[Flag Investors logo omitted]
MANAGED MUNICIPAL
FUND SHARES
Semi-Annual Report
April 30, 2000
<PAGE>
<PAGE>
PORTFOLIO DIVERSIFICATION BY STATE
--------------------------------------------------------------------------------
[map graphic omitted]
STATE ALLOCATION
--------------------------------
% OF
MUNICIPAL
BONDS
--------------------------------
Texas 19.5%
North Carolina 11.1
Washington 11.0
Florida 6.9
Minnesota 6.0
Wisconsin 5.5
Kansas 5.0
Virginia 5.0
Delaware 4.9
Tennessee 4.8
South Carolina 4.4
Illinois 2.9
Ohio 2.8
Utah 2.2
Colorado 2.0
Missouri 1.9
Indiana 1.7
Oregon 1.6
Hawaii 0.8
Total 100.0%
Average Maturity 12.8 years
--------------------------------------------------------------------------------
Average Duration 8.3 years
--------------------------------------------------------------------------------
Quality Breakdown:
--------------------------------------------------------------------------------
AAA 59%
--------------------------------------------------------------------------------
AA 41%
--------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
INVESTMENT ADVISOR'S REPORT
We are pleased to report on the progress of your Fund for the period ended
April 30, 2000. The Fund recorded a total return for the first six months of the
fiscal year, of 2.81%. Since its inception on October 23, 1990, the Fund has
produced a cumulative total return of 75.98%, which translates into an average
annual total return of 6.12%. These figures assume the reinvestment of dividends
and capital gains distributions and exclude the impact of any sales charge.
PORTFOLIO MANAGEMENT
The Fund emphasizes "top quality" in its municipal bond investments. Over
the last six months, quality yield spread differentials have opened a bit. But
the strong revenue growth experienced by most municipalities has so far
moderated any spread opening.
[line graph omitted]
plot points as follows:
10/29/99 32
33
11/12/99 41
44
37
12/3/99 39
38
35
12/24/99 39
39
40
1/14/00 40
39
38
2/4/00 41
44
49
2/25/00 51
51
53
3/17/00 56
57
64
4/7/00 65
52
50
4/28/00 50
ISI expects the economy will slow over the second half of the fiscal year
and that will hit medium quality municipals. In this environment, we believe the
Fund's high quality orientation should help its performance.
The Fund's high quality municipalities have more financial options than the
typically more leveraged medium quality municipalities. As a result, the Fund's
issues are often quickly pre-refunded. This is an advantage for the Fund in a
rising interest rate environment because the fund can sell these short maturity
issues and re-deploy the proceeds in the higher yielding long maturity market.
The Fund currently has almost 22.5% of its assets in pre-refunded bonds and
short-term reserves. As the second half of the fiscal year unfolds, ISI will be
2
<PAGE>
--------------------------------------------------------------------------------
looking for an opportunity to extend the maturity of the Fund by selling its
short maturity holdings and investing in the 20-year maturity range. For more
information on the outlook for the economy, please see ISI's report which
follows this letter.
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/SIGNATURE R. Alan Medaugh
R. Alan Medaugh
President
May 5, 2000
3
<PAGE>
ECONOMIC OUTLOOK FOR 2000
--------------------------------------------------------------------------------
OVERVIEW
Currently, we see more negatives than positives for bonds. In establishing
our position on bonds, we look at three perspectives: 1) fundamentals, 2)
sentiment, and 3) technicals. Currently, we believe the fundamentals and
technicals are negative, while sentiment is positive. This mix puts us cautious
on bonds. We are watching the "fundamentals" for a possible change, given that
our company surveys last week predicted a slow down in the economy, money growth
has been slowing, and commodity prices have weakened. But strong growth reports
have been dominant so far. First quarter nominal growth was reported last week
to be running at an 8.1% annual rate. Inflation readings have also picked up.
The Employment Cost Index, a report closely watched by the Federal Reserve,
jumped to a 4.3% annual rate for the first quarter. The pick-up in inflation has
gained consumer attention according to the University of Michigan Inflation
Expectation report. Inflation expectations are up 100 basis points in the last
year, implying future pressure on wage demands. We expect the Federal Reserve
will increase the Federal Funds rate by 50 basis points in two 25 basis point
moves at the May and June meetings.
U.S. ECONOMY
Over the last five years a distinct economic growth pattern has persisted,
with the first quarter of the year strong relative to the fourth quarter of the
preceding year as illustrated in the chart below. For seasonal strength to
continue for five years means the forces behind the growth are accelerating
faster than the Bureau of Labor Statistics can adjust their seasonal models. We
believe the keys to this first quarter growth are accelerating tax refunds,
rising bonus payments and home mortgage refinancing windfalls.
[bar chart omitted]
plot points as follows:
12/31/95 2.6
3/31/96 3.3
12/31/96 2.9
3/31/97 4.4
12/31/97 3.3
3/31/98 5.8
12/31/98 4.6
3/31/99 6.5
12/31/99 5.9
3/31/00 7.5
4
<PAGE>
--------------------------------------------------------------------------------
The question is what's next. It would seem that the first quarter
acceleration story suggests growth slows in the second quarter. However, that
has not been the case. In the past four years, second quarter consumer spending
has accelerated half the time. This year there is a special stimulus: the repeal
of the Social Security earnings test for workers aged 65 to 69. This will
provide roughly a $1.4 billion tax cut for the second quarter, or almost $6
billion at an annual rate. So, it is likely that this year may see growth
persist at a higher rate into the second quarter. As a result, the Federal
Reserve will be forced to continue with its increases in short rates.
In the second half of 2000, we expect the Federal Reserve rate increases
along with those of other Central Banks will begin to dampen growth. Also
pointing to lower growth, money supply growth, which leads retail sales, has
rolled over in the last month. Equity prices have also been flat for the last
four months while exhibiting volatile day to day action. This behavior is likely
to reduce consumer confidence. ISI sees a slow down developing from these
factors.
FINANCIAL MARKETS
Strong growth in 1999 and a change in Federal Reserve policy pushed
interest rates up from 4.82% to 5.63% on 20-year AAA municipal bonds. After an
early 2000 rally, strong growth and a hawkish Federal Reserve have again moved
rates higher. The stock market has also played a role in raising rates. The
resulting long-term build up of consumer balance sheet wealth has stimulated
spending, helping bolster economic growth. A year-end 1999 money growth
acceleration to head off any Y2K problems most likely exacerbated the
performance of the speculative part of the equity market such as the NASDAQ. The
recent reversal of the money acceleration seemed to have produced a sizeable
drop in the same speculative stock sector. As a result, price volatility has
become an important feature in the financial markets.
Looking ahead, we expect growth to slow in the second half of 2000. This is
likely to cap the Federal Reserve's interest rate increases and begin to lower
long-term bond yields.
5
<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. 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.
The SEC standardized total return figures include the impact of the maximum
4.5% initial sales charge for the Class A Shares. Returns would be higher for
Class A Shares investors who qualified for a lower initial sales charge.
Average Annual Total Return(1)
Periods Ended 4/30/00 1 Year 5 Years Since Inception(*)
--------------------------------------------------------------------------------
Class A Shares (6.57)% 4.12% 5.60%
--------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. Since investment
return and principal value will fluctuate, an investor's shares may be worth
more or less than their original cost when redeemed.
(*) 10/23/90
The SEC total return figures may differ from total return figures in the
shareholder letter 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.
These figures assume the reinvestment of dividend and capital gain
distributions. Returns would have been lower during the specified period if
certain fees and expenses had not been waived.
6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS APRIL 30, 2000
(UNAUDITED)
Rating* Par Market
Issuer (Moody's/S&P) (000) Value
--------------------------------------------------------------------------------
MUNICIPAL BONDS -- 94.1%
--------------------------------------------------------------------------------
GENERAL OBLIGATIONS -- 67.4%
Arlington County, VA
5.00%, 10/1/14 ....................... Aaa/AAA $2,000 $ 1,906,960
Arlington, TX, School District
5.75%, 2/15/21 ....................... Aaa/NR 1,465 1,440,447
Charlotte, NC
5.30%, 4/1/12 ........................ Aaa/AAA 1,120 1,123,091
5.00%, 2/1/19 ........................ Aaa/AAA 2,300 2,095,990
Chesterfield County, VA
5.625%, 1/15/14 ...................... Aaa/AAA 1,350 1,374,651
Dallas, TX
5.00%, 2/15/13 ....................... Aaa/AAA 1,755 1,661,090
Delaware State, Series A
5.125%, 4/1/16 ....................... Aaa/AAA 2,150 2,043,424
5.50%, 4/1/19 ........................ Aaa/AAA 2,500 2,456,625
Dupage County, IL, Jail Project
5.60%, 1/1/21 ........................ Aaa/AAA 1,600 1,563,488
Florida Board of Education
6.125%, 6/1/12 ....................... Aa2/AA+ 2,250 2,302,875
Florida State Board Capital Outlay,
Series C
5.50%, 6/1/21 ........................ Aa2/AA+ 2,000 1,927,400
Franklin County, OH
5.45%, 12/1/09 ....................... Aaa/AAA 1,500 1,517,910
5.50%, 12/1/13 ....................... Aaa/AAA 1,000 1,006,630
Grand Prairie, TX, School District
5.20%, 2/15/18 ....................... Aaa/AAA 2,000 1,849,940
King County, WA
5.20%, 12/1/15 ....................... Aa1/AA+ 2,500 2,350,225
5.00%, 12/1/17 ....................... Aa1/AA+ 2,565 2,316,862
Metropolitan Government Nashville &
Davidson County, TN
5.125%, 11/15/19 ..................... Aa2/AA 2,000 1,811,200
Minneapolis, MN Refunding, Series B
5.20%, 3/1/13 ........................ Aaa/AAA 3,200 3,127,136
Minnesota State
5.00%, 11/1/14 ....................... Aaa/AAA 2,500 2,376,150
Missouri State, Series A
5.00%, 6/1/23 ........................ Aaa/AAA 2,000 1,783,720
North Carolina State Public Improvement,
Series A
5.25%, 3/1/16 ........................ Aaa/AAA 1,170 1,130,840
8
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
Rating* Par Market
Issuer (Moody's/S&P) (000) Value
--------------------------------------------------------------------------------
MUNICIPAL BONDS -- (Continued)
--------------------------------------------------------------------------------
GENERAL OBLIGATIONS -- (CONTINUED)
North Carolina Public School Building
4.60%, 4/1/17 ........................ Aaa/AAA $5,000 $ 4,333,050
Plano, TX Independent School District
5.00%, 2/15/11 ....................... Aaa/AAA 3,000 2,881,200
Portland, OR, Metro Regional Government
5.25%, 9/1/07 ........................ Aa/AA+ 1,500 1,508,910
Salt Lake County, UT
5.25%, 12/15/10 ...................... Aaa/AAA 2,000 1,996,640
South Carolina Capital Improvement
5.625%, 7/1/14 ....................... Aaa/AAA 2,700 2,744,847
5.65%, 7/1/21 ........................ Aaa/AAA 1,260 1,251,886
Virginia State
5.25%, 6/1/16 ........................ Aaa/AAA 1,320 1,278,143
Washington State, Series A
5.60%, 7/1/10 ........................ Aa1/AA+ 1,500 1,522,530
Washington State, Series E
5.00%, 7/1/22 ........................ Aa1/AA+ 2,000 1,743,080
Washington State, Series R
5.00%, 7/1/14 ........................ Aa1/AA+ 2,250 2,096,010
Wisconsin State, Series 1
5.00%, 5/1/15 ........................ Aa2/AA 1,000 929,070
Wisconsin State, Series B
5.00%, 5/1/16 ........................ Aa2/AA 3,500 3,220,805
5.00%, 5/1/18 ........................ Aa2/AA 1,000 904,070
-----------
65,576,895
-----------
OTHER REVENUE -- 4.1%
Charlotte, NC Water & Sewer
System Revenue
5.25%, 6/1/24 ........................ Aa2/AA+ 1,600 1,467,072
Texas Water Development Board Revenue
4.75%, 7/15/20 ....................... Aa1/AAA 3,000 2,551,440
-----------
4,018,512
-----------
9
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) APRIL 30, 2000
(UNAUDITED)
Rating* Par Market
Issuer (Moody's/S&P) (000) Value
--------------------------------------------------------------------------------
MUNICIPAL BONDS -- (Concluded)
--------------------------------------------------------------------------------
PREREFUNDED ISSUES -- 17.9%
Arlington, TX, School District
5.75%, 2/15/21 ....................... Aaa/NR* $3,535 $ 3,642,004
Chicago, IL, Metropolitan Water
Reclamation District-Greater Chicago
6.30%, 12/1/09 ....................... Aa1/AA 1,000 1,058,190
Dallas, TX
5.00%, 2/15/10 ....................... Aaa/AAA 1,750 1,747,655
Florida Transportation
5.80%, 7/1/18 ........................ Aa2/AAA 2,000 2,087,500
Indianapolis, IN, Public Improvement
Board Revenue
6.00%, 1/10/18 ....................... Aaa/AAA 1,500 1,515,720
Lower Colorado River Authority, Jr. Lien
5.25%, 1/1/15 ........................ #AAA/AAA 2,000 1,953,860
State of Hawaii
7.00%, 6/1/06 ........................ #AAA/++ 750 751,762
Tennessee State, Series A
5.50%, 3/1/09 ........................ Aaa/AAA 1,535 1,566,207
5.55%, 3/1/10 ........................ Aaa/AAA 1,000 1,022,460
Texas State
6.00%, 10/1/14 ....................... Aa1/AA 2,000 2,079,200
-----------
17,424,558
-----------
TRANSPORTATION REVENUE -- 4.7%
Kansas Transportation
5.40%, 3/1/09 ........................ Aa2/AA+ 4,500 4,533,930
-----------
TOTAL MUNICIPAL BONDS
(Cost $93,620,423) ............................................ 91,553,895
-----------
10
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
Par Market
Issuer (000) Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.6%
--------------------------------------------------------------------------------
Goldman Sachs & Co., 5.63% Dated 4/28/00, to be
repurchased for $4,484,000 on 5/1/00,
collateralized by U.S. Treasury Bonds 5.625%,
due 5/15/01 with a market value of $4,559,456
(Cost $4,470,000) .................................. $4,470 $ 4,470,000
-----------
TOTAL INVESTMENTS -- 98.7%
(Cost $98,090,423) ............................................ 96,023,895
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.3% ..................... 1,291,292
-----------
NET ASSETS -- 100.0% ............................................. $97,315,187
-----------
NET ASSET VALUE AND REDEMPTION PRICE PER:
Flag Investors Class A Share
($32,197,831 / 3,168,116 shares outstanding) .................. $10.16
======
ISI Class Share
($65,117,356 / 6,406,082 shares outstanding) .................. $10.16
======
MAXIMUM OFFERING PRICE PER:
Flag Investors Class A Share
($10.16 / 0.9550) ............................................. $10.64
======
ISI Class Share
($10.16 / 0.9555) ............................................. $10.63
======
--------------
* The Moody's and Standard & Poor's ratings indicated are believed to be
the most recent ratings available as of April 30, 2000.
++ 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.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six
Months Ended
April 30,
--------------------------------------------------------------------------------
2000(1)
Investment Income:
Interest ....................................................... $2,716,190
----------
Expenses:
Investment advisory fee ........................................ 200,054
Distribution fee ............................................... 125,034
Administration fee ............................................. 54,083
Accounting fee ................................................. 27,421
Professional fees .............................................. 27,233
Transfer agent fee ............................................. 24,831
Registration fees .............................................. 22,439
Printing and Postage ........................................... 16,478
Miscellaneous .................................................. 5,086
----------
Total expenses ........................................... 502,659
Less: Fees waived .............................................. (49,537)
----------
Net expenses ...................................................... 453,122
----------
Net investment income ............................................. 2,263,068
----------
Net realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions ................... (74,065)
Change in unrealized appreciation/depreciation
of investments .............................................. 559,378
----------
Net gain on investments ........................................ 485,313
----------
Net increase in net assets resulting from operations .............. $2,748,381
==========
----------------
(1) Unaudited.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
--------------------------------------------------------------------------------
2000(1) 1999
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ........................ $ 2,263,068 $ 4,818,088
Net realized gain/(loss) from security
transactions .............................. (74,065) 547,939
Change in unrealized appreciation/
depreciation of investments ............... 559,378 (9,251,142)
------------ -----------
Net increase/(decrease) in net assets
resulting from operations ................. 2,748,381 (3,885,115)
------------ -----------
Dividends to Shareholders from:
Net investment income and short-term gains:
Flag Investors Class A Shares ............. (774,647) (1,600,162)
ISI Class Shares .......................... (1,616,417) (3,369,957)
Net realized long-term gains:
Flag Investors Class A Shares ............. -- (151,301)
ISI Class Shares .......................... -- (312,768)
------------ -----------
Total distributions .......................... (2,391,064) (5,434,188)
------------ -----------
Capital Share Transactions:
Proceeds from sale of shares ................. 2,968,448 8,098,100
Value of shares issued in
reinvestment of dividends ................. 1,217,931 2,739,411
Cost of shares repurchased ................... (11,986,909) (14,720,429)
------------ -----------
Decrease in net assets derived from capital
share transactions ........................ (7,800,530) (3,882,918)
------------ -----------
Total decrease in net assets ................. (7,443,213) (13,202,221)
Net Assets:
Beginning of period .......................... 104,758,400 117,960,621
------------ -----------
End of period including distributions in
excess of net investment income of
$10,935 for the year ended
October 31, 1999 .......................... $ 97,315,187 $104,758,400
============ ============
--------------------
(1) Unaudited.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- FLAG INVESTORS CLASS A
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
For the Six
Months Ended
April 30,
--------------------------------------------------------------------------------
2000(4)
Per Share Operating Performance:
Net asset value at beginning of period ....................... $ 10.12
-------
Income from Investment Operations:
Net investment income ........................................ 0.23
Net realized and unrealized gain/(loss) on investments ....... 0.05
-------
Total from Investment Operations ............................. 0.28
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ......................... (0.24)
Distributions from net realized long-term gains .............. --
-------
Total distributions .......................................... (0.24)
-------
Net asset value at end of period ............................. $ 10.16
=======
Total Return(3) ................................................. 2.81%
Ratios to Average Daily Net Assets:
Expenses(1) .................................................. 0.90%(5)
Net investment income(2) ..................................... 4.48%(5)
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares ............................. $32,198
ISI Class Shares .......................................... $65,117
Portfolio turnover rate ...................................... 9%
---------------
(1) Without the waiver of advisory and administration fees (Note 2), the ratio
of expenses to average daily net assets would have been 1.00% (annualized),
1.10%, 1.13%, 1.10%, 1.13% and 1.10% for the six months ended April 30,
2000, and for the years ended October 31, 1999,1998, 1997, 1996 and 1995,
respectively.
(2) Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been 4.38%
(annualized), 4.03%, 4.01%, 4.26%, 4.25% and 4.52% for the six months ended
April 30, 2000, and for the years ended October 31, 1999, 1998, 1997, 1996
and 1995, respectively.
(3) Total return excludes the effect of sales charge.
(4) Unaudited.
(5) Annualized.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended October 31,
-------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
<S> <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
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income .................................... 0.45 0.46 0.52 0.48 0.48
Net realized and unrealized gain/(loss) on investments ... (0.83) 0.33 0.24 -- 0.98
------- ------- ------- ------- -------
Total from Investment Operations ......................... (0.38) 0.79 0.76 0.48 1.46
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains ..................... (0.47) (0.54) (0.52) (0.54) (0.54)
Distributions from net realized long-term gains .......... (0.04) (0.03) (0.03) (0.01) (0.08)
------- ------- ------- ------- -------
Total distributions ...................................... (0.51) (0.57) (0.55) (0.55) (0.62)
------- ------- ------- ------- -------
Net asset value at end of period ......................... $ 10.12 $ 11.01 $ 10.79 $ 10.58 $ 10.65
======= ======= ======= ======= =======
Total Return(3) ............................................. (3.61)% 7.51% 7.43% 4.67% 15.42%
Ratios to Average Daily Net Assets:
Expenses(1) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(2) 4.23% 4.24% 4.46% 4.48% 4.72%
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares $34,150 $37,212 $38,390 $41,193 $45,980
ISI Class Shares $70,609 $80,749 $79,003 $84,712 $86,292
Portfolio turnover rate 8% 18% 26% 32% 55%
---------------
<FN>
(1) Without the waiver of advisory and administration fees (Note 2), the ratio
of expenses to average daily net assets would have been 1.00% (annualized),
1.10%, 1.13%, 1.10%, 1.13% and 1.10% for the six months ended April 30,
2000, and for the years ended October 31, 1999,1998, 1997, 1996 and 1995,
respectively.
(2) Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been 4.38%
(annualized), 4.03%, 4.01%, 4.26%, 4.25% and 4.52% for the six months ended
April 30, 2000, and for the years ended October 31, 1999, 1998, 1997, 1996
and 1995, respectively.
(3) Total return excludes the effect of sales charge.
(4) Unaudited.
(5) Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- 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 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 Shares"), which began operations February 26, 1990, and Flag
Investors Managed Municipal Fund Class A Shares ("Flag Investors Class A
Shares"), which began operations 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 in accordance with accounting principles generally accepted in
the United States. 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. The Fund utilizes the services of an independent
pricing vendor to obtain prices when such prices are determined by the
Investment Advisor to reflect the fair market value of such municipal
obligations. When there is an available market quotation, the Fund values
a municipal obligation by using the most recent quoted bid 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. At April
30, 2000 there were no Board Valued Securities. The Fund values
short-term obligations with maturities of 60 days or less at amortized
cost which approximates fair market value.
16
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTE 1 -- concluded
B. REPURCHASE AGREEMENTS -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement
is a short-term investment in which the Fund buys a debt 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 requires
that the collateral's market value, including any accrued interest,
exceed the broker's repurchase obligation. The Fund's access to the
collateral may be delayed or limited if the broker defaults, the value of
the collateral declines or 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 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, gains 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. 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 months ended April 30,
2000, ISI's advisory fee was $200,054, of which $32,443 was payable at the end
of the period.
17
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- concluded
ISI has contractually agreed to waive its fees through February 28, 2001,
to the extent necessary, so that the Fund's annual expenses do not exceed 0.90%
of its average daily net assets. For the six months ended April 30, 2000, ISI
waived fees of $49,537.
Investment Company Capital Corp. (ICCC) is the Fund's Administrator. As
compensation for its administrative services, the Fund pays ICCC an annual fee
based on combined assets of the ISI Funds calculated daily and paid monthly at
the following annual rates: 0.20% of the first $75 million, 0.15% of the next
$75 million, 0.10% of the next $75 million, 0.05% of the next $275 million, and
0.03% of the amount over $500 million.
Certain officers and directors of the Fund are also officers or directors
of ISI or ICCC.
ICCC also provides accounting services to the Fund for which the Fund pays
ICCC an annual fee that is calculated daily based upon its average daily net
assets and paid monthly. For the six months ended April 30, 2000, ICCC's fee was
$27,421, of which $4,499 was payable at the end of the period.
ICCC also provides transfer agency services to the Fund for which the Fund
pays ICCC a per account fee that is calculated and paid monthly. For the six
months ended April 30, 2000, ICCC's fee was $24,831, of which $3,614 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, pursuant to Rule 12b-1, 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. 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, 2000,
distribution fees aggregated $125,034. ISI group's fee was $84,526, of which
$13,582 was payable at the end of the period. ICC Distributor's fee was $40,508,
of which $6,696 was payable at the end of the period.
18
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTE 3 -- Capital Share Transactions
The Fund is authorized to issue up to 55 million shares of $.001 par value
capital stock (15 million Flag Investors Class A, 20 million ISI Class, 2.5
million Class B, 15 million Class C, 0.5 million Class D and 2 million
undesignated).
Transactions in shares of the Fund are listed below.
FLAG INVESTORS CLASS A SHARES
--------------------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
APRIL 30, 2000(1) OCTOBER 31, 1999
------------------ ----------------
Shares sold ............................... 222,913 490,026
Shares issued to shareholders on
reinvestment of dividends .............. 46,086 92,630
Shares redeemed ........................... (474,777) (590,052)
----------- -----------
Net decrease in shares outstanding ........ (205,778) (7,396)
=========== ===========
Proceeds from sale of shares .............. $ 2,257,587 $ 5,300,208
Value of reinvested dividends ............. 465,160 991,493
Cost of shares redeemed ................... (4,796,324) (6,335,561)
----------- -----------
Net decrease from capital share transactions $(2,073,577) $ (43,860)
=========== ===========
---------------
(1) Unaudited.
ISI CLASS SHARES
--------------------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
APRIL 30, 20001 OCTOBER 31, 1998
---------------- ----------------
Shares sold ................................ 70,594 261,822
Shares issued to shareholders on
reinvestment of dividends ............... 74,603 163,148
Shares redeemed ............................ (713,562) (786,574)
----------- ------------
Net decrease in shares outstanding ......... (568,365) (361,604)
=========== ============
Proceeds from sale of shares ............... $ 710,860 $ 2,797,892
Value of reinvested dividends .............. 752,771 1,747,918
Cost of shares redeemed .................... (7,190,584) (8,384,868)
----------- ------------
Net decrease from capital share transactions $(5,726,953) $ (3,839,058)
=========== ============
----------------
1 Unaudited.
19
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $8,681,400 and sales of investment securities aggregated $15,547,882
for the six month period ended April 30, 2000.
On April 30, 2000, aggregate net unrealized depreciation over tax cost for
portfolio securities was $2,066,528, of which $1,061,387 related to appreciated
securities and $3,127,915 related to depreciated securities.
NOTE 5 -- Net Assets
On April 30, 2000, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares ................................. $32,075,889
ISI Class Shares .............................................. 67,518,820
Distributions in excess of net investment income ................. (138,930)
Unrealized depreciation of investments ........................... (2,066,528)
Undistributed net realized loss from investment
transactions ................................................... (74,064)
-----------
$97,315,187
===========
20
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
EDWARD S. HYMAN
CHAIRMAN
R. ALAN MEDAUGH MARGARET M. BEELER
PRESIDENT ASSISTANT VICE PRESIDENT
JOSEPH R. HARDIMAN SUZANNE H. UGHETTA
DIRECTOR ASSISTANT VICE PRESIDENT
LOUIS E. LEVY KEITH C. REILLY
DIRECTOR ASSISTANT VICE PRESIDENT
CARL W. VOGT, ESQ. CHARLES A. RIZZO
DIRECTOR TREASURER
NANCY LAZAR FELICIA A. EMRY
VICE PRESIDENT SECRETARY
EDWARD J. VEILLEUX AMY M. OLMERT
VICE PRESIDENT ASSISTANT SECRETARY
CARRIE L. BUTLER DANIEL O. HIRSCH
VICE PRESIDENT ASSISTANT SECRETARY
INVESTMENT OBJECTIVE
A mutual fund designed to provide a high level of total return with relative
stability of principal and, secondarily, high current income exempt from federal
income tax through investment in a portfolio consisting primarily of tax-free
municipal obligations.
------------------------------------------------------------
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.
------------------------------------------------------------
<PAGE>
[Flag Investors logo omitted]
DOMESTIC EQUITY
Communications Fund
Emerging Growth Fund
Equity Partners Fund
Real Estate Securities Fund
Top 50 U.S.
Value Builder Fund
INTERNATIONAL EQUITY
European Mid-Cap Fund
International Equity Fund
Japanese Equity Fund
Top 50 Asia
Top 50 Europe
Top 50 World
FIXED INCOME
Managed Municipal Fund Shares
Short-Intermediate Income Fund
Total Return U.S. Treasury Fund Shares
MONEY MARKET
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
Distributed by:
ICC DISTRIBUTORS, INC.
MMSA(6/00)
