment Transactions -- Excluding short-term obligations, purchases of
investment securities aggregated $21,658,111 and sales of investment
securities aggregated $20,035,415 for the year ended October 31, 1998.
On October 31, 1998, aggregate net unrealized appreciation over tax cost
for portfolio securities was $6,625, 236 of which $6,706,173 related to
appreciated securities and $80,937 related to depreciated securities.
24
<PAGE>
Notes to Financial Statements (concluded)
E. Net Assets -- On October 31, 1998, net assets consisted of:
Paid-in capital:
ISI Class Shares .................................... $ 77,101,755
Flag Investors
Class A Shares .................................. 34,201,512
Accumulated undistributed net
investment income ................................... 32,118
Unrealized appreciation
of investments ...................................... 6,625,236
------------
$117,960,621
============
F. Shareholder Meeting -- On October 23, 1998, the Managed Municipal Fund held
a special meeting for its shareholders. During the meeting shareholders
elected the following directors: Edward S. Hyman, Richard T. Hale, Jospeh
R. hardiman,Eugene J. Mcdonald, R. Alan Medaugh, James J. Cunnane, Louis E.
Levy,Rebecca W. Rimel, and Carl W. Vogt, Esq.
25
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Managed Municipal Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Managed Municipal Fund, Inc. (the "Fund") at October 31, 1998, and the results
of its operations, the changes in its net assets and the financial highlights
for each of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
December 1, 1998
Tax Information (unaudited) for the Tax Year Ended October 31, 1998
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $1,035,617 from long-term
capital gains; of which $992,328 was subject to the 20% rate gains category.
The fund's distributions to shareholders included $4,784,053 from
tax-exempt income.
- --------------------------------------------------------------------------------
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 ISI Funds, including
charges and expenses, obtain a prospectus from your investment representative or
directly from the Fund at 1-800-955-7175. Read it carefully before you invest.
- --------------------------------------------------------------------------------
26
<PAGE>
ISI
Managed
Municipal
Fund Shares
- --------------------------------------------------------------------------------
Directors and Officers
Edward S. Hyman Carl W. Vogt, Esq.
Chairman Director
Richard T. Hale Nancy Lazar
Vice Chairman Vice President
R. Alan Medaugh Carrie L. Butler
Director and President Vice President
James J. Cunnane Margaret M. Beeler
Director Assistant Vice President
Joseph R. Hardiman Keith C. Reilly
Director Assistant Vice President
Louis E. Levy Joseph A. Finelli
Director Treasurer
Eugene J. McDonald Amy M. Olmert
Director Secretary
Rebecca W. Rimel Scott J. Liotta
Director Assistant Secretary
Investment Objective
A mutual fund designed to provide a high level of total return with relative
stability of principal as well as the secondary objective of high current income
through investment in a portfolio consisting primarily of municipal obligations,
the interest on which is exempt from federal income tax.
Investment Advisor
ISI Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
Shareholder Servicing Agent
Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
(800) 882-8585
Distributor
ISI Group Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
[LOGO]
ISI
MANAGED MUNICIPAL
FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
MUNICIPALS
----------
ANNUAL REPORT
October 31, 1998
