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FLAG INVESTORS
[PHOTOGRAPH APPEARS HERE]
FLAG
INVESTORS
MANAGED
MUNICIPAL
FUND
SHARES
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
PORTFOLIO DIVERSIFICATION BY STATE
- --------------------------------------------------------------------------------
[U.S. MAP APPEARS HERE]
State Allocation
Texas 17.38% Tennessee 4.14%
Florida 11.89 Georgia 3.34
Washington 9.64 Illinois 2.51
Minnesota 8.42 Ohio 2.34
North Carolina 7.10 Delaware 1.93
Maryland 5.48 Utah 1.86
Virginia 5.39 Hawaii 1.66
South Carolina 5.05 Indiana 1.41
Wisconsin 4.84 Oregon 1.40
Kansas 4.22 -----
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, 1998. As of this date, the Fund recorded a 6-month total return of
2.8% and a 12-month total return of 8.5%. Since its inception on February 26,
1990, the Fund has produced a cumulative total return of 73.12%, which
translates into an average annual total return of 6.9%. These figures assume the
reinvestment of dividends and capital gains distributions and exclude the impact
of any sales charge.
OVERVIEW
After a strong first quarter, we expect the economy will slow to a 3%
growth rate over the balance of 1998. Also, we see the major effect of the Asian
crisis will be to lower U.S. inflation. ISI's forecast is for inflation to
register a 1% pace for all of 1998. As a result, we expect the benchmark long
Treasury rate will be 5.4% at year end contrasted with today's 5.9% level.
Budget surpluses for the Federal government and State & Local governments
established a new supply equation. As a result, we expect a reduction in the
supply of TOP quality governments will help lower rates. Please see ISI's
Economic Outlook that follows this letter for more details.
MUNICIPALS HAVE GOOD VALUE
The yield on TOP grade municipals is high when compared with the taxable
yield on U.S. Treasuries. The relationship is best at the long end of the
municipal market. Please see table below:
Yield on % of Treasury Yield
Maturity AAA GO for Same Maturity
- -----------------------------------------------------------
5 Year 4.25% 75.1%
...........................................................
10 Year 4.50% 80.0%
...........................................................
20 Year 5.10% 84.5%
...........................................................
30 Year 5.15% 86.4%
...........................................................
With the top federal tax bracket at 39.6%, a tax-free yield has a powerful
advantage over a taxable yield. The taxable equivalent yield for a 5.15% tax
free yield is 8.5%. Currently, long Treasuries yield only 5.9% so the advantage
is heavily on the side of municipal bonds. In the market today, medium grade
taxable bonds (BBB rated 30-year finance paper) yield roughly 7.2%. So, even
dropping down in quality leaves the investor short of the equivalent yield
available from TOP quality municipal bonds.
2
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Keeping in mind that long maturity municipals have the advantage described
above, the fund has increased its holdings of long municipals. A good way to
achieve call protection, an important consideration when wishing to protect a
good stream of income, is to purchase long maturity bonds at discount prices.
The fund's holdings of these long maturity discount issues (51/8% coupons or
less) have been steadily increased over the last year. Please see table below:
% OF PORTFOLIO IN LONG MATURITY 51/8% COUPONS OR LESS
April 97 October 97 April 98
...........................................................................
25.4% 30.8% 38.1%
...........................................................................
We think the combination of a high after tax yield and ISI's outlook for
declining interest rates makes call protected, long-term municipals a timely
investment.
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 22, 1998
3
<PAGE>
ECONOMIC OUTLOOK
- --------------------------------------------------------------------------------
OVERVIEW
The U.S. economy is very strong. First Quarter real growth could be as
high as 5%. The Asia crisis is also exerting a very strong pull. Net, U.S.
growth is likely to slow to 3% over the remainder of 1998. The outline of a
slowdown is appearing now. Here's a list of those slowdown factors:
1. Asia's circumstances are worsening. For example, perceived high risk and
limited investment prospects have caused Japanese government 10-year bonds to
fall to a 1.3% yield.
2. Commodity prices are falling. The Commodity Research Bureau's Index declined
to a 5-year low last week indicating reduced demand for raw materials.
3. Unemployment claims in May have begun a sideways pattern which is consistent
with 3% growth.
4. U.S. industrial production has flattened out.
5. First quarter inventory accumulation was a high $75 to $90 billion leaving
little room for additional inventory building in the second quarter.
ISI's interest rate outlook is for declining long term rates for the
balance of 1998. We expect the Federal Reserve to maintain its 5.5% Federal
Funds Rate Target. By year-end we expect long rates to be lower than overnight
rates. Please see Forecast table below.
ISI FORECAST
<TABLE>
<CAPTION>
97:3Q 97:4Q 98:1Q 98:2Q 98:3Q 98:4Q
- --------------------------------------------------------------------------------
<S><C>
Real GDP 3.1% 3.7% 4.2% 3.0% 3.0% 3.0%
................................................................................
GDP Deflator 1.4% 1.4% 0.9% 1.0% 1.0% 1.0%
................................................................................
30-Year Bond Yields* 6.4% 5.9% 5.9% 5.7% 5.5% 5.4%
................................................................................
Fed Funds Rate* 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
................................................................................
</TABLE>
4
<PAGE>
ASIA
Looking at the stock markets around the world, the difficulties in Asia are
affecting one third of the world's economy. The evidence is mounting that the
Asian financial crisis will continue through the third and fourth quarter
pulling many developing and some developed economies (Australia) with them. The
IMF's insistence on restructuring, budget cutting, and price hikes on subsidized
commodities has caused immediate illiquidity, falling consumer confidence,
social turmoil and bankruptcies. The credit crunch has led to credit quality
downgrades across the region. Wealth held in the equity and property markets has
been severely undermined. Social unrest present in Indonesia could easily spread
to South Korea, Thailand and even Mainland China. Capital flight from the region
which slowed in early 1998 seems to have picked up again as can be seen by
recent stock market volatility. See stock market chart below.
PAC RIM STOCKS
HK, Indo, Kor, Mal, Phil, Sing, Tai, Thai
Eq. Wts. May 15 65.4
[GRAPH APPEARS HERE]
01-Jan-97 100.00
02-Jan-97 99.22
03-Jan-97 99.32
06-Jan-97 99.24
07-Jan-97 99.63
08-Jan-97 100.39
09-Jan-97 100.66
10-Jan-97 100.98
13-Jan-97 101.01
14-Jan-97 101.00
15-Jan-97 102.12
16-Jan-97 102.54
17-Jan-97 102.81
20-Jan-97 103.84
21-Jan-97 103.23
22-Jan-97 103.26
23-Jan-97 103.19
24-Jan-97 102.96
27-Jan-97 102.24
28-Jan-97 102.40
29-Jan-97 101.83
30-Jan-97 102.30
31-Jan-97 102.35
03-Feb-97 102.30
04-Feb-97 102.28
05-Feb-97 102.32
06-Feb-97 102.51
07-Feb-97 102.53
10-Feb-97 102.56
11-Feb-97 102.37
12-Feb-97 102.56
13-Feb-97 102.59
14-Feb-97 102.47
17-Feb-97 102.60
18-Feb-97 101.89
19-Feb-97 102.76
20-Feb-97 103.43
21-Feb-97 103.03
24-Feb-97 103.01
25-Feb-97 103.28
26-Feb-97 103.14
27-Feb-97 102.61
28-Feb-97 102.69
03-Mar-97 102.37
04-Mar-97 101.85
05-Mar-97 101.59
06-Mar-97 101.46
07-Mar-97 101.86
10-Mar-97 101.65
11-Mar-97 102.02
12-Mar-97 101.82
13-Mar-97 101.07
14-Mar-97 99.94
17-Mar-97 100.49
18-Mar-97 100.25
19-Mar-97 99.96
20-Mar-97 99.65
21-Mar-97 98.44
24-Mar-97 98.27
25-Mar-97 98.67
26-Mar-97 99.61
27-Mar-97 99.33
28-Mar-97 99.30
31-Mar-97 99.21
01-Apr-97 98.28
02-Apr-97 98.81
03-Apr-97 98.11
04-Apr-97 98.10
07-Apr-97 98.35
08-Apr-97 98.46
09-Apr-97 98.87
10-Apr-97 98.37
11-Apr-97 98.56
14-Apr-97 97.85
15-Apr-97 97.64
16-Apr-97 98.05
17-Apr-97 97.55
18-Apr-97 97.33
21-Apr-97 97.82
22-Apr-97 97.29
23-Apr-97 97.88
24-Apr-97 97.72
25-Apr-97 97.43
28-Apr-97 97.13
29-Apr-97 95.90
30-Apr-97 96.16
01-May-97 96.24
02-May-97 95.83
05-May-97 96.90
06-May-97 97.19
07-May-97 97.02
08-May-97 96.64
09-May-97 96.66
12-May-97 95.79
13-May-97 96.02
14-May-97 96.10
15-May-97 94.73
16-May-97 94.68
19-May-97 95.01
20-May-97 95.35
21-May-97 95.92
22-May-97 96.01
23-May-97 96.39
26-May-97 96.44
27-May-97 97.04
28-May-97 97.32
29-May-97 97.67
30-May-97 98.52
02-Jun-97 99.49
03-Jun-97 99.42
04-Jun-97 99.15
05-Jun-97 98.77
06-Jun-97 98.60
09-Jun-97 98.88
10-Jun-97 98.29
11-Jun-97 97.85
12-Jun-97 97.47
13-Jun-97 97.86
16-Jun-97 98.73
17-Jun-97 98.67
18-Jun-97 98.26
19-Jun-97 98.56
20-Jun-97 99.83
23-Jun-97 99.74
24-Jun-97 99.29
25-Jun-97 99.24
26-Jun-97 99.24
27-Jun-97 99.77
30-Jun-97 100.01
01-Ju1-97 100.39
02-Jul-97 101.09
03-Ju1-97 101.65
04-Ju1-97 102.59
07-Ju1-97 102.28
08-Ju1-97 101.66
09-Ju1-97 101.21
10-Ju1-97 100.77
11-Ju1-97 101.48
14-Ju1-97 101.58
15-Ju1-97 101.30
16-Ju1-97 101.08
17-Ju1-97 101.40
18-Ju1-97 101.78
21-Ju1-97 101.95
22-Ju1-97 101.13
23-Ju1-97 101.10
24-Ju1-97 101.52
25-Ju1-97 101.79
28-Ju1-97 102.46
29-Ju1-97 102.64
30-Ju1-97 102.77
31-Ju1-97 103.08
01-Aug-97 102.79
04-Aug-97 102.78
05-Aug-97 102.16
06-Aug-97 102.01
07-Aug-97 101.34
08-Aug-97 101.43
11-Aug-97 100.16
12-Aug-97 99.79
13-Aug-97 99.33
14-Aug-97 99.04
15-Aug-97 98.28
18-Aug-97 96.81
19-Aug-97 95.67
20-Aug-97 97.11
21-Aug-97 97.26
22-Aug-97 95.90
25-Aug-97 94.42
26-Aug-97 94.11
27-Aug-97 93.71
28-Aug-97 90.18
29-Aug-97 87.88
01-Sep-97 85.64
02-Sep-97 85.58
03-Sep-97 87.43
04-Sep-97 87.08
05-Sep-97 90.74
08-Sep-97 91.88
09-Sep-97 92.34
10-Sep-97 91.34
11-Sep-97 90-03
12-Sep-97 90.09
15-Sep-97 89.78
16-Sep-97 88.84
17-Sep-97 88.45
18-Sep-97 88.02
19-Sep-97 88.37
22-Sep-97 87.64
23-Sep-97 87.43
24-Sep-97 87.86
25-Sep-97 88.31
26-Sep-97 87.93
29-Sep-97 87.90
30-Sep-97 88.37
01-Oct-97 87.94
02-Oct-97 87.22
03-Oct-97 86.98
06-Oct-97 85.79
07-Oct-97 85.03
08-Oct-97 85.19
09-Oct-97 85.11
10-Oct-97 86.01
13-Oct-97 85.71
14-Oct-97 85.31
15-Oct-97 83.76
16-Oct-97 82.58
17-Oct-97 82.53
20-Oct-97 79.67
21-Oct-97 79.61
22-Oct-97 78.57
23-Oct-97 76.43
24-Oct-97 75.67
27-Oct-97 74.20
28-Oct-97 68.47
29-Oct-97 71.17
30-Oct-97 71.21
31-Oct-97 71.45
03-Nov-97 74.67
04-Nov-97 75.76
05-Nov-97 76.21
06-Nov-97 75.83
07-Nov-97 74.04
10-Nov-97 73.42
11-Nov-97 72.87
12-Nov-97 72.32
13-Nov-97 71.52
14-Nov-97 71.86
17-Nov-97 72.12
18-Nov-97 71.14
19-Nov-97 70.61
20-Nov-97 68.75
21-Nov-97 69.75
24-Nov-97 69.18
25-Nov-97 67.57
26-Nov-97 67.73
27-Nov-97 67.83
28-Nov-97 67.42
01-Dec-97 66.42
02-Dec-97 66.92
03-Dec-97 67.45
04-Dec-97 69.22
05-Dec-97 71.03
08-Dec-97 72.79
09-Dec-97 71.30
10-Dec-97 71.09
11-Dec-97 67.92
12-Dec-97 66.77
15-Dec-97 65.98
16-Dec-97 66.10
17-Dec-97 67.46
18-Dec-97 68.24
19-Dec-97 67.14
22-Dec-97 66.78
23-Dec-97 66.06
24-Dec-97 65.87
25-Dec-97 65.81
26-Dec-97 66.32
29-Dec-97 66.41
30-Dec-97 67.14
31-Dec-97 67.43
01-Jan-98 67.43
02-Jan-98 67.34
05-Jan-98 66.56
06-Jan-98 65.63
07-Jan-98 64.01
08-Jan-98 61.80
09-Jan-98 59.72
12-Jan-98 58.48
13-Jan-98 61.17
14-Jan-98 64.28
15-Jan-98 63.75
16-Jan-98 64.66
19-Jan-98 68.38
20-Jan-98 68.49
21-Jan-98 68.84
22-Jan-98 66.84
23-Jan-98 66.87
26-Jan-98 68.20
27-Jan-98 68.52
28-Jan-98 69.07
29-Jan-98 69.32
30-Jan-98 71.40
02-Feb-98 76.91
03-Feb-98 77.92
04-Feb-98 76.21
05-Feb-98 77.13
06-Feb-98 78.13
09-Feb-98 78.80
10-Feb-98 78.71
11-Feb-98 78.53
12-Feb-98 76.51
13-Feb-98 75.20
16-Feb-98 73.53
17-Feb-98 74.73
18-Feb-98 76.26
19-Feb-98 77.77
20-Feb-98 78.21
23-Feb-98 78.96
24-Feb-98 78.59
25-Feb-98 78.11
26-Feb-98 79.46
27-Feb-98 80.76
02-Mar-98 81.69
03-Mar-98 81.76
04-Mar-98 80.27
05-Mar-98 78.55
06-Mar-98 78.24
09-Mar-98 77.55
10-Mar-98 77.83
11-Mar-98 78.70
12-Mar-98 78.55
13-Mar-98 79.29
16-Mar-98 79.41
17-Mar-98 79.42
18-Mar-98 79.24
19-Mar-98 80.06
20-Mar-98 80.36
23-Mar-98 79.98
24-Mar-98 79.39
25-Mar-98 80.12
26-Mar-98 80.15
27-Mar-98 80.40
30-Mar-98 79.49
31-Mar-98 79.12
01-Apr-98 77.76
02-Apr-98 76.63
03-Apr-98 76.24
06-Apr-98 76.23
07-Apr-98 76.63
08-Apr-98 77.26
09-Apr-98 77.40
10-Apr-98 77.34
13-Apr-98 77.40
14-Apr-98 77.40
15-Apr-98 76.13
16-Apr-98 74.94
17-Apr-98 74.43
20-Apr-98 73.98
21-Apr-98 73.34
22-Apr-98 73.51
23-Apr-98 73.05
24-Apr-98 72.95
27-Apr-98 71.67
28-Apr-98 71.69
29-Apr-98 71.28
30-Apr-98 71.26
01-May-98 71.04
04-May-98 70.43
05-May-98 69.90
06-May-98 68.46
07-May-98 68.60
08-May-98 68.22
11-May-98 68.34
12-May-98 67.38
13-May-98 65.47
14-May-98 65.51
15-May-98 65.44
18-May-98 64.52
19-May-98 64.70
20-May-98 65.73
21-May-98 66.60
22-May-98 66.53
25-May-98 65.79
26-May-98 64.77
5
<PAGE>
ECONOMIC OUTLOOK (CONCLUDED)
- --------------------------------------------------------------------------------
U.S. INFLATION
Many articles on Asia focus on its impact on U.S. growth. The typical
conclusion is that since the export sector of the U.S. economy is relatively
small, Asia's effect on the U.S. will be small. We think Asia's influence will
be great, especially on U.S. inflation. There are early indications that this
has already begun. For example, ISI's Manufacturing Company Pricing Power
Survey already indicates that it is difficult for U.S. companies to raise
prices. See chart below.
ISI MFG COMPANIES PRICING POWER SURVEY
0=Weak 100=Strong May 22 12.5
[GRAPH APPEARS HERE]
07-Jan-94 20.8
14-Jan-94 20.8
21-Jan-94 20.8
28-Jan-94 21.4
04-Feb-94 21.4
11-Feb-94 16.7
18-Feb-94 16.7
25-Feb-94 16.7
04-Mar-94 25.0
11-Mar-94 25.0
18-Mar-94 24.1
25-Mar-94 24.1
01-Apr-94 24.1
08-Apr-94 20.8
15-Apr-94 20.8
22-Apr-94 20.8
29-Apr-94 23.6
06-May-94 23.6
13-May-94 23.6
20-May-94 27.8
27-May-94 27.8
03-Jun-94 32.5
10-Jun-94 32.5
17-Jun-94 33.9
24-Jun-94 33.9
01-Ju1-94 33.9
08-Ju1-94 35.3
15-Ju1-94 35.3
22-Ju1-94 35.3
29-Ju1-94 35.3
05-Aug-94 33.9
12-Aug-94 33-9
19-Aug-94 33.9
26-Aug-94 43.6
02-Sep-94 43.6
09-Sep-94 45.8
16-Sep-94 45.8
23-Sep-94 52.8
30-Sep-94 52.8
07-Oct-94 52.8
14-Oct-94 52.8
21-Oct-94 54.4
28-Oct-94 54.4
04-Nov-94 56.9
11-Nov-94 56.9
18-Nov-94 57.5
25-Nov-94 57.5
02-Dec-94 57.8
09-Dec-94 57.8
16-Dec-94 58.9
23-Dec-94 58.9
30-Dec-94 60.6
06-Jan-95 60.6
13-Jan-95 60.8
20-Jan-95 60.8
27-Jan-95 61.4
03-Feb-95 61.4
10-Feb-95 56.9
17-Feb-95 56.9
24-Feb-95 56.9
03-Mar-95 58.9
10-Mar-95 58.9
17-Mar-95 57.8
24-Mar-95 57.8
31-Mar-95 54.4
07-Apr-95 54.4
14-Apr-95 57.2
21-Apr-95 57.2
28-Apr-95 56.7
05-May-95 56.7
12-May-95 57.2
19-May-95 57.2
26-May-95 52.5
02-Jun-95 52.5
09-Jun-95 48.3
16-Jun-95 48.3
23-Jun-95 43.1
30-Jun-95 43.1
07-Ju1-95 41.8
14-Ju1-95 41.8
21-Ju1-95 41.8
28-Ju1-95 41.8
04-Aug-95 45.7
11-Aug-95 45.7
18-Aug-95 45.7
25-Aug-95 45.7
01-Sep-95 45.4
08-Sep-95 45.4
15-Sep-95 42.5
22-Sep-95 42.5
29-Sep-95 42.1
06-Oct-95 42.1
13-Oct-95 40.4
20-Oct-95 40.4
27-Oct-95 39.9
03-Nov-95 39.9
10-Nov-95 37.8
17-Nov-95 37.8
24-Nov-95 37.8
01-Dec-95 37.8
08-Dec-95 36.7
15-Dec-95 36.7
22-Dec-95 34.2
29-Dec-95 34.2
05-Jan-96 34.2
12-Jan-96 34.2
19-Jan-96 29.4
26-Jan-96 29.4
02-Feb-96 28.9
09-Feb-96 28.9
16-Feb-96 28.6
23-Feb-96 28.6
01-Mar-96 28.1
08-Mar-96 28.1
15-Mar-96 28.5
22-Mar-96 28.5
29-Mar-96 29.0
05-Apr-96 29.0
12-Apr-96 29.0
19-Apr-96 29.0
26-Apr-96 29.3
03-May-96 29.3
10-May-96 31.0
17-May-96 31.0
24-May-96 31.5
31-May-96 31.5
07-Jun-96 34.4
14-Jun-96 34.4
21-Jun-96 34.4
28-Jun-96 34.4
05-Ju1-96 32.5
12-Ju1-96 32.5
19-Ju1-96 32.8
26-Ju1-96 32.8
02-Aug-96 32.2
09-Aug-96 32.2
16-Aug-96 32.2
23-Aug-96 32.2
30-Aug-96 32.2
06-Sep-96 32.2
13-Sep-96 31.9
20-Sep-96 31.9
27-Sep-96 31.1
04-Oct-96 31.1
11-Oct-96 30.6
18-Oct-96 30.6
25-Oct-96 30.8
01-Nov-96 30.8
08-Nov-96 30.3
15-Nov-96 30.3
22-Nov-96 30.0
29-Nov-96 30.0
06-Dec-96 28.8
13-Dec-96 28.8
20-Dec-96 27.2
27-Dec-96 27.2
03-Jan-97 27.2
10-Jan-97 27.2
17-Jan-97 26.9
24-Jan-97 26.9
31-Jan-97 28.1
07-Feb-97 28.1
14-Feb-97 28.9
21-Feb-97 28.9
28-Feb-97 26.4
07-Mar-97 26.4
14-Mar-97 26.4
21-Mar-97 26.4
28-Mar-97 25.6
04-Apr-97 25.6
11-Apr-97 25.0
18-Apr-97 25.0
25-Apr-97 25.0
02-May-97 25.0
09-May-97 24.7
16-May-97 24.7
23-May-97 24.7
30-May-97 24.7
06-Jun-97 24.4
13-Jun-97 24.4
20-Jun-97 24.4
27-Jun-97 24.4
04-Ju1-97 22.8
11-Ju1-97 22.8
18-Ju1-97 23.9
25-Ju1-97 23.9
01-Aug-97 24.4
08-Aug-97 24.4
15-Aug-97 24.4
22-Aug-97 24.4
29-Aug-97 24.7
05-Sep-97 24.7
12-Sep-97 24.4
19-Sep-97 24.4
26-Sep-97 24.7
03-Oct-97 24.7
10-Oct-97 24.7
17-Oct-97 24.7
24-Oct-97 23.9
31-Oct-97 23.9
07-Nov-97 23.9
14-Nov-97 23.9
21-Nov-97 24.2
28-Nov-97 24.2
05-Dec-97 23.5
12-Dec-97 23.5
19-Dec-97 22.5
26-Dec-97 22.5
02-Jan-98 22.3
09-Jan-98 22.3
16-Jan-98 22.0
23-Jan-98 22.0
30-Jan-98 21.5
06-Feb-98 21.5
13-Feb-98 21.0
20-Feb-98 21.0
27-Feb-98 20.5
06-Mar-98 20.5
13-Mar-98 20.0
20-Mar-98 20.0
27-Mar-98 19.5
03-Apr-98 19.5
10-Apr-98 19.0
17-Apr-98 19.0
24-Apr-98 18.8
01-May-98 18.8
08-May-98 15.5
15-May-98 15.5
22-May-98 12.5
The inflation effect seems likely to last for quite a long time. The direct
competition from Asia suppliers plus persistent U.S. dollar strength (because
the U.S. is viewed as a safe haven) makes passing on any increases in labor
costs unlikely. There is a possible long run inflationary effect from the jump
in equity and real estate wealth but so far this has not crossed from the
financial economy to the real economy. As a result, 1998 inflation is likely to
be limited to a 1% increase.
6
<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 3/31/98 1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------
Class A Shares 5.09% 5.03% 6.72%
..........................................................................
*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.
7
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS--96.9%
GENERAL OBLIGATION--73.0%
Arlington, TX, Independent School District
5.75%, 2021 Aaa/NR $5,000 $ 5,152,350
Charlotte, NC
5.30%, 2011 Aaa/AAA 1,590 1,657,257
5.30%, 2012 Aaa/AAA 2,325 2,409,398
5.30%, 2012 Aaa/AAA 1,120 1,160,656
5.80%, 2016 Aaa/AAA 2,500 2,663,525
Chicago, IL
6.30%, 2009 Aa2/AA 1,000 1,111,840
Dallas, TX
5.00%, 2010 Aaa/AAA 1,750 1,769,950
Delaware St., Series "A"
5.125%, 2016 Aa1/AA+ 2,150 2,141,185
Dupage County, IL, Jail Project
5.60%, 2021 Aaa/AAA 1,600 1,669,248
Florida Board of Education, Refunding
Public Education:
6.125%, 2012 Aa2/AA+ 2,250 2,396,813
5.50%, 2021 Aa2/AA+ 2,000 2,023,300
5.125%, 2022 Aa2/AA+ 3,000 2,909,070
Franklin County, OH
5.45%, 2009 Aaa/AAA 1,500 1,572,000
5.50%, 2013 Aaa/AAA 1,000 1,029,290
Georgia State, Series "D"
5.25%, 2009 Aaa/AAA 1,580 1,662,207
5.00%, 2010 Aaa/AAA 2,000 2,045,900
Grand Prairie, TX, School District
5.20%, 2018 Aaa/AAA 2,000 1,981,300
Henrico County, VA
5.25%, 2009 Aaa/AAA 1,000 1,034,750
King County, WA
Series "F", 5.20%, 2015 Aa1/AAA 2,500 2,504,375
Series "G", 5.00% 2017 Aa1/AA+ 2,565 2,499,259
Maryland State & Local Facilities
5.125%, 2010 Aaa/AAA 3,000 3,096,060
</TABLE>
8
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS--continued
GENERAL OBLIGATION--CONCLUDED
Portland, OR, Series "A"
5.25%, 2007 Aa/AA+ $1,500 $ 1,557,195
Metropolitan Government of Nashville,
Davidson County, TN
5.125%, 2019 Aa2/AA 2,000 1,940,320
Minneapolis, MN, Sports Arena Project
5.00%, 2011 Aaa/AAA 1,710 1,725,920
5.00%, 2012 Aaa/AAA 1,920 1,922,899
Minneapolis, MN, Series "B"
5.20%, 2013 Aaa/AAA 3,200 3,230,464
Minnesota State
5.00%, 2014 Aaa/AAA 2,500 2,475,075
Montgomery County, MD
4.875%, 2018 Aaa/AAA 2,000 1,926,980
Plano, TX, Independent School District
5.00%, 2011 Aaa/AAA 3,000 2,991,360
Salt Lake County, UT
5.25%, 2010 Aaa/AA+ 2,000 2,063,240
South Carolina Capital Improvement
5.00%, 2009 Aaa/AAA 2,700 2,763,747
5.625%, 2014 Aaa/AAA 2,700 2,841,831
Tennessee State, Series "A"
5.50%, 2009 Aaa/AAA 1,535 1,610,552
5.55%, 2010 Aaa/AAA 1,000 1,047,350
Washington State:
Series "A", 5.60%, 2010 Aa1/AA+ 1,500 1,579,575
Series "R", 5.00%, 2014 Aa1/AA+ 2,250 2,215,530
Series "E", 5.00%, 2022 Aa1/AA+ 2,000 1,913,360
Wisconsin State:
Series 1, 5.00%, 2015 Aa2/AA 1,000 982,030
Series "B", 5.00%, 2016 Aa2/AA 3,500 3,426,815
Series "B", 5.00%, 2018 Aa2/AA 1,000 963,270
-----------
83,667,246
-----------
ELECTRIC AND GAS UTILITY REVENUE--.3%
San Antonio, TX, Electric Revenue, Series "A"
6.50%, 2012 Aa1/AA 315 324,727
-----------
</TABLE>
9
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Rating* Par Market Value
Issuer (Moody's/S&P) (000) (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
MUNICIPAL BONDS--concluded
PREREFUNDED ISSUES--11.1%
Howard County, MD, Series "A"
6.90%, 2002 AAA/AAA $1,000 $ 1,054,640
Florida State Board of Education,
Refunding, Public Education
6.50%, 2012 #AAA(dagger)/AA+ 2,500 2,724,700
Jacksonville, FL, Electric Authority
6.75%, 2021 #AAA(dagger)/AA 1,000 1,074,600
Low Colorado River Authority, Jr. Lien,
4th Supply
5.25%, 2015 #AAA(dagger)/AAA 2,000 2,051,380
San Antonio, TX, Electric and
Gas Revenue, Series "A"
6.50%, 2012 Aaa/AA 685 708,667
State of Hawaii, General Obligation:
7.00%, 2006 #AAA(dagger)/A+(dagger)(dagger) 750 792,825
6.125%, 2010 NR/A+(dagger)(dagger) 1,000 1,057,050
Texas State
6.00%, 2014 Aa2/AA 2,000 2,171,640
University of Texas
6.50%, 2011 #AAA(dagger)/AAA 2,000 2,167,600
-----------
13,803,102
-----------
TRANSPORTATION REVENUE--10.2%
Florida Transportation
5.80%, 2018 Aa2/AA+ 2,000 2,089,700
Kansas Transportation
5.40%, 2009 Aa2/AA 2,000 2,078,540
5.40%, 2009 Aa2/AA 2,500 2,609,750
Virginia State Transportation Authority
6.00%, 2010 Aa/AA 1,000 1,066,380
5.125%, 2021 Aa2/AA 4,000 3,881,520
-----------
11,725,890
-----------
OTHER REVENUE--1.4%
Indianapolis, IN, Local Public
Improvement Board
6.00%, 2018 Aaa/AAA 1,500 1,572,150
-----------
TOTAL MUNICIPAL BONDS
(Cost $107,039,873) 111,093,115
-----------
</TABLE>
10
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Market Value
(000) (Note 1)
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
REPURCHASE AGREEMENT--3.6%
Goldman Sachs & Co., 5.40%
Dated 4/30/98, to be repurchased on 5/1/98, collateralized
by U.S. Treasury Notes with a market value of $4,183,909
(Cost $4,094,000) $4,094 $ 4,094,000
-------------
TOTAL INVESTMENTS IN SECURITIES--100.5%
(Cost $111,133,873)** 115,187,115
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.5)% (589,488)
------------
NET ASSETS--100.0% $114,597,627
============
NET ASSET VALUE AND REDEMPTION PRICE PER:
FLAG INVESTORS CLASS A SHARE
($36,963,396 / 3,444,334 shares outstanding) $10.73
======
ISI CLASS SHARE
($77,634,231 / 7,232,848 shares outstanding) $10.73
======
MAXIMUM OFFERING PRICE PER:
FLAG INVESTORS CLASS A SHARE
($10.73 / .9550) $11.24
======
ISI CLASS SHARE
($10.73 / .9555) $11.23
======
- ----------
* The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available as of April 30, 1998. Ratings of issues have
not been audited by Coopers & Lybrand L.L.P.
** Also Aggregate cost for federal tax purposes.
+ Moody's #AAA rating indicates advance refunded issues secured by escrowed
funds held in cash, held in trust or invested in direct non-callable U. S.
government obligations or non-callable obligations unconditionally
guaranteed by the U.S. government.
++ Prerefunded bonds backed by U.S. Treasury securities. Absent prerefunding,
this obligation is rated Aa3/A+.
Moody's Municipal Bond Ratings:
Aaa Bonds are judged to be of the best quality.
Aa Bonds that are 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 Bonds that are 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
guaranteed by the U.S. government.
NR Not rated.
S&P Municipal Bond Rating:
AAA Obligations that are of the highest quality.
AA Obligations that have the second strongest capacity for payment of debt
service. Those issues determined to possess very strong safety
characteristics are denoted with a plus (+) sign.
A Obligations that have the third strongest capacity for the payment of
debt service. Those issues determined to possess very strong safety
characteristics are denoted with a plus (+) sign.
NR Not rated.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Operations
For the
Period Ended
April 30,
- --------------------------------------------------------------------------------
1998(1)
Investment Income:
Interest $2,997,083
----------
Expenses:
Investment advisory fee 231,262
Administration fee 115,631
Distribution fee--Flag Investors Class A shares 47,052
Distribution fee--ISI Class shares 97,486
Accounting fee 28,509
Transfer agent fee 32,935
Custody fees 10,594
Registration 12,735
Printing & Postage 17,108
Directors' fees 2,381
Miscellaneous 45,672
----------
Total expenses 641,365
Less: Fees waived (121,027)
----------
Net expenses 520,338
----------
Net investment income 2,476,745
----------
Realized and unrealized gain on investments:
Net realized gain from security transactions 151,180
Change in unrealized appreciation/depreciation of investments 26,166
----------
Net gain on investments 177,346
----------
Net increase in net assets resulting from operations $2,654,091
==========
- ----------
(1) Unaudited.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
</TABLE>
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
April 30, October 31,
- ------------------------------------------------------------------------------------
1998(1) 1997
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 2,476,745 $ 5,357,775
Net gain from security transactions 151,180 1,002,650
Change in unrealized appreciation/
depreciation of investments 26,166 2,249,576
------------ ------------
Net increase in net assets resulting
from operations 2,654,091 8,610,001
------------ ------------
Dividends to Shareholders from:
Net investment income:
Flag Investors Class A Shares (947,869) (1,919,815)
ISI Class Shares (1,955,323) (3,948,488)
Net realized short-term gains:
Flag Investors Class A Shares (106,065) (129,060)
ISI Class Shares (218,689) (267,980)
------------ ------------
Total distributions (3,227,946) (6,265,343)
------------ ------------
Capital Share Transactions (Note C):
Proceeds from sale of shares 4,027,283 5,846,126
Value of shares issued in
reinvestment of dividends 1,512,293 3,443,291
Cost of shares repurchased (7,761,830) (20,144,490)
------------ ------------
Decrease in net assets derived from capital
share transactions (2,222,254) (10,855,073)
------------ ------------
Total decrease in net assets (2,796,109) (8,510,415)
Net Assets:
Beginning of period 117,393,736 125,904,151
------------ ------------
End of period (including undistributed net
investment income (loss) of ($426,447) and 0,
respectively) $114,597,627 $117,393,736
============ ============
</TABLE>
- ----------
(1) Unaudited.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each period)
For the
Period Ended
April 30,
- --------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 10.79
-------
Income from Investment Operations:
Net investment income 0.22
Net realized and unrealized gain/(loss) on investments 0.02
-------
Total from Investment Operations 0.24
-------
Less Distributions:
Dividends from net investment income
and short-term gains (0.27)
Distributions from net realized long-term gains (0.03)
-------
Total distributions (0.30)
-------
Net asset value at end of year $ 10.73
=======
Total Return 2.76%
Ratios to Average Net Assets:
Expenses 0.90%*
Net investment income 4.28%*
Supplemental Data:
Net assets at end of year (000):
Flag Class A Shares $36,964
ISI Class Shares $77,634
Portfolio turnover rate 9%
- ----------
* Annualized.
(1) Unaudited.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
1997 1996 1995 1994 1993
Per Share Operating Performance:
Net asset value at beginning of period $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.52 0.48 0.48 0.46 0.50
Net realized and unrealized gain/(loss) on investments 0.24 0.00 0.98 (1.15) 0.94
------- ------- ------- ------- -------
Total from Investment Operations 0.76 0.48 1.46 (0.69) 1.44
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income
and short-term gains (0.52) (0.54) (0.54) (0.56) (0.61)
Distributions from net realized long-term gains (0.03) (0.01) (0.08) (0.04) (0.04)
------- ------- ------- ------- -------
Total distributions (0.55) (0.55) (0.62) (0.60) (0.65)
------- ------- ------- ------- -------
Net asset value at end of year $ 10.79 $ 10.58 $ 10.65 $ 9.81 $ 11.10
======= ======= ======= ======= =======
Total Return 7.43% 4.67% 15.42% (6.49)% 14.36%
Ratios to Average Net Assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income 4.46% 4.48% 4.72% 4.37% 4.38%
Supplemental Data:
Net assets at end of year (000):
Flag Class A Shares $38,390 $41,193 $45,980 $49,903 $53,486
ISI Class Shares $79,003 $84,712 $86,292 $83,607 $88,378
Portfolio turnover rate 26% 32% 55% 37% 68%
</TABLE>
15
See Notes to Financial Statements.
<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 and commenced operations February 26,
1990, 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 exempt from federal income tax through
investment in a portfolio consisting primarily of tax-free municipal
obligations.
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. 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:
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
16
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
NOTE 1--concluded
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.
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"), 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
17
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Notes To Financial Statements (continued)
NOTE 2--continued
the annual rate of 0.40%. 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%.
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 period ended April 30, 1998, ISI waived fees of
$81,640 and ICC waived fees of $39,387.
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 and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $28,509 for accounting services for the period ended
April 30, 1998.
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 $32,935 for
transfer agent services for the period ended April 30, 1998.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNCBank served as the Fund's custodian.
For the six-month period ended April 30, 1998, the Fund accrued $10,594 in
custody expenses.
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. Prior to April
1, 1997, Armata Financial Corp. served as the distributor for the ISI Class for
the same compensation and on substantially the same terms as ISI Group. 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. Prior to September 1, 1997,
Alex. Brown & Sons Incorporated served as the distributor for the Flag Investors
Class A Shares for the same compensation and on substantially the same terms as
ICC Distributors. For the period ended April 30, 1998, distribution fees
aggregated $144,538, of which $97,486 was attributable to the ISI Class Shares
and $47,052 was attributable to the Flag Investors Class A Shares.
18
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
NOTE 2--concluded
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
April 30, 1998 was $4,795, and the accrued liability was $8,800.
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.
<TABLE>
<CAPTION>
Flag Investors Class A Shares
--------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 October 31, 1997
-------------- ----------------
<S><C>
Shares sold 114,384 167,474
Shares issued to shareholders on
reinvestment of dividends 43,770 101,621
Shares redeemed (271,284) (606,069)
----------- -----------
Net decrease in shares outstanding (113,130) (336,974)
=========== ===========
Proceeds from sale of shares $ 1,233,282 $ 1,785,725
Reinvested dividends 472,396 1,072,730
Net asset value of shares redeemed (2,952,662) (6,423,913)
----------- -----------
Net decrease from capital share transactions $(1,246,984) $(3,565,458)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ISI Class Shares
--------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 October 31, 1997
--------------------------------
<S><C>
Shares sold 257,729 382,670
Shares issued to shareholders on
reinvestment of dividends 96,352 224,594
Shares redeemed (444,060) (1,295,279)
----------- ------------
Net decrease in shares outstanding (89,979) (688,015)
=========== ============
Proceeds from sale of shares $ 2,794,001 $ 4,060,401
Reinvested dividends 1,039,897 2,370,561
Net asset value of shares redeemed (4,809,168) (13,720,577)
----------- ------------
Net decrease from capital share transactions $ (975,270) $ (7,289,615)
=========== ============
</TABLE>
19
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $10,955,321 and $9,906,253, respectively, for the period
ended April 30, 1998.
At April 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$4,268,558 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $215,315.
The liability for Investment purchases payable at April 30, 1998 was
$1,953,459.
NOTE 5--Net Assets
At April 30, 1998, net assets consisted of:
Paid-in Capital:
Flag Investors Class A Shares $ 34,880,785
ISI Class Shares 75,974,417
Undistributed net investment income (426,447)
Accumulated net realized gain from security transactions 115,629
Unrealized appreciation of investments 4,053,243
------------
$114,597,627
============
20
<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 CARRIE L. BUTLER
Director and President Vice President
JAMES J. CUNNANE MARGARET M. BEELER
Director Assistant Vice President
JOHN F. KROEGER KEITH C. REILLY
Director Assistant Vice President
LOUIS E. LEVY AMY M. OLMERT
Director Secretary
EUGENE J. MCDONALD JOSEPH A. FINELLI
Director Treasurer
SCOTT J. LIOTTA
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.
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This report is prepared for the general information of
shareholders. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective
prospectus.
For more complete information regarding any of the Flag
Investors Funds, including charges and expenses, obtain a
prospectus from your investment representative or directly
from the Fund at 1-800-767-FLAG. Read it carefully before you
invest.
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[FLAG 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 Communications Fund
(formerly 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:
ICC DISTRIBUTORS, INC.
