ISI
Managed
Municipal
Fund Shares
Directors and Officers
Edward S. Hyman Nancy Lazar
Chairman Vice President
Richard T. Hale Carrie L. Butler
Vice Chairman Vice President
R. Alan Medaugh Margaret M. Beeler
Director and President Assistant Vice President
James J. Cunnane Keith C. Reilly
Director Assistant Vice President
John F. Kroeger Amy M. Olmert
Director Secretary
Louis E. Levy Joseph A. Finelli
Director Treasurer
Eugene J. McDonald 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
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
MANAGED MUNICIPAL
FUND SHARES
(A Class of Managed of Municipal Fund, Inc.)
[MUNICIPALS LOGO]
SEMI-ANNUAL REPORT
April 30, 1998
<PAGE>
Investment Advisor's Report
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:
% of Treasury
Yield on Yield for
Maturity AAA GO 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.
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 (5 1/8% coupons or
less) have been steadily increased over the last year. Please see table below:
% of Portfolio in Long Maturity
5 1/8% 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
1
<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.
97:3Q 97:4Q 98:1Q 98:2Q 98:3Q 98:4Q
- -----------------------------------------------------
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%
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
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
2
<PAGE>
Economic Outlook (continued)
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
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.
3
<PAGE>
Portfolio Diversification
by State
[MAP DRAWING APPEARS HERE]
State Allocation
% of % of
Municipal Municipal
Bonds Bonds
--------- ---------
Texas 17.38% Tennessee 4.14%
Florida 11.89 Georgia 3.34
Washington 9.64 Illinois 2.51
Minnesota 8.12 Ohio 2.34
North Carolina 7.10 Delaware 1.93
Maryland 5.18 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%
4
<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. 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 Fund's currently effective 4.45% maximum sales charge.
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN*
% Return with
Periods ended 3/31/98: Sales Charge
- ------------------------------------------------------
One Year 5.15%
- ------------------------------------------------------
Five Years 5.04%
- ------------------------------------------------------
Since Inception (2/26/90) 6.50%
- ------------------------------------------------------
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 prin-cipal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
----------------------------
This report is prepared for the general information of shareholders. It
is authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the 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.
----------------------------
5
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets
April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer 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
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
</TABLE>
6
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (continued)
April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer S&P) (000) (Note 1)
- ----------------------------------------------------------------------------------------------------
<S><C>
General Obligation--concluded
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
----------
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
</TABLE>
7
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (continued)
April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Rating* Market
(Moody's/ Par Value
Issuer S&P) (000) (Note 1)
- --------------------------------------------------------------------------------------------------------------
<S><C>
Prerefunded Issues--concluded
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
-----------
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
-----------
</TABLE>
8
<PAGE>
Managed Municipal Fund, Inc.
Statement of Net Assets (concluded)
April 30, 1998
(Unaudited)
Market
Value
Issuer (Note 1)
- -------------------------------------------------------------------------------
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.
(dagger) 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.
(dagger,dagger) 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.
9
<PAGE>
Managed Municipal Fund, Inc.
Statement of Operations
For the Six Months Ended April 30, 1998
(Unaudited)
- -------------------------------------------------------------------------------
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--ISIClass shares 97,486
Accounting fee 28,509
Transfer agent fees 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
----------
NET 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
==========
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
Managed Municipal Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
April 30, 1998 Ended
(Unaudited) October 31, 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
on 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>
See Notes to Financial Statements.
11
<PAGE>
Managed Municipal Fund, Inc.
Financial Highlights--ISI Class and Flag Investors Class A Shares (For a share
outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Period Ended For the Year Ended October 31,
April 30, 1998 -------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value at beginning
of period $ 10.79 $ 10.58 $ 10.65 $ 9.81 $ 11.10 $ 10.31
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.22 0.52 0.48 0.48 0.46 0.50
Net realized and unrealized
gain/(loss) on investments 0.02 0.24 0.00 0.98 (1.15) 0.94
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.24 0.76 0.48 1.46 (0.69) 1.44
------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment
income and short-term gains (0.27) (0.52) (0.54) (0.54) (0.56) (0.61)
Distributions from net realized
long-term gains (0.03) (0.03) (0.01) (0.08) (0.04) (0.04)
------- ------- ------- ------- ------- -------
Total distributions (0.30) (0.55) (0.55) (0.62) (0.60) (0.65)
------- ------- ------- ------- ------- -------
Net asset value at end of period $ 10.73 $ 10.79 $ 10.58 $ 10.65 $ 9.81 $ 11.10
======= ======= ======= ======= ======= =======
Total Return 2.76% 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% 0.90%
Net investment income 4.28%* 4.46% 4.48% 4.72% 4.37% 4.38%
Supplemental Data:
Net assets at end of year (000):
Flag Class A Shares $36,964 $38,390 $41,193 $45,980 $49,903 $53,486
ISI Class Shares $77,634 $79,003 $84,712 $86,292 $83,607 $88,378
Portfolio turnover rate 9% 26% 32% 55% 37% 68%
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
See Notes to Financial Statements.
12
<PAGE>
Notes to Financial Statements
A. 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 through investment in a portfolio consisting primarily
of municipal obligations, the interest on which is exempt from federal
income tax.
The Fund consists of two share classes: ISI Managed Municipal Fund Shares
("ISI Class"), which commenced February 26, 1990, and Flag Investors Managed
Municipal Fund Class A Shares ("Flag Investors Class A"), which commenced
October 23, 1990.
The ISI Class Shares have a 4.45% maximum front-end sales charge and the
Flag Investors Class A Shares have a 4.50% maximum front-end sales charge.
Both classes have a 0.25% distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles.
These estimates affect 1) the assets and liabilities that we report at the
date of the financial statements; 2) the contingent assets and liabilities
that we disclose at the date of the financial statements; and 3) the
revenues and expenses that we report for the period. Our estimates could be
different from the actual results. 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 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.
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 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
13
<PAGE>
Notes to Financial Statements (continued)
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 --
Inter- national Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor and Investment Company Capital Corp. ("ICC"), an indirect subsidiary
of Bankers Trust New York 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%. 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 Corporation 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 ISIGroup Inc. ("ISIGroup"), which is affiliated with ISI, an
annual fee that is calculated daily and paid monthly. This fee was paid at
an annual rate equal to 0.25% of the ISI Class' average daily net assets.
Prior to April 1, 1997, Armata Financial Corp. served as the distributor;
for the ISIClass for the same compensation and on substantially the same
terms as ISIClass. As compensation for providing distribution services for
the Flag Investors Class A Shares, the Fund pays ICCDistributors, Inc.
("ICCDistributors"), 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 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.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period
ended April 30, 1998 was $4,795 and the accrued liability was $8,800.
C. Capital Share Transactions -- The Fund is authorized to issue up to 40
million shares of $.001 par value capital stock (20 million ISI Class, 15
million Flag Investors Class A, 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 on the following page.
14
<PAGE>
Notes to Financial Statements (concluded)
Flag Investors Class A Shares
-----------------------------
For the For the
Period Ended Year Ended
April 30, 1998 Oct. 31, 1997
-------------- -------------
Shares sold 114,384 167,474
Shares issued to share-
holders on reinvest-
ment 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)
=========== ===========
ISI Class Shares
---------------------------
For the For the
Period Ended Year Ended
April 30, 1998 Oct. 31, 1997
-----------------------------
Shares sold 257,729 382,670
Shares issued to share-
holders on reinvest-
ment 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)
=========== ============
D. 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.
E. 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
============
15
