- --------------------------------------------------------------------------------
Investment Advisor's Report
- --------------------------------------------------------------------------------
We are pleased to report on the progress of your Fund for the period ended
April 30, 1999. As of this date, the Fund recorded a 12-month total return of
6.5%. Since its inception on February 26, 1990, the Fund has produced a
cumulative total return of 84.44%, 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. Please see the
"ISI Economic Outlook" section for further details.
Overview
The general level of municipal rates moved marginally lower over the last
12 months, down about 15 basis points. The last year however was volatile. In
conjunction with Treasuries, Municipal yields fell to their lowest levels in
early October. In the following months, influenced by strong economic growth,
rates climbed (Municipals rose 35 basis points). Currently, rates are above the
average for the last year even though inflation is very low. Please see chart
below.
Fair Market Yield Curves -- History
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
FAIR MARKET YIELD CURVES - HISTORY
4/30/98 4/30/99
U.S. Treasury Yield U.S. Treasury Yield
< 6% Coupon < 6% Coupon
3 MO .................. 5.10 4.63
6 MO .................. 5.37 4.74
1 YR .................. 5.55 4.96
2 YR .................. 5.58 5.09
3 YR .................. 5.64 5.18
4 YR .................. 5.68 5.28
5 YR .................. 5.66 5.22
7 YR .................. 5.72 5.42
8 YR .................. 5.75 5.43
9 YR .................. 5.75 5.41
10 YR ................. 5.68 5.32
15 YR ................. 5.92 5.77
20 YR ................. 6.03 5.93
25 YR ................. 6.04 5.90
30 YR ................. 5.96 5.71
Looking over the last five years, yields on high quality long term
municipal bonds have fallen from 6.09% in April 1994 to 4.97% currently. The
fund's long average maturity has meant its total return (income plus capital
appreciation) has been 6.76%. This compares favorably with the average yield
over the period of 5.48%. However, after this long period of generally declining
rates, the fund has been forced to trim its dividend rate from 4.5 cents per
month to 4.0 cents per month. The fund's dividend payout policy is a
conservative one and this corresponds with the fund's generally conservative
investment approach which stresses high credit quality.
Top Quality Has Value
The yield on top grade municipals is close to the yield on moderate quality
bonds. Three years ago, the yield spread between AAA and BBB was 80 basis
points; currently the difference has narrowed to 37 basis points. Given the
volatile nature of the economy today, ISI sees good investment value in the best
grade municipal bonds. Please see the table below for the recent relationship
between top and medium grade municipals.
Yield Spread between long maturity
AAA and BBB Municipal Bonds
Yield on BBB minus AAA G.O.'s
- --------------------------------------------------------------------------------
4/95 4/96 4/97 4/98 4/99
- --------------------------------------------------------------------------------
+ 60 bp + 80 bp + 70 bp + 35 bp + 37 bp
1
<PAGE>
- --------------------------------------------------------------------------------
Investment Advisor's Report
- --------------------------------------------------------------------------------
Value of Long Maturity Municipals
The recent increase in yield on long term municipal bonds has pushed up
their relative yield versus Treasuries while the relative yield on shorter
maturity issues has fallen. Please see the table below for a year-to-year
comparison.
% of Treasury Yield for Same Maturity Municipals
Maturity April, 1999 April, 1998
- --------------------------------------------------------------------------------
5 year 72.7% 75.1%
10 year 77.5% 80.0%
20 year 82.9% 84.5%
30 year 87.8% 86.4%
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
May 7, 1999
- --------------------------------------------------------------------------------
Economic Outlook for 1999
- --------------------------------------------------------------------------------
Overview
ISI expects U.S. real Gross Domestic Product (GDP) to slow to 3% over the
rest of 1999. In a global context, we expect Japan, the World's second largest
economy to remain weak under the weight of declining employment and capital
expenditures. In each of the last three years, after a growth scare, yields on
long term Treasuries have declined. ISI expects this year's slowing of the U.S.
economy to produce a similar interest rate decline.
U.S. Economy
Since the start of last year's strong fourth quarter, oil prices are up by
$3 per barrel, bond yields are up by 1% and home mortgage refinancing activity
has declined by roughly 65%. As a result of these changes, we expect the U.S. to
slow down.
Already the U.S. economy's performance has begun to slow its rate of
growth. Activity is still at a very high level, but momentum is slowing, as can
be seen by the year-on-year slowdowns in employment, help-wanted ads, home
sales, consumer sentiment, and nondefense capital goods orders. Please see graph
below of Existing Home Sales which shows the change of momentum in this strong
part of the economy.
U.S. EXISTING HOME SALES 3 Mo. Avg. Y/Y % Mar 8.2%
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
U.S. Existing
Home Sales
3 Mo. Avg. Y/Y%
---------------
31-Jan-88.................................... -14.5
29-Feb-88.................................... -13.7
31-Mar-88.................................... -9.9
30-Apr-88.................................... -6.9
31-May-88.................................... -4.0
30-Jun-88.................................... 0.8
31-Jul-88.................................... 3.0
31-Aug-88.................................... 6.8
30-Sep-88.................................... 7.1
31-Oct-88.................................... 8.1
30-Nov-88.................................... 8.5
31-Dec-88.................................... 12.0
31-Jan-89.................................... 14.3
28-Feb-89.................................... 13.3
31-Mar-89.................................... 7.2
30-Apr-89.................................... -1.3
31-May-89.................................... -7.7
30-Jun-89.................................... -12.3
31-Jul-89.................................... -12.5
31-Aug-89.................................... -10.1
30-Sep-89.................................... -5.9
31-Oct-89.................................... -3.8
30-Nov-89.................................... -3.2
31-Dec-89.................................... -6.9
31-Jan-90.................................... -4.5
28-Feb-90.................................... -4.4
31-Mar-90.................................... -0.3
30-Apr-90.................................... -0.1
31-May-90.................................... 2.6
30-Jun-90.................................... 2.8
31-Jul-90.................................... 1.9
31-Aug-90.................................... 0.2
30-Sep-90.................................... -4.4
31-Oct-90.................................... -7.4
30-Nov-90.................................... -10.9
31-Dec-90.................................... -11.7
31-Jan-91.................................... -15.1
28-Feb-91.................................... -14.6
31-Mar-91.................................... -12.6
30-Apr-91.................................... -5.2
31-May-91.................................... 0.1
30-Jun-91.................................... 3.9
31-Jul-91.................................... 3.8
31-Aug-91.................................... -1.0
30-Sep-91.................................... -1.2
31-Oct-91.................................... -2.1
30-Nov-91.................................... 0.5
31-Dec-91.................................... 3.7
31-Jan-92.................................... 8.0
29-Feb-92.................................... 13.3
31-Mar-92.................................... 14.3
30-Apr-92.................................... 12.1
31-May-92.................................... 5.6
30-Jun-92.................................... 2.0
31-Jul-92.................................... 1.1
31-Aug-92.................................... 3.0
30-Sep-92.................................... 5.1
31-Oct-92.................................... 9.0
30-Nov-92.................................... 14.3
31-Dec-92.................................... 19.5
31-Jan-93.................................... 16.5
28-Feb-93.................................... 10.6
31-Mar-93.................................... 2.2
30-Apr-93.................................... -0.2
31-May-93.................................... 0.9
30-Jun-93.................................... 4.9
31-Jun-93.................................... 9.2
31-Aug-93.................................... 14.1
30-Sep-93.................................... 15.5
31-Oct-93.................................... 13.4
30-Nov-93.................................... 12.2
31-Dec-93.................................... 11.1
31-Jan-94.................................... 13.2
28-Feb-94.................................... 12.0
31-Mar-94.................................... 14.5
30-Apr-94.................................... 15.5
31-May-94.................................... 17.3
30-Jun-94.................................... 13.0
31-Jul-94.................................... 6.7
31-Aug-94.................................... 1.9
30-Sep-94.................................... -1.2
31-Oct-94.................................... -2.1
30-Nov-94.................................... -5.9
31-Dec-94.................................... -9.2
31-Jan-95.................................... -10.1
28-Feb-95.................................... -9.5
31-Mar-95.................................... -8.4
30-Apr-95.................................... -11.8
31-May-95.................................... -12.1
30-Jun-95.................................... -9.6
31-Jul-95.................................... -2.7
31-Aug-95.................................... 3.2
30-Sep-95.................................... 5.9
31-Oct-95.................................... 9.1
30-Nov-95.................................... 10.0
31-Dec-95.................................... 9.2
31-Jan-96.................................... 8.7
29-Feb-96.................................... 10.0
31-Mar-96.................................... 12.0
30-Apr-96.................................... 18.6
31-May-96.................................... 19.4
30-Jun-96.................................... 16.3
31-Jul-96.................................... 10.7
31-Aug-96.................................... 5.0
30-Sep-96.................................... 3.5
31-Oct-96.................................... 0.2
30-Nov-96.................................... 0.1
31-Dec-96.................................... 1.8
31-Jan-97.................................... 2.9
28-Feb-97.................................... 3.2
31-Mar-97.................................... 1.7
30-Apr-97.................................... -1.1
31-May-97.................................... -1.9
30-Jun-97.................................... 0.1
31-Jul-97.................................... 2.2
31-Aug-97.................................... 3.9
30-Sep-97.................................... 6.4
31-Oct-97.................................... 9.4
30-Nov-97.................................... 9.9
31-Dec-97.................................... 10.1
31-Jan-98.................................... 8.2
28-Feb-98.................................... 10.9
31-Mar-98.................................... 14.3
30-Apr-98.................................... 18.0
31-May-98.................................... 17.1
30-Jun-98.................................... 16.0
31-Jul-98.................................... 15.8
31-Aug-98.................................... 15.3
30-Sep-98.................................... 11.7
31-Oct-98.................................... 8.0
30-Nov-98.................................... 9.5
31-Dec-98.................................... 11.3
31-Jan-99.................................... 12.9
28-Feb-99.................................... 10.2
31-Mar-99.................................... 7.8
2
<PAGE>
- --------------------------------------------------------------------------------
Economic Outlook for 1999 (continued)
- --------------------------------------------------------------------------------
The above mentioned swings, plus the change from tax refunds to April 15
tax payments, are likely to slow U.S. growth to 3% going forward. The shift to
slower growth is likely to produce lower U.S. interest rates.
Inflation
ISI expects U.S. inflation to be under 1.25% for 1999. A large part of the
good inflation news comes from restrained wage growth and high worker
productivity. The U.S. recently reported its Employment Cost Index (ECI)
registered a low 0.4% increase (1.6% annual rate) for the first quarter. The
U.S. slowdown in labor costs is also being echoed in a number of other economies
around the world. For example, average hourly earnings are in slowing trends in
the UK, Australia, France, and Italy. Average monthly wages are down 1.7% year
to year in Japan. In Singapore, 60% of companies plan to freeze staff wages.
Wages respond with a lag. So, the global slump in 1998 may be slowing wages in
1999. In addition, restructurings and mergers in the U.S., Europe, and now Japan
are putting labor on the defensive. A global slowdown in wage inflation seems to
be unfolding and this would result in very low inflation reports. Low inflation
means that real interest rates, what's left after deducting inflation from a
bond's yield, will be high even if long term Treasury rates drop.
World Economy
ISI expects only moderate world growth in 1999. For example, prices in
Japan are declining on all fronts, i.e. consumer prices, wages, property prices,
and rents. In the face of this deflation, employment is also declining, down
250,000 month-to-month in March alone, which would be the equivalent of a
500,000 drop in our monthly employment report, i.e. a stunning plunge. There are
clear growth positives emerging for Japan, most notably, permanent cuts in tax
rates and zero interest rates. But these are likely to be offset by declining
employment, pay cuts, and cuts in capital expenditures. Japan's government is
encouraging restructurings. Indeed, another step in that direction was taken
recently when the government announced it was putting together "a package of
bills to promote corporate restructuring and eliminate excess capacity." The
government also approved a plan recently calling for a decade-long freeze on its
hiring of new workers. The plan's objective is to cut government employment by
250,000 over the next 10 years. The world's second largest economy looks likely
to experience another year of sub-par growth, setting a subdued tone for Asia in
general.
Looking out a year, stronger growth is possible after a prolonged series of
Central Bank easings (134 over the last 7 months). The stock markets are
performing well around the world, reflecting a long term optimism about growth
but the near term difficulties sighted above are likely to produce sluggish
growth in 1999. We will be using our proprietary surveys of U.S. companies and
international economic reports to monitor changes in global growth prospects.
3
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Diversification by State
- --------------------------------------------------------------------------------
[GRAPHIC]
State Allocation
% of % of
Municipal Municipal
Bonds Bonds
- --------------------------------------------------------------------------------
Texas 15.9% Maryland 2.9%
Virginia 12.0 Illinois 2.6
North Carolina 11.6 Ohio 2.4
Minnesota 8.7 Delaware 2.0
Kansas 6.2 Utah 1.9
Florida 6.0 Missouri 1.8
South Carolina 5.2 Indiana 1.4
Wisconsin 5.0 Oregon 1.4
Washington 4.6 Hawaii 0.7
Tennessee 4.3 -----
Georgia 3.4 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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we 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 standardized total return figures include the impact of the Fund's
maximum initial sales charge. Returns would be higher for investors who
qualified for a lower initial sales charge.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
% Return with
Periods ended 3/31/99: Sales Charge
- --------------------------------------------------------------------------------
One Year 0.86%
- --------------------------------------------------------------------------------
Five Years 5.79%
- --------------------------------------------------------------------------------
Since Inception (2/26/90) 6.39%
- --------------------------------------------------------------------------------
While the total return figures are required by SEC rules, such comparisons
are of limited utility since the Fund's total return is adjusted for sales
charges and expenses while the total return of the indices are not. In fact, if
you wished to replicate the total return of these indices, you would have to
purchase the securities they represent, an effort that would require a
considerable amount of money and would incur expenses that are not reflected in
the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate,
and 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, 1999
(Unaudited)
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bonds: 95.8%
General Obligations -- 71.4%
Arlington County, VA
5.00%, 10/1/14 ............................................ Aaa/AAA $2,000 $ 2,050,700
Arlington, TX, School District
5.75%, 2/15/21 ............................................ AAA/NR** 1,465 1,536,038
Charlotte, NC
5.30%, 4/1/11 ............................................. Aaa/AAA 1,590 1,680,519
5.30%, 4/1/12 ............................................. Aaa/AAA 3,445 3,630,065
Dallas, TX
5.00%, 2/15/10 ............................................ Aaa/AAA 1,750 1,838,655
5.00%, 2/15/13 ............................................ Aaa/AAA 1,755 1,783,168
Delaware State, Series "A"
5.125%, 4/1/16 ............................................ Aa1/AA+ 2,150 2,180,659
Dupage County, IL, Jail Project
5.60%, 1/1/21 ............................................. Aaa/AAA 1,600 1,719,392
Florida Board of Education
6.125%, 6/1/12 ............................................ Aa2/AA+ 2,250 2,408,693
Florida Board of Education
5.50%, 6/1/21 ............................................. Aa2/AA+ 2,000 2,064,980
Franklin County, OH
5.45%, 12/1/09 ............................................ Aaa/AAA 1,500 1,618,695
5.50%, 12/1/13 ............................................ Aaa/AAA 1,000 1,068,470
Georgia State Series "D"
5.25%, 8/1/09 ............................................. Aaa/AAA 1,580 1,703,287
5.00%, 8/1/10 ............................................. Aaa/AAA 2,000 2,101,840
Grand Prairie, TX, School District
5.20%, 2/15/18 ............................................ Aaa/AAA 2,000 2,017,140
King County, WA
5.20%, 12/1/15 ............................................ Aa1/AA+ 2,500 2,559,875
5.00%, 12/1/17 ............................................ Aa1/AA+ 2,565 2,555,663
Maryland State & Local Facilities,
Second Series
5.125%, 10/15/10 .......................................... Aaa/AAA 3,000 3,168,090
Metropolitan Government Nashville &
Davidson County, TN
5.125%, 11/15/19 .......................................... Aa2/AA 2,000 1,988,640
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Obligations -- continued
Minneapolis, MN Ref - Series "B"
5.20%, 3/1/13 ............................................. Aaa/AAA $3,200 $ 3,314,976
Minneapolis, MN, Sports Arena Project
5.00%, 10/1/11 ............................................ Aaa/AAA 1,710 1,772,176
Minneapolis, MN, Sports Arena Project
5.00%, 10/1/12 ............................................ Aaa/AAA 1,920 1,979,846
Minnesota State
5.00%, 11/1/14 ............................................ Aaa/AAA 2,500 2,545,375
Missouri State Series "A"
5.00%, 6/1/23 ............................................. Aaa/AAA 2,000 1,983,320
North Carolina Public School Building
4.60%, 4/1/17 ............................................. Aaa/AAA 5,000 4,810,700
Plano, TX Independent School District
5.00%, 2/15/11 ............................................ Aaa/AAA 3,000 3,036,720
Portland, OR, Metro Regional
Government Ult
5.25%, 9/1/07 ............................................. Aa/AA+ 1,500 1,582,470
Salt Lake County, UT
5.25%, 12/15/10 ........................................... Aaa/AAA 2,000 2,120,260
South Carolina Capital Improvement
5.00%, 3/1/09 ............................................. Aaa/AAA 2,700 2,824,443
5.625%, 7/1/14 ............................................ Aaa/AAA 2,700 2,911,248
Tennessee State
5.50%, 3/1/09 ............................................. Aaa/AAA 1,535 1,653,702
5.55%, 3/1/10 ............................................. Aaa/AAA 1,000 1,079,910
Washington State:
Series "A" 5.60%, 7/1/10 .................................. Aa1/AA+ 1,500 1,597,980
Series "E" 5.00%, 7/1/22 .................................. Aa1/AA+ 2,000 1,948,980
Series "R" 5.00%, 7/1/14 .................................. Aa1/AA+ 2,250 2,275,425
Wisconsin State:
Series "1" 5.00%, 5/1/15 ..................................... Aa2/AA 1,000 1,006,460
Series "B" 5.00%, 5/1/16 .................................. Aa2/AA 3,500 3,510,045
Series "B" 5.00%, 5/1/18 .................................. Aa2/AA 1,000 989,120
----------------
82,617,725
----------------
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Rating*
(Moody's/ Par Market
Issuer S&P) (000) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Obligations -- concluded
Other Revenue -- 2.4%
Texas Water Development Board Revenue
4.75%, 7/15/20 ............................................ Aa1/AAA $3,000 $ 2,834,940
------------
Prerefunded Issues -- 12.5%
Arlington, TX, School District
5.75%, 2/15/21 ............................................ Aaa/NR** 3,535 3,849,862
Charlotte, NC
5.80%, 2/1/16 ............................................. Aaa/AAA 2,500 2,746,850
Chicago, IL, Metropolitan Water
Reclamation District-Greater Chicago
6.30%, 12/1/09 ............................................ Aa2/AA 1,000 1,127,040
Indianapolis, IN, Public Improvement
Board Revenue
6.00%, 1/10/18 ............................................ Aaa/AAA 1,500 1,612,845
Lower Colorado River Authority,
Jr. Lien
5.25%, 1/1/15 ............................................. #AAA/AAA 2,000 2,098,200
State of Hawaii Prerefunded
7.00%, 6/1/06 ............................................. #AAA/++ 750 778,815
Texas State
6.00%, 10/1/14 ............................................ Aa2/AA 2,000 2,202,260
------------
14,415,872
------------
Transportation Revenue -- 9.5%
Florida Transportation
5.80%, 7/1/18 ............................................. Aa2/AA+ 2,000 2,207,180
Kansas Transportation
5.40%, 3/1/09 ............................................. Aa2/AA+ 2,000 2,103,720
5.40%, 3/1/09 ............................................. Aa2/AA+ 2,500 2,673,250
Virginia State Transportation Board
5.125%, 5/15/21 ........................................... Aa2/AA 4,000 3,966,000
------------
10,950,150
------------
Total Municipal Bonds
(Cost $105,307,888) ........................................ 110,818,687
------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
April 30, 1999
(Unaudited)
Market
Issuer Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 0.4%
Goldman Sachs & Co., 4.80%
Dated 4/30/99, to be repurchased for $421,168 on
5/3/99, collateralized by U.S. Treasury Bonds with
a market value of $429,807
(Cost $421,000) $ 421,000
------------
Total Investments--96.2%
(Cost $105,728,888)*** 111,239,687
Other Assets in Excess of Liabilities--3.8% 4,451,538
------------
Total Net Assets--100.0% $115,691,225
------------
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($36,728,661 / 3,377,193 shares outstanding) $ 10.88
============
ISI Class Share
($78,962,564 / 7,259,041 shares outstanding) $ 10.88
============
Maximum Offering Price Per:
Flag Investors Class A Share
($10.88 / 0.9550) $ 11.39
============
ISI Class Share
($10.88 / 0.9555) $ 11.39
============
- --------
* The Moody's and Standard & Poor's ratings indicated are believed to be
the most recent ratings available as of April 30, 1999.
** Not rated.
*** Also Aggregate cost for federal tax purposes.
++ 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 always 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
NR Not rated.
S&P Municipal Bond Rating:
AAA Of the highest quality.
AA The second strongest capacity for payments of debt service. Those issues
determined to possess very strong safety characteristics are denoted
with a plus(+) sign.
NR Not rated.
9
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended April 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ..................................................... $ 2,944,580
-----------
EXPENSES:
Investment advisory fee ...................................... 234,105
Distribution fee ............................................. 146,316
Administration fee ........................................... 117,053
Professional Fees ............................................ 71,564
Accounting fee ............................................... 28,616
Registration fees ............................................ 23,533
Transfer agent fee ........................................... 21,711
Printing and postage ......................................... 20,995
Custodian fee ................................................ 10,594
Miscellaneous ................................................ 13,172
-----------
Total expenses ............................................ 687,659
Less: Fees waived ............................................ (160,923)
-----------
Net expenses .............................................. 526,736
-----------
Net investment income ........................................ 2,417,844
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions ................. 227,001
Change in unrealized appreciation/depreciation of investments (1,114,438)
-----------
Net loss on investments ...................................... (887,437)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................ $ 1,530,407
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
April 30, 1999 Ended
(Unaudited) October 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income ...................................... $ 2,417,844 $ 4,931,438
Net realized gain from
security transactions ................................... 227,001 910,737
Change in unrealized appreciation/
depreciation of investments ............................. (1,114,438) 2,598,160
------------- -------------
Net increase in net assets
resulting from operations ............................... 1,530,407 8,440,335
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income and net realized short-term gains:
ISI Class Shares ........................................ (932,725) (3,912,967)
Flag Investors Class A Shares ........................... (1,977,900) (1,861,540)
Net realized mid-term and long-term gains:
ISI Class Shares ........................................ -- (218,689)
Flag Investors Class A Shares ........................... -- (106,065)
------------- -------------
Total distributions ........................................ (2,910,625) (6,099,261)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ............................... 4,322,066 7,880,427
Value of shares issued in reinvestment of dividends ........ 1,447,758 3,000,727
Cost of shares repurchased ................................. (6,659,002) (12,655,343)
------------- -------------
Increase/(decrease) in net assets derived from
capital share transactions .............................. (889,178) (1,774,189)
------------- -------------
Total increase/(decrease) in net assets .................... (2,269,396) 566,885
NET ASSETS:
Beginning of period ........................................ 117,960,621 117,393,736
------------- -------------
End of period including undistributed net investment
income/(loss) of ($233,663) and $32,118,
respectively ............................................ $ 115,691,225 $ 117,960,621
============= =============
- --------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Managed Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights -- ISI Class
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended October 31,
April 30,1999 ---------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 11.01 $ 10.79 $ 10.58 $ 10.65 $ 9.81 $ 11.10
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ................ 0.22 0.46 0.52 0.48 0.48 0.46
Net realized and unrealized
gain/(loss) on investments ......... (0.08) 0.33 0.24 -- 0.98 (1.15)
------- ------- ------- ------- ------- -------
Total from Investment Operations ..... 0.14 0.79 0.76 0.48 1.46 (0.69)
------- ------- ------- ------- ------- -------
Less Distributions:
Net investment income and net realized
short-term gains ................... (0.27) (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 .................. (0.27) (0.57) (0.55) (0.55) (0.62) (0.60)
------- ------- ------- ------- ------- -------
Net asset value at end of period ..... $ 10.88 $ 11.01 $ 10.79 $ 10.58 $ 10.65 $ 9.81
======= ======= ======= ======= ======= =======
Total Return(1).......................... 1.29% 7.51% 7.43% 4.67% 15.42% (6.49)%
Ratios to Average Daily Net Assets:
Expenses(2)........................... 0.90%(4) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(3).............. 4.13%(4) 4.24% 4.46% 4.48% 4.72% 4.37%
Supplemental Data:
Net assets at end of period (000):
ISI Class Shares .................. $78,962 $80,749 $79,003 $84,712 $86,292 $83,607
Flag Investors Class A Shares ..... $36,729 $37,212 $38,390 $41,193 $45,980 $49,903
Portfolio turnover rate .............. 4% 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 B), the ratio
of expenses to average daily net assets would have been 1.17% (annualized),
for the six months ended April 30, 1999, and 1.13%, 1.10%, 1.13%, 1.10%,
and 1.11% for the years ended Oct. 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(3) Without the waiver of advisory and administration fees (Note B), the ratio
of net investment income to average daily net assets would have been 3.85%
(annualized), for the six months ended April 30, 1999, and 4.01%, 4.26%,
4.25%, 4.52% and 4.16% for the years ended Oct. 31, 1998, 1997, 1996, 1995
and 1994, respectively.
(4) 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 5, 1990
and began 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 began February 26, 1990, and Flag Investors
Managed Municipal Fund Class A Shares ("Flag Investors Class A Shares"),
which began 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. The Fund utilizes the services of an independent
pricing vendor to obtain prices. When there is an available market
quotation, the Fund values a municipal obligation by using the most recent
price provided by an investment dealer. 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 which approximates fair market value.
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
13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
the trade date to account for security transactions and the specific
identification cost 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%. For the six month period
ended April 30, 1999, ISI's advisory fee was $234,105 (net of fee waivers)
of which $38,181 was payable at the end of the period. 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%. For the six month period ended April
30, 1999 ICC's administration fee was $117,053 (net of fee waivers) of
which $19,020 was payable at the end of the period.
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, 1999, ISI waived
fees of $107,282 and ICC waived fees of $53,641.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or administrator.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily based upon its average daily net
assets and paid monthly. For the six months ended April 30, 1999 ICC's fee
was $23,896 of which $4,720 was payable at the end of the period. ICC also
provides transfer agency services to the Fund for which the Fund pays ICC a
per account fee that is calculated and paid monthly. For the six months
ended April 30, 1999 ICC's fee was $16,238 of which $11,473 was payable at
the end of the period.
ISI Group Inc. ("ISI Group"), which is affiliated with ISI, provides
distribution services for the ISI Class of the Fund for which ISI Group is
paid an annual fee that is calculated daily and paid monthly at an annual
rate equal to 0.25% of the ISI Class' average daily net assets. ICC
Distributors, Inc. ("ICC Distributors"), a member of the Forum Financial
Group of companies, provides distribution services for the Flag Investors
Class A Shares for which ICC Distributors is paid an annual fee that is
calculated daily and paid monthly at an annual rate equal to 0.25% of the
Flag Investors Class A Shares' average daily net assets. For the six months
ended April 30, 1999, distribution fees aggregated $146,316. ISI Group's
fee was $99,421 of which $16,275 was payable at the end of the period. ICC
Distributor's fee was $46,895 of which $7,588 was payable at the end of the
period.
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, 1999 was $818 and the accrued liability was $23,669.
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
14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
2 million undesignated). Transactions in shares of the Fund are listed in the
chart below:
ISI Class Shares
-------------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1999(1) Oct. 31, 1998
------------------ --------------
Shares sold .......................... 140,630 518,215
Shares issued to share-
holders on reinvest-
ment of dividends .................. 85,549 190,021
Shares redeemed ...................... (303,189) (695,012)
----------- -----------
Net increase/(decrease)
in shares
outstanding ........................ (77,010) 13,224
=========== ===========
Proceeds from sale
of shares .......................... $ 1,539,366 $ 5,635,106
Value of reinvested
dividends .......................... 934,627 2,057,230
Cost of shares
redeemed ........................... (3,317,921) (7,540,268)
----------- -----------
Net increase/(decrease)
from capital share
transactions ....................... $ (843,928) $ 152,068
=========== ===========
Flag Investors Class A Shares
-------------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1999(1) Oct. 31, 1998
------------------ --------------
Shares sold .......................... 254,000 206,924
Shares issued to share-
holders on reinvest-
ment of dividends .................. 46,969 87,142
Shares redeemed ...................... (305,065) (470,241)
----------- -----------
Net decrease in shares
outstanding ........................ (4,096) (176,175)
=========== ===========
Proceeds from sale
of shares .......................... $ 2,782,700 $ 2,245,321
Value of reinvested
dividends .......................... 513,130 943,497
Cost of shares
redeemed ........................... (3,341,081) (5,115,075)
----------- -----------
Net decrease from
capital share
transactions ....................... $ (45,251) $(1,926,257)
=========== ===========
- ---------------
(1) Unaudited
D. Investment Transactions -- Excluding short-term obligations, purchases of
investment securities aggregated $4,851,050 and sales of investment
securities aggregated $8,034,030 for the period ended April 30, 1999.
On April 30, 1999, aggregate net unrealized appreciation over tax cost for
portfolio securities was $5,510,798 of which $5,700,412 related to
appreciated securities and $189,614 related to depreciated securities.
E. Net Assets -- At April 30, 1999, net assets consisted of:
Paid-in capital:
ISI Class Shares ..................... $ 76,257,829
Flag Investors
Class A Shares ................... 34,156,260
Undistributed net
investment loss ...................... (460,663)
Accumulated net realized gain
from security transactions ........... 227,001
Unrealized appreciation
of investments ....................... 5,510,798
-------------
$ 115,691,225
=============
F. Subsequent Event -- Effective June 1, 1999 ICC's fees for providing
administrative services to the Fund were changed to the following schedule:
Combined Assets of ISI Funds Incremental Fee
---------------------- -------------
$0-$75,000,000 .20%
$75,000,000-$150,000,000 .15%
$150,000,000-$225,000,000 .10%
$225,000,000-$500,000,000 .05%
over $500,000,000 .03%
Concurrent with this fee change ICC terminated its participation in fee
waivers.
15
<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 219426
Kansas City, MO 64121-9426
(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 Municipal Fund, Inc.)
MUNICIPALS
GRAPHIC
----------
SEMI-ANNUAL REPORT
April 30, 1999
