<PAGE>
As Filed With the Securities and Exchange Commission on February 29, 2000
Registration Nos. 33-32819/ 811-6023
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 16 [X]
MANAGED MUNICIPAL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
535 Madison Avenue, 30th Floor
New York, New York 10022
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux Copy to: Richard W. Grant, Esq.
One South Street Morgan, Lewis & Bockius LLP
Baltimore, MD 21202 1701 Market Street
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b)
_X__ on March 1, 2000, pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)
____ 75 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
[GRAPHIC OMITTED]
Managed Municipal Fund
Class A Shares (A Class of Managed Municipal Fund, Inc.)
Prospectus & Application
March 1, 2000
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
[GRAPHIC OMITTED]
This mutual fund (the "Fund") is 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.
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy shares through the
Fund's Transfer Agent. This Prospectus describes Flag Investors Class A Shares
("Class A Shares") of the Fund.
TABLE OF CONTENTS
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Investment Summary .............................................1
Fees and Expenses of the Fund ..................................2
Investment Program .............................................3
The Fund's Net Asset Value .....................................4
How to Buy Shares ..............................................4
How to Redeem Shares ...........................................5
Telephone Transactions .........................................5
Sales Charges ..................................................6
Dividends and Taxes ............................................8
Investment Advisor .............................................8
Administrator ..................................................8
Financial Highlights ...........................................9
Application ..................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
<PAGE>
INVESTMENT SUMMARY
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Objectives and Strategies
The Fund's investment objective is a high level of total return with
relative stability of principal and, secondarily, high current income exempt
from federal income tax. To achieve this objective, the Fund will invest
primarily in tax-exempt municipal obligations of state and local governments in
the United States and their political subdivisions, agencies and
instrumentalities. These securities will usually be rated within the three
highest ratings categories of Moody's Investors Services, Inc. or Standard &
Poor's Ratings Group. In selecting investments for the Fund, the Fund's
investment advisor (the "Advisor") may take full advantage of the entire range
of maturities offered by municipal obligations. The Advisor will consider both a
security's yield and its potential for capital gains resulting from changes in
interest rates.
Risk Profile
The Fund may be suited for you if you are seeking a high level of total
return including some income exempt from federal income taxes, but you want the
value of your investment to remain relatively stable.
The value of an investment in the Fund will vary from day to day based on
the prices of the municipal obligations in the Fund's portfolio. Changes in the
value of portfolio securities will not affect interest income from those
securities but will be reflected in the Fund's net asset value. The prices of
municipal obligations will respond to economic and market factors, especially
interest rate changes.
Interest Rate Risk. The value of the Fund's shares can be expected to
increase during periods of falling interest rates and decrease during periods of
rising interest rates.
Maturity Risk. Longer-term securities are generally more volatile (i.e.,
experience greater price fluctuations), so the average maturity or duration of
these securities affects risk. Therefore, these price fluctuations will
generally be greater at times when the average maturity of the Fund's portfolio
securities is longer.
Style Risk. The success of the Fund's investment approach will depend on
the Advisor's ability to determine which direction interest rates are likely to
move.
Special Tax Features. While income distributions from the Fund will
generally be tax exempt, distributions of capital gains will be taxable.
Accordingly, to the extent the Fund achieves its investment objective, a larger
portion of its distributions will be taxable.
If you invest in the Fund, you could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
<PAGE>
Fund Performance
The following bar chart and table show the performance of the Fund both
year by year and as an average over different periods of time. The different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record and do not
necessarily indicate how the Fund will perform in the future.
<TABLE>
<CAPTION>
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Class A Shares*
For years ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20.00%
17.78%
15.00%
11.02% 11.41%
10.00%
6.65% 8.40% 6.05%
5.00%
2.72%
0%---------------------------------------------------------------------------------
-3.80%
-5.00%
-6.28%
- -10.00%
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would be less
than those shown.
During the nine-year period shown in the bar chart, the highest return for
a quarter was 7.29% (quarter ended 3/31/95) and the lowest return for a quarter
was (5.68)% (quarter ended 3/31/94).
1
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
General Obligation Prerefunded Consumer Price
Class A Shares(1) Index(2) Index(2) Index(2)
------------------------------ -------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Past One Year ........... (8.13)% (1.51)% 1.14% 2.99%
Past Five Years ......... 5.02% 6.71% 5.78% 2.43%
Since Inception ......... 5.54%(10/23/90) 6.83%(3) 6.05%(3) 2.59%(3)
</TABLE>
- -----------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers General Obligation Index reflects general municipal
market performance. The Lehman Brothers Prerefunded Index is a better
indicator of the Fund's performance due to its higher quality
charateristics. 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.
(3) For the period from 10/31/90 through 12/31/99.
FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and
hold Class A Shares.
Shareholder Transaction Expenses:
(fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) ............................... 4.50%(1)
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds,
whichever is lower) ............................................... 0.50%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ........ None
Redemption Fee ..................................................... None
Exchange Fee ....................................................... None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees .................................................... 0.40%
Distribution and/or Service (12b-1) Fees ........................... 0.25%
Other Expenses ..................................................... 0.45%
------
Total Annual Fund Operating Expenses ............................... 1.10%
------
Less Fee Waivers ................................................... (0.20%)(2)
------
Net Expenses ....................................................... 0.90%
======
</TABLE>
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(1) You will pay no sales charge on purchases of $1 million or more of Class A
Shares, but unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your Class A Shares. (See "Sales Charges -- Redemption Price.")
(2) The Advisor has contractually agreed to limit its fees so that the Fund's
Total Annual Fund Operating Expenses do not exceed 0.90% of the Fund's
average daily net assets. This agreement will continue until at least
February 28, 2001 and may be extended.
<PAGE>
Example:
This Example is intended to help you compare the cost of investing in the
Class A Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class A Shares for the time
periods indicated and then redeem all of your Class A Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Class A Shares .......... $538(1) $765(1) $1,012(1) $1,724(1)
- -----------
(1) Based on Total Annual Fund Operating Expenses after fee waivers and
reimbursements for year one only.
2
<PAGE>
Federal regulations require that the Example reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge at
all. (Refer to the section on sales charges.) If you hold your shares for a long
time, the combination of the initial sales charge you paid and the recurring
12b-1 fees may exceed the maximum sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc.
INVESTMENT PROGRAM
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Investment Objective, Policies and Risk Considerations
The Fund's investment objective is 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.
The Fund will invest primarily in tax-exempt securities of state and local
governments in the United States and their political subdivisions, agencies and
instrumentalities. These securities will usually be rated within the three
highest ratings categories of Moody's Investors Services, Inc. or Standard &
Poor's Ratings Group. The Advisor buys and sells securities with a view toward,
first, a high level of total return with relative stability of principal and,
second, high current income. Therefore, in selecting investments, the Advisor
will consider both yield and a security's potential for capital gains resulting
from changes in interest rates.
When choosing the Fund's investments, the Advisor may take full advantage
of the entire range of maturities offered by municipal obligations. At certain
times the average maturity of the Fund's portfolio may be relatively short
(under five years, for example) and at other times may be relatively long (in
the 20-30 year range, for example). The portfolio's average maturity will depend
on the Advisor's assessment of both the relative yields available on securities
of different maturities and the future changes in interest rates. In determining
which direction interest rates are likely to move, the Advisor relies on the
forecast of its chairman, Edward S. Hyman. Mr. Hyman has been rated a "first
team" economist by the periodical Institutional Investor in each of the last 20
years. He writes a variety of international and domestic economic research
reports that follow trends that may determine the direction of interest rates.
An investment in the Fund entails risk. Municipal obligations are subject
to interest rate risk. The value of municipal obligations changes as interest
rates fluctuate. The value of the Fund's shares can be expected to increase
during periods of falling interest rates and decrease during periods of rising
interest rates. The magnitude of the fluctuations will generally be greater at
times when the Fund's average maturity is longer. While income distributions
from the Fund will generally be tax exempt, distributions of capital gains will
be taxable. Accordingly, to the extent the Fund achieves its investment
objective, a larger portion of its distributions will be taxable than would be
the case if the Fund placed a greater emphasis on earning tax-free income. There
can be no guarantee that the Advisor's economic analysis will accurately predict
interest rate trends or that portfolio strategies based on Mr. Hyman's economic
analysis will be effective. There can be no assurance that the Fund will achieve
its goals.
Even under normal market conditions, the Fund may invest to a limited
extent in taxable obligations. To protect the Fund under adverse market
conditions, the Advisor may make temporary defensive investments in short-term
U.S. Government and agency securities, bank and corporate securities, and
repurchase agreements fully collateralized by these securities. These temporary
defensive investments may include taxable investments that would not ordinarily
be consistent with the Fund's objectives. While engaged in a temporary defensive
strategy, the Fund may not achieve its investment objective. The Advisor would
follow such a strategy only if it believed the risk of loss when pursuing the
Fund's primary investment strategies outweighed the opportunity for gain.
3
<PAGE>
THE FUND'S NET ASSET VALUE
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The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem Class A
Shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. The primary trading markets
for the Fund may close early on the day before a holiday. On such occasions the
Fund also may close early. You may call the Transfer Agent at 1-800-553-8080 to
determine whether the Fund will close early before a particular holiday. The net
asset value per share of a class is calculated by subtracting the liabilities
attributable to a class from its proportionate share of the Fund's assets and
dividing the result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available, it
is priced at its "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Class A Shares.
HOW TO BUY SHARES
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You may buy Class A Shares through your securities dealer or through any
financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy Class A Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan,
your initial investment may be as low as $250. Your subsequent
investments may be as low as $100 if you participate in the monthly
plan or $250 if you participate in the quarterly plan. Refer to the
section on the Fund's Automatic Investing Plan for details.
Investing Regularly
You may make regular investments in Class A Shares through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Class A Shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. Upon receipt
by the Transfer Agent, your money will be invested in Class A Shares at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
4
<PAGE>
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Class A Shares at
net asset value. You may elect to receive your distributions in cash or to have
your distributions invested in Class A shares of other Flag Investors funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase Class A Shares through a
Systematic Purchase Plan. Contact your securities dealer or servicing agent for
details.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem Class A Shares through your securities dealer or servicing
agent. Contact them for details on how to enter your order and for information
as to how you will be paid. If you have an account with the Fund that is in your
name, you may also redeem Class A Shares by contacting the Transfer Agent by
mail or (if you are redeeming less than $50,000) by telephone. The Transfer
Agent will mail your redemption check within seven days after it receives your
order in proper form. Refer to the section on telephone transactions for more
information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Class A Shares:
1) A letter of instructions specifying your account number and the number of
Class A Shares or dollar amount you wish to redeem. All owners of shares
must sign the letter exactly as their names appear on the account.
2) A guarantee of your signature if you are redeeming shares worth more than
$50,000. You can obtain a signature guarantee from most banks or
securities dealers.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check whether or not that is the payment option
you have selected.
If you redeem sufficient shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Class A Shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your Class A Shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for Class A shares in
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 7:00 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and
5
<PAGE>
before you effect each telephone transaction. You may be required to provide
additional telecopied instructions. If these procedures are employed, neither
the Fund nor the Transfer Agent will bear any liability for following telephone
instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your shares in certificate form,
you may not exchange or redeem them by telephone.
SALES CHARGES
- --------------------------------------------------------------------------------
Purchase Price
The price you pay to buy Class A Shares is the offering price, which is
calculated by adding any applicable sales charges to the Class A Shares' net
asset value per share. The amount of any sales charge included in your purchase
price is based on the following schedule:
Sales Charge as % of
------------------------------
Net Amount
Amount of Purchase Offering Price Invested
- ------------------------------- ---------------- -----------
Less than $ 50,000 ........ 4.50% 4.71%
$ 50,000 - $ 99,999 ........ 3.50% 3.63%
$ 100,000 - $ 249,999 ........ 2.50% 2.56%
$ 250,000 - $ 499,999 ........ 2.00% 2.04%
$ 500,000 - $ 999,999 ........ 1.50% 1.52%
$1,000,000 and over ........... None None
- ------------------------------- ---------------- -----------
Although you do not pay an initial sales charge when you invest $1,000,000
or more in Class A Shares, you may pay a sales charge when you redeem your Class
A Shares. Refer to the section on redemption price for details. Your securities
dealer may be paid a commission at the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the following circumstances:
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. Each time you make a purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the Class A Shares you own will be redeemed to
pay this difference.
<PAGE>
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
2) If you are exchanging an investment in Class A shares of another Flag
Investors fund for an investment in Class A Shares (see "Purchases by
Exchange" for a description of the conditions).
3) If you are a current or retired Fund Director, a director, an employee or
a member of the immediate family of an employee of any of the following
(or their respective affiliates): the Fund's distributor, the Advisor, the
Fund's administrator, or a broker-dealer authorized to sell shares of the
Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered invest-ment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
6
<PAGE>
fiduciary or advisory services. Your securities dealer or servicing
agent may charge you an additional fee if you buy shares in this
manner.
Purchases by Exchange
You may exchange Class A shares of any other Flag Investors fund for an
equal dollar amount of Class A Shares, without payment of the sales charges
described above or any other charge up to four times a year. You may not
exchange Class A shares of a Flag Investors money market fund unless you
acquired those shares through a prior exchange. You may enter both your
redemption and purchase orders on the same Business Day or, if you have already
redeemed the shares of the other fund, you may enter your purchase order within
90 days of the redemption. The Fund may modify or terminate these offers of
exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
You will pay a sales charge when you redeem Class A Shares within 24
months of purchase only if your shares were purchased at net asset value because
they were part of an investment of $1 million or more. The amount of any sales
charge deducted from your redemption price will be determined according to the
following schedule:
Sales Charge as a Percentage of the
Dollar Amount Subject to Charge
Years Since Purchase (as % of Cost or Value)
- ------------------------------------------------------------
First .............. 0.50%
Second ............. 0.50%
Thereafter ......... None
- ------------------------------------------------------------
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to the shares you have owned for the longest period of time.
3) If you acquired your shares through an exchange of Class A shares of
another Flag Investors fund, the period of time you held the original
shares will be combined with the period of time you held the shares being
redeemed to determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
<PAGE>
Waiver of Sales Charge. You may redeem Class A Shares within 24 months of
purchase without paying a sales charge under any of the following circumstances:
1) If you are exchanging your Class A Shares for Class A shares of another
Flag Investors fund.
2) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan
are 12% or less of your share balance.
3) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a
joint tenant with rights of survivorship, as a participant in
community property, or as a minor child under the Uniform Gifts or
Uniform Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
4) If your original investment was at least $3,000,000 and your securities
dealer has agreed to return to the Fund's distributor any payments
received when you bought your shares.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows it to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its Class A Shares and for shareholder service. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
7
<PAGE>
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending on your tax situation. The tax treatment of
dividends and distributions is the same whether or not you reinvest them. Each
sale or exchange of the Fund's shares is generally a taxable event.
The Fund intends to generate and pay to shareholders income that is exempt
from federal income tax. The Fund may, however, invest a portion of its assets
in securities that generate income that is not exempt from federal income tax.
The Fund will tell you annually how to treat dividends and distributions.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
International Strategy & Investment Inc. ("ISI" or the "Advisor") is the
Fund's investment advisor. ISI is also the investment advisor to Total Return
U.S. Treasury Fund, Inc., North American Government Bond Fund, Inc. and ISI
Strategy Fund, Inc. These funds, together with the Fund, had approximately $447
million of net assets as of December 31, 1999.
As compensation for its services for the fiscal year ended October 31,
1999, ISI received from the Fund a fee equal to 0.25% (net of fee waivers) of
the Fund's average daily net assets.
The Advisor has contractually agreed to limit its annual fees if
necessary, so that the Fund's annual expenses do not exceed 0.90% of its average
daily net assets. This agreement will continue until at least February 28, 2001,
and may be extended.
Portfolio Managers
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh,
President of ISI and the Fund, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman and Mr. Medaugh
founded ISI in 1991.
Mr. Hyman is responsible for developing the economic analysis upon which
the Fund's selection of investments is based. (See "Investment Program.") Prior
to starting ISI, Mr. Hyman was a vice chairman and member of the Board of C.J.
Lawrence Inc. and before that, an economic consultant at Data Resources. He
writes a variety of international and domestic economic research reports that
follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated Mr.
Hyman as a "first team" economist, which is its highest rating, in each of the
last 20 years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
starting ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and before that, Senior Vice President and bond portfolio manager at
Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department, which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
ADMINISTRATOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC") provides administration services
to the Fund. ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which the
Fund's shares are distributed and oversight of the relationship between the Fund
and its other service providers. ICC is also the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the Fund's Annual Report,
which is available upon request.
(For a Class A Share outstanding throughout each year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 11.01 $ 10.79 $ 10.58 $ 10.65 $ 9.81
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ........................ 0.45 0.46 0.52 0.48 0.48
Net realized and unrealized gain/(loss)
on investments ............................. (0.83) 0.33 0.24 -- 0.98
------- ------- ------- ------- -------
Total from Investment Operations ............. (0.38) 0.79 0.76 0.48 1.46
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and net realized short-term gains .......... (0.47) (0.54) (0.52) (0.54) (0.54)
Distributions from net realized long-term
gains ...................................... (0.04) (0.03) (0.03) (0.01) (0.08)
------- ------- ------- ------- -------
Total distributions .......................... (0.51) (0.57) (0.55) (0.55) (0.62)
------- ------- ------- ------- -------
Net asset value at end of year ............... $ 10.12 $ 11.01 $ 10.79 $ 10.58 $ 10.65
======= ======= ======= ======= =======
Total Return(1) ............................... (3.61)% 7.51% 7.43% 4.67% 15.42%
Ratios to Average Daily Net Assets:
Expenses(2)................................... 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income(3)...................... 4.23% 4.24% 4.46% 4.48% 4.72%
Supplemental Data:
Net assets at end of year (000):
ISI Class Shares ........................... $70,609 $80,749 $79,003 $84,712 $86,292
Flag Investors Class A Shares .............. $34,150 $37,212 $38,390 $41,193 $45,980
Portfolio turnover rate .................... 8% 18% 26% 32% 55%
</TABLE>
- -----------
(1) Total return excludes the effect of sales charge.
(2) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been 1.10%, 1.13%, 1.10%,
1.13% and 1.10% for the years ended October 31, 1999, 1998, 1997, 1996 and
1995, respectively.
(3) Without the waiver of advisory and administration fees, the ratio of net
investment income to average daily net assets would have been 4.03%,
4.01%, 4.26%, 4.25% and 4.52% for the years ended October 31, 1999, 1998,
1997, 1996 and 1995, respectively.
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS MANAGED MUNICIPAL FUND CLASS A SHARES
NEW ACCOUNT APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Make check payable to "Flag Investors Managed Municipal For assistance in completing this Application please call:
Fund Class A Shares" and mail with this Application to: 1-800-553-8080, Monday through Friday, 8:30 a.m. to 7:00 p.m.
Flag Investors Funds (Eastern Time).
P.O. Box 219663
Kansas City, MO 64121-9663
Attn: Flag Investors Managed Municipal Fund Class A Shares
I enclose a check for $______ payable to "Flag Investors Managed Municipal Fund Class A Shares" for the purchase of Flag Investors
Managed Municipal Fund Class A Shares.
--------------------------------------------------------------------------------
Your Account Registration (Please Print)
--------------------------------------------------------------------------------
Existing Account No., if any:
----------------------------
Individual or Joint Tenant Gifts to Minors
- ---------------------------------------------------------- --------------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- ---------------------------------------------------------- --------------------------------------------------------------------
Social Security Number Minor's Name (only one)
- ---------------------------------------------------------- ------------------------------- -----------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the __________________ Uniform Gifts to Minors Act
State of Residence
Corporations, Trusts, Partnerships, etc. Mailing Address
- ---------------------------------------------------------- --------------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- ---------------------------------------------------------- --------------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- ---------------------------------------------------------- --------------------------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
- ----------------------------------------------------------
For the Benefit of
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Letter of Intent (Optional)
--------------------------------------------------------------------------------
<S> <C>
[_] I intend to invest at least the amount indicated below in Class A Shares of Managed Municipal Fund, Inc. I understand that if I
satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the applicable level of reduced
sales charges on my purchases.
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
--------------------------------------------------------------------------------
Right of Accumulation (Optional)
--------------------------------------------------------------------------------
List the Account numbers of other Flag Investors Funds that you or your immediate family already own that qualify you for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution Options
--------------------------------------------------------------------------------
Please check the appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional shares
of the same class of the Fund at no sales charge.
Income Dividends Capital Gains
[_] Reinvested in additional shares [_] Reinvested in additional shares
[_] Paid in Cash [_} Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other funds in the Flag Investors Family of Funds.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Automatic Investing Plan (Optional)
--------------------------------------------------------------------------------
<S> <C>
[_] I authorize you as Agent for the Automatic Investing Plan to automatically invest $___________ for me, on a monthly or quarterly
basis, on or about the 20th of each month or if quarterly, the 20th of January, April, July and October, and to draw a bank draft in
payment of the investment against my checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one): [_] Monthly ($100 minimum) [_] Quarterly ($250 minimum)
-----------------------------
Please attach a voided check.
-----------------------------
- ----------------------------------------------------- ------------------------------------------------------------------------
Bank Name Depositor's Signature Date
- ----------------------------------------------------- ------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
--------------------------------------------------------------------------------
Systematic Withdrawal Plan (Optional)
--------------------------------------------------------------------------------
[_] Beginning the month of _______________, 20__ please send me checks on a monthly or quarterly basis, as indicated below, in the
amount of (complete as applicable) $_____________, from Class A Shares that I own, payable to the account registration address as
shown above. (Participation requires minimum account value of $10,000.)
Frequency (check one): [_] Monthly [_] Quarterly (January, April, July, and October)
--------------------------------------------------------------------------------
Telephone Transactions
--------------------------------------------------------------------------------
I understand that I will automatically have telephone redemption privileges (for amounts up to $50,000) and telephone exchange
privileges) with respect to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/we do not want: [_] Telephone redemption privileges [_] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a predesignated
bank account, please provide the following information:
Bank: Bank Account No.:
----------------------------------------------- ----------------------------------------------
Address: Bank Account Name:
----------------------------------------------- ----------------------------------------------
-----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Signature and Taxpayer Certification
--------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains
distributions and redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to
provide the information and/or certifications required below. This backup withholding is not an additional tax, and any
amounts withheld may be credited against your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that the information on this Application is
complete and correct and that as required by federal law: (Please check applicable boxes)
[_] U.S. Citizen/Taxpayer:
[_] I certify that (1) the number shown above on this form is the correct Social Security Number or Tax ID Number
and (2) I am not subject to any backup withholding because (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
[_] If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to
the IRS or the Social Security Administration for a Tax ID Number or a Social Security Number, and I understand that
if I do not provide either number to the Transfer Agent within 60 days of the date of this Application or if I fail
to furnish my correct Social Security Number or Tax ID Number, I may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
[_] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: _________________________________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as
defined by the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------
For Dealer Use Only
- --------------------
Dealer's Name: Dealer Code:
---------------------------------------------- ------------------------------------------------------
Dealer's Address: Branch Code:
------------------------------------------- ------------------------------------------------------
-------------------------------------------
Representative: Rep. No.:
------------------------------------------- ------------------------------------------------------
A-2
</TABLE>
<PAGE>
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
535 Madison Avenue
30th Floor
New York, New York 10022
1-800-955-7175
Administrator
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006
Distributor
ICC DISTRIBUTORS, INC.
Two Portland Square
Portland, Maine 04101
Independent Auditors
DELOITTE & TOUCHE LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
<PAGE>
[GRAPHIC OMITTED]
Flag Investors Funds o P.O. Box 515 o Baltimore, MD 21203 o (800) 767-FLAG
www.flaginvestors.com
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion
of market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-202-942-8090 to find out about the operation of the Public Reference
Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-6023 MMPRS (3/00)
<PAGE>
ISI MANAGED MUNICIPAL FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
535 Madison Avenue
30th Floor
New York, New York 10022
For information call (800) 955-7175
This mutual fund (the "Fund") is 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.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. (See "How to Buy Shares"). This Prospectus
describes the ISI class (the "Shares") of the Fund.
TABLE OF CONTENTS
Page
----
Investment Summary ......................................................... 1
Fees and Expenses of the Fund .............................................. 2
Investment Program ......................................................... 3
The Fund's Net Asset Value ................................................. 3
How to Buy Shares .......................................................... 4
How to Redeem Shares ....................................................... 4
Telephone Transactions ..................................................... 5
Sales Charges .............................................................. 5
Dividends and Taxes ........................................................ 6
Investment Advisor ......................................................... 7
Administrator .............................................................. 7
Financial Highlights ....................................................... 8
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is March 1, 2000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund's investment objective is a high level of total return with
relative stability of principal and, secondarily, high current income exempt
from federal income tax. To achieve this objective, the Fund will invest
primarily in tax-exempt municipal obligations of state and local governments in
the United States and their political subdivisions, agencies and
instrumentalities. These securities will usually be rated within the three
highest ratings categories of Moody's Investors Services, Inc. or Standard &
Poor's Ratings Group. In selecting investments for the Fund, the Fund's
investment advisor (the "Advisor") may take full advantage of the entire range
of maturities offered by municipal obligations. The Advisor will consider both a
security's yield and its potential for capital gains resulting from changes in
interest rates.
Risk Profile
The Fund may be suited for you if you are seeking a high level of total
return including some income exempt from federal income taxes, but you want the
value of your investment to remain relatively stable.
The value of an investment in the Fund will vary from day to day based on
the prices of the municipal obligations in the Fund's portfolio. Changes in the
value of portfolio securities will not affect interest income from those
securities but will be reflected in the Fund's net asset value. The prices of
municipal obligations will respond to economic and market factors, especially
interest rate changes.
Interest Rate Risk. The value of the Fund's shares can be expected to
increase during periods of falling interest rates and decrease during periods of
rising interest rates.
Maturity Risk. Longer-term securities are generally more volatile (i.e.,
experience greater price fluctuations), so the average maturity or duration of
these securities affects risk. Therefore, these price fluctuations will
generally be greater at times when the average maturity of the Fund's portfolio
securities is longer.
Style Risk. The success of the Fund's investment approach will depend on
the Advisor's ability to determine which direction interest rates are likely to
move.
Special Tax Features. While income distributions from the Fund will
generally be tax exempt, distributions of capital gains will be taxable.
Accordingly, to the extent the Fund achieves its investment objective, a larger
portion of its distributions will be taxable.
If you invest in the Fund, you could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
<PAGE>
Fund Performance
The following bar chart and table show the performance of the Shares both
year by year and as an average over different periods of time. The different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record and do not
necessarily indicate how the Fund will perform in the future.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
ISI Shares*
For years ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20.00%
17.78%
15.00%
11.02% 11.41%
10.00%
6.65% 8.40% 6.05%
5.00%
2.72%
0%---------------------------------------------------------------------------------
-3.80%
-5.00%
-6.28%
- -10.00%
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown.
During the nine-year period shown in the bar chart, the highest return for
a quarter was 7.29% (quarter ended 3/31/95) and the lowest return for a quarter
was (5.68)% (quarter ended 3/31/94).
1
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
General Prerefunded Consumer
ISI Shares(1) Obligation Index(2) Index(2) Price Index(2)
---------------------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Past One Year ........... (8.08)% (1.51)% 1.14% 2.99%
Past Five Years ......... 5.03% 6.71% 5.78% 2.43%
Since Inception ......... 5.40%(2/26/90) 7.37%(3) 6.65%(3) 2.59%(3)
</TABLE>
- ------------------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers General Obligation Index reflects general municipal
market performance. The Lehman Brothers Prerefunded 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.
(3) For the period from 2/28/90 through 12/31/99.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses: (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.45%
Maximum Deferred Sales Charge (Load) ................................................ None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ......................... None
Redemption Fee ...................................................................... None
Exchange Fee ........................................................................ None
Annual Fund Operating Expenses: (expenses that are deducted from Fund assets)
Management Fees ..................................................................... 0.40%
Distribution and/or Service (12b-1) Fees ............................................ 0.25%
Other Expenses ...................................................................... 0.45%
------
Total Annual Fund Operating Expenses ................................................ 1.10%
------
Less Fee Waivers .................................................................... (0.20%)(1)
------
Net Expenses ........................................................................ 0.90%
======
</TABLE>
- ------------------------
(1) The Advisor has contractually agreed to limit its fees so that the Fund's
Total Annual Fund Operating Expenses do not exceed 0.90% of the Fund's
average daily net assets. This agreement will continue until at least
February 28, 2001 and may be extended.
Example:
This Example is intended to help you compare the cost of investing in
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Shares for the time periods
indicated and then redeem all of your Shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
- ---------- --------- --------- ---------
$533(1) $761(1) $1,008(1) $1,719(1)
- ------------------------
(1) Based on Total Annual Fund Operating Expenses after fee waivers and
reimbursements for year one only.
Federal regulations require that the Example reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge at
all. (Refer to the section on sales charges.) If you hold your Shares for a long
time, the combination of the initial sales charge you paid and the recurring
12b-1 fees may exceed the maximum sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc.
2
<PAGE>
INVESTMENT PROGRAM
Investment Objective, Policies and
Risk Considerations
The Fund's investment objective is 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.
The Fund will invest primarily in tax-exempt securities of state and local
governments in the United States and their political subdivisions, agencies and
instrumentalities. These securities will usually be rated within the three
highest ratings categories of Moody's Investors Services, Inc. or Standard &
Poor's Ratings Group. The Advisor buys and sells securities with a view toward,
first, a high level of total return with relative stability of principal and,
second, high current income. Therefore, in selecting investments, the Advisor
will consider both yield and a security's potential for capital gains resulting
from changes in interest rates.
When choosing the Fund's investments, the Advisor may take full advantage
of the entire range of maturities offered by municipal obligations. At certain
times the average maturity of the Fund's portfolio may be relatively short
(under five years, for example) and at other times may be relatively long (in
the 20-30 year range, for example). The portfolio's average maturity will depend
on the Advisor's assessment of both the relative yields available on securities
of different maturities and the future changes in interest rates. In determining
which direction interest rates are likely to move, the Advisor relies on the
forecast of its chairman, Edward S. Hyman. Mr. Hyman has been rated a "first
team" economist by the periodical Institutional Investor in each of the last 20
years. He writes a variety of international and domestic economic research
reports that follow trends that may determine the direction of interest rates.
An investment in the Fund entails risk. Municipal obligations are subject
to interest rate risk. The value of municipal obligations changes as interest
rates fluctuate. The value of the Fund's shares can be expected to increase
during periods of falling interest rates and decrease during periods of rising
interest rates. The magnitude of the fluctuations will generally be greater at
times when the Fund's average maturity is longer. While income distributions
from the Fund will generally be tax exempt, distributions of capital gains will
be taxable. Accordingly, to the extent the Fund achieves its investment
objective, a larger portion of its distributions will be taxable than would be
the case if the Fund placed a greater emphasis on earning tax-free income. There
can be no guarantee that the Advisor's economic analysis will accurately predict
interest rate trends or that portfolio strategies based on Mr. Hyman's economic
analysis will be effective. There can be no assurance that the Fund will achieve
its goals.
Even under normal market conditions, the Fund may invest to a limited
extent in taxable obligations. To protect the Fund under adverse market
conditions, the Advisor may make temporary defensive investments in short-term
U.S. Government and agency securities, bank and corporate securities, and
repurchase agreements fully collateralized by these securities. These temporary
defensive investments may include taxable investments that would not ordinarily
be consistent with the Fund's objectives. While engaged in a temporary defensive
strategy, the Fund may not achieve its investment objective. The Advisor would
follow such a strategy only if it believed the risk of loss when pursuing the
Fund's primary investment strategies outweighed the opportunity for gain.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Shares, the price
you pay may be increased by a sales charge. Read the section on sales charges
for details on how and when these charges may or may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. The primary trading markets
for the Fund may close early on the day before a holiday. On such occasions the
Fund also may close early. You may call the Transfer Agent at 1-800-882-8585 to
determine whether the Fund will close early before a particular holiday. The net
asset value per share of a class is calculated by subtracting the liabilities
attributable to a class from its proportionate share of the Fund's assets and
dividing the result by the outstanding shares of the class.
3
<PAGE>
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available, it
is priced at its "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem Shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Shares.
HOW TO BUY SHARES
You may buy Shares through your securities dealer or through any financial
institution that is authorized to act as a shareholder servicing agent. Contact
them for details on how to enter and pay for your order. You may also buy Shares
by sending your check (along with a completed Application Form) directly to the
Fund. The Application Form, which includes instructions, is attached to this
Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $5,000. Subsequent investments
must be at least $250. The following is an exception to these minimums:
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Your subsequent investments may
be as low as $100 if you participate in the monthly plan or $250 if you
participate in the quarterly plan. Refer to the section on the Fund's
Automatic Investing Plan for details.
Investing Regularly
You may make regular investments in the Fund through either of the
following methods. If you wish to enroll in either of these programs or if you
need any additional information, complete the appropriate section of the
attached Application Form or contact your securities dealer, your servicing
agent or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. Upon receipt by the
Transfer Agent, your money will be invested in Shares at that day's offering
price. Either you or the Fund may discontinue your participation upon 30 days'
notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other funds in the ISI family of funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
HOW TO REDEEM SHARES
You may redeem all or part of your investment through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If you have an account with the
Fund that is in your name, you may also redeem Shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Shares:
1) A letter of instructions specifying your account number and the number of
Shares or dollar amount you wish to redeem. All owners of the Shares must
sign the letter exactly as their names appear on the account.
2) A guarantee of your signature if you are redeeming Shares worth more than
$50,000. You can obtain a signature guarantee from most banks or
securities dealers.
4
<PAGE>
3) Any stock certificates representing the Shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on Shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your Shares by that time, the
dividend will be paid to you by check whether or not that is the payment option
you have selected.
If you redeem sufficient Shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining Shares after giving you 60 days'
notice. The Fund reserves the right to redeem Shares in kind under certain
circumstances.
TELEPHONE TRANSACTIONS
If your Shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another ISI fund
by calling the Transfer Agent on any Business Day between the hours of 8:30 a.m.
and 5:30 p.m. (Eastern Time). You are automatically entitled to telephone
transaction privileges but you may specifically request that no telephone
redemptions or exchanges be accepted for your account. You may make this
election when you complete the Application Form or at any time thereafter by
completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it reasonably believes to be genuine. Your
telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your Shares in certificate form,
you may not exchange or redeem them by telephone.
<PAGE>
SALES CHARGES
Purchase Price
The price you pay to buy Shares is the offering price, which is calculated
by adding any applicable sales charges to the net asset value per share. The
amount of any sales charge included in your purchase price is based on the
following schedule:
Sales Charge as % of
---------------------
Net
Offering Amount
Amount of Purchase Price Invested
- -------------------------------- ---------- ---------
Less than $ 50,000......... 4.45% 4.66%
$ 50,000 - $ 99,999......... 3.50% 3.63%
$ 100,000 - $ 249,999......... 2.50% 2.56%
$ 250,000 - $ 499,999......... 2.00% 2.04%
$ 500,000 - $ 999,999......... 1.50% 1.52%
$1,000,000 - $1,999,999......... 0.75% 0.76%
$2,000,000 - $2,999,999......... 0.50% 0.50%
$3,000,000 and over............. None None
The sales charge you pay on your current purchase of Shares may be reduced
under the following circumstances:
Rights of Accumulation. If you are purchasing additional Shares of this
Fund or shares of any other mutual fund in the ISI family of funds, you may
combine the value of your purchases with the value of your existing investments
to determine whether you qualify for a reduced sales charge. (For this purpose
your existing investments will be valued at the higher of cost or current
value.) You may also combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose. You must be able
to provide sufficient information to verify that you qualify for this right of
accumulation.
Letter of Intent. If you anticipate making additional purchases of Shares
over the next 13 months, you may combine the value of your current purchase with
the value of your anticipated purchases to determine whether you qualify for a
reduced sales charge. You will be required to sign a letter of intent specifying
the total value of your anticipated purchases and to initially purchase at least
5% of the total. Each time you make a purchase during the period, you will pay
the sales charge
5
<PAGE>
applicable to their combined value. If, at the end of the 13-month period, the
total value of your purchases is less than the amount you indicated, you will be
required to pay the difference between the sales charges you paid and the sales
charges applicable to the amount you actually did purchase. Some of the Shares
you own will be redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Shares without paying a sales
charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Shares made within the last six months, provided that the amount you are
reinvesting is at least $5,000.
2) If you are exchanging an investment in another ISI fund for an investment
in this Fund (see "Purchases by Exchange" for a description of the
conditions).
3) If you are a current or retired Fund Director, a director, an employee or
a member of the immediate family of an employee of any of the following
(or their respective affiliates): the Advisor, the Fund's administrator,
or a broker-dealer authorized to sell Shares.
4) If you purchase Shares in a fiduciary or advisory account with a bank,
bank trust department, registered investment advisory company, financial
planner or securities dealer purchasing Shares on your behalf. To qualify
for this provision you must be paying an account management fee for the
fiduciary or advisory services. Your securities dealer or servicing agent
may charge you an additional fee if you buy Shares in this manner.
5) If you pay for your purchase with the proceeds from a redemption of shares
of any other mutual fund on which you have paid a sales charge, or from a
sale of shares of any closed-end fund. In order to qualify for this
provision, you must purchase your shares by February 28, 2001 and provide
documentation of your redemption or sale.
Purchases by Exchange
You may exchange shares of any other fund in the ISI family of funds with
the same sales charge structure for an equal dollar amount of Shares without
payment of the sales charges described above or any other charge. In addition,
you may exchange shares of any fund in the ISI family of funds with a lower
sales charge structure or that were purchased through a special offer, for an
equal dollar amount of Shares if you have owned the shares you are redeeming for
at least 24 months. If you have owned them for less than 24 months, you will be
charged the difference in sales charges. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within six months of
the redemption provided the amount of the purchase order is at least $5,000. The
Fund may modify or terminate these offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your Shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The price you receive when you redeem Shares will be the net asset value
per share.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows it to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of Shares and for shareholder service. Shares pay an annual
distribution fee equal to 0.25% of average daily net assets. Because these fees
are paid out of net assets on an on-going basis, they will, over time, increase
the cost of your investment and may cost you more than paying other types of
sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
6
<PAGE>
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending on your tax situation. The tax treatment of
dividends and distributions is the same whether or not you reinvest them. Each
sale or exchange of the Fund's shares is generally a taxable event.
The Fund intends to generate and pay to shareholders income that is exempt
from federal income tax. The Fund may, however, invest a portion of its assets
in securities that generate income that is not exempt from federal income tax.
The Fund will tell you annually how to treat dividends and distributions.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR
International Strategy & Investment Inc. ("ISI" or the "Advisor") is the
Fund's investment advisor. ISI is also the investment advisor to Total Return
U.S. Treasury Fund, Inc., North American Government Bond Fund, Inc. and ISI
Strategy Fund, Inc. These funds, together with the Fund, had approximately $447
million of net assets as of December 31, 1999.
As compensation for its services for the fiscal year ended October 31,
1999, ISI received from the Fund a fee equal to 0.25% (net of fee waivers) of
the Fund's average daily net assets.
The Advisor has contractually agreed to limit its annual fees if
necessary, so that the Fund's annual expenses do not exceed 0.90% of its average
daily net assets. This agreement will continue until at least February 28, 2001,
and may be extended.
Portfolio Managers
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh,
President of ISI and the Fund, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman and Mr. Medaugh
founded ISI in 1991.
Mr. Hyman is responsible for developing the economic analysis upon which
the Fund's selection of investments is based. (See "Investment Program.") Prior
to starting ISI, Mr. Hyman was a vice chairman and member of the Board of C.J.
Lawrence Inc. and before that, an economic consultant at Data Resources. He
writes a variety of international and domestic economic research reports that
follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated Mr.
Hyman as a "first team" economist, which is its highest rating, in each of the
last 20 years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
starting ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and before that, Senior Vice President and bond portfolio manager at
Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department, which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
ADMINISTRATOR
Investment Company Capital Corp. ("ICC") provides administration services
to the Fund. ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which the
Fund's shares are distributed and oversight of the relationship between the Fund
and its other service providers. ICC is also the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvest-ment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the Fund's Annual Report,
which is available upon request.
(For a Share outstanding throughout each year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
October 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ........................... $ 11.01 $ 10.79
------- -------
Income from Investment Operations:
Net investment income .......................................... 0.45 0.46
Net realized and unrealized gain/(loss) on investments ......... (0.83) 0.33
------- -------
Total from Investment Operations ............................... (0.38) 0.79
------- -------
Less Distributions:
Distributions from net investment income and net realized
short-term gains ............................................. (0.47) (0.54)
Distributions from net realized long-term gains ................ (0.04) (0.03)
------- -------
Total distributions ............................................ (0.51) (0.57)
------- -------
Net asset value at end of year ................................. $ 10.12 $ 11.01
======= =======
Total Return(1).................................................. (3.61)% 7.51%
Ratios to Average Daily Net Assets:
Expenses(2) .................................................... 0.90% 0.90%
Net investment income(3)........................................ 4.23% 4.24%
Supplemental Data:
Net assets at end of year (000):
ISI Class Shares ............................................... $70,609 $80,749
Flag Investors Class A Shares .................................. $34,150 $37,212
Portfolio turnover rate ........................................ 8% 18%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended October 31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ........................... $ 10.58 $ 10.65 $ 9.81
------- ------- -------
Income from Investment Operations:
Net investment income .......................................... 0.52 0.48 0.48
Net realized and unrealized gain/(loss) on investments ......... 0.24 -- 0.98
------- ------- -------
Total from Investment Operations ............................... 0.76 0.48 1.46
------- ------- -------
Less Distributions:
Distributions from net investment income and net realized
short-term gains ............................................. (0.52) (0.54) (0.54)
Distributions from net realized long-term gains ................ (0.03) (0.01) (0.08)
------- ------- -------
Total distributions ............................................ (0.55) (0.55) (0.62)
------- ------- -------
Net asset value at end of year ................................. $ 10.79 $ 10.58 $ 10.65
======= ======= =======
Total Return(1).................................................. 7.43% 4.67% 15.42%
Ratios to Average Daily Net Assets:
Expenses(2) .................................................... 0.90% 0.90% 0.90%
Net investment income(3) ....................................... 4.46% 4.48% 4.72%
Supplemental Data:
Net assets at end of year (000):
ISI Class Shares ............................................... $79,003 $84,712 $86,292
Flag Investors Class A Shares .................................. $38,390 $41,193 $45,980
Portfolio turnover rate ........................................ 26% 32% 55%
</TABLE>
- -----------
(1) Total return excludes the effect of sales charge.
(2) Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets would have been 1.10%, 1.13%, 1.10%,
1.13% and 1.10% for the years ended October 31, 1999, 1998, 1997, 1996 and
1995, respectively.
(3) Without the waiver of advisory and administration fees, the ratio of net
investment income to average daily net assets would have been 4.03%,
4.01%, 4.26%, 4.25% and 4.52% for the years ended October 31, 1999, 1998,
1997, 1996 and 1995, respectively.
8
<PAGE>
<TABLE>
<CAPTION>
ISI MANAGED MUNICIPAL FUND SHARES
NEW ACCOUNT APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
Make check payable to "ISI Managed Municipal Fund Shares" and mail with this Application to:
ISI Mutual Funds
P.O. Box 219426
Kansas City, MO 64121-9426
For assistance in completing this form, please call the Transfer Agent at (800) 882-8585.
To open an IRA account, call ISI at (800) 955-7175 to request an Application.
<S> <C>
Your Account Registration (Please Print)
-------------------------------------
Existing Account No., if any
- -------------------------------------------------------------- -----------------------------------------------------------------
Individual or Joint Tenant Gifts to Minors
- -------------------------------------------------------------- -----------------------------------------------------------------
- -------------------------------------------------------------- -----------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- -------------------------------------------------------------- -----------------------------------------------------------------
Social Security Number Minor's Name (only one)
- -------------------------------------------------------------- -----------------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
- -------------------------------------------------------------- -----------------------------------------------------------------
Social Security Number Minor's Date of Birth (Mo./Day/Yr.)
under the __________________ Uniform Gifts to Minors Act
State of Residence
- -------------------------------------------------------------- -----------------------------------------------------------------
Corporations, Trusts, Partnerships, etc. Mailing Address
- -------------------------------------------------------------- -----------------------------------------------------------------
- -------------------------------------------------------------- -----------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- --------------------------------------- --------------------- -----------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- -------------------------------------------------------------- -----------------------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Letter of Intent (Optional)
<S> <C>
[_] I intend to invest at least the amount indicated below in ISI Shares of Managed Municipal Fund, Inc. I understand that if I
satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the applicable level of reduced
sales charges on any purchases.
[_] ___ $50,000 ___ $100,000 ___ $250,000 ___ $500,000 ___ $1,000,000 ___ $2,000,000 ___ $3,000,000
Right of Accumulation (Optional)
List the Account numbers of other ISI Funds that you or your immediate family already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution Options
Please check the appropriate boxes. There is no sales charge for reinvested dividends. If none of the options are selected, all
distributions will be reinvested.
Income Dividends Capital Gains
[_] Reinvested in additional shares [_] Reinvested in additional shares
[_] Paid in Cash [_} Paid in Cash
Call (800) 882-8585 for information about reinvesting your dividends in otherfunds in the ISI Family of Funds.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Automatic Investing Plan (Optional)
[_] I authorize you as Agent for the Automatic Investing Plan to automatically invest $____________ for me, on a monthly or
quarterly basis, on or about the 20th of each month or if quarterly, the 20th of January, April, July and October, and to draw a
bank draft in payment of the investment against my checking account. (Bank drafts may be drawn on commercial banks only.)
<S> <C> <C>
Minimum Initial Investment: $250
Subsequent Investments (check one): [_] Monthly ($100 minimum) [_] Quarterly ($250 minimum)
-----------------------------
Please attach a voided check.
-----------------------------
- ------------------------------------------------------- ----------------------------------------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------------------------- ----------------------------------------------------------------------
Existing ISI Managed Municipal Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for amounts up to $50,000) and telephone exchange
privileges (with respect to other ISI Funds) unless I mark one or both of the boxes below.
No, I/We do not want: [_] Telephone redemption privileges [_] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a
pre-designated bank account, please provide the following information:
Bank: Bank Account No.:
----------------------------------------------- ----------------------------------------------
Address: Bank Account Name:
----------------------------------------------- ----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature and Taxpayer Certification
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains
distributions and redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to
provide the information and/or certifications required below. This backup withholding is not an additional tax, and any
amounts withheld may be credited against your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that the information on this Application is
complete and correct and that as required by federal law: (Please check applicable boxes)
[_] U.S. Citizen/Taxpayer:
[_] I certify that (1) the number shown above on this form is the correct Social Security Number or Tax ID Number
and (2) I am not subject to any backup withholding because (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
[_] If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to
the IRS or the Social Security Administration for a Tax ID Number or a Social Security Number, and I understand that
if I do not provide either number to the Transfer Agent within 60 days of the date of this Application or if I fail
to furnish my correct Social Security Number or Tax ID Number, I may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
[_] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: _________________________________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as
defined by the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: Dealer Code:
---------------------------------------------- ------------------------------------------------------
Dealer's Address: Branch Code:
------------------------------------------- ------------------------------------------------------
-------------------------------------------
Representative: Rep. No.:
------------------------------------------- ------------------------------------------------------
</TABLE>
<PAGE>
ISI MANAGED MUNICIPAL FUND SHARES
(A Class of Managed Municipal Fund, Inc.)
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
535 Madison Avenue
30th Floor
New York, New York 10022
Administrator Distributor
INVESTMENT COMPANY CAPITAL CORP. ISI GROUP
One South Street 535 Madison Avenue
Baltimore, Maryland 21202 30th Floor
New York, New York 10022
1-800-955-7175
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street Princeton Forrestal Village
Baltimore, Maryland 21202 116-300 Village Boulevard
1-800-882-8585 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
You may obtain the following additional information about the Fund, free
of charge, from your securities dealer or servicing agent or by calling (800)
955-7175:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion
of market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI)
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-202-942-8090 to find out about the operation of the Public
Reference Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
For other shareholder inquiries, contact the Transfer Agent at (800)
882-8585. For Fund information, call (800) 955-7175 or your securities dealer or
servicing agent.
Investment Company Act File No. 811-6023
<PAGE>
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
MANAGED
MUNICIPAL FUND
SHARES
(A Class of Managed
Municipal Fund, Inc.)
A mutual fund with the investment objective of 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.
March 1, 2000
[GRAPHIC OMITTED]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, INC.
One South Street
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS, WHICH MAY BE OBTAINED FROM YOUR SECURITIES
DEALER OR SHAREHOLDER SERVICING AGENT OR BY CALLING THE
FUND AT (800) 767-FLAG (FOR THE FLAG INVESTORS CLASS A
SHARES) OR (800) 955-7175 (FOR THE ISI SHARES).
The Fund's financial statements for the fiscal year ended
October 31, 1999, and the report of independent auditors
are included in the Fund's annual report and incorporated
by reference into this Statement of Additional
Information.
Statement of Additional Information Dated: March 1, 2000
Relating to Prospectuses dated March 1, 2000, for
Flag Investors Managed Municipal Fund Class A Shares
and
ISI Managed Municipal Fund Shares
<PAGE>
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION AND HISTORY................................................3
INVESTMENT OBJECTIVE AND POLICIES..............................................3
Investment Restrictions........................................................8
VALUATION OF SHARES AND REDEMPTION.............................................9
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS..........................10
MANAGEMENT OF THE FUND........................................................13
INVESTMENT ADVISORY AND OTHER SERVICES........................................17
ADMINISTRATION................................................................18
DISTRIBUTION OF FUND SHARES...................................................19
BROKERAGE.....................................................................23
CAPITAL STOCK.................................................................24
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES.............................25
INDEPENDENT AUDITORS..........................................................25
LEGAL MATTERS.................................................................26
PERFORMANCE INFORMATION.......................................................26
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................27
FINANCIAL STATEMENTS..........................................................27
<PAGE>
GENERAL INFORMATION AND HISTORY
Managed Municipal Fund, Inc. (the "Fund") is an open-end diversified
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers two classes
of shares: Flag Investors Managed Municipal Fund Class A Shares, (the "Flag
Investors Class A Shares") and ISI Managed Municipal Fund Shares (the "ISI
Shares"). There are two separate prospectuses for the Fund's shares: one for the
Flag Investors Class A Shares and one for the ISI Shares.
As used herein the term "Prospectus" describes information common to
the prospectuses of the two classes of the Fund's shares. Otherwise the term
"Prospectus" will be modified by the appropriate class designation. As used
herein, the "Fund" refers to Managed Municipal Fund, Inc. and specific
references to any class of the Fund's shares will be made by using the name of
such class. Important information concerning the Fund is included in the Fund's
Prospectuses, which may be obtained without charge from the Fund by calling
(800) 767-FLAG (for a Prospectus for the Flag Investors Class A Shares) or (800)
955-7175 (for a prospectus for the ISI Shares), or from Participating Dealers
that offer shares of the respective classes of the Fund ("Shares") to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectuses. To
avoid unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement respecting the Fund and its Shares filed
with the SEC. Copies of the Registration Statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
January 5, 1990. The Fund filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") and its
Shares under the Securities Act of 1933, as amended (the "1933 Act"), and began
operations on February 26, 1990. The Fund has offered the Flag Investors Class A
Shares since October 23, 1990.
For the period from November 9, 1992 through February 27, 1994, the
Fund offered another class of shares: Flag Investors Managed Municipal Fund
Class B Shares. Shares of that class were renamed the Flag Investors Managed
Municipal Fund Class D Shares and are no longer being offered.
Under a License Agreement dated October 23, 1990, between the Fund and
Alex. Brown & Sons Incorporated (predecessor to DB Alex. Brown LLC (formerly BT
Alex. Brown Incorporated)), Alex. Brown & Sons Incorporated licenses to the Fund
the "Flag Investors" name and logo, but retains rights to that name and logo,
including the right to permit other investment companies to use them.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is a high level of total return with
relative stability of principal, and secondarily, a high level of current income
exempt from federal income tax through investing in a portfolio consisting
primarily of municipal obligations ("Municipal Obligations"). There can be no
assurance that the Fund will achieve its investment objective.
Municipal Obligations include securities of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, the interest on which is
exempt from federal income tax in the opinion of bond counsel for the issuer.
Under normal market conditions, the Fund will invest at least 80% of
its net assets in Municipal Obligations. The Fund does not currently intend to
acquire Municipal Obligations that are subject to alternative minimum tax but
may so invest up to 20% of its net assets. There can be no assurance that the
Fund will achieve its investment objective.
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Municipal Obligations can be classified into three principal
categories: "general obligation bonds", "revenue bonds" and "notes". General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power of the issuer.
Revenue bonds include, in most cases, "tax exempt industrial
development bonds", i.e., bonds issued by or on behalf of public authorities to
obtain funds for privately-operated facilities. Tax-exempt industrial
development bonds do not generally carry the pledge of the credit of the issuing
municipality, but are generally guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments used to provide for
short-term capital needs. They are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues.
The Fund will invest at least 75% of its portfolio of Municipal
Obligations in securities rated, on the date of investment, A-1 or higher (in
the case of municipal bonds) and higher than MIG 3 (in the case of municipal
notes) by Moody's Investors Service, Inc. ("Moody's") or rated A+ or higher (in
the case of municipal bonds) and higher than SP-2 (in the case of municipal
notes) by Standard & Poor's Ratings Group ("S&P") or, if unrated, of comparable
quality as determined by the Fund's investment advisor (the "Advisor") under
criteria approved by the Board of Directors. The ratings of Moody's for
tax-exempt bonds in which the Fund may invest are Aaa, Aa1, Aa, and A1. Bonds
rated Aaa are judged by Moody's to be of the "best quality". The rating of Aa is
assigned by Moody's to bonds which are of "high quality by all standards" but as
to which margins of protection or other elements make long-term risks appear
somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds comprise what
are generally known as "high grade bonds". Bonds rated A by Moody's possess many
favorable investment attributes and are considered as upper- medium-grade
obligations. The numerical modifier 1, in the generic rating classifications of
A and Aa indicates that the obligation ranks in the higher end of its generic
rating category. The ratings of S&P for tax-exempt bonds in which the Fund may
invest are AAA, AA+, AA, AA-, and A+. Bonds rated AAA bear the highest rating
assigned by S&P to a debt obligation. Such rating is intended to indicate an
extremely strong capacity to repay principal and pay interest. Bonds rated AA by
S&P are also intended to qualify as high-quality debt obligations. Such rating
is intended to indicate a very strong capacity to repay principal and pay
interest, and in the majority of instances bonds with such rating differ from
AAA issues to a small degree. Bonds rated A by S&P have a strong capacity to pay
interest and repay principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in the higher rated categories.
The addition of a plus or minus sign to the A or AA categories shows
relative standing within these rating categories. The two highest rating
categories by Moody's for tax-exempt notes are MIG 1 and MIG 2. Notes bearing
the designation MIG 1 are judged by Moody's to be of the best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancings. Notes bearing
the designation MIG 2 are judged by Moody's to be of high quality, with margins
of protection ample although not so large as in the preceding group. The highest
S&P rating for municipal notes issued on or after July 29, 1984 is "SP-1". Prior
to July 29, 1984, municipal notes carried the same symbols as municipal bonds.
The designation "SP-1" is intended to indicate a very strong capacity to pay
principal and interest. A "+" is added for those issues determined by S&P to
possess very strong characteristics. Only municipal note issues with a rating by
S&P of SP-1 or higher will qualify for the 75% requirement.
The Fund may invest up to 25% of its portfolio of Municipal Obligations
in securities rated A (in the case of municipal bonds) or MIG 3 (in the case of
municipal notes) by Moody's or rated A (in the case of municipal bonds) or SP-2
(in the case of municipal notes) by S&P or, if unrated, of comparable quality as
determined by the Advisor under criteria approved by the Board of Directors.
Notes bearing the MIG 3 are judged by Moody's to be of favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established. S&P grants a
rating of SP-2 to a note when it believes the issuer has a satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
The ratings of Moody's and S&P represent each service's opinion as to
the quality of the municipal bonds or notes rated. It should be emphasized that
ratings are general and are not absolute standards of quality or guarantees as
to the creditworthiness of an issuer. Subsequent to its purchase by the Fund, an
issue of municipal bonds or notes may cease to be rated, or its ratings may be
reduced. Neither event requires the elimination of that obligation from the
Fund's portfolio, but will be a factor in determining whether the Fund should
continue to hold that issue in its portfolio.
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From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. See "Federal Tax Treatment of Dividends and
Distributions" for the effect of current federal tax law on this exemption.
Purchase of When-Issued Securities
New issues of Municipal Obligations are usually offered on a
when-issued basis, which means that delivery and payment for such Municipal
Obligations normally take place within 45 days after the date of the commitment
to purchase. The payment obligation and the interest rate that will be received
on a when-issued security are fixed at the time the purchase commitment is
entered into, although no interest on such security accrues to the Fund prior to
payment and delivery. A segregated account of the Fund consisting of cash or
other liquid securities equal at all times to the amount of the when-issued
commitments will be established and maintained by the Fund at the Fund's
custodian. While the Fund will purchase securities on a when-issued basis only
with the intention of acquiring the securities, the Fund may sell the securities
before the settlement date to limit the effects of adverse market action. The
value of when-issued securities is subject to market fluctuation. Although the
Fund does not intend to make such purchases for speculative purposes, purchases
of securities on a when-issued basis may involve more risks than other types of
purchases. For example, the Fund may have to sell assets which have been set
aside in order to meet redemptions. Also, if the Fund determines it is necessary
to sell the "when-issued" securities before delivery, the Fund may incur a loss
because of market fluctuations since the time the commitment to purchase such
securities was made and any gain would not be tax-exempt. At the time the Fund
makes the commitment to purchase or sell securities on a "when-issued" basis, it
will record the transaction and thereafter reflect the value of such security
purchased in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. The
Fund will ordinarily invest no more than 40% of its net assets at any time in
when-issued securities.
Acquisition of Stand-by Commitments
The Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a broker, dealer
or bank is obligated to repurchase, at the Fund's option, specified securities
in the Fund's portfolio at a specified price. In this respect, stand-by
commitments are comparable to put options and thus the Fund's ability to enforce
such obligations is subject to the risk that the seller of the commitment may
default on its obligations. The Fund will acquire stand-by commitments as a
means of changing the average maturity of its portfolio in response to expected
changes in market interest rates.
The Fund anticipates that stand-by commitments will generally be
available from brokers, dealers and banks without the payment of any direct or
indirect consideration, but the Fund may have to pay for stand-by commitments,
thus increasing the cost of acquiring and holding the underlying security and
similarly decreasing such security's yield. Gains realized in connection with
stand-by commitments will be taxable.
Purchase of Variable and Floating Rate Demand Obligations
The Fund may purchase floating and variable rate demand notes and
bonds, which are tax-exempt obligations normally having stated maturities in
excess of one year, but which permit the holder to demand payment of principal
either at any time or at specified intervals. The interest rates on these
obligations fluctuate in response to changes in the market interest rates.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Each demand note and bond purchased by
the Fund will meet the quality criteria established for the purchase of other
Municipal Obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. The Fund will
not invest more than 10% of its net assets in floating or variable rate demand
obligations as to which the Fund cannot exercise the demand feature on less than
seven days' notice if there is no secondary market available for these
obligations.
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Investments in Futures Contracts
The Fund may purchase and sell U.S. exchange traded futures contracts
on bond indices ("Futures Contracts"). Each such Futures Contract provides for a
cash payment, equal to the amount, if any, by which the value of the index at
maturity is above or below the value of the index at the time the contract was
entered into, times a fixed index "multiplier". The index underlying such a
Futures Contract is generally a broad based index of securities designed to
reflect movements in the relevant market as a whole. The index assigns weighted
values to the securities included in the index, and its composition is changed
periodically. Futures Contracts have been designed by exchanges which have been
designated as "contract markets" by the Commodity Futures Trading Commission
(the "CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. The exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
At the same time a Futures Contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). The
initial deposit varies but may be as low as 5% or less of the value of the
contract. Daily thereafter, the Futures Contract is valued and the payment of
"variation margin" may be required, so each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.
Although Futures Contracts call for the making or acceptance of a cash
settlement at a specified future time, the contractual obligation is usually
fulfilled before such date by buying or selling, as the case may be, on a
commodities exchange, an identical Futures Contract calling for settlement in
the same month, subject to the availability of a liquid secondary market. The
Fund incurs brokerage fees when it purchases and sells Futures Contracts.
Regulations of the CFTC permit the use of futures transactions for bona
fide hedging purposes without regard to the percentage of assets committed to
futures margin and options premiums. CFTC regulations allow funds to employ
futures transactions for other "non-hedging" purposes to the extent that
aggregate initial futures margins and options premiums do not exceed 5% of total
assets. The Fund will not enter into Futures Contracts if obligations under all
Futures Contracts would amount to more than 30% of its total assets.
Futures Contracts will be used only to protect against anticipated
future changes in interest rates which otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date. The purpose of
the acquisition or sale of a Futures Contract, in the case of a portfolio such
as that of the Fund which holds or intends to acquire long-term fixed income
securities, is to attempt to protect the Fund from fluctuations in interest
rates without actually buying or selling long-term fixed income securities. For
example, if the Fund owns long-term bonds and interest rates were expected to
increase, the Fund might sell index Futures Contracts. Such a sale would have
much the same effect as selling an equivalent value of the long-term bonds owned
by the Fund. If interest rates did increase, the value of the debt securities in
the portfolio would decline but the value of the Futures Contracts would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. The Fund could
accomplish similar results by selling bonds with long maturities and investing
in bonds with short maturities when interest rates are expected to increase.
However, the use of Futures Contracts as an investment technique allows the Fund
to maintain a hedging position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, the Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the Futures
Contracts could be liquidated and the Fund could then buy long-term bonds on the
cash market. To the extent the Fund enters into Futures Contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of liquid
assets from its portfolio in an amount equal to the difference between the
fluctuating market value of such Futures Contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
Futures Contracts.
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<PAGE>
Although the Fund will invest in Futures Contracts for hedging
purposes, Futures Contracts entail risks. Although the Fund believes that use of
such contracts will benefit the Fund, if the investment judgment of the Advisor
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell bonds from
its portfolio to meet daily variation margin requirements. Such sales of bonds
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Various additional risks exist with respect to the trading of futures.
For example, the Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in such instruments will depend on the degree to
which price movements in the underlying index correlate with price movements in
the relevant portion of the Fund's portfolio. The trading of futures entails the
additional risk of imperfect correlation between movements in the futures price
and the price of the underlying index. The Fund's ability to engage in futures
strategies will also depend on the availability of liquid markets in such
instruments. Transactions in these instruments are also subject to the risk of
brokerage firm or clearing house insolvencies. The liquidity of a secondary
market in a Futures Contract may be adversely affected by "daily price
fluctuation limits", established by exchanges, which limit the amount of
fluctuation in the price of a contract during a single trading day and prohibit
trading beyond such limit. In addition, the exchanges on which futures are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). In addition, the ordinary spreads between prices in the cash and
futures markets, due to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures market are subject to
initial deposit and variation margin requirements. Rather than meeting
additional variation margin requirements, investors may close out Futures
Contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, from the point of
view of speculators, the margin deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest rate trends by the Advisor may still not result in a successful
transaction.
Investments in Repurchase Agreements
The Fund may agree to purchase U.S. Treasury Securities from
creditworthy financial institutions, such as banks and broker-dealers, subject
to the seller's agreement to repurchase the securities at an established time
and price. Such repurchase agreements will be fully collateralized and the Fund
will enter into such agreements only with banks and broker-dealers which are
judged creditworthy by the Fund's Board of Directors under criteria established
with the assistance of the Advisor. The collateral for these repurchase
agreements will be held by the Fund's custodian or by a duly appointed
sub-custodian. The list of approved banks and broker-dealers will be monitored
regularly by the Advisor. The seller under a repurchase agreement may be
required to maintain the value of the securities subject to the repurchase
agreement at not less than the repurchase price. Default by the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the Fund may be delayed or limited in its ability to sell the
collateral.
Taxable Investments
From time to time, the Fund may invest in securities, which pay
interest that is subject to federal income tax. The Fund may make such
investments (a) pending investment of proceeds from sales of Fund shares or
portfolio securities in tax-exempt securities, (b) pending settlement of
purchases of portfolio securities, (c) to maintain liquidity for meeting
anticipated redemptions, or (d) when in the Advisor's opinion it is advisable
because of adverse conditions affecting the market for Municipal Obligations.
Such taxable investments consist of U.S. Treasury Securities and repurchase
agreements fully collateralized by U.S. Treasury Securities (collectively, the
"Taxable Investments"). The Fund may invest up to 20% of its net assets in
Taxable Investments. The Fund may earn taxable income from other sources.
Dividends paid by the Fund that are attributable to interest earned from Taxable
Investments and to taxable income from other investments will be taxable to you.
(See "Federal Tax Treatment of Dividends and Distributions.")
7
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Size of Fund
The Fund currently intends to limit the size of the Fund and to accept
share purchases only from existing shareholders at such time as the assets of
the Fund are in excess of $200 million but less than $250 million, and
thereafter not to accept any share purchases other than dividend reinvestments.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions that reflect self-imposed standards as well as federal and state
regulatory limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. The Fund will not:
1. Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for this purpose, the U.S. Government or any state or local
government or their agencies and instrumentalities are not considered to be
an industry);
2. With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for this purpose, the U.S.
Government or its agencies and instrumentalities are not considered to be
an issuer and, in the case of Municipal Obligations, the public or private
entity ultimately responsible for payment of principal and interest on the
security is considered to be the issuer);
3. Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of the
value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equaling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase securities;
4. Invest in real estate or mortgages on real estate, provided that the Fund
may purchase securities secured or otherwise supported by interests in real
estate;
5. Purchase or sell commodities or commodities contracts, provided that for
purposes of this restriction financial futures contracts are not considered
commodities or commodities contracts;
6. Act as an underwriter of securities within the meaning of the U.S. federal
securities laws except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
7. Issue senior securities, provided that investments in financial futures
contracts and when-issued securities shall not be deemed to involve
issuance of a senior security;
8. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objectives and policies;
9. Effect short sales of securities;
10. Purchase securities on margin (except that the Fund may obtain such short-
term credits as may be necessary for the clearance of transactions);
11. Purchase participations or other direct interests in oil, gas or other
mineral exploration or development programs or leases; or
12. Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements with remaining maturities of greater than seven days
and floating or variable rate demand obligations as to which the Fund
cannot exercise the demand feature on less than seven days' notice if there
is no secondary market available for these obligations.
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The following investment restriction may be changed by a vote of a
majority of the Board of Directors.
The Fund will not invest in shares of any other investment company
registered under the 1940 Act, except as permitted by federal law.
VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) each
day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays (or the days on which they are observed): New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given their
market value where feasible. Debt securities (other than short-term
obligations), including listed issues, are valued on the basis of valuations
furnished by a pricing service which utilizes both dealer-supplied valuations
and electronic data processing techniques which take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data, without exclusive reliance upon exchange or over-the-counter
prices, because such valuations are believed to reflect more accurately the fair
value of such securities. Use of the pricing service has been approved by the
Board of Directors. Short-term obligations (i.e., those with maturities of 60
days or less) are valued at amortized cost, which constitutes fair value as
determined by the Board of Directors. Futures Contracts will normally be valued
at the settlement price on the exchange on which they are primarily traded.
Portfolio securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Directors.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business. So long as a third party receives an order prior to the Fund's close
of business, the order is deemed to have been received by the Fund and,
accordingly, may receive the net asset value computed at the close of business
that day. These "late day" agreements are intended to permit investors placing
orders with third parties to place orders up to the same time as other
investors.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by check as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders to make payment
of the redemption price in whole or in part by a distribution in kind of readily
marketable securities from the portfolio of the Fund in lieu of cash, in
conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation of Shares" and
such valuation will be made as of the same time the redemption price is
determined. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is obligated to redeem Shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
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FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning. For example, under certain specified circumstances, state
income tax laws may exempt from taxation distributions of a regulated investment
company to the extent that such distributions are derived from interest on
federal obligations. Investors are urged to consult with their tax advisor
regarding whether such exemption is available.
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, United States Government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets or 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than United States Government securities or
securities of other RICs) of any one issuer or two or more issuers that the Fund
controls and which are engaged in the same, similar, or related trades or
business. For purposes of the 90% of gross income requirement described above,
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options or futures with respect
to stock or securities) may be excluded from income that qualifies under the 90%
requirement.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such gains are
not distributed.
Fund Distributions
Distributions of net investment taxable income will be taxable to
shareholders as ordinary income, to the extent of the Fund's earnings and
profits, regardless of whether such distributions are paid in cash or are
invested in additional Shares.
The Fund intends to qualify to pay "exempt interest dividends" to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consist of obligations which pay interest that is exempt from federal income
tax. As long as this and certain other requirements are met, dividends derived
from the Fund's net tax-exempt interest income will be "exempt interest
dividends" that are excluded from your gross income for federal income tax
purposes. Exempt interest dividends may, however, have collateral deferral
income tax consequences, including alternative minimum tax consequences, as
discussed below.
10
<PAGE>
Exempt-interest dividends may be subject to the alternative minimum tax
imposed by Section 55 of the Code (the "Alternative Minimum Tax"). The
Alternative Minimum Tax generally is imposed at a rate of up to 28% in the case
of non-corporate taxpayers and at the rate of 20% in the case of corporate
taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The
Alternative Minimum Tax may be affected by the receipt of exempt-interest
dividends in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference and therefore potentially subject to the Alternative
Minimum Tax. The Fund intends, when possible, to avoid investing in private
activity bonds. Second, in the case of exempt-interest dividends received by
corporate shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they are derived from
private activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax.
The percentage of income that constitutes "exempt-interest dividends"
will be determined for each year for the Fund and will be applied uniformly to
all dividends declared with respect to the Fund during that year. This
percentage may differ from the actual percentage for any particular day.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders that are individuals at a maximum rate of 20% regardless
of the length of time the shareholder has held Shares. If any such gains are
retained, the Fund will pay federal income tax thereon, and, if the Fund makes
an election, the shareholders will include such undistributed gains in their
income, will increase their basis in Fund shares by the difference between the
amount of such includable gains and the tax deemed paid by such shareholder and
will be able to claim their share of the tax paid by the Fund as a refundable
credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, it is not expected that any Fund distributions will
qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in December of one year, but paid in January of the following year, will be
deemed for tax purposes to have been received by the shareholder and paid by the
Fund in the year in which the dividends were declared.
The sale or exchange of a Share is a taxable event for the shareholder.
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months, and otherwise will be short-term capital gain or loss. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution,
with respect to the Share (or any undistributed net capital gains of the Fund
with respect to such Share are included in determining the shareholder's
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund that have been included in
determining such shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
Investors purchasing Shares just prior to the ex-dividend date of any
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend or distribution received, even though the net
asset value per Share on the date of such purchase may have reflected the amount
of such forthcoming dividend or distribution.
11
<PAGE>
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. In this event, such distributions
will generally be eligible for the dividends-received deduction in the case of
corporate shareholders.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends received deduction.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury 31% of distributions payable to any shareholder who
(1) has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of interest or dividend income properly, or (3) has failed to certify to
the Fund that such shareholder is not subject to backup withholding.
Federal Excise Tax; Miscellaneous Considerations
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry Shares of the Fund will not be deductible for federal income
tax purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal to
a portion of exempt-interest dividends received or accrued during any taxable
year. Foreign corporations engaged in a trade or business in the United States
will be subject to a "branch profits tax" on their "dividend equivalent amount"
for the taxable year, which will include exempt-interest dividends. Certain
Subchapter S corporations may also be subject to taxes on their "passive
investment income," which could include exempt-interest dividends. Up to 85% of
the Social Security benefits or railroad retirement benefits received by an
individual during any taxable year will be included in the gross income of such
individual if the individual's "modified adjusted gross income" (which includes
exempt-interest dividends) plus one-half of the Social Security benefits or
railroad retirement benefits received by such individual during that taxable
year exceeds the base amount described in Section 86 of the Code.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
Shares. "Substantial user" is defined generally as including a "non-exempt
person" who regularly uses in trade or business a part of such a facility.
Current federal law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of exempt interest dividends.
Issuers of bonds purchased by the Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Exempt-interest dividends
derived from such bonds may become subject to federal income taxation
retroactively to the date thereof if such representations are determined to have
been inaccurate or if the issuer of such bonds (or the beneficiary of such
bonds) fails to comply with such covenants.
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisors as to the consequences of these and other state and local tax
rules affecting an investment in the Fund.
12
<PAGE>
The Fund may not be a suitable investment for tax-exempt shareholders
and plans because such shareholders and plans would not gain any additional
benefit from the receipt of exempt-interest dividends.
MANAGEMENT OF THE FUND
Directors and Officers
The Fund's Board of Directors manages its overall business and affairs.
The Board approves all significant agreements between the Fund and persons or
companies furnishing services to the Fund, including the Fund's agreements with
its investment advisor, distributors, custodian and transfer agent.
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each Director and
executive officer is 535 Madison Avenue, 30th Floor, New York, New York 10022.
*EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy & Investment Inc. (registered
investment advisor), and Chairman and President, International Strategy
& Investment Group Inc. (registered investment advisor and registered
broker-dealer) 1991-Present.
R. ALAN MEDAUGH, President (8/20/43)
President, International Strategy & Investment Inc. (registered
investment advisor) 1991- Present.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, Wit Capital Group (registered
broker-dealer), The Nevis Fund (registered investment company), and
Flag Investors Family of Funds (registered investment companies).
Formerly, Director, Circon Corp. (medical instruments), 1998-1999;
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer (1985-1987) and General Partner (1976-1985) of
Alex. Brown & Sons Incorporated (now DB Alex. Brown LLC).
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products), Household
International (banking and finance) and Flag Investors Family of Funds
(registered investment companies). Formerly, Chairman of the Quality
Control Inquiry Committee and American Institute of Certified Public
Accountants, 1992-1998; Trustee, Merrill Lynch Funds for Institutions,
1991-1993; Adjunct Professor, Columbia University-Graduate School of
Business, 1991-1992; and Partner, KPMG Peat Marwick, retired 1990.
CARL W. VOGT, Esq., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
President (interim), Williams College; Director, Yellow Corporation
(trucking), American Science & Engineering (x-ray detection equipment);
President, Flag Investors Family of Funds (registered investment
companies). Formerly, Chairman and Member, National Transportation
Safety Board; Director, National Railroad Passenger Corporation
(Amtrak); Member, Aviation System Capacity Advisory Committee (Federal
Aviation Administration) and Director, Flag Investors Family of Funds
(registered investment companies).
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy &
Investment Inc. (registered investment advisor) 1991-Present.
13
<PAGE>
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy & Investment Inc.
(registered investment advisor) 1991-Present.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
1996-Present. Formerly, Marketing Representative, U.S. Healthcare,
Inc., 1995-1996; Sales Manager, Donna Maione, Inc., 1994-1995; and
Deborah Wiley California, 1989-1994.
KEITH C. REILLY, Assistant Vice President (6/2/66)
Assistant Vice President, International Strategy & Investment Inc.,
1996-Present. Formerly, Select Private Banking Officer, Assistant
Manager, Chemical Bank, 1995-1996; and Financial Consultant, Dreyfus
Corporation, 1989-1995.
CHARLES A. RIZZO, Treasurer (8/5/57)
One South Street, Baltimore, Maryland 21202. Vice President, Deutsche
Asset Management since 1999; and Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1998-1999. Formerly, Senior
Manager, PricewaterhouseCoopers LLP, 1993-1998.
FELICIA A. EMRY, Secretary (12/19/69)
One South Street, Baltimore, Maryland 21202. Assistant Vice President,
Deutsche Asset Management, since 1999. Formerly, Associate, Hogan &
Hartson L.L.P., 1997-1999, and Associate, Winston & Strawn, 1994-1997.
AMY M. OLMERT, Assistant Secretary (5/14/63)
One South Street, Baltimore, Maryland 21202. Vice President, Deutsche
Asset Management since 1999; and Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1997-1999. Formerly, Senior
Manager, PricewaterhouseCoopers LLP, 1992-1997.
DANIEL O. HIRSCH, Assistant Secretary (3/27/54)
One South Street, Baltimore, Maryland 21202. Director, Deutsche Asset
Management since 1999. Principal, BT Alex. Brown Incorporated (now DB
Alex. Brown LLC), 1998-1999. Formerly, Assistant General Counsel,
United States Securities and Exchange Commission, 1993-1998.
* A Director who is an "interested person" as defined in the 1940 Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies advised by ISI or its affiliates.
There are currently four funds in the ISI fund complex (the "Fund Complex").
Each of the Directors and officers of the Fund serves in the same capacity for
each of the other funds in the Fund Complex. Prior to September 28, 1999, the
Fund Complex included eight funds in the Flag Investors Funds/Deutsche Banc
Alex. Brown Cash Reserve Fund, Inc. fund complex.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of the Advisor or the Fund's administrator may be considered to have received
remuneration indirectly. As compensation for his or her services, each Director
who is not an "interested person" of the Fund (as defined in the 1940 Act) (an
"Independent Director") receives an aggregate annual fee (plus reimbursement for
reasonable out-of-pocket expenses incurred in connection with his or her
attendance at board and committee meetings) from each fund in the Fund Complex
for which he or she serves. Payment of such fees and expenses is allocated among
all such funds described above in direct proportion to their relative net
assets. For the fiscal year ended October 31, 1999, Independent Directors' fees
attributable to the assets of the Fund totaled $3,380.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund, the Fund Complex
and the Flag Investors Funds Family of Funds, and pension or retirement benefits
accrued as part of Fund expenses in the fiscal year ended October 31, 1999. The
Fund and the Fund Complex no longer provide a retirement plan or a deferred
compensation plan for the Directors.
14
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation Pension or Retirement Total Compensation From the Fund;
From the Fund Payable to Benefits Accrued As Fund Complex and Flag Investors
Directors for the Fiscal Year Part of Fund Expenses Family of Funds for the
Name of Person, Position Ended October 31, 1999 Payable to Directors Fiscal Year Ended October 31, 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward S. Hyman, Chairman (2) $0 $0 $0
R. Alan Medaugh, President (2) $0 $0 $0
Richard T. Hale, Vice Chairman (3) $0 $0 $0
James J. Cunnane, Director (3) $467(4) (5) $39,000 for service on 12
Boards in the Fund Complex
Joseph R. Hardiman, Director $211 (5) $39,000 for service on 12
Boards in the Fund Complex
Louis E. Levy, Director $587 (5) $49,000 for service on 12
Boards in the Fund Complex
Eugene J. McDonald, Director (3) $587(4) (5) $49,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director (3) $211(4) (5) $39,000 for service on 11 (6)
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $211(4) (5) $39,000 for service on 12
Boards in the Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Code of Ethics applies to the
personal investing activities of all of the directors and officers of the Fund,
as well as to designated officers, directors and employees of the Advisor and
the Fund's distributors. As described below, the Code of Ethics imposes
additional restrictions on the Advisor's investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
- -------------------------
(1) Prior to September 28, 1999, the Fund Complex included eight funds in the
Flag Investors Funds Family of Funds.
(2) A Director who is an "interested person" as defined in the 1940 Act.
(3) Resigned effective September 28, 1999.
(4) Of the amounts payable to Messrs. Cunnane, McDonald and Vogt and Ms. Rimel,
$467, $587, $211 and $211, respectively, was deferred pursuant to a deferred
compensation plan.
(5) The Flag Investors Funds Family of Funds has adopted a retirement plan for
eligible Directors. The actuarially computed pension expense allocated to the
Fund for the fiscal year ended October 31, 1999, was approximately $5,453. The
Fund and the Fund Complex no longer provide a retirement plan or a deferred
compensation plan for the Directors.
(6) Ms. Rimel received proportionately higher compensation from each fund for
which she served as Director.
15
<PAGE>
The Code of Ethics requires that any officer, director or employee of
the Fund, International Strategy & Investment Group, Inc. or the Advisor,
preclear any personal securities investments (with certain exceptions, such as
non-volitional purchases or purchases that are part of an automatic dividend
reinvestment plan). The foregoing would apply to any officer, director or
employee of ICC Distributors, Inc. that is an access person. The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring any
securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and special preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides for
trading "blackout periods" that prohibit trading by investment personnel and
certain other employees within periods of trading by the Fund in the same
security. Officers, directors and employees of the Advisor and the Fund's
distributors may comply with codes of ethics instituted by those entities so
long as they contain similar requirements and restrictions.
INVESTMENT ADVISORY AND OTHER SERVICES
International Strategy & Investment Inc. ("ISI" or the "Advisor")
serves as the Fund's investment advisor pursuant to an investment advisory
agreement dated as of April 1, 1991 (the "Investment Advisory Agreement"). ISI
is a registered investment advisor that was formed in January, 1991. ISI employs
Messrs. Edward S. Hyman, the Fund's Chairman and R. Alan Medaugh, the Fund's
President. ISI is also the investment advisor to Total Return U.S. Treasury
Fund, Inc.; North American Government Bond Fund, Inc. and ISI Strategy Fund,
Inc.
Under the Investment Advisory Agreement, the Advisor obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. Any investment program undertaken by
the Advisor will at all times be subject to policies and control of the Fund's
Board of Directors. The Advisor will provide the Fund with office space for
managing its affairs, with the services of required executive personnel and with
certain clerical and bookkeeping services and facilities. These services are
provided by the Advisor without reimbursement by the Fund for any costs. The
Advisor shall not be liable to the Fund or its shareholders for any act or
omission by the Advisor or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.
As compensation for its services, the Advisor is entitled to receive an
annual fee from the Fund, payable monthly, at the annual rate of 0.40% of the
Fund's average daily net assets. The Advisor has contractually agreed to reduce
its annual fees, if necessary, so that the Fund's annual expenses do not exceed
0.90% of the average daily net assets of either the Flag Investors Class A
Shares or the ISI Shares Classes. This agreement will continue until at least
February 28, 2001 and may be extended. The services of the Advisor to the Fund
are not exclusive and the Advisor is free to render similar services to others.
The Advisor is responsible for decisions to buy and sell securities for
the Fund, for broker-dealer selection, and for negotiation of commission rates
under standards established and periodically reviewed by the Board of Directors.
Because purchases and sales of securities by the Fund will usually be principal
transactions, the Fund will incur little, if any, brokerage commission expense.
The Advisor's primary consideration in effecting securities transactions will be
to obtain best price and execution. To the extent that the execution and prices
of more than one dealer are comparable, the Advisor may, in its discretion,
effect transactions with dealers that furnish statistical research or other
information or services that may benefit the Fund's investment program.
The Investment Advisory Agreement will continue in effect from year to
year after its initial two-year term if such continuance is specifically
approved at least annually by the Fund's Board of Directors, including a
majority of the Independent Directors who have no direct or indirect financial
interest in such agreements, by votes cast in person at a meeting called for
such purpose, and by a vote of a majority of the outstanding Shares (as defined
under "Capital Stock"). The Investment Advisory Agreement was most recently
approved by the Board of Directors in the foregoing manner on September 28,
1999. The Fund or the Advisor may terminate the Investment Advisory Agreement on
60 days' written notice without penalty. The Investment Advisory Agreement will
terminate automatically in the event of assignment (as defined in the 1940 Act).
16
<PAGE>
Advisory fees paid by the Fund to ISI for the last three fiscal years
were as follows:
Fiscal Years Ended October 31,
------------------------------
1999 1998 1997
$289,624 (1) $284,908 (2) $ 323,888 (3)
(1) Net of fee waivers of $166,103
(2) Net of fee waivers of $180,209.
(3) Net of fee waivers of $157,087.
ADMINISTRATION
Investment Company Capital Corp., One South Street, Baltimore, Maryland
21202, ("ICC" or the "Administrator") provides administration services to the
Fund. Such services include: monitoring the Fund's regulatory compliance,
supervising all aspects of the Fund's service providers, arranging, but not
paying for, the printing and mailing of prospectuses, proxy materials and
shareholder reports, preparing and filing all documents required by the
securities laws of any state in which the Shares are sold, establishing the
Fund's budgets, monitoring the Fund's distribution plans, preparing the Fund's
financial information and shareholder reports, calculating dividend and
distribution payments and arranging for the preparation of state and federal tax
returns.
As compensation for providing its administration services, the
Administrator is entitled to receive an annual fee based on the Fund's average
daily net assets calculated daily and payable monthly at the following annual
rate based on the combined assets of the Fund Complex.
Incremental Administration Fee
Average Daily Net Assets (as a percentage of Average Daily Net Assets)
- ------------------------ ---------------------------------------------
$0 - $75,000,000 0.20%
$75,000,001 - $150,000,000 0.15%
$150,000,001 - $225,000,000 0.10%
$225,000,001 - $500,000,000 0.05%
$500,000,001 and over 0.03%
ICC's fee is allocated among the funds in the Fund Complex according to
their relative net assets. Prior to June 1, 1999, this fee was calculated daily
and paid monthly at the annual rate of 0.20% of the Fund's daily assets. Also
prior to June 1, 1999, the administrator waived its fee in proportion to the
fees waived by the advisor
Administration fees paid by the Fund to ICC for the last three fiscal
years were as follows:
Fiscal Years Ended October 31,
1999 1998 1997
---- ---- ----
$120,301 (1) $142,454 (2) $164,190 (3)
(1) Net of fee waivers of $60,513.
(2) Net of fee waivers of $90,105.
(3) Net of fee waivers of $76,298.
17
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services.") ICC
is an indirect subsidiary of Deutsche Bank AG.
DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group") serves as
Distributor for the ISI Shares pursuant to a Distribution Agreement effective
April 1, 1997 ("ISI Distribution Agreement"). ICC Distributors Inc. ("ICC
Distributors") serves as Distributor for the Flag Investors Class A Shares
pursuant to an agreement effective August 31, 1997 ("Flag Distribution
Agreement"). The Distribution Agreements provide that ICC Distributors (in the
case of the Flag Investors Class A Shares) or ISI Group (in the case of the ISI
Shares) has the exclusive right to distribute the related class of Shares either
directly or through other broker-dealers.
The ISI Distribution Agreement provides that ISI Group on behalf of the
ISI Shares (i) will solicit and receive orders for the purchase of ISI Shares
(ii) accept or reject such orders on behalf of the Fund in accordance with the
Fund's currently effective prospectus and transmit such orders as are accepted
to the Fund's transfer agent as promptly as possible (iii) receive requests for
redemption and transmit such redemption requests to the Fund's transfer agent as
promptly as possible (iv) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; (v) provide the Fund's
Board of Directors for their review with quarterly reports required by Rule
12b-1; (vi) maintain such accounts, books and records as may be required by law
or be deemed appropriate by the Fund's Board of Directors; and (vii) take all
actions deemed necessary to carry into effect the distribution of the Shares.
Pursuant to the ISI Distribution Agreement, ISI has not undertaken to
sell any specific number of ISI Shares. The ISI Distribution Agreement further
provides that, in connection with the distribution of Shares, ISI Group will be
responsible for all promotional expenses. The services by ISI Group to the Fund
are not exclusive, and ISI Group shall not be liable to the Fund or its
shareholders for any act or omission by ISI Group or any losses sustained by the
Fund or its shareholders except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty.
The Flag Distribution Agreement provides that ICC Distributors shall;
(i) use reasonable efforts to sell Flag Investors Class A Shares upon the terms
and conditions contained in the Flag Distribution Agreement and the Fund's then
current Prospectus; (ii) use its best efforts to conform with the requirements
of all federal and state laws relating to the sale of the Flag Investors Shares;
(iii) adopt and follow procedures as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. and any
other applicable self-regulatory organization; (iv) perform its duties under the
supervision of and in accordance with the directives of the Fund's Board of
Directors and the Fund's Articles of Incorporation and By-Laws; and (v) provide
18
<PAGE>
the Fund's Board of Directors with a written report of the amounts expended in
connection with the Flag Distribution Agreement. ICC Distributors shall devote
reasonable time and effort to effect sales of Flag Investors Class A Shares but
shall not be obligated to sell any specific number of Shares. The services of
ICC Distributors are not exclusive and ICC Distributors shall not be liable to
the Fund or its shareholders for any error of judgment or mistake of law, for
any losses arising out of any investment, or for any action or inaction of ICC
Distributors in the absence of bad faith, willful misfeasance or gross
negligence in the performance of ICC Distributors' duties or obligations under
the Flag Distribution Agreement or by reason of ICC Distributors' reckless
disregard of its duties and obligations under the Flag Distribution Agreement.
The Flag Distribution Agreement further provides that the Fund and ICC
Distributors will mutually indemnify each other for losses relating to
disclosures in the Fund's registration statement.
The Distribution Agreements may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Flag Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect from year to year with respect to the Flag Investors Class of the Fund
provided that it is approved at least annually by (i) a vote of a majority of
the outstanding voting securities of the related class of the Fund or (ii) a
vote of a majority of the Fund's Board of Directors including a majority of the
Independent Directors and, with respect to each Flag Investors' class of the
Fund for which there is a plan of distribution, so long as such plan of
distribution is approved at least annually by the Independent Directors in
person at a meeting called for the purpose of voting on such approval (see
below). The ISI Distribution Agreement has an initial term of two years and will
remain in effect from year to year provided that it is specifically approved (a)
at least annually by the Fund's Board of Directors and (b) by the affirmative
vote of a majority of the Independent Directors by votes cast in person at a
meeting specifically called for such purpose. The Flag Distribution Agreement,
including the form of Sub-Distribution Agreement, was initially approved by the
Board of Directors, including a majority of the Independent Directors, on August
4, 1997.
Each Distribution Agreement, including the form of Sub-Distribution
Agreement, was most recently approved by the Board of Directors, including a
majority of the Independent Directors, on September 28, 1999.
ICC Distributors and ISI Group and certain broker-dealers
("Participating dealers") have entered into Sub-Distribution Agreements under
which such broker-dealers have agreed to process investor purchase and
redemption orders and respond to inquiries from shareholders concerning the
status of their accounts and the operations of the Fund. Any Sub-Distribution
Agreement may be terminated in the same manner as the Distribution Agreements at
any time and shall automatically terminate in the event of an assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as certain banks, to act as
Shareholder Servicing Agents, pursuant to which ICC Distributors and ISI Group
will allocate a portion of their respective distribution fees as compensation
for such financial institutions' ongoing shareholder services. The Fund may also
enter into Shareholder Servicing Agreements pursuant to which the Distributors
or the Fund's administrator or their respective affiliates will provide
compensation out of their own resources. Such financial institutions may impose
separate fees in connection with these services and investors should review the
Prospectus and this Statement of Additional Information in conjunction with any
such institution's fee schedule. State securities laws may require banks and
financial institutions to register as dealers.
As compensation for providing distribution and related administrative
services as described above, the Fund pays ICC Distributors for the Flag
Investors Class A Shares and ISI Group for the ISI Shares, on a monthly basis,
an annual fee, equal to 0.25% of the average daily net assets of the respective
class of Shares. The Distributors expect to allocate up to all of their fees to
Participating Dealers and Shareholder Servicing Agents.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributors received fees
in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
Fee 1999 1998 1997
- --- ---- ---- ----
<S> <C> <C> <C>
Flag Investors Class A Shares 12b-1 $ 91,988 (1) $ 93,549 (1) $ 98,275 (3)
ISI Shares 12b-1 $ 192,842 (2) $ 197,149 (2) $ 202,335 (4)
</TABLE>
(1) By ICC Distributors.
(2) By ISI Group.
(3) Of this amount, DB Alex. Brown LLC, the distributor prior to August 31,
1997, received $82,194 and ICC Distributors, the distributor effective August
31, 1997, received $16,081.
(4) Of this amount, Armata, the distributor prior to April 1, 1997, received
$85,542 and ISI Group, the distributor effective April 1, 1997, received
$116,793.
Pursuant to Rule 12b-1 under the 1940 Act, which provides that
investment companies may pay distribution expenses, directly or indirectly, only
pursuant to a plan adopted by the investment company's board of directors and
approved by its shareholders, the Fund has adopted a Plan of Distribution for
each of its classes of Shares (the "Plans"). Under the Plans, the Fund pays fees
to ICC Distributors or ISI Group for distribution and other shareholder
servicing assistance as set forth in the related Distribution Agreement, and ICC
Distributors and ISI Group are authorized to make payments out of their fees to
Participating Dealers and Shareholder Servicing Agents. The Plans will remain in
effect from year to year as specifically approved (a) at least annually by the
Fund's Board of Directors and (b) by the affirmative vote of a majority of the
Independent Directors, by votes cast in person at a meeting called for such
purpose. The Plans were most recently approved by the Fund's Board of Directors,
including a majority of the Independent Directors, on September 28, 1999.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreements without the approval of the shareholders of the
respective classes of the Fund. The Plans may be terminated at any time by a
vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the outstanding Shares of the related class (as defined under
"Capital Stock").
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans to ICC Distributors or ISI Group pursuant to
the Distribution Agreements, to broker-dealers pursuant to any Sub-Distribution
Agreements and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the Plans, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
or ISI Group under such Plans, as appropriate, with respect to shares held by or
on behalf of customers of such entities. Payments under the Plans are made as
described above regardless of the distributor's actual cost of providing
distribution services and may be used to pay such distributor's overhead
expenses. If the cost of providing distribution services to the Fund in
connection with the sale of the Flag Investors Class A Shares or the ISI Shares
is less than 0.25% of such Shares' average daily net assets for any period the
unexpended portion of the distribution fee may be retained by the distributor.
The Plans do not provide for any charges to the Fund for excess amounts expended
by the distributor and, if a Plan is terminated in accordance with its terms,
19
<PAGE>
the obligation of the Fund to make payments to the distributor pursuant to such
Plan will cease and the Fund will not be required to make any payments past the
date the related Distribution Agreement terminates with respect to such Plan. In
return for payments received pursuant to the Plans in the last three fiscal
years, the Fund's distributors, as appropriate, paid the distribution-related
expenses of the Fund including one or more of the following: advertising
expenses; printing and mailing of prospectuses to other than current
shareholders; compensation to dealers and sales personnel; and interest,
carrying or other financing charges.
For the last three fiscal years, the Fund's distributors received the
following commissions or contingent deferred sales charges, and from such
commissions or sales charges, the distributor retained the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1999 1998 1997
---- ---- ----
Class Received Retained Received Retained Received Retained
- ----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A
Shares Commissions $ 14,301 (1) $ 0 $ 19,669 (1) $ 0 $ 13, 936 (3) $ 12,636 (5)
ISI Shares Commissions $ 12,665 (2) $ 0 $ 61,689 (2) $ 0 $ 38,812 (4) $ 0
</TABLE>
- -----------------------------
(1) By ICC Distributors.
(2) By ISI Group.
(3) Of this amount, DB Alex. Brown LLC, the distributor prior to August 31,
1997, received $13,936 and ICC Distributors, the distributor effective
August 31, 1997, received $0.
(4) Of this amount, Armata, the distributor prior to April 1, 1997, received
$13,150 and ISI Group, the distributor effective April 1, 1997 received $25,662.
(5) Of commissions received, DB Alex. Brown LLC retained $1,300 and ICC
Distributors retained $0, respectively.
The Fund will pay all costs associated with its organization and
registration under the 1933 Act and the 1940 Act. Except as described elsewhere,
the Fund pays or causes to be paid all continuing expenses of the Fund,
including, without limitation: investment advisory, administration and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions, if any, chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental agencies; the costs
and expenses of engraving or printing of certificates representing Shares; all
costs and expenses in connection with the maintenance of registration of the
Fund and its Shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Directors and Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; fees and
expenses of legal counsel including counsel to the Independent Directors, or
independent auditors, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund that inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly assumed by ISI, ICC, ISI
Group or ICC Distributors.
20
<PAGE>
The address of ICC Distributors is Two Portland Square, Portland, Maine
04101. The address of ISI Group, Inc. is 535 Madison Avenue, 30th Floor, New
York, New York 10022.
BROKERAGE
The Advisor is responsible for decisions to buy and sell securities for
the Fund, for broker-dealer selection and for negotiation of commission rates.
The Advisor may direct purchase and sale orders to any broker-dealer.
Municipal obligations and other debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. The cost of securities purchased from
underwriters includes an underwriter's commission or concession, and the prices
at which securities are purchased and sold from and to dealers include a
dealer's mark-up or mark-down. The Advisor attempts to negotiate with
underwriters to decrease the commission or concession for the benefit of the
Fund. The Advisor normally seeks to deal directly with the primary market makers
unless, in its opinion, better prices are available elsewhere. Securities firms
or futures commission merchants may receive brokerage commissions on
transactions involving Futures Contracts. On occasion, certain money market
instruments may be purchased directly from an issuer without payment of a
commission or concession.
The Advisor's primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, the Advisor may, in its discretion, effect
agency transactions with broker-dealers that furnish statistical, research or
other information or services that are deemed by the Advisor to be beneficial to
the Fund's investment program. Certain research services furnished by
broker-dealers may be useful to the Advisor with clients other than the Fund.
Similarly, any research services received by the Advisor through
placement of portfolio transactions of other clients may be of value to the
Advisor in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to the
Advisor by a broker-dealer. The Advisor is of the opinion that because the
material must be analyzed and reviewed by its staff, its receipt does not tend
to reduce expenses, but may be beneficial in supplementing the Advisor's
research and analysis. Therefore, it may tend to benefit the Fund by improving
the Advisor's investment advice. The Advisor's policy is to pay a broker-dealer
higher commissions for particular transactions than might be charged if a
different broker-dealer had been chosen when, in the Advisor's opinion, this
policy furthers the overall objective of obtaining best price and execution.
Subject to periodic review by the Fund's Board of Directors, the
Advisor is also authorized to pay broker-dealers other than affiliates of the
Advisor higher commissions than another broker might have charged on brokerage
transactions for the Fund for brokerage or research services. The allocation of
orders among broker-dealers and the commission rates paid by the Fund will be
reviewed periodically by the Board. The foregoing policy under which the Fund
may pay higher commissions to certain broker-dealers in the case of agency
transactions, does not apply to transactions effected on a principal basis. In
addition, consistent with NASD Rules, and subject to seeking the most favorable
price and execution available and such other policies as the Board may
determine, the Advisor may consider services in connection with the sale of
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through affiliates of the
Advisors. At the time of such authorization, the Board adopted certain policies
and procedures incorporating the standards of Rule 17e-1 under the 1940 Act,
which requires that the commissions paid affiliates of the Advisors must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires the Advisor to furnish reports and to maintain
records in connection with such reviews. During the fiscal years ended October
31, 1999, October 31, 1998 and October 31, 1997, no brokerage commissions were
paid by the Fund for research services.
21
<PAGE>
The Advisor manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. The Advisor may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. Such simultaneous transactions, however,
could adversely affect the ability of the Fund to obtain or dispose of the full
amount of a security that it seeks to purchase or sell.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of October 31, 1999, the Fund
held a 5.10% repurchase agreement issued by Goldman Sachs & Co. valued at
$5,852,000. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
CAPITAL STOCK
The Fund is authorized to issue 55 million Shares of common stock, par
value $.001 per Share. The Board of Directors may increase or decrease the
number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of shares by the Directors at any time
without shareholder approval. The Fund has created five classes of Shares: ISI
Shares, Flag Investors Class A Shares, Flag Investors Managed Municipal Fund
Class B Shares, Flag Investors Managed Municipal Fund Class C Shares and Flag
Investors Managed Municipal Fund Class D Shares. The Flag Investors Managed
Municipal Fund Class B Shares and the Flag Investors Managed Municipal Fund
Class C Shares have not been offered. The Flag Investors Managed Municipal Fund
Class D Shares are no longer being offered and none are outstanding. In the
event separate series or classes are established, all Shares of the Fund,
regardless of series or class, would have equal rights with respect to voting,
except that with respect to any matter affecting the rights of the holders of a
particular series or class, the holders of each series or class would vote
separately. Each such series would be managed separately and shareholders of
each series would have an undivided interest in the net assets of that series.
For tax purposes, each series would be treated as separate entities. Generally,
each class of shares issued by a particular series will be identical to every
other class and expenses of the Fund (other than 12b-1 and any applicable
service fees) are prorated between all classes of a series based upon the
relative net assets of each class. Any matters affecting any class exclusively
would be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all the members of the Board of Directors of
the Fund. In such event, the remaining holders cannot elect any members of the
Board of Directors of the Fund. There are no preemptive, conversion or exchange
rights applicable to any of the Shares. The issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of the
Fund, each Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
22
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust"), 130 Liberty Street, New York,
New York 10006, has been retained to act as custodian of the Fund's investments.
Bankers Trust receives such compensation from the Fund for its services as
Custodian as may be agreed to from time to time by Bankers Trust and the Fund.
For the fiscal year ended October 31, 1999, Bankers Trust was paid $25,756.
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202,
has been retained to act as transfer and dividend disbursing agent. As
compensation for providing these services, the Fund pays ICC up to $15.62 per
account per year plus reimbursement for out-of-pocket expenses incurred in
connection therewith. For the fiscal year ended October 31, 1999, such fees
totaled $43,782.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Daily Net Assets Incremental Fee
- ------------------------ ---------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 0.100%
$20,000,000 - $30,000,000 0.080%
$30,000,000 - $40,000,000 0.060%
$40,000,000 - $50,000,000 0.050%
$50,000,000 - $60,000,000 0.040%
$60,000,000 - $70,000,000 0.030%
$70,000,000 - $100,000,000 0.020%
$100,000,000 - $500,000,000 0.015%
$500,000,000 - $1,000,000,000 0.005%
Over $1,000,000,000 0.001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's performance of its
services under the Master Services Agreement: express delivery service,
independent pricing and storage. As compensation for providing accounting
services for the fiscal year ended October 31, 1999, ICC received fees of
$57,092.
INDEPENDENT AUDITORS
The independent auditor for the Fund is Deloitte & Touche LLP, located
at Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New Jersey
08540. For the period ended October 31, 1990 and for the fiscal years ended
October 31, 1991 through October 31, 1999, the annual financial statements of
the Fund were audited by PricewaterhouseCoopers LLP, 250 West Pratt Street,
Baltimore, Maryland, 21201.
On December 13, 1999, at a regular meeting of the Board of Directors,
the following appointment was resolved. The Audit and Compliance Committees and
the Board of Directors of the Fund participated in and approved the decision to
change the Fund's independent auditors from PricewaterhouseCoopers LLP to
Deloitte & Touche LLP.
The reports of PricewaterhouseCoopers LLP on the financial statements
of the Fund for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle.
In connection with the Fund's audits for the two most recent fiscal
years and through December 14, 1999, there have been no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused them to make reference thereto in their report on the
financial statements for such years.
During the two most recent fiscal years and through December 13, 1999,
there have been no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).
23
<PAGE>
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five- and ten- year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date the Fund (or a
series) began operations (provided such date is subsequent to the date the
registration statement became effective).
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 investment for the periods
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
One-Year Period Five-Year Period
-------------------------------------------------------------------
Ended October 31, 1999 Ended October 31, 1999 Since Inception
---------------------- ----------------------- ---------------
Ending Average Ending Average Ending Average
Redeemable Annual Total Redeemable Annual Total Redeemable Annual Total
Class Value Return Value Return Value Return
- ----- ---------------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A
Shares - 10/23/90* $921 (7.95)% $1,285 5.14% $1,635 5.60%
ISI Shares - 2/26/90* $921 (7.90)% $1,285 5.15% $1,677 5.49%
- ----------------------------
</TABLE>
* Inception Date
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper, Inc., CDA Investment Technologies, Inc. or Morningstar,
Inc., with the performance of the Lehman Brothers Municipal Bond Index, the
Consumer Price Index, the return on 90-day U.S. Treasury bills, the Standard and
Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund calculates
its aggregate and average annual total return for the specified periods of time
by assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For the purpose of other comparisons, the Fund performs a second alternative
computation for its aggregate and average annual total return by assuming the
investment of $10,000 in Shares and assuming no reinvestment of dividends or
other distributions.
24
<PAGE>
Any yield quotation of the Fund is based on the annualized net
investment income per share of the Fund over a 30-day period. The yield for the
Fund is calculated by dividing the net investment income per share of the Fund
earned during the period by the maximum offering price per share of the Fund on
the last day of that period. The resulting figure is then annualized. Net
investment income per share is determined by dividing (i) the dividends and
interest earned by the Fund during the period, minus accrued expenses for the
period, by (ii) the average number of Fund shares entitled to receive dividends
during the period multiplied by the maximum offering price per share on the last
day of the period. The Fund's yield calculations assume a maximum sales charge
of 4.45% for the ISI Shares and 4.50% for the Flag Investors Class A Shares. The
Fund's taxable-equivalent yield is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent on the Fund's yield. In calculating taxable-equivalent
yield, the Fund assumes certain brackets for shareholders.
For the 30-day period ended October 31, 1999, the yield for the ISI
Shares was 4.32% and the yield for the Flag Investors Class A Shares was 4.32%.
For the same 30-day period, the taxable-equivalent yield (for an investor in the
31% tax bracket) was 6.26% for the ISI Shares and 6.26% for the Flag Investors
Class A Shares.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. For the fiscal years
ended October 31, 1999, 1998 and 1997, the Fund's portfolio turnover rates were
8%, 18% and 26%, respectively.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, as of January 28, 2000, the following
owned 5% or more of the outstanding Shares of a class of the Fund. As of January
28, 2000, directors and officers, as a group, owned beneficially and of record
less than 1% of the Fund's outstanding Shares of either class.
<TABLE>
<CAPTION>
Name and Address Owned of Record Beneficially Owned Percentage of Ownership
- ---------------- --------------- ------------------ -----------------------
<S> <C> <C> <C>
DB Alex. Brown LLC X X 9.04% of Flag Investors Class A
FBO 201-57665-18 Shares
P.O. Box 1346
Baltimore, MD 21203-1346
Dain Rauscher Incorporated X X 6.27% of ISI Shares
FBO Frederick W. Stolz,
Emily Stolz
Tenant Common
P.O Box 406
Port Angeles, WA 98362-0065
</TABLE>
FINANCIAL STATEMENTS
The Fund furnishes shareholders with semi-annual and annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements.
The financial statements for the Fund for the period ended October 31,
1999, are incorporated herein by reference to the Fund's Annual Report dated
October 31, 1999. A copy of the Fund's Annual Report must accompany this
Statement of Additional Information. The annual financial statements are audited
by the Fund's independent auditors.
25
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-32819), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000098) on February 26, 1996.
(2) Articles Supplementary to Articles of Incorporation dated December 15,
1993, incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A (File No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000098) on February 26, 1996.
(3) Articles Supplementary to Articles of Incorporation dated December 31,
1994, incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A (Registration No.
33-32819), filed with the Securities and Exchange Commission via EDGAR (File No.
950116-96-000098) on February 26, 1996.
(4) Articles Supplementary to Articles of Incorporation dated October 23,
1998, incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR on December 30,
1998.
(b) By-Laws, as amended through July 28, 1999, filed herewith.
(c) (1) ISI Managed Municipal Fund Shares, Specimen Certificate of Common Stock,
$.001 par value incorporated by reference to Exhibit 1, (Articles of
Incorporation), as amended to date, filed as part of Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A (File No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000098) on February 26, 1996, and Exhibit 2 (By-Laws), as amended to
date, filed as part of Post-Effective Amendment No. 11 to such Registration
Statement filed with the Securities and Exchange Commission via EDGAR (Accession
No. 950116-97-000366) on February 26, 1997.
(2) Flag Investors Managed Municipal Fund Class A Shares, Specimen
Certificate of Common Stock, $.001 par value incorporated by reference to
Exhibit 1, (Articles of Incorporation), as amended to date, filed as part of
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-32819), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000098) on February 26, 1996, and Exhibit 2
(By-Laws), as amended to date, filed as part of Post-Effective Amendment No. 11
to such Registration Statement, filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-000366) on February 26, 1997.
(d) (1) Investment Advisory Agreement dated April 1, 1991 between Registrant and
International Strategy & Investment Inc. incorporated by reference to Exhibit 5
to Post-Effective Amendment No. 10 to Registrant's Registration Statement on
Form N-1A (File No. 33-32819), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-96-000098) on February 26, 1996.
(2) Expense Limitation Agreement dated March 1, 2000, filed herewith.
(e) (1) Distribution Agreement (Flag Investors Shares) dated as of August 31,
1997 between Registrant and ICC Distributors, Inc. incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 12 to Registrant's Registration
Statement on Form N-1A (File No. 33-32819), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-98-000479) on February 25,
1998.
<PAGE>
(2) Form of Participating Dealer Agreement for Flag Investors Managed
Municipal Fund Shares between ICC Distributors, Inc. and Participating Dealers
incorporated by reference to Exhibit 6(b) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-32819), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000479) on February 25, 1998.
(3) Form of Shareholder Servicing Agreement for Flag Investors Shares
incorporated by reference to Exhibit 6(c) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-32819), filed with
the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000479) on February 25, 1998.
(4) Distribution Agreement (ISI Shares) dated April 1, 1997 between
Registrant and International Strategy & Investment Group Inc. incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (File No. 33-32819), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000479) on
February 25, 1998.
(5) Form of Agency Distribution Agreement for ISI Managed Municipal Fund
Shares between International Strategy & Investment Group Inc. and Participating
Dealers as in effect from April 1, 1997, incorporated by reference to Exhibit
6(e) to Post-Effective Amendment No. 12 to Registrant's Registration Statement
on Form N-1A (File No. 33-32819), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000479) on February 25, 1998.
(6) Form of Shareholder Servicing Agreement for ISI Shares incorporated by
reference to Exhibit 6(f) to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (File No. 33-32819), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000479) on
February 25, 1998.
(f) None.
(g) Custodian Agreement between Registrant and Bankers Trust Company, dated June
5, 1998, incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR on December 30,
1998.
(h) (1) Master Services Agreement between Registrant and Investment Company
Capital Corp. and Appendices for the provision of Administrative, Accounting and
Transfer Agency Services incorporated by reference to Exhibit 9(a) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-32819), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000098) on February 26, 1996.
(i) Opinion of Counsel, filed herewith.
(j) (1) Consent of PricewaterhouseCoopers LLP, filed herewith.
(2) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Form of Subscription Agreement re: initial $100,000 capital incorporated by
reference to Exhibit 13 to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-32819), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000098) on
February 26, 1996.
(m) (1) Distribution Plan for the ISI Managed Municipal Fund Shares incorporated
by reference to Exhibit 15(a) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-32819), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000098) on
February 26, 1996.
<PAGE>
(2) Distribution Plan for the Flag Investors Managed Municipal Fund Class A
Shares incorporated by reference to Exhibit 15(b) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A (File No. 33-32819),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000098) on February 26, 1996.
(3) Amended Distribution Plan for the ISI Managed Municipal Fund Shares
incorporated by reference to Exhibit 15(c) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 33-32819), filed with
the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000479) on February 25, 1998.
(4) Amended Distribution Plan for the Flag Investors Managed Municipal Fund
Class A Shares incorporated by reference to Exhibit 15(d) to Post-Effective
Amendment No. 12 to Registrant's Registration Statement on Form N-1A (File No.
33-32819), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000479) on February 25, 1998.
(n) Financial Data Schedule, not applicable.
(o) (1) Rule 18f-3 Plan incorporated by reference to Exhibit 18(a) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-32819), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000098) on February 26, 1996.
(2) Amended Rule 18f-3 Plan, incorporated by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-32819), filed with the Securities and Exchange Commission
via EDGAR on December 30, 1998.
(p) Code of Ethics, not applicable.
(q) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification.
Sections 1,2,3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit a to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its shareholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify and advance expenses to its officers to the
same extent as to its directors and to such further extent as is consistent with
law. The Board of Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents in the By-Laws of
the Corporation or by resolution or agreement to the fullest extent permitted by
the Maryland General Corporation Law.
<PAGE>
Section 3. No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further amendment
to the Charter of the Corporation shall decrease, but may expand, any right of
any person under this Article VIII based on any event, omission or proceeding
prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. In the absence of a determination by a court
of competent jurisdiction, the determinations that indemnification against such
liabilities is proper, and advances can be made, are made by a majority of a
quorum of the disinterested, non-party directors of the Fund, or an independent
legal counsel in a written opinion, based on review of readily available facts.
Item 26. Business and Other Connections of Investment Advisor.
During the past two fiscal years: Edward S. Hyman, Jr., Chairman of the
Investment Advisor, served as Chairman, Chief Executive Officer and a Director
of International Strategy & Investment Group Inc., the distributor for the
Fund's ISI Managed Municipal Fund Shares; R. Alan Medaugh, President of the
Investment Advisor, served as a Director of International Strategy & Investment
Group Inc.; Nancy Lazar, Executive Vice President and Secretary of the
Investment Advisor, served as Executive Vice President and a Director of
International Strategy & Investment Group, Inc.; and Joel Fein, Chief Financial
Officer of the Investment Advisor served as Chief Financial Officer of
International Strategy & Investment Group Inc.
Item 27. Principal Underwriters.
ICC DISTRIBUTORS, INC.
(a) ICC Distributors, Inc., the distributor for shares of the Flag
Investors Managed Municipal Fund Shares of Managed Municipal Fund,
Inc., acts as principal underwriter for the following open-end
investment companies: BT Advisor Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, Cash Management Portfolio, Intermediate Tax Free
Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Capital
Appreciation Portfolio, Asset Management Portfolio, BT Investment
Portfolios, Deutsche Banc Alex. Brown Cash Reserve Fund, Inc., Flag
<PAGE>
Investors Communications Fund, Inc., Flag Investors Emerging Growth
Fund, Inc., the Flag Investors Total Return U.S. Treasury Fund Shares
of Total Return U.S. Treasury Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Real Estate Securities Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Flag Investors International
Fund, Inc., Flag Investors Funds, Inc. (formerly known as Deutsche
Funds, Inc.), Flag Investors Portfolios Trust (formerly known as
Deutsche Portfolios), Morgan Grenfell Funds, Glenmede Fund, Inc. and
Glenmede Portfolios.
<TABLE>
<CAPTION>
(b) Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
<S> <C> <C>
John Y. Keffer President None
Ronald H. Hirsch Treasurer None
Nanette K. Chern Chief Compliance Officer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Frederick Skillin Assistant Treasurer None
Marc D. Keffer Assistant Secretary None
</TABLE>
- -----
* Two Portland Square
Portland, ME 04101
(c) Not applicable.
INTERNATIONAL STRATEGY & INVESTMENT GROUP INC.
(a) International Strategy & Investment Group Inc., the distributor for ISI
Managed Municipal Fund Shares (a class of Managed Municipal Fund,
Inc.), also acts as distributor for ISI Total Return U.S. Treasury Fund
Shares (a class of Total Return U.S. Treasury Fund, Inc.), ISI North
American Government Bond Fund Shares (a class of North American
Government Bond Fund, Inc.), and ISI Strategy Fund Shares (a class of
ISI Strategy Fund, Inc.), registered open-end investment companies.
<TABLE>
<CAPTION>
(b) Names and Principal Position and Offices Position and Offices
Business Address** with Principal Underwriter with Registrant
<S> <C> <C>
Edward S. Hyman Chairman, Chief Chairman and Director
Executive Officer and Director
R. Alan Medaugh Director President and Director
Nancy Lazar Executive Vice President Vice President and Director
Joel Fein Chief Financial Officer None
</TABLE>
- -------------
** 535 Madison Avenue, 30th Floor
New York, New York 10022
(c) Not applicable.
<PAGE>
Item 28. Location of Accounts and Records.
Investment Company Capital Corp. ("ICC"), the Registrant's
administrator, transfer agent, dividend disbursing agent and accounting services
provider, One South Street, Baltimore, Maryland 21202, maintains physical
possession of each such account, book or other document of the Fund, except for
those accounts, books and documents maintained by the Registrant's investment
advisor, International Strategy & Investment Inc. ("ISI"), 535 Madison Avenue,
30th Floor, New York, New York 10022, by the distributor of the Flag Investors
Shares, ICC Distributors, Inc. Two Portland Square, Portland, Maine 04101, by
the distributor for the ISI Managed Municipal Fund Shares, International
Strategy & Investment Group Inc., 717 Fifth Avenue, New York, New York 10022,
and by the Registrant's custodian, Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ISI and ICC each maintained physical possession of all journals
containing itemized daily records of all purchases and sales of securities,
including sales and redemptions of Fund securities, and Bankers Trust Company
maintains physical possession of all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by the custodian
or transfer-agent), all receipts and disbursements of cash, and all other debts
and credits.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 14 to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933, as amended, and has duly caused this Registration Statement to be signed
on its behalf by the undersigned thereto duly authorized in the City of
Baltimore, in the State of Maryland, on the 29th day of February, 2000.
MANAGED MUNICIPAL FUND, INC.
By: /s/ R. Alan Medaugh
---------------------------
R. Alan Medaugh, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
<TABLE>
<CAPTION>
<S> <C>
* Chairman and Director
Edward S. Hyman February 29, 2000
President
R. Alan Medaugh February 29, 2000
* Director
Joseph R. Hardiman February 29, 2000
* Director
Louis E. Levy February 29, 2000
* Director
Carl W. Vogt, Esq. February 29, 2000
* Chief Financial and Accounting Officer
Charles A. Rizzo February 29, 2000
By: /s/Amy M. Olmert
-------------------------------
Amy M. Olmert, Attorney-In-Fact February 29, 2000
</TABLE>
<PAGE>
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's President pursuant to a properly executed power of
attorney.
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's Chief Financial Officer pursuant to a properly
executed power of attorney.
<PAGE>
As Amended Through
July 28, 1999
BY-LAWS
OF
MANAGED MUNICIPAL FUND, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Shareholder Meetings. The Corporation may, but
shall not be required to, hold a regular meeting of shareholders in any year in
which the Corporation is not required, under the Investment Company Act of 1940,
as amended (the "1940 Act"), to submit for shareholder approval the election of
director(s). If shareholder approval is required for the purpose set forth
above, the regular meeting shall be held, at which shareholders shall vote on
the proposal necessitating such meeting and shall transact any other business as
may properly be brought before the meeting. Regular meetings of shareholders, if
any, shall be held on such day during the month of June and at such time as
shall be designated by the Board of Directors and stated in the notice of the
meeting.
<PAGE>
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter or the
Corporation may be called for any purpose or purposes by a majority of the Board
of Directors or the President, and shall be called by the President or Secretary
on the written request of the shareholders as provided by the Maryland General
Corporation Law. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the shareholders held during the preceding twelve
(12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice,, Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of shareholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of shareholders shall be
deemed waived by any shareholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a signed waiver
of notice which is filed with the records of the meeting. A meeting of
shareholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting of
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
<PAGE>
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting
of shareholders may authorize another person or persons to act as proxy for the
shareholder by (1) a written authorization signed by such shareholder or the
shareholder's authorized agent; or (2) by telephone, a telegram, cablegram,
datagram or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Charter of the Corporation or these By-Laws, any corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the total
votes cast at a meeting of shareholders at which a quorum is present by the
holders of shares present in person or represented by proxy and entitled to vote
on such action, except that a plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
<PAGE>
Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of shareholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
<PAGE>
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number or Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may
be held with notice at such times and places as may be determined by the Board
of Directors.
<PAGE>
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons (as defined in the 1940 Act) of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
<PAGE>
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
<PAGE>
ARTICLE IV
Committees
----------
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or issue
capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require shareholder approval.
<PAGE>
Section 4. General. (a) One-third, but not less than two
members, of the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the transaction of
business at such meeting, and the act of a majority present shall be the act of
such committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of its
meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member or any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Board shall have the power at any time to change the membership of
any committee, to fill all vacancies, to designate alternate members, to replace
any absent or disqualified member, or to dissolve any such committee.
(b) All committees shall keep written minutes of
their proceedings and shall report such minutes to the Board. All such
proceedings shall be subject to revision or alteration by the Board; provided,
however, that third parties shall not be prejudiced by such revision or
alteration.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
<PAGE>
Section 3. Removal of Office, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
<PAGE>
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
<PAGE>
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
<PAGE>
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
<PAGE>
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
----
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of October in each year.
<PAGE>
ARTICLE IX
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
------------------------
Section 1. Checks Notes, Drafts. etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
<PAGE>
ARTICLE XII
Annual Statements
------------------
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
-----------------------------------------
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law and the 1940 Act, as such statutes are now or hereafter
in force.
<PAGE>
Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law and the 1940 Act, as
such statutes are now or hereafter in force, whether the standards required by
this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or
repealed at any annual meeting of the shareholders or at any special meeting of
the shareholders at which a quorum is present or represented, provided that
notice of the proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be amended, altered or
repealed by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board of Directors.
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 1st day of March,
2000 by and between MANAGED MUNICIPAL FUND, INC., a Maryland corporation (the "
Fund") and INTERNATIONAL STRATEGY & INVESTMENT INC., a Delaware corporation
("ISI"or the "Advisor"), with respect to the following:
WHEREAS, the Advisor serves as the Fund's investment advisor pursuant
to an Investment Advisory Agreement dated April 1, 1991; and
WHEREAS, the Advisor has voluntarily agreed to waive its fees and
reimburse expenses so that the Fund's total annual operating expenses do not
exceed 0.90% of its average daily net assets; and
WHEREAS, the Fund and the Advisor desire to formalize this voluntary
fee waiver and expense reimbursement arrangement for the period beginning on
March 1, 2000 and ending on February 28, 2001.
NOW THERETOFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. The Advisor agrees to waive its fees and reimburse expenses for a
period from March 1, 2000 to February 28, 2001 to the extent
necessary so that the Fund's total annual operating expenses do not
exceed 0.90% of its average daily net assets.
2. Upon the termination of the Investment Advisory Agreement, this
Agreement shall automatically terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term
or provision of the Investment Company Act of 1940 as amended (the
"1940 Act") shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any,
by the United States Courts or in the absence of any controlling
<PAGE>
decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement
shall be interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
MANAGED MUNICIPAL FUND, INC.
Attest: ______________________________ By: ______________________________
Name: ______________________________ Name: ____________________________
Title: ___________________________
INTERNATIONAL STRATEGY &
INVESTMENT INC.
Attest: ______________________________ By: ______________________________
Name: ______________________________ Name: ____________________________
Title: ___________________________
<PAGE>
1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS L L P
(215)963-5000 C O U N S E L O R S A T L A W
Fax: (215)963-5299
February 10, 2000
Managed Municipal Fund, Inc.
One South Street
Baltimore, Maryland 21202
Re: Opinion of Counsel regarding Post-Effective Amendment No. 14 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-32819)
---------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Managed Municipal Fund, Inc. (the "Fund") a
Maryland corporation, in connection with the above-referenced Registration
Statement which relates to the Fund's shares of common stock, par value $.001
per share (the "Shares"). This opinion is being delivered to you in connection
with the Fund's filing of Post-Effective Amendment No. 14 to the Registration
Statement (the "Amendment") to be filed with the Securities and Exchange
Commission pursuant to Rule 485(b) under the Securities Act of 1933. With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part, except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the State of Maryland to the existence and
good standing of the Fund dated February 9, 2000;
(b) the Articles of Incorporation of the Fund and all amendments
and supplements thereto (the "Articles of Incorporation");
<PAGE>
(c) a certificate executed by Felicia A. Emry, the Secretary of
the Fund, certifying as to the Fund's Articles of
Incorporation and By-Laws and certain resolutions adopted by
the Board of Directors of the Fund authorizing the issuance of
the shares; and
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Fund, we have examined the originals,
or certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of
the opinion that the Shares, when issued and sold in accordance with the
Articles of Incorporation and By-Laws, and for the consideration described in
the Registration Statement, will be legally issued, fully paid and
non-assessable under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/Morgan, Lewis & Bockius LLP
------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
MANAGED MUNICIPAL FUND, INC.
Secretary's Certificate
I, Felicia A. Emry, Secretary of Managed Municipal Fund, Inc., a
Maryland corporation (the "Fund"), hereby certify that each of (1) the Fund's
Articles of Incorporation as amended and supplemented through October 23, 1998;
(2) the Fund's By-Laws, as amended to date; and (3) the actions of the Board of
Directors of the Fund in authorizing the issuance of the shares of the Fund,
have not been further amended, modified or rescinded, and that such Articles of
Incorporation, By-Laws, and votes otherwise continue in full force and effect as
of the date hereof.
IN WITNESS WHEREOF, I hereunto sign my name this 8th day of February,
2000.
/s/Felicia A. Emry
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Felicia A. Emry
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A of our report dated
December 14, 1999, relating to the financial statements and financial highlights
which appear in the October 31, 1999 Annual Report to Shareholders of Managed
Municipal Fund, Inc., which is also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants" in such
Registration Statement.
/s/PRICEWATERHOUSECOOPERS LLP
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PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 29, 2000
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MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
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KNOW ALL PERSONS BY THESE PRESENTS, that, Edward S. Hyman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Edward S. Hyman
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Edward S. Hyman
Date: January 14, 2000
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MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
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KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Joseph R. Hardiman
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Joseph R. Hardiman
Date: January 14, 2000
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MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
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KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Louis E. Levy
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Louis E. Levy
Date: January 14, 2000
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MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, R. Alan Medaugh, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/R. Alan Medaugh
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R. Alan Medaugh
Date: January 14, 2000
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles A. Rizzo, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Treasurer of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Charles A. Rizzo
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Charles A. Rizzo
Date: January 14, 2000
<PAGE>
MANAGED MUNICIPAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux, Amy M.
Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Managed Municipal Fund, Inc.
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as President of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Carl W. Vogt
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Carl W. Vogt
