[Flag Investors logo omitted]
MANAGED MUNICIPAL
FUND SHARES
Annual Report
October 31, 2000
<PAGE>
PORTFOLIO DIVERSIFICATION BY STATE
[graphic omitted]
--------------------------------------------------------------------------------
STATE ALLOCATION
--------------------------------------------------------------------------------
% OF
MUNICIPAL
BONDS
------------
Texas 18.32%
North Carolina 17.32
Washington 8.75
Wisconsin 8.40
Minnesota 8.12
Virginia 4.96
Delaware 4.90
Kansas 4.85
Tennessee 4.76
Florida 4.67
South Carolina 3.13
Illinois 2.84
Utah 2.15
Missouri 1.96
Ohio 1.63
Indiana 1.62
Oregon 1.62
Total ------------
100.00%
--------------------------------------------------------------------------------
Average Maturity 12.1 years
Average Duration 8.1 years
Quality Breakdown:*
AAA 64.20%
AA 35.80%
--------------------------------------------------------------------------------
* As rated by Standard & Poor's as of October 31, 2000. Ratings are subject to
change in the future.
1
<PAGE>
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Dear Shareholder:
During a year when interest rates declined, the Fund recorded a total
return of 8.40%. From its inception on October 23, 1990 through October 31,
2000, the Fund has posted a cumulative total return of 85.60%, which translates
into an average annual total return of 6.40%. These figures assume the
reinvestment of dividends and capital gain distributions and exclude the impact
of any sales charge. Please review additional performance information on page 7.
REVIEW OF RATES AND PORTFOLIO MANAGEMENT
Long term Municipal interest rates fell 41 basis points, slightly less than
0.5%. Please see the graph below.
--------------------------------------------------------------------------------
[line graph omitted]
plot points as follows:
30 YEAR MUNICIPAL GENERAL OBLIGATIONS YIELD
10/29/99 5.86
11/05/99 5.8
11/12/99 5.71
11/19/99 5.7
11/26/99 5.72
12/03/99 5.75
12/10/99 5.72
12/17/99 5.82
12/24/99 5.86
12/31/99 5.86
01/07/00 5.91
01/14/00 5.94
01/21/00 5.97
01/28/00 6
02/04/00 5.96
02/11/00 5.95
02/18/00 5.9
02/25/00 5.88
03/03/00 5.85
03/10/00 5.81
03/17/00 5.75
03/24/00 5.7
03/31/00 5.62
04/07/00 5.57
04/14/00 5.6
04/21/00 5.63
04/28/00 5.7
05/05/00 5.81
05/12/00 5.93
05/19/00 5.96
05/26/00 5.93
06/02/00 5.85
06/09/00 5.78
06/16/00 5.68
06/23/00 5.66
06/30/00 5.66
07/07/00 5.62
07/14/00 5.57
07/21/00 5.55
07/28/00 5.53
08/04/00 5.5
08/11/00 5.47
08/18/00 5.47
08/25/00 5.44
09/01/00 5.45
09/08/00 5.44
09/15/00 5.48
09/22/00 5.52
09/29/00 5.54
10/06/00 5.55
10/13/00 5.55
10/20/00 5.49
10/27/00 5.45
--------------------------------------------------------------------------------
Source: ISI, Inc.
Throughout the year the Fund's portfolio maintained a fairly long average
maturity, typically within the 12-year range. Since rates fell during the year,
a long average maturity helped the Fund's total return. Active management was
required to keep the Fund long. The reason is that as rates fell, some of the
Fund's long maturities were shortened to their call date. Maturity lengthening
swaps during the year sold issues in the 10-year area and purchased issues in
the 15- to 20-year range. Maturity lengthening swaps were also done because of
the more attractive yield in the 20-year area than in the 10 year area. The
table on the following page shows that the 10-year municipal yield as a
percentage of US Treasury yields fell during the year from 84.40% in 1999 to
82.40% in 2000, while 20-year municipal yields rose as a percentage from 88.20%
to 90.10% for the same periods.
2
<PAGE>
--------------------------------------------------------------------------------
YIELD ON AAA MUNICIPAL GOS
AS A % OF US TREASURY YIELDS (YEAR ENDING OCTOBER)*
--------------------------------------------------------------------------------
Maturity % of Comparable Treasury
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000
5 Year 72.4 72.3 85.6 77.1 77.3
10 Year 77.3 78.2 90.3 84.4 82.4
20 Year 81.7 81.1 91.0 88.2 90.1
30 Year 83.4 83.1 93.4 93.2 92.5
--------------------------------------------------------------------------------
*Source: Bloomberg
HISTORICAL YIELD SPREAD OF 30 YEAR AAA AND BAA SECURITIES
As the economy moved from extremely fast growth to a slower pace recently,
credit quality spreads opened by 20 basis points. Please see the chart below.
The current credit quality spread of 54 basis points between AAA and BAA ratings
is still relatively narrow. For example, during the 1994 economic slowdown the
same quality spread moved out to the high 60's. The Fund's investing criteria is
set at AA or better for issues in the portfolio. The Fund would benefit, at
least on a relative basis, if quality spreads continue to open.
--------------------------------------------------------------------------------
[line graph omitted]
plot points as follows:
10/29/99 32
11/05/99 34
11/12/99 41
11/19/99 44
11/26/99 37
12/03/99 39
12/10/99 38
12/17/99 35
12/24/99 39
12/31/99 39
01/07/00 39
01/14/00 39
01/21/00 38
01/28/00 37
02/04/00 40
02/11/00 43
02/18/00 48
02/25/00 50
03/03/00 50
03/10/00 52
03/17/00 55
03/24/00 56
03/31/00 62
04/07/00 63
04/14/00 52
04/21/00 50
04/28/00 50
05/05/00 50
05/12/00 45
05/19/00 47
05/26/00 45
06/02/00 47
06/09/00 53
06/16/00 55
06/23/00 57
06/30/00 57
07/07/00 52
07/14/00 58
07/21/00 55
07/28/00 58
08/04/00 59
08/11/00 58
08/18/00 55
08/25/00 55
09/01/00 50
09/08/00 51
09/15/00 50
09/22/00 47
09/29/00 49
10/06/00 48
10/13/00 47
10/20/00 49
10/27/00 54
--------------------------------------------------------------------------------
Source: ISI, Inc.
ISI expects the level of interest rates to trend lower, after the typical
early year seasonal burst of economic growth. Please see ISI's Economic Outlook
that follows this letter for more details.
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
President
November 21, 2000
3
<PAGE>
ECONOMIC OUTLOOK FOR 2001 -- AS OF OCTOBER 31, 2000
--------------------------------------------------------------------------------
OVERVIEW
ISI expects Treasury and high quality Municipal bond interest rates to
decrease over the next year producing capital gains for long maturity issues.
The major reason is slowing US and global growth. Since 1996, swings in consumer
spending have become sensitive to swings in stock prices. In this light, perhaps
the most important recent economic development is the weakness in stock prices.
Week by week, it is becoming clearer that both US and foreign growth rates are
slowing. The forces that are associated with this slowdown also tend to indicate
the pace of future growth. So we feel further slowing is likely. For example,
the correlation between growth and oil has been that oil leads the economy by 12
months. The correlation is a negative one (ie, higher oil prices reduce economic
growth). Likewise, for the seven largest industrialized countries, the US,
Japan, Great Britain, France, Germany, Italy and Canada (the G-7), interest rate
changes have led the economy also by 12 months. For example, G7 short rates hit
a low in early 1999 and G7 industrial production gains peaked a year later.
Recently, G7 short rates hit a new high, suggesting that the weakest G7
industrial production readings won't be seen until at least this time next year.
The global technology slowdown, which is starting to unfold and starting to slow
global growth, is for some months likely to feed on itself, as well as feed on
and reinforce the global slowdown.
To be sure, there are positives for growth including world trade, consumer
confidence, and fiscal stimulus. However, these positives are losing to the
forces outlined above. There are also a host of other forces including a zero
savings rate, an unusually large number (given a booming economy) of company
earnings warnings (ie, Kmart, Office Depot, Dell and Disney), a rising level of
corporate bankruptcies and a slowing in bank lending. There is now political
uncertainty, in the US, which may hurt the economy to the extent it hurts the
stock market.
THE US ECONOMY
Evidence of slower US growth includes ISI's company surveys, unemployment
claims (which recently hit a two-year high), scrap steel prices (hit a 14-year
low) (See graph on next page), and computer chip prices hit a record low (down
56% in just 17 weeks). In addition, stock analysts' fourth quarter estimates for
S&P 500 operating earnings have shed 4.2 points since the start of the quarter
from 15.6% to 11.4%, the sharpest drop since 1998's weak third quarter. At this
year's fourth quarter pace of estimates cuts, the final result would end up
around 5%, down significantly from the optimism of few months ago.
4
<PAGE>
--------------------------------------------------------------------------------
[line graph omitted]
plot points as follows:
SCRAP STEEL PRICE*
31-Jan-85 93
128-Feb-85 95
29-Mar-85 90
30-Apr-85 84
31-May-85 70
28-Jun-85 67
31-Jul-85 75
30-Aug-85 83
30-Sep-85 80
31-Oct-85 74
29-Nov-85 80
31-Dec-85 85
31-Jan-86 83
28-Feb-86 80
31-Mar-86 75
30-Apr-86 72
30-May-86 70
30-Jun-86 70
31-Jul-86 70
29-Aug-86 74
30-Sep-86 71
31-Oct-86 71
28-Nov-86 71
31-Dec-86 73
30-Jan-87 75
27-Feb-87 79
31-Mar-87 75
30-Apr-87 77
29-May-87 80
30-Jun-87 83.5
31-Jul-87 84.5
31-Aug-87 92.5
30-Sep-87 117.5
30-Oct-87 121
30-Nov-87 109
31-Dec-87 100
1-Feb-88 121.5
29-Feb-88 119
31-Mar-88 119
29-Apr-88 118
31-May-88 113
30-Jun-88 117.5
29-Jul-88 122.5
31-Aug-88 120
30-Sep-88 125
31-Oct-88 125
30-Nov-88 113
30-Dec-88 113
31-Jan-89 121.5
28-Feb-89 123
31-Mar-89 115.5
28-Apr-89 120
31-May-89 118
30-Jun-89 114.5
31-Jul-89 109
31-Aug-89 109
29-Sep-89 106.5
31-Oct-89 98
30-Nov-89 98.5
29-Dec-89 106.5
31-Jan-90 103.5
28-Feb-90 103.5
30-Mar-90 106.5
30-Apr-90 111.5
31-May-90 118
29-Jun-90 114.5
31-Jul-90 119.5
31-Aug-90 118
28-Sep-90 115.5
31-Oct-90 110.5
30-Nov-90 107
31-Dec-90 106
31-Jan-91 104.5
28-Feb-91 104
29-Mar-91 102
30-Apr-91 95
31-May-91 95
28-Jun-91 89
31-Jul-91 94
30-Aug-91 94
30-Sep-91 97
31-Oct-91 94
29-Nov-91 94
31-Dec-91 94
31-Jan-92 89.5
28-Feb-92 89.5
31-Mar-92 89.5
30-Apr-92 94
29-May-92 92
30-Jun-92 90
31-Jul-92 88.5
31-Aug-92 86.5
30-Sep-92 90.5
30-Oct-92 89.5
30-Nov-92 89
31-Dec-92 92.5
29-Jan-93 99.5
26-Feb-93 109.5
31-Mar-93 108.5
30-Apr-93 106.5
31-May-93 106.5
30-Jun-93 115
30-Jul-93 118.5
31-Aug-93 112.5
30-Sep-93 112.5
29-Oct-93 131.5
30-Nov-93 137.5
31-Dec-93 139.5
31-Jan-94 139.5
28-Feb-94 139.5
31-Mar-94 139.5
29-Apr-94 135
31-May-94 122.5
30-Jun-94 111.5
29-Jul-94 117.5
31-Aug-94 134.5
30-Sep-94 134.5
31-Oct-94 133.5
30-Nov-94 140
30-Dec-94 144
31-Jan-95 147
28-Feb-95 142.5
31-Mar-95 137.5
28-Apr-95 137.5
31-May-95 141.5
30-Jun-95 140.5
31-Jul-95 140.5
31-Aug-95 146.5
29-Sep-95 143.5
31-Oct-95 138.5
30-Nov-95 134.5
29-Dec-95 135
31-Jan-96 144.5
29-Feb-96 144.5
29-Mar-96 139
30-Apr-96 139.5
31-May-96 141.5
28-Jun-96 138.5
31-Jul-96 134
30-Aug-96 136.5
30-Sep-96 136.5
31-Oct-96 126.5
29-Nov-96 116.5
31-Dec-96 116.5
31-Jan-97 131
28-Feb-97 146
31-Mar-97 136.5
30-Apr-97 133.5
30-May-97 134.5
30-Jun-97 138.5
31-Jul-97 143.5
29-Aug-97 146.5
30-Sep-97 137.5
31-Oct-97 139.5
28-Nov-97 143.5
31-Dec-97 143.5
30-Jan-98 145.5
27-Feb-98 140
31-Mar-98 135.5
30-Apr-98 133.5
29-May-98 135.5
30-Jun-98 135.5
31-Jul-98 130.5
31-Aug-98 120.5
30-Sep-98 107.5
30-Oct-98 84.5
30-Nov-98 78.5
31-Dec-98 76.5
1-Jan-99 76.5
29-Jan-99 91.5
26-Feb-99 101.5
31-Mar-99 90.5
30-Apr-99 90.5
31-May-99 100.5
30-Jun-99 104.5
30-Jul-99 100.5
31-Aug-99 106.5
30-Sep-99 106.5
29-Oct-99 106.5
30-Nov-99 113.5
31-Dec-99 120.5
31-Jan-00 120.5
29-Feb-00 110.5
31-Mar-00 110.5
28-Apr-00 108.5
31-May-00 101.5
30-Jun-00 93.5
31-Jul-00 91.5
31-Aug-00 92.5
29-Sep-00 92.5
31-Oct-00 79.5
--------------------------------------------------------------------------------
POLITICS
The election gave neither party a mandate. From a legislation-passing point
of view, the House and Senate are deadlocked. Political gridlock seems the most
likely result. The bond market enjoyed many aspects of the 1990's gridlock,
especially the budget surplus outcome. The markets seem to be emphasizing the
positive aspects of a political standoff. It is possible that the result could
also be a something-for-everyone budget. The spending surge and tax cuts that
resulted during the 1980's gridlock could be the precedent for a big budget
outcome in 2001 and beyond. Politics has the ability to both help and hurt
interest rates in the coming year.
THE GLOBAL ECONOMY
ISI keeps tabs on the world growth picture by surveying economic reports
from 35 countries, and labeling each report as a sign of strength or weakness.
It clearly declined in recent weeks. Please see the chart on the following page.
Recent evidence of slower growth abroad includes weaker German
manufacturing orders, a downgrade of Korean growth prospects, slower Japanese
money growth, and more deflation for Japan's domestic Wholesale Price Index.
Another overall indicator, the world Leading Economic Indicator (LEI) for
September 2000, is now up just 2.1% year-to-year, well down from its late-1999
peak of 5.8%. The world LEI leads G7 activity by roughly six-months.
5
<PAGE>
ECONOMIC OUTLOOK FOR 2001 (CONCLUDED)
--------------------------------------------------------------------------------
[line graph omitted]
plot points as follows
GLOBAL STRENGTH/WEAKNESS 1 (1/2/95-11/13/00)
THIRTEEN WEEK AVERAGE
2 JAN 95 13.2
9 JAN 95 12.5
16 JAN 95 11.4
23 JAN 95 10.5
30 JAN 95 9.5
6 FEB 95 9.3
13 FEB 95 9.4
20 FEB 95 9.8
27 FEB 95 11.2
6 MAR 95 10.5
13 MAR 95 9.2
20 MAR 95 9.7
27 MAR 95 10.3
3 APR 95 8.7
10 APR 95 9.2
17 APR 95 8.5
24 APR 95 7.4
1 MAY 95 7.2
8 MAY 95 5.2
15 MAY 95 4.4
22 MAY 95 1.8
29 MAY 95 -1.4
5 JUN 95 -3.5
12 JUN 95 -3.5
19 JUN 95 -3.8
26 JUN 95 -3.1
3 JUL 95 -3.9
10 JUL 95 -3.8
17 JUL 95 -2.8
24 JUL 95 -3.6
31 JUL 95 -4.8
7 AUG 95 -4.5
14 AUG 95 -3.8
21 AUG 95 -2.7
28 AUG 95 -2.5
4 SEP 95 -1.3
11 SEP 95 -0.6
18 SEP 95 -1
25 SEP 95 -2.7
2 OCT 95 -2.6
9 OCT 95 -4.8
16 OCT 95 -5.3
23 OCT 95 -5.5
30 OCT 95 -5.6
6 NOV 95 -4.5
13 NOV 95 -5.5
20 NOV 95 -6.2
27 NOV 95 -5.5
4 DEC 95 -6.3
11 DEC 95 -7.5
18 DEC 95 -8.1
25 DEC 95 -6.3
1 JAN 96 -5.8
8 JAN 96 -4.8
15 JAN 96 -5.8
22 JAN 96 -6.5
29 JAN 96 -6.1
5 FEB 96 -5.9
12 FEB 96 -7
19 FEB 96 -5.2
26 FEB 96 -4.2
4 MAR 96 -2.8
11 MAR 96 -3.1
18 MAR 96 -3.6
25 MAR 96 -5.5
1 APR 96 -6.8
8 APR 96 -6.7
15 APR 96 -5.4
22 APR 96 -4.5
29 APR 96 -3.9
6 MAY 96 -3.6
13 MAY 96 -2.6
20 MAY 96 -4.3
27 MAY 96 -3.2
3 JUN 96 -3.8
10 JUN 96 -2
17 JUN 96 -1.5
24 JUN 96 -0.8
1 JUL 96 -0.6
8 JUL 96 -0.2
15 JUL 96 -0.1
22 JUL 96 -0.2
29 JUL 96 -1.8
5 AUG 96 -2.8
12 AUG 96 -3
19 AUG 96 -2.7
26 AUG 96 -2.7
2 SEP 96 -3.2
9 SEP 96 -0.9
16 SEP 96 -0.8
23 SEP 96 -0.1
30 SEP 96 0.2
7 OCT 96 0.5
14 OCT 96 -0.2
21 OCT 96 0.3
28 OCT 96 2.2
4 NOV 96 2.5
11 NOV 96 2.8
18 NOV 96 4.8
25 NOV 96 5.9
2 DEC 96 8.1
9 DEC 96 5.8
16 DEC 96 5.9
23 DEC 96 5.2
30 DEC 96 6.9
6 JAN 97 6.2
13 JAN 97 6.6
20 JAN 97 6.5
27 JAN 97 6.1
3 FEB 97 5.8
10 FEB 97 7.5
17 FEB 97 7.3
24 FEB 97 5.2
3 MAR 97 6
10 MAR 97 6
17 MAR 97 8
24 MAR 97 9.4
31 MAR 97 9.1
7 APR 97 9.4
14 APR 97 8.2
21 APR 97 7.9
28 APR 97 6.9
5 MAY 97 5.4
12 MAY 97 4.5
19 MAY 97 2.8
26 MAY 97 2.9
2 JUN 97 1.2
9 JUN 97 0.6
16 JUN 97 -0.9
23 JUN 97 -1.8
30 JUN 97 -2.2
7 JUL 97 -1.8
14 JUL 97 0.8
21 JUL 97 0.8
28 JUL 97 3.8
4 AUG 97 6.9
11 AUG 97 8.7
18 AUG 97 9.4
25 AUG 97 10.4
1 SEP 97 12.5
8 SEP 97 12.8
15 SEP 97 13.2
22 SEP 97 13.2
29 SEP 97 14.2
6 OCT 97 14.1
13 OCT 97 14.7
20 OCT 97 14.5
27 OCT 97 12.3
3 NOV 97 10.2
10 NOV 97 9.8
17 NOV 97 9.4
24 NOV 97 8.7
1 DEC 97 6.7
8 DEC 97 6.5
15 DEC 97 6.3
22 DEC 97 5.3
29 DEC 97 3.3
5 JAN 98 1.9
12 JAN 98 0.2
19 JAN 98 2.3
26 JAN 98 2.8
2 FEB 98 2.1
9 FEB 98 1.2
16 FEB 98 -0.4
23 FEB 98 -1.7
2 MAR 98 -1
9 MAR 98 -1.7
16 MAR 98 -2
23 MAR 98 -2.9
30 MAR 98 -1.8
6 APR 98 -2.1
13 APR 98 -1.4
20 APR 98 -3.4
27 APR 98 -3.2
4 MAY 98 -1.4
11 MAY 98 -1.5
18 MAY 98 -0.5
25 MAY 98 -1.5
1 JUN 98 -3.5
8 JUN 98 -2.5
15 JUN 98 -4.9
22 JUN 98 -6.2
29 JUN 98 -7.7
6 JUL 98 -8.9
13 JUL 98 -10.2
20 JUL 98 -10.8
27 JUL 98 -11.5
3 AUG 98 -12.1
10 AUG 98 -12.5
17 AUG 98 -13.6
24 AUG 98 -12.8
31 AUG 98 -12.7
7 SEP 98 -14.5
14 SEP 98 -10.8
21 SEP 98 -9.2
28 SEP 98 -8.5
5 OCT 98 -8.9
12 OCT 98 -8.8
19 OCT 98 -9
26 OCT 98 -9.7
2 NOV 98 -10.5
9 NOV 98 -11.5
16 NOV 98 -10.5
23 NOV 98 -11.5
30 NOV 98 -11.5
7 DEC 98 -11.5
14 DEC 98 -13.7
21 DEC 98 -11.8
28 DEC 98 -12
4 JAN 99 -9
11 JAN 99 -7.2
18 JAN 99 -5.8
25 JAN 99 -4.6
1 FEB 99 -2.2
8 FEB 99 1.2
15 FEB 99 1.3
22 FEB 99 2.1
1 MAR 99 3.9
8 MAR 99 5.6
15 MAR 99 7
22 MAR 99 5
29 MAR 99 6.1
5 APR 99 5.8
12 APR 99 5.8
19 APR 99 5.8
26 APR 99 7.2
3 MAY 99 8.2
10 MAY 99 6.8
17 MAY 99 7.1
24 MAY 99 9.8
31 MAY 99 7.8
7 JUN 99 8.2
14 JUN 99 8.9
21 JUN 99 10.2
28 JUN 99 10.2
5 JUL 99 11.8
12 JUL 99 12.6
19 JUL 99 12.8
26 JUL 99 13.5
2 AUG 99 13.5
9 AUG 99 14.5
16 AUG 99 16.2
23 AUG 99 14.9
30 AUG 99 15.6
6 SEP 99 15.2
13 SEP 99 14.9
20 SEP 99 14.9
27 SEP 99 16.4
4 OCT 99 16.4
11 OCT 99 16.8
18 OCT 99 17.3
25 OCT 99 16.4
1 NOV 99 14.1
8 NOV 99 11.7
15 NOV 99 11.6
22 NOV 99 11.3
29 NOV 99 12.6
6 DEC 99 12.5
13 DEC 99 14.3
20 DEC 99 15.2
27 DEC 99 16
3 JAN 0 16.9
10 JAN 0 16.3
17 JAN 0 17.9
24 JAN 0 18.8
31 JAN 0 18.8
7 FEB 0 20.4
14 FEB 0 21.3
21 FEB 0 23
28 FEB 0 23.8
6 MAR 0 27
13 MAR 0 27.2
20 MAR 0 27.1
27 MAR 0 27.3
3 APR 0 26.1
10 APR 0 26.6
17 APR 0 25.2
24 APR 0 24.2
1 MAY 0 23.8
8 MAY 0 23.5
15 MAY 0 21.7
22 MAY 0 22.2
29 MAY 0 20.1
5 JUN 0 15
12 JUN 0 13.1
19 JUN 0 12.5
26 JUN 0 10.4
3 JUL 0 10.3
10 JUL 0 9.5
17 JUL 0 8
24 JUL 0 7.9
31 JUL 0 9.6
7 AUG 0 9.2
14 AUG 0 9.5
21 AUG 0 8
28 AUG 0 8.5
4 SEP 0 8.2
11 SEP 0 8.5
18 SEP 0 7.8
25 SEP 0 6.4
2 OCT 0 8.2
9 OCT 0 6.8
16 OCT 0 7.9
23 OCT 0 7.4
30 OCT 0 5.5
6 NOV 0 3.6
13 NOV 0 1.8
--------------------------------------------------------------------------------
INFLATION
With global growth slowing and a number of US inflation indicators rolling
over, odds are inflation is headed lower, particularly if oil has peaked.
Manufacturing unit labor costs were down a stunning 0.6% month-to-month in
September and 3.0% year-to-year (September-September). Consumer inflation
expectations have slowed from a peak of 3.2% to 2.8% in November (University of
Michigan Inflation Expectation survey). In addition, the trade weighted dollar
has remained firm, and gold has continued to trade below $270/ounce.
6
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the performance of
the Fund to that of an appropriate market index. This graph measures the growth
of a $10,000 hypothetical investment from the Fund's inception date through the
end of the most recent fiscal year-end. The SEC also requires that we report the
Fund's total return according to a standardized formula, for various time
periods through the end of the most recent fiscal year.
Both the line graph and the SEC standardized total return figures include
the impact of the 4.50% maximum 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.
While the graphs and the total return figures are required by SEC rules,
such comparisons are of limited utility since the total return of the Fund 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 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.
7
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES1
OCTOBER 23, 1990 -- OCTOBER 31, 2000
[graph omitted]
plot points as follows
Flag Investors Lehman Bros. Lehman Bros. Consumer Price
Managed Municipal General Obligation Prerefunded Index (CPI)
Fund Shares Index (G.O.) Municipal Index
10/90 9550 10000 10000 10000
10/91 10715 11125 11007 10293
10/92 11364 12032 11889 10621
10/93 12996 13654 13116 10913
10/94 12152 13172 12919 11198
10/95 14025 14996 14282 11513
10/96 14680 15826 14938 11857
10/97 15770 17141 15879 12104
10/98 16196 18511 16811 12284
10/99 16348 18279 17117 12598
10/00 17728 19754 17087 13031
AVERAGE ANNUAL TOTAL RETURN1
--------------------------------------------------------------------------------
PERIODS ENDED 10/31/00 1-YEAR 5-YEARS 10-YEARS SINCE INCEPTION3
---------------------- ------ ------- -------- ----------------
Class A Shares 3.56% 3.84% 5.77% 5.88%
--------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. These figures assume the
reinvestment of dividend and capital gain distributions and include the
Fund's maximum 4.50% sales charge. Performance would have been lower during
the specified period if certain fees and expenses had not been waived by the
Fund.
2 The Lehman Brothers General Obligation Index reflects general municipal
market performance. The Lehman Brothers Prerefunded Municipal Index is a
better indicator of the Fund's performance due to its higher quality
characteristics. These indices are passive measurements of municipal bond
performance. They do not factor in the costs of buying, selling and holding
securities -- costs that are reflected in the Fund's results. The Consumer
Price Index is a widely used measure of inflation. Benchmark returns are for
the period beginning on October 31, 1990.
3 10/23/90.
8
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
RATING* PAR MARKET
ISSUER (MOODY'S/S&P) (000) VALUE
--------------------------------------------------------------------------------
--------------------------
MUNICIPAL BONDS -- 97.15%
--------------------------
GENERAL OBLIGATIONS -- 70.79%
Arlington County, VA
5.00%, 10/1/14 Aaa/AAA $2,000 $ 1,986,460
Arlington, TX, School District
5.75%, 2/15/21 Aaa/NR 1,465 1,476,456
Charlotte, NC
5.30%, 4/1/12 Aaa/AAA 1,120 1,155,190
5.00%, 2/1/19 Aaa/AAA 2,300 2,172,948
Chesterfield County, VA
5.625%, 1/15/14 Aaa/AAA 1,350 1,409,508
Dallas, TX
5.00%, 2/15/13 Aaa/AAA 1,755 1,730,483
Delaware State, Series A
5.125%, 4/1/16 Aaa/AAA 2,150 2,135,186
5.50%, 4/1/19 Aaa/AAA 2,500 2,527,325
Dupage County, IL, Jail Project
5.60%, 1/1/21 Aaa/AAA 1,600 1,627,040
Florida Board of Education
6.125%, 6/1/12 Aa2/AA+ 2,250 2,318,085
Franklin County, OH
5.45%, 12/1/09 Aaa/AAA 1,500 1,547,550
Grand Prairie, TX, School District
5.20%, 2/15/18 Aaa/AAA 2,000 1,931,920
Guilford County, NC
5.25%, 10/1/16 Aa1/ AAA 3,000 2,987,040
King County, WA
5.20%, 12/1/15 Aa1/AA+ 2,500 2,475,175
5.00%, 12/1/17 Aa1/AA+ 2,565 2,435,416
Metropolitan Government Nashville &
Davidson County, TN, Series A
5.125%, 11/15/19 Aa2/AA 2,000 1,899,680
Minneapolis, MN Ref, Series B
5.20%, 3/1/13 Aaa/AAA 3,200 3,226,400
Minnesota State
5.00%, 11/1/14 Aaa/AAA 2,500 2,480,125
5.50%, 6/1/18 Aaa/AAA 2,000 2,014,700
9
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
RATING* PAR MARKET
ISSUER (MOODY'S/S&P) (000) VALUE
--------------------------------------------------------------------------------
------------------------------
MUNICIPAL BONDS (CONTINUED)
------------------------------
GENERAL OBLIGATIONS (CONCLUDED)
Missouri State, Series A
5.00%, 6/1/23 Aaa/AAA $2,000 $ 1,863,660
North Carolina Public Improvement,
Series A
5.10%, 9/1/17 Aaa/AAA 3,000 2,933,490
North Carolina Public School Building
4.60%, 4/1/17 Aaa/AAA 5,000 4,504,300
North Carolina State Public
Improvement, Series A
5.25%, 3/1/16 Aaa/AAA 1,170 1,171,135
Portland, OR, Metro Regional
Government Utility
5.25%, 9/1/07 Aa2/AA+ 1,500 1,537,800
Salt Lake County, UT
5.25%, 12/15/10 Aaa/AAA 2,000 2,039,420
South Carolina Capital Improvement
5.65%, 7/1/21 Aaa/AAA 1,260 1,275,511
South Carolina State, State Institutional,
Series A
5.30%, 3/1/17 Aaa/ AAA 1,700 1,700,731
Virginia State
5.25%, 6/1/16 Aaa/AAA 1,320 1,322,653
Washington State, Series A
5.60%, 7/1/10 Aa1/AA+ 1,500 1,555,050
Washington State, Series E
5.00%, 7/1/22 Aa1/AA+ 2,000 1,857,420
Wisconsin State, Series C
5.55%, 5/1/21 Aa2/AA 2,700 2,703,942
Wisconsin State, Series 1
5.00%, 5/1/15 Aa2/AA 1,000 971,780
Wisconsin State, Series B
5.00%, 5/1/16 Aa2/AA 3,500 3,365,635
5.00%, 5/1/18 Aa2/AA 1,000 942,120
-----------
69,281,334
-----------
10
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
RATING* PAR MARKET
ISSUER (MOODY'S/S&P) (000) VALUE
--------------------------------------------------------------------------------
-----------------------------
MUNICIPAL BONDS (CONCLUDED)
-----------------------------
OTHER REVENUE -- 4.31%
Charlotte, NC, Water & Sewer System
Revenue
5.25%, 6/1/24 Aa1/AA+ $1,600 $ 1,545,376
Texas Water Development Board Revenue
4.75%, 7/15/20 Aaa/AAA 3,000 2,671,470
-----------
4,216,846
-----------
PREREFUNDED ISSUES -- 17.33%
Arlington, TX, School District
5.75%, 2/15/21 Aaa/NR 3,535 3,695,524
Chicago, IL, Metropolitan Water
Reclamation District-Greater Chicago
6.30%, 12/1/09 Aa1/AA 1,000 1,076,700
Dallas, TX
5.00%, 2/15/10 Aaa/AAA 1,750 1,778,893
Florida Transportation
5.80%, 7/1/18 Aa2/AAA 2,000 2,121,860
Indianapolis, IN, Public Improvement
Board Revenue
6.00%, 1/10/18 Aaa/AAA 1,500 1,537,740
Lower Colorado River Authority, Jr. Lien
5.25%, 1/1/15 #AAA/AAA 2,000 2,017,780
Tennessee State
5.50%, 3/1/09 Aa1/AA+ 1,535 1,588,618
5.55%, 3/1/10 Aa1/AA+ 1,000 1,036,870
Texas State
6.00%, 10/1/14 Aa1/AA 2,000 2,110,680
-----------
16,964,665
-----------
TRANSPORTATION REVENUE -- 4.71%
Kansas Transportation
5.40%, 3/1/09 Aa2/AA+ 4,500 4,609,485
-----------
Total Municipal Bonds
(Cost $94,386,769) 95,072,330
-----------
11
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
MARKET
ISSUER VALUE
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.57%
Goldman Sachs & Co., 6.50% Dated 10/31/00,
to be repurchased for $1,538,278 on
11/01/00, collateralized by US Treasury
Bonds with a market value of
$1,569,669
6.50%, due 2/15/10 (cost $1,538,000) $ 1,538,000
-----------
TOTAL INVESTMENTS -- 98.72%
(Cost $95,924,769) 96,610,330
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.28% 1,255,885
-----------
NET ASSETS -- 100.00% $97,866,215
===========
-------------------------------------------------------------
* The Moody's and Standard & Poor's ratings indicated are believed to be
the most recent ratings available as of October 31, 2000.
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 US government obligations or
non-callable obligations.
NR Not rated.
S&P Municipal Bond Ratings:
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.
12
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
FOR THE
YEAR ENDED
OCTOBER 31,
--------------------------------------------------------------------------------
2000
Assets:
Investments, at value (cost $95,924,769) $96,610,330
Cash 1,262
Receivable for shares of beneficial interest subscribed 19,791
Dividend and interest receivable 1,375,749
Prepaid expenses and other 13,361
-----------
Total assets 98,020,493
-----------
Liabilities:
Payable for shares of beneficial interest redeemed 17,877
Dividend payable 2,005
Accrued expenses and other 134,396
-----------
Total liabilities 154,278
-----------
Net assets 97,866,215
-----------
Composition of Net Assets:
Paid-in capital $97,182,659
Net unrealized appreciation on investments 685,561
Distributions in excess of net investment income (2,005)
-----------
Net assets $97,866,215
-----------
Net Asset Value Per Share:
Flag Investors Class A Shares ($32,632,712 / 3,115,495 shares) $10.47
======
ISI Shares ($65,233,503 / 6,228,058 shares) $10.47
======
Maximum Offering Price Per Share:
Flag Investors Class A Shares ($10.47 / 0.955) $10.96
======
ISI Shares ($10.47 / 0.9555) $10.96
======
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED
OCTOBER 31,
--------------------------------------------------------------------------------
2000
Investment Income:
Interest $5,436,890
----------
Expenses:
Investment advisory fee 395,814
Distribution fees:
Flag Investors Class A Shares 81,344
ISI Shares 166,171
Administration fee 98,598
Accounting fee 54,825
Professional fees 54,765
Transfer agent fee 46,902
Registration fees 45,124
Shareholder reporting fees 33,138
Custody fees 17,029
Directors' fees 12,198
Miscellaneous 1,742
----------
Total expenses 1,007,650
----------
Less: Fees waived (113,361)
----------
Net expenses 894,289
----------
Net investment income $4,542,601
----------
Net Realized and Unrealized Gain on Investments:
Net realized gain from investment transactions 67,399
Change in unrealized appreciation/depreciation of investments 3,311,467
----------
Net gain on investments 3,378,866
----------
Net Increase in Net Assets Resulting from Operations $7,921,467
==========
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 4,542,601 $ 4,818,088
Net realized gain from investment transactions 67,399 547,939
Change in unrealized appreciation/depreciation
of investments 3,311,467 (9,251,142)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 7,921,467 (3,885,115)
------------ ------------
Dividends to Shareholders from:
Net investment income and net realized
short-term gains:
Flag Investors Class A Shares (1,530,863) (1,600,162)
ISI Shares (3,126,335) (3,369,957)
Net realized long-term gains (losses):
Flag Investors Class A Shares -- (151,301)
ISI Shares -- (312,768)
------------ ------------
Total distributions (4,657,198) (5,434,188)
------------ ------------
Capital Shares Transactions:
Proceeds from sale of shares 4,455,442 8,098,100
Value of shares issued in reinvestment
of dividends 2,378,853 2,739,411
Cost of shares repurchased (16,990,749) (14,720,429)
------------ ------------
Decrease in net assets derived from capital
share transactions (10,156,454) (3,882,918)
------------ ------------
Total decrease in net assets (6,892,185) (13,202,221)
Net Assets:
Beginning of year 104,758,400 117,960,621
------------ ------------
End of year including distributions in excess of
net investment income of $(2,005) and
$(10,935), respectively $ 97,866,215 $104,758,400
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 10.12 $ 11.01 $ 10.79 $ 10.58 $ 10.65
------- ------- ------- -------- -------
Income from Investment Operations:
Net investment income 0.47 0.45 0.46 0.52 0.48
Net realized and unrealized gain (loss) on investments 0.36 (0.83) 0.33 0.24 --
------- ------- ------- -------- -------
Total from investment operations 0.83 (0.38) 0.79 0.76 0.48
------- ------- ------- -------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.48) (0.47) (0.54) (0.52) (0.54)
Distributions from net realized long-term gains -- (0.04) (0.03) (0.03) (0.01)
------- ------- ------- -------- -------
Total distributions (0.48) (0.51) (0.57) (0.55) (0.55)
------- ------- ------- -------- -------
Net asset value at end of year $ 10.47 $ 10.12 $ 11.01 $ 10.79 $ 10.58
======= ======= ======= ======== =======
Total return1 8.44% (3.61)% 7.51% 7.43% 4.67%
Ratios to Average Daily Net Assets:
Expenses2 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income3 4.60% 4.23% 4.24% 4.46% 4.48%
Supplemental Data:
Net assets at end of year (000s):
Flag Investors Class A Shares $32,633 $34,150 $37,212 $38,390 $41,193
ISI Shares $65,233 $70,609 $80,749 $79,003 $84,712
Portfolio turnover rate 22% 8% 18% 26% 32%
</TABLE>
--------------------------------------
1 Total return excludes the effect of sales charge.
2 Without the waiver of advisory and administration fees (Note 2), the ratio
of expenses to average daily net assets would have been 1.01%, 1.10%, 1.13%,
1.10% and 1.13% for the years ended October 31, 2000, 1999,1998, 1997 and
1996, respectively.
3 Without the waiver of advisory and administration fees (Note 2), the ratio
of net investment income to average daily net assets would have been 4.49%,
4.03%, 4.01%, 4.26% and 4.25% for the years ended October 31, 2000, 1999,
1998, 1997 and 1996, respectively.
16-17
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND 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 exempt from federal income tax through
investment in a portfolio consisting primarily of tax-free municipal
obligations.
The Fund consists of two share classes: Flag Investors Managed Municipal
Fund Class A Shares ("Flag Investors Class A Shares"), which began operations
October 23, 1990 and ISI Managed Municipal Fund Shares ("ISI Shares"), which
began operations February 26, 1990.
The Flag Investors Class A Shares have a 4.50% maximum front-end sales
charge and ISI Class Shares have a 4.45% 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. VALUATION OF SECURITIES -- 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 October 31, 2000 there were no Board
18
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 (CONCLUDED)
Valued Securities. The Fund values short-term obligations with
maturities of 60 days or less at amortized cost which approximates fair
market value.
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. SECURITIES TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER --
The Fund uses the trade date to account for securities 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.
19
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 year ended October
31,2000, ISI's fee was $395,814, of which $33,004 was payable at October 31,
2000.
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.
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. For the year ended October 31, 2000,
ICCC's fee was $98,598, of which $8,141 was payable at October 31, 2000.
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 and paid monthly based upon its
average daily net assets. For the year ended October 31, 2000, ICCC's fee was
$54,825, of which $4,615 was payable at October 31, 2000.
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 year
ended October 31, 2000, ICCC's fee was $46,902, of which $2,411 was payable at
October 31, 2000.
ISI Group, Inc. ("ISI Group"), which is affiliated with ISI, provides
distribution services for the ISI Shares 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 Shares' average daily net assets. For the
year ended October 31, 2000,ISI's fee was $166,171, of which $13,782 was payable
at October 31, 2000.
20
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 2 (CONCLUDED)
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 year ended
October 31, 2000, ICC's fee was $81,344, of which $6,882 was payable at October
31, 2000.
NOTE 3 -- CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to 55 million shares of $.001 par value
capital stock (20 million ISI, 15 million Flag Investors Class A, 2.5 million
Flag Investors Class B, 15 million Flag Investors Class C, 0.5 million Flag
Investors Class D and 2 million undesignated). Transactions in shares of the
Fund are listed below.
FLAG INVESTORS CLASS A SHARES
--------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
----------------- ----------------
Shares sold 279,723 490,026
Shares issued to shareholders on
reinvestment of dividends 92,271 92,630
Shares redeemed (630,393) (590,052)
----------- -----------
Net decrease in shares outstanding (258,399) (7,396)
=========== ===========
Proceeds from sale of shares $ 2,841,304 $ 5,300,208
Value of reinvested dividends 939,828 991,493
Cost of shares redeemed (6,402,551) (6,335,561)
----------- -----------
Net decrease from capital
share transactions $(2,621,419) $ (43,860)
=========== ===========
21
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 3 (CONCLUDED)
ISI SHARES
------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
Shares sold 157,850 261,822
Shares issued to shareholders on
reinvestment of dividends 141,374 163,148
Shares redeemed (1,045,613) (786,574)
------------ -----------
Net decrease in shares outstanding (746,389) (361,604)
============ ===========
Proceeds from sale of shares $1,614,138 $ 2,797,892
Value of reinvested dividends 1,439,025 1,747,918
Cost of shares redeemed (10,588,198) (8,384,868)
------------ -----------
Net decrease from capital
share transactions $ (7,535,035) $(3,839,058)
============ ===========
NOTE 4 -- INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities
aggregated $20,861,278 and sales of investment securities aggregated $27,199,521
for the year ended October 31, 2000.
On October 31, 2000, aggregate net unrealized depreciation over tax cost
for portfolio securities was $685,561, of which $1,930,574 related to
appreciated securities and $1,245,013 related to depreciated securities.
22
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Flag Investors Managed Municipal Fund, Inc.
We have audited the schedule of investments and statement of assets and
liabilities of the Flag Investors Managed Municipal Fund, Inc. (the "Fund"), as
of October 31, 2000, and the related statement of operations, statement of
changes in net assets, and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
statements of the Fund for the year ended October 31, 1999 were audited by other
auditors whose report, dated December 14, 1999 expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Flag ISI Managed Municipal Fund, Inc. as of October 31, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 8, 2000
23
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FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE TAX YEAR ENDED OCTOBER 31, 2000
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Fund's distributions to shareholders included $45,796 from long-term
capital gains, all of which is taxable at the 20% capital gains rate. The Fund's
distributions to shareholders included $4,315,883 from tax-exempt income.
24
<PAGE>
FLAG INVESTORS MANAGED MUNICIPAL FUND SHARES
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
EDWARD S. HYMAN
CHAIRMAN
R. ALAN MEDAUGH
PRESIDENT
JOSEPH R. HARDIMAN
DIRECTOR
LOUIS E. LEVY
DIRECTOR
CARL W. VOGT, ESQ.
DIRECTOR
NANCY LAZAR
VICE PRESIDENT
EDWARD J. VEILLEUX
VICE PRESIDENT
CARRIE L. BUTLER
VICE PRESIDENT
MARGARET M. BEELER
ASSISTANT VICE PRESIDENT
KEITH C. REILLY
ASSISTANT VICE PRESIDENT
CHARLES A. RIZZO
TREASURER
FELICIA A. EMRY
SECRETARY
AMY M. OLMERT
ASSISTANT SECRETARY
DANIEL O. HIRSCH
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 other 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 US
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 US 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.
MMANN (12/00)
