ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
MANAGED MUNICIPAL
FUND SHARES
(A CLASS OF MANAGED
MUNICIPAL FUND, INC.)
ANNUAL REPORT
OCTOBER 31, 2000
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INVESTMENT ADVISOR'S REPORT
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During a year when interest rates declined, the Fund recorded a total
return of 8.40%. From its inception on February 26, 1990 through October 31,
2000, the Fund has posted a cumulative total return of 90.30%, which translates
into an average annual total return of 6.20%. These figures assume the
reinvestment of dividend and capital gain distributions and exclude the impact
of any sales charge. Please review additional performance information on page 6.
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 AAA MUNICIPAL
GENERAL OBLIGATIONS YIELDS
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
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 below 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.
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 on the
following page. 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.
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
1
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INVESTMENT ADVISOR'S REPORT (CONCLUDED)
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HISTORICAL YIELD SPREAD
OF 30 YEAR AAA AND BAA
SECURITIES
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
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
2
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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 below), 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.
[line graph omitted]
plot points as follows:
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
------
*Source: Data Resources Incorporated
3
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ECONOMIC OUTLOOK FOR 2001 (CONCLUDED)
--------------------------------------------------------------------------------
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.
[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
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 bottom of
column one.
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.
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.
4
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PORTFOLIO DIVERSIFICATION BY STATE
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
5
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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 4.45% maximum initial sales charge for the ISI Shares. Returns
would be higher for ISI 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.
AVERAGE ANNUAL TOTAL RETURN1
----------------------------------------
% Return with
Periods ended 10/31/00: Sales Charge
----------------------- --------------
One Year 3.61
Five Years 3.85
Ten Years 5.77
Since Inception (2/26/90) 5.76
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES1 OCTOBER 23, 1990 --
OCTOBER 31, 2000
[line graph omitted]
plot points as follows:
Flag Investors Managed Lehman Bros. Lehman Bros. Consumer Price
Municipal Fund Shares General Obligation Prerefunded Index (CPI)
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
--------------------------------------------------------------------------------
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 4.45% 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.
6
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
<TABLE>
<CAPTION>
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) (000) VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
7
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
<TABLE>
<CAPTION>
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) (000) VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
-----------
</TABLE>
8
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
<TABLE>
<CAPTION>
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) (000) VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
-----------
</TABLE>
9
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED) 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.
** Also aggregate cost for federal tax purposes.
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.
10
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
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:
ISI Shares ($65,233,503 / 6,228,058 shares) $10.47
======
Flag Investors Class A Shares ($32,632,712 / 3,115,495 shares) $10.47
======
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($10.47 / 0.9555) $10.96
======
Flag Investors Class A Shares ($10.47 / 0.955) $10.96
======
--------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED
OCTOBER 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $5,436,890
----------
EXPENSES:
Investment advisory fee 395,814
Distribution fees:
ISI Shares 166,171
Flag Investors Class A Shares 81,344
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.
12
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
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:
ISI Shares (3,126,335) (3,369,957)
Flag Investors Class A Shares (1,530,863) (1,600,162)
Net realized long-term gains (losses):
ISI Shares -- (312,768)
Flag Investors Class A Shares -- (151,301)
------------ ------------
Total distributions (4,657,198) (5,434,188)
------------ ------------
CAPITAL SHARE 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.
13
<PAGE>
--------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHTLIGHTS -- ISI CLASS
(FOR A SHARE OUTSTANDING THROUGHOUT THE 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:
Net investment income and net realized
short-term gains (0.48) (0.47) (0.54) (0.52) (0.54)
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 (000):
ISI Shares $65,233 $70,609 $80,749 $79,003 $84,712
Flag Investors Class A Shares $32,633 $34,150 $37,212 $38,390 $41,193
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 B), the ratio
of expenses to average daily net assets would have been1.01%, 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 B), 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
See Notes to Financial Statements.
14
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
A. 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 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 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 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 accounting principles generally accepted in
the UnitedStates. 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:
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 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. At October
31, 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.
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 in the United States. 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.
15
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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.
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 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. 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 the 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 provides accounting services to the Fund for which the Fund pays ICCC
an annual fee that is calculated daily and paid monthly based on the Fund's
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.
ICCCalso provides transfer agent 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 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 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.
16
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors"), 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 as $81,344, of which
$6,882 was payable at October 31, 2000.
C. CAPITAL SHARE TRANSACTIONS -- The Fund is authorized to issue up to 55
million shares of $.001 par value capital stock (20 million ISI Shares, 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 in the
chart below:
ISI SHARES
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
------------- ------------
Shares sold 157,850 261,822
Shares issued to share-
holders on reinvest-
ment 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)
============ ===========
FLAG INVESTORS
CLASS A SHARES
------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
------------ -----------
Shares sold 279,723 490,026
Shares issued to share-
holders on reinvest-
ment 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)
============ ===========
D. 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.
17
<PAGE>
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
ISI Managed Municipal Fund, Inc.
We have audited the schedule of investments and statement of assets and
liabilities of the ISI 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
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
18
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TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED OCTOBER 31, 2000
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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.
19
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This report is prepared for the general information of
shareholders. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective prospectus.
For more complete information regarding any of the 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.
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<PAGE>
ISI
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 through investment
in a portfolio consisting primarily of municipal obligations, the interest on
which is exempt from federal income tax.
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INVESTMENT ADVISOR
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ISI, Inc.
535 Madison Avenue, 30th Floor
New York, NY 10022
(800) 955-7175
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SHAREHOLDER SERVICING AGENT
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Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
(800) 882-8585
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DISTRIBUTOR
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ISI Group, Inc.
535 Madison Avenue, 30th Floor
New York, NY 10022
(800) 955-7175
