[FLAG INVESTORS LOGO]
FLAG INVESTORS
[PHOTOGRAPH APPEARS HERE]
FLAG
INVESTORS
TOTAL
RETURN
U.S. TREASURY
FUND
SHARES
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the period ended
April 30, 1998. As of this date, the Fund recorded a 6-month total return of
3.7% and a 12-month total return of 12.8%. Since its inception on August 10,
1988, the Fund has produced a cumulative total return of 124.45%, which
translates into an average annual total return of 8.7%. These figures assume the
reinvestment of dividends and capital gains distributions and exclude the impact
of any sales charge.
OVERVIEW
Over the last 12 months, the Federal Reserve has maintained its 5.5%
Federal Funds Rate Target while long rates have fallen by 1%. Reduced
inflationary expectations and a Federal Government surplus have produced this
flattening of the Treasury yield curve. Please see chart below.
US Treasury Historical Yield Curve
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
U.S. U.S.
Treasury Treasury
4/30/97 4/30/98
------- -------
3 month 5.238 4.978
6 month 5.522 5.222
1 year 5.887 5.379
2 year 6.274 5.566
3 year 6.398 5.604
5 year 6.565 5.637
10 year 6.709 5.673
30 year 6.954 5.951
Source: Bloomberg Inc.
Our expectation is that long rates will continue to come down while the
Federal Reserve maintains its Federal Funds Rate Target. This has been the case
over the last 12 months. A flattening yield curve typically helps slow the
economy. In this environment long maturity bonds outperform short and
intermediate issues. Please see the Economic Outlook that follows this letter
for more details.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
PORTFOLIO
We are optimistic that low and declining inflation will produce a drop in
long-term Treasury rates. As a result, the Fund's maturity has been extended
since our last report in October, 1997. Please see the table below which shows
the monthly change in the Fund's duration (a measure of maturity that includes
the effect of interest payments).
FUND AVERAGE PORTFOLIO DURATION
Oct 97 Nov 97 Dec 97 Jan 98 Feb 98 Mar 98 Apr 98
- --------------------------------------------------------------------------------
Duration in years 6.7 7.0 7.4 7.5 7.6 7.6 7.5
................................................................................
The Fund's duration at 6.7 years in October, 1997 was already long when
contrasted with the Treasury Market as a whole. For example, in October, 1997,
Lehman Brothers calculated the average duration of the Treasury market,
excluding short term bills and issues due in less than 1 year, to be 5.05 years.
Currently, the Fund's 7.5 year duration means it is even longer now relative to
the Treasury market as a whole. The Fund's basic long position and its recent
extension are due to the outlook for lower rates over the balance of 1998. Lower
rates imply capital gains for long maturity bond investors.
We would like to welcome our new investors to the Fund and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
___________________
R. Alan Medaugh
President
May 22, 1998
2
<PAGE>
ECONOMIC OUTLOOK
- --------------------------------------------------------------------------------
OVERVIEW
The U.S. economy is very strong. First Quarter real growth could be as high
as 5%. The Asia crisis is also exerting a very strong pull. Net, U.S. growth is
likely to slow to 3% over the remainder of 1998. The outline of a slowdown is
appearing now. Here's a list of those slowdown factors:
1. Asia's circumstances are worsening. For example, perceived high risk
and limited investment prospects have caused Japanese government
10-year bonds to fall to a 1.3% yield.
2. Commodity prices are falling. The Commodity Research Bureau's Index
declined to a 5-year low last week indicating reduced demand for raw
materials.
3. Unemployment claims in May have begun a sideways pattern which is
consistent with 3% growth.
4. U.S. industrial production has flattened out.
5. First quarter inventory accumulation was a high $75 to $90 billion
leaving little room for additional inventory building in the second
quarter.
ISI's interest rate outlook is for declining long term rates for the
balance of 1998. We expect the Federal Reserve to maintain its 5.5% Federal
Funds Rate Target. By year-end we expect long rates to be lower than overnight
rates. Please see Forecast table below.
ISI FORECAST
97:3Q 97:4Q 98:1Q 98:2Q 98:3Q 98:4Q
- --------------------------------------------------------------------------------
Real GDP 3.1% 3.7% 4.2% 3.0% 3.0% 3.0%
................................................................................
GDP Deflator 1.4% 1.4% 0.9% 1.0% 1.0% 1.0%
................................................................................
30-Year Bond Yields* 6.4% 5.9% 5.9% 5.7% 5.5% 5.4%
................................................................................
Fed Funds Rate* 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
................................................................................
3
<PAGE>
ECONOMIC OUTLOOK (CONTINUED)
- --------------------------------------------------------------------------------
ASIA
Looking at the stock markets around the world, the difficulties in Asia are
affecting one third of the world's economy. The evidence is mounting that the
Asian financial crisis will continue through the third and fourth quarter
pulling many developing and some developed economies (Australia) with them. The
IMF's insistence on restructuring, budget cutting, and price hikes on subsidized
commodities has caused immediate illiquidity, falling consumer confidence,
social turmoil and bankruptcies. The credit crunch has led to credit quality
downgrades across the region. Wealth held in the equity and property markets has
been severely undermined. Social unrest present in Indonesia could easily spread
to South Korea, Thailand and even Mainland China. Capital flight from the region
which slowed in early 1998 seems to have picked up again as can be seen by
recent stock market volatility. See stock market chart below.
PAC RIM STOCKS
HK, Indo, Kor, Mal, Phil, Sing, Tai, Thai
Eq. Wts. May 15 65.4
[GRAPH APPEARS HERE]
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
01-Jan-97 100.00
02-Jan-97 99.22
03-Jan-97 99.32
06-Jan-97 99.24
07-Jan-97 99.63
08-Jan-97 100.39
09-Jan-97 100.66
10-Jan-97 100.98
13-Jan-97 101.01
14-Jan-97 101.00
15-Jan-97 102.12
16-Jan-97 102.54
17-Jan-97 102.81
20-Jan-97 103.84
21-Jan-97 103.23
22-Jan-97 103.26
23-Jan-97 103.19
24-Jan-97 102.96
27-Jan-97 102.24
28-Jan-97 102.40
29-Jan-97 101.83
30-Jan-97 102.30
31-Jan-97 102.35
03-Feb-97 102.30
04-Feb-97 102.28
05-Feb-97 102.32
06-Feb-97 102.51
07-Feb-97 102.53
10-Feb-97 102.56
11-Feb-97 102.37
12-Feb-97 102.56
13-Feb-97 102.59
14-Feb-97 102.47
17-Feb-97 102.60
18-Feb-97 101.89
19-Feb-97 102.76
20-Feb-97 103.43
21-Feb-97 103.03
24-Feb-97 103.01
25-Feb-97 103.28
26-Feb-97 103.14
27-Feb-97 102.61
28-Feb-97 102.69
03-Mar-97 102.37
04-Mar-97 101.85
05-Mar-97 101.59
06-Mar-97 101.46
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
07-Mar-97 101.86
10-Mar-97 101.65
11-Mar-97 102.02
12-Mar-97 101.82
13-Mar-97 101.07
14-Mar-97 99.94
17-Mar-97 100.49
18-Mar-97 100.25
19-Mar-97 99.96
20-Mar-97 99.65
21-Mar-97 98.44
24-Mar-97 98.27
25-Mar-97 98.67
26-Mar-97 99.61
27-Mar-97 99.33
28-Mar-97 99.30
31-Mar-97 99.21
01-Apr-97 98.28
02-Apr-97 98.81
03-Apr-97 98.11
04-Apr-97 98.10
07-Apr-97 98.35
08-Apr-97 98.46
09-Apr-97 98.87
10-Apr-97 98.37
11-Apr-97 98.56
14-Apr-97 97.85
15-Apr-97 97.64
16-Apr-97 98.05
17-Apr-97 97.55
18-Apr-97 97.33
21-Apr-97 97.82
22-Apr-97 97.29
23-Apr-97 97.88
24-Apr-97 97.72
25-Apr-97 97.43
28-Apr-97 97.13
29-Apr-97 95.90
30-Apr-97 96.16
01-May-97 96.24
02-May-97 95.83
05-May-97 96.90
06-May-97 97.19
07-May-97 97.02
08-May-97 96.64
09-May-97 96.66
12-May-97 95.79
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
13-May-97 96.02
14-May-97 96.10
15-May-97 94.73
16-May-97 94.68
19-May-97 95.01
20-May-97 95.35
21-May-97 95.92
22-May-97 96.01
23-May-97 96.39
26-May-97 96.44
27-May-97 97.04
28-May-97 97.32
29-May-97 97.67
30-May-97 98.52
02-Jun-97 99.49
03-Jun-97 99.42
04-Jun-97 99.15
05-Jun-97 98.77
06-Jun-97 98.60
09-Jun-97 98.88
10-Jun-97 98.29
11-Jun-97 97.85
12-Jun-97 97.47
13-Jun-97 97.86
16-Jun-97 98.73
17-Jun-97 98.67
18-Jun-97 98.26
19-Jun-97 98.56
20-Jun-97 99.83
23-Jun-97 99.74
24-Jun-97 99.29
25-Jun-97 99.24
26-Jun-97 99.24
27-Jun-97 99.77
30-Jun-97 100.01
01-Jul-97 100.39
02-Jul-97 101.09
03-Jul-97 101.65
04-Jul-97 102.59
07-Jul-97 102.28
08-Jul-97 101.66
09-Jul-97 101.21
10-Jul-97 100.77
11-Jul-97 101.48
14-Jul-97 101.58
15-Jul-97 101.30
16-Jul-97 101.08
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
17-Jul-97 101.40
18-Jul-97 101.78
21-Jul-97 101.95
22-Jul-97 101.13
23-Jul-97 101.10
24-Jul-97 101.52
25-Jul-97 101.79
28-Jul-97 102.46
29-Jul-97 102.64
30-Jul-97 102.77
31-Jul-97 103.08
01-Aug-97 102.79
04-Aug-97 102.78
05-Aug-97 102.16
06-Aug-97 102.01
07-Aug-97 101.34
08-Aug-97 101.43
11-Aug-97 100.16
12-Aug-97 99.79
13-Aug-97 99.33
14-Aug-97 99.04
15-Aug-97 98.28
18-Aug-97 96.81
19-Aug-97 95.67
20-Aug-97 97.11
21-Aug-97 97.26
22-Aug-97 95.90
25-Aug-97 94.42
26-Aug-97 94.11
27-Aug-97 93.71
28-Aug-97 90.18
29-Aug-97 87.88
01-Sep-97 85.64
02-Sep-97 85.58
03-Sep-97 87.43
04-Sep-97 87.08
05-Sep-97 90.74
08-Sep-97 91.88
09-Sep-97 92.34
10-Sep-97 91.34
11-Sep-97 90.03
12-Sep-97 90.09
15-Sep-97 89.78
16-Sep-97 88.84
17-Sep-97 88.45
18-Sep-97 88.02
19-Sep-97 88.37
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
22-Sep-97 87.64
23-Sep-97 87.43
24-Sep-97 87.86
25-Sep-97 88.31
26-Sep-97 87.93
29-Sep-97 87.90
30-Sep-97 88.37
01-Oct-97 87.94
02-Oct-97 87.22
03-Oct-97 86.98
06-Oct-97 85.79
07-Oct-97 85.03
08-Oct-97 85.19
09-Oct-97 85.11
10-Oct-97 86.01
13-Oct-97 85.71
14-Oct-97 85.31
15-Oct-97 83.76
16-Oct-97 82.58
17-Oct-97 82.53
20-Oct-97 79.67
21-Oct-97 79.61
22-Oct-97 78.57
23-Oct-97 76.43
24-Oct-97 75.67
27-Oct-97 74.20
28-Oct-97 68.47
29-Oct-97 71.17
30-Oct-97 71.21
31-Oct-97 71.45
03-Nov-97 74.67
04-Nov-97 75.76
05-Nov-97 76.21
06-Nov-97 75.83
07-Nov-97 74.04
10-Nov-97 73.42
11-Nov-97 72.87
12-Nov-97 72.32
13-Nov-97 71.52
14-Nov-97 71.86
17-Nov-97 72.12
18-Nov-97 71.14
19-Nov-97 70.61
20-Nov-97 68.75
21-Nov-97 69.75
24-Nov-97 69.18
25-Nov-97 67.57
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
26-Nov-97 67.73
27-Nov-97 67.83
28-Nov-97 67.42
01-Dec-97 66.42
02-Dec-97 66.92
03-Dec-97 67.45
04-Dec-97 69.22
05-Dec-97 71.03
08-Dec-97 72.79
09-Dec-97 71.30
10-Dec-97 71.09
11-Dec-97 67.92
12-Dec-97 66.77
15-Dec-97 65.98
16-Dec-97 66.10
17-Dec-97 67.46
18-Dec-97 68.24
19-Dec-97 67.14
22-Dec-97 66.78
23-Dec-97 66.06
24-Dec-97 65.87
25-Dec-97 65.81
26-Dec-97 66.32
29-Dec-97 66.41
30-Dec-97 67.14
31-Dec-97 67.43
01-Jan-98 67.43
02-Jan-98 67.34
05-Jan-98 66.56
06-Jan-98 65.63
07-Jan-98 64.01
08-Jan-98 61.80
09-Jan-98 59.72
12-Jan-98 58.48
13-Jan-98 61.17
14-Jan-98 64.28
15-Jan-98 63.75
16-Jan-98 64.66
19-Jan-98 68.38
20-Jan-98 68.49
21-Jan-98 68.84
22-Jan-98 66.84
23-Jan-98 66.87
26-Jan-98 68.20
27-Jan-98 68.52
28-Jan-98 69.07
29-Jan-98 69.32
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
30-Jan-98 71.40
02-Feb-98 76.91
03-Feb-98 77.92
04-Feb-98 76.21
05-Feb-98 77.13
06-Feb-98 78.13
09-Feb-98 78.80
10-Feb-98 78.71
11-Feb-98 78.53
12-Feb-98 76.51
13-Feb-98 75.20
16-Feb-98 73.53
17-Feb-98 74.73
18-Feb-98 76.26
19-Feb-98 77.77
20-Feb-98 78.21
23-Feb-98 78.96
24-Feb-98 78.59
25-Feb-98 78.11
26-Feb-98 79.46
27-Feb-98 80.76
02-Mar-98 81.69
03-Mar-98 81.76
04-Mar-98 80.27
05-Mar-98 78.55
06-Mar-98 78.24
09-Mar-98 77.55
10-Mar-98 77.83
11-Mar-98 78.70
12-Mar-98 78.55
13-Mar-98 79.29
16-Mar-98 79.41
17-Mar-98 79.42
18-Mar-98 79.24
19-Mar-98 80.06
20-Mar-98 80.36
23-Mar-98 79.98
24-Mar-98 79.39
25-Mar-98 80.12
26-Mar-98 80.15
27-Mar-98 80.40
30-Mar-98 79.49
31-Mar-98 79.12
01-Apr-98 77.76
02-Apr-98 76.63
03-Apr-98 76.24
06-Apr-98 76.23
PAC RIM STOCKS
HK,lndo,Kor,Mal,Phil,Sing,Tai,Thai
07-Apr-98 76.63
08-Apr-98 77.26
09-Apr-98 77.40
10-Apr-98 77.34
13-Apr-98 77.40
14-Apr-98 77.40
15-Apr-98 76.13
16-Apr-98 74.94
17-Apr-98 74.43
20-Apr-98 73.98
21-Apr-98 73.34
22-Apr-98 73.51
23-Apr-98 73.05
24-Apr-98 72.95
27-Apr-98 71.67
28-Apr-98 71.69
29-Apr-98 71.28
30-Apr-98 71.26
01-May-98 71.04
04-May-98 70.43
05-May-98 69.90
06-May-98 68.46
07-May-98 68.60
08-May-98 68.22
11-May-98 68.34
12-May-98 67.38
13-May-98 65.47
14-May-98 65.51
15-May-98 65.44
18-May-98 64.52
19-May-98 64.70
20-May-98 65.73
21-May-98 66.60
22-May-98 66.53
25-May-98 65.79
26-May-98 64.77
4
<PAGE>
- --------------------------------------------------------------------------------
U.S. INFLATION
Many articles on Asia focus on its impact on U.S. growth. The typical
conclusion is that since the export sector of the U.S. economy is relatively
small, Asia's effect on the U.S. will be small. We think Asia's influence will
be great, especially on U.S. inflation. There are early indications that this
has already begun. For example, ISI's Manufacturing Company Pricing Power Survey
already indicates that it is difficult for U.S. companies to raise prices. See
chart below.
ISI MFG COMPANIES PRICING POWER SURVEY
0=Weak 100=Strong May 22 12.5
[GRAPH APPEARS HERE]
ISI MFG COMPANIES PRICING POWER SURVEY
0=WEAK 100=STRONG
07-Jan-94 20.8
14-Jan-94 20.8
21-Jan-94 20.8
28-Jan-94 21.4
04-Feb-94 21.4
11-Feb-94 16.7
18-Feb-94 16.7
25-Feb-94 16.7
04-Mar-94 25.0
11-Mar-94 25.0
18-Mar-94 24.1
25-Mar-94 24.1
01-Apr-94 24.1
08-Apr-94 20.8
15-Apr-94 20.8
22-Apr-94 20.8
29-Apr-94 23.6
06-May-94 23.6
13-May-94 23.6
20-May-94 27.8
27-May-94 27.8
03-Jun-94 32.5
10-Jun-94 32.5
17-Jun-94 33.9
24-Jun-94 33.9
01-Jul-94 33.9
08-Jul-94 35.3
15-Jul-94 35.3
22-Jul-94 35.3
29-Jul-94 35.3
05-Aug-94 33.9
12-Aug-94 33.9
19-Aug-94 33.9
26-Aug-94 43.6
02-Sep-94 43.6
09-Sep-94 45.8
16-Sep-94 45.8
23-Sep-94 52.8
30-Sep-94 52.8
07-Oct-94 52.8
14-Oct-94 52.8
21-Oct-94 54.4
28-Oct-94 54.4
04-Nov-94 56.9
11-Nov-94 56.9
18-Nov-94 57.5
25-Nov-94 57.5
<PAGE>
ISI MFG COMPANIES PRICING POWER SURVEY
0=Weak 100=Strong
02-Dec-94 57.8
09-Dec-94 57.8
16-Dec-94 58.9
23-Dec-94 58.9
30-Dec-94 60.6
06-Jan-95 60.6
13-Jan-95 60.8
20-Jan-95 60.8
27-Jan-95 61.4
03-Feb-95 61.4
10-Feb-95 56.9
17-Feb-95 56.9
24-Feb-95 56.9
03-Mar-95 58.9
10-Mar-95 58.9
17-Mar-95 57.8
24-Mar-95 57.8
31-Mar-95 54.4
07-Apr-95 54.4
14-Apr-95 57.2
21-Apr-95 57.2
28-Apr-95 56.7
05-May-95 56.7
12-May-95 57.2
19-May-95 57.2
26-May-95 52.5
02-Jun-95 52.5
09-Jun-95 48.3
16-Jun-95 48.3
23-Jun-95 43.1
30-Jun-95 43.1
07-Jul-95 41.8
14-Jul-95 41.8
21-Jul-95 41.8
28-Jul-95 41.8
04-Aug-95 45.7
11-Aug-95 45.7
18-Aug-95 45.7
25-Aug-95 45.7
01-Sep-95 45.4
08-Sep-95 45.4
15-Sep-95 42.5
22-Sep-95 42.5
29-Sep-95 42.1
06-Oct-95 42.1
13-Oct-95 40.4
20-Oct-95 40.4
<PAGE>
ISI MFG COMPANIES PRICING POWER SURVEY
0=Weak 100=Strong
27-Oct-95 39.9
03-Nov-95 39.9
10-Nov-95 37.8
17-Nov-95 37.8
24-Nov-95 37.8
01-Dec-95 37.8
08-Dec-95 36.7
15-Dec-95 36.7
22-Dec-95 34.2
29-Dec-95 34.2
05-Jan-96 34.2
12-Jan-96 34.2
19-Jan-96 29.4
26-Jan-96 29.4
02-Feb-96 28.9
09-Feb-96 28.9
16-Feb-96 28.6
23-Feb-96 28.6
01-Mar-96 28.1
08-Mar-96 28.1
15-Mar-96 28.5
22-Mar-96 28.5
29-Mar-96 29.0
05-Apr-96 29.0
12-Apr-96 29.0
19-Apr-96 29.0
26-Apr-96 29.3
03-May-96 29.3
10-May-96 31.0
17-May-96 31.0
24-May-96 31.5
31-May-96 31.5
07-Jun-96 34.4
14-Jun-96 34.4
21-Jun-96 34.4
28-Jun-96 34.4
05-Jul-96 32.5
12-Jul-96 32.5
19-Jul-96 32.8
26-Jul-96 32.8
02-Aug-96 32.2
09-Aug-96 32.2
16-Aug-96 32.2
23-Aug-96 32.2
30-Aug-96 32.2
06-Sep-96 32.2
13-Sep-96 31.9
<PAGE>
ISI MFG COMPANIES PRICING POWER SURVEY
0=WEAK 100=STRONG
20-Sep-96 31.9
27-Sep-96 31.1
04-Oct-96 31.1
11-Oct-96 30.6
18-Oct-96 30.6
25-Oct-96 30.8
01-Nov-96 30.8
08-Nov-96 30.3
15-Nov-96 30.3
22-Nov-96 30.0
29-Nov-96 30.0
06-Dec-96 28.8
13-Dec-96 28.8
20-Dec-96 27.2
27-Dec-96 27.2
03-Jan-97 27.2
10-Jan-97 27.2
17-Jan-97 26.9
24-Jan-97 26.9
31-Jan-97 28.1
07-Feb-97 28.1
14-Feb-97 28.9
21-Feb-97 28.9
28-Feb-97 26.4
07-Mar-97 26.4
14-Mar-97 26.4
21-Mar-97 26.4
28-Mar-97 25.6
04-Apr-97 25.6
11-Apr-97 25.0
18-Apr-97 25.0
25-Apr-97 25.0
02-May-97 25.0
09-May-97 24.7
16-May-97 24.7
23-May-97 24.7
30-May-97 24.7
06-Jun-97 24.4
13-Jun-97 24.4
20-Jun-97 24.4
27-Jun-97 24.4
04-Jul-97 22.8
11-Jul-97 22.8
18-Jul-97 23.9
25-Jul-97 23.9
01-Aug-97 24.4
08-Aug-97 24.4
<PAGE>
ISI MFG COMPANIES PRICING POWER SURVEY
0=Weak 100=Strong
15-Aug-97 24.4
22-Aug-97 24.4
29-Aug-97 24.7
05-Sep-97 24.7
12-Sep-97 24.4
19-Sep-97 24.4
26-Sep-97 24.7
03-Oct-97 24.7
10-Oct-97 24.7
17-Oct-97 24.7
24-Oct-97 23.9
31-Oct-97 23.9
07-Nov-97 23.9
14-Nov-97 23.9
21-Nov-97 24.2
28-Nov-97 24.2
05-Dec-97 23.5
12-Dec-97 23.5
19-Dec-97 22.5
26-Dec-97 22.5
02-Jan-98 22.3
09-Jan-98 22.3
16-Jan-98 22.0
23-Jan-98 22.0
30-Jan-98 21.5
06-Feb-98 21.5
13-Feb-98 21.0
20-Feb-98 21.0
27-Feb-98 20.5
06-Mar-98 20.5
13-Mar-98 20.0
20-Mar-98 20.0
27-Mar-98 19.5
03-Apr-98 19.5
10-Apr-98 19.0
17-Apr-98 19.0
24-Apr-98 18.8
01-May-98 18.8
08-May-98 15.5
15-May-98 15.5
22-May-98 12.5
5
<PAGE>
ECONOMIC OUTLOOK (CONCLUDED)
- --------------------------------------------------------------------------------
The inflation effect seems likely to last for quite a long time. The direct
competition from Asia suppliers plus persistent U.S. dollar strength (because
the U.S. is viewed as a safe haven) makes passing on any increases in labor
costs unlikely. There is a possible long run inflationary effect from the jump
in equity and real estate wealth but so far this has not crossed from the
financial economy to the real economy. As a result, 1998 inflation is likely to
be limited to a 1% increase.
6
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares and
2.00% maximum contingent deferred sales charge for the Fund's Class B Shares.
AVERAGE ANNUAL TOTAL RETURN
Periods Ended 3/31/98 1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Class A Shares 9.13% 6.17% 8.20%
................................................................................
Class B Shares 12.18% -- 9.94%
................................................................................
*Inception dates: Class A 8/10/88, Class B 6/20/96.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
7
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Par Market Value
Interest Rate Maturity Date (000) (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
U.S. TREASURY BONDS - 79.5%
12.000% 8/15/13 $27,500 $ 40,326,165
11.750 11/15/14 36,000 53,370,000
8.750 5/15/17 10,500 13,715,625
9.125 5/15/18 32,000 43,430,016
9.000 11/15/18 14,750 19,866,406
8.750 8/15/20 20,000 26,584,380
8.125 5/15/21 24,500 30,789,616
------------
Total U.S. Treasury Bonds
(Cost $229,782,238) 228,082,208
------------
ZERO COUPON U.S. TREASURY BONDS (S.T.R.I.P.S.) - 10.3%
5.620%* 2/15/99 31,000 29,674,161
------------
Total U.S. Treasury S.T.R.I.P.S.
(Cost $29,699,664) 29,674,161
------------
REPURCHASE AGREEMENT - 8.7%
Goldman Sachs & Co., 5.40%
Dated 4/30/98, to repurchased on 5/1/98, collateralized
by U.S. Treasury Bonds with a market value of $25,531,657.75.
(Cost $24,983,000) 24,983 24,983,000
------------
TOTAL INVESTMENTS IN SECURITIES - 98.5%
(Cost $284,464,902)** 282,739,369
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 1.5% 4,354,367
------------
NET ASSETS - 100.0% $287,093,736
============
</TABLE>
8
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
(Note 1)
- ------------------------------------------------------------------------------------
<S><C>
NET ASSET VALUE AND REDEMPTION PRICE PER:
Flag Investors Class A Share
($118,545,779 / 11,753,124 shares outstanding) $10.09
======
Flag Investors Class B Share
($1,953,475 / 193,534 shares outstanding) $10.09
======
ISI Class Share
($166,594,481 / 16,497,575 shares outstanding) $10.09
======
MAXIMUM OFFERING PRICE PER:
Flag Investors Class A Share
($10.09 / .955) $10.57
======
Flag Investors Class B Share $10.09
======
ISI Class Share
($10.09 / .9555) $10.56
======
</TABLE>
- ----------
* Yield as of April 30, 1998.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements
9
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
Ended
April 30,
- -----------------------------------------------------------------------------------
1998(1)
<S><C>
Investment Income:
Interest $ 8,617,569
-----------
Expenses:
Investment advisory fee 390,900
Distribution fee 365,449
Administration fee 174,014
Transfer agent fee 120,801
Accounting fee 41,636
Printing and postage 31,733
Custodian fee 20,705
Registration fees 10,297
Directors' fees 9,336
Miscellaneous 56,465
-----------
Total expenses 1,221,336
-----------
Net investment income 7,396,233
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 5,653,315
Change in unrealized appreciation/depreciation
of investments (2,243,750)
-----------
Net gain on investments 3,409,565
-----------
Net increase in net assets resulting from operations $10,805,798
===========
</TABLE>
- ----------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
April 30, October 31,
- -----------------------------------------------------------------------------------
1998(1) 1997
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 7,396,233 $ 17,322,998
Net gain/(loss) from security transactions 5,653,315 (2,143,673)
Change in unrealized appreciation/depreciation
on investments (2,243,750) 10,567,788
------------ ------------
Net increase in net assets
resulting from operations 10,805,798 25,747,113
------------ ------------
Dividends to Shareholders from:
Net investment income and short-term gains:
Flag Investors Class A Shares (3,808,308) (7,246,184)
Flag Investors Class B Shares (36,603) (17,762)
ISI Class Shares (5,341,460) (10,059,052)
Tax return of capital distribution:
Flag Investors Class A Shares -- (1,040,753)
Flag Investors Class B Shares -- (2,606)
ISI Class Shares -- (1,433,152)
Distributions in excess of net investment income:
Flag Investors Class A Shares -- (116,192)
Flag Investors Class B Shares -- (291)
ISI Class Shares -- (160,000)
------------ ------------
Total distributions (9,186,371) (20,075,992)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares 12,249,173 15,601,057
Value of shares issued in
reinvestment of dividends 5,616,495 12,541,599
Cost of shares repurchased (26,532,833) (77,072,611)
------------ ------------
Decrease in net assets derived
from capital share transactions (8,667,165) (48,929,955)
------------ ------------
Total decrease in net assets (7,047,738) (43,258,834)
Net Assets:
Beginning of period 294,141,473 337,400,307
------------ ------------
End of period (including undistributed net
investment income (loss) of ($3,351,950) and
(1,561,813), respectively) $287,093,735 $294,141,473
============ ============
- ----------
(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--FLAG INVESTORS CLASS A AND ISI SHARES
(For a share outstanding throughout each period)
</TABLE>
<TABLE>
<CAPTION>
For the
Period Ended
April 30,
- -----------------------------------------------------------------------------------
1998(2)
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $10.04
------
Income from Investment Operations:
Net investment income 0.25
Net realized and unrealized gain/(loss) on investments 0.12
------
Total from Investment Operations 0.37
Less Distributions:
Distributions from net investment income
and short-term gains (0.32)
Tax return of capital distribution --
Distributions in excess of net investment income --
Distributions from net realized long-term gains --
------
Total distributions (0.32)
------
Net asset value at end of period $10.09
======
Total Return 3.69%
Ratios to Average Daily Net Assets:
Expenses 0.84%(1)
Net investment income 5.09%(1)
Supplemental Data:
Net assets at end of period (000):
Flag Class A Shares $118,546
ISI Class Shares $166,594
Portfolio turnover rate 89%
</TABLE>
- ----------
(1) Annualized.
(2) Unaudited.
12
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 9.83 $ 10.19 $ 9.22 $ 11.35 $ 10.47
Income from Investment Operations:
Net investment income 0.55 0.56 0.57 0.51 0.62
Net realized and unrealized gain/(loss) on investments 0.30 (0.23) 1.04 (1.16) 1.12
------- ------- ------- ------- -------
Total from Investment Operations 0.85 0.33 1.61 (0.65) 1.74
Less Distributions:
Distributions from net investment income
and short-term gains (0.55) (0.65) (0.64) (1.15) (0.79)
Tax return of capital distribution (0.08) -- -- (0.05) --
Distributions in excess of net investment income (0.01) (0.04) -- -- --
Distributions from net realized long-term gains -- -- -- (0.28) (0.07)
------- ------- ------- ------- -------
Total distributions (0.64) (0.69) (0.64) (1.48) (0.86)
------- ------- ------- ------- -------
Net asset value at end of period $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35
======= ======= ======= ======= =======
Total Return 9.00% 3.44% 18.09% (6.22)% 17.33%
Ratios to Average Daily Net Assets:
Expenses 0.83% 0.81% 0.80% 0.77% 0.77%
Net investment income 5.62% 5.69% 5.94% 4.98% 5.21%
Supplemental Data:
Net assets at end of period (000):
Flag Class A Shares $122,229 $143,791 $164,206 $175,149 $224,790
ISI Class Shares $171,074 $193,486 $206,615 $200,309 $232,103
Portfolio turnover rate 92% 199% 194% 68% 249%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--FLAG INVESTORS CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the For the May 28, 1996(1)
Period Ended Year Ended through
April 30, October 31, October 31,
- ----------------------------------------------------------------------------------------
1998(3) 1997 1996
<S><C>
Per Share Operating Performance:
Net asset value, beginning
of period $10.03 $ 9.85 $10.00
------ ------ ------
Income from Investment Operations:
Net investment income 0.27 0.56 0.22
Net realized and unrealized gain/(loss)
on investments 0.09 0.23 (0.15)
------ ------ ------
Total from Investment Operations 0.36 0.79 0.07
Less Distributions:
Distributions from net investment
income and short-term gains (0.30) (0.56) (0.22)
Tax return of capital distribution -- (0.04) (0.22)
Distributions in excess of net
investment income -- (0.01) (0.22)
------ ------ ------
Total distributions (0.30) (0.61) (0.66)
------ ------ ------
Net asset value at end of period $10.09 $10.03 $ 9.41
====== ====== ======
Total Return: 3.64% 8.49% 6.40%
Ratios to Average Net Assets:
Expenses 1.19%(2) 1.18% 1.40%(2)
Net investment income 4.79%(2) 5.24% 5.43%(2)
Supplemental Data:
Net assets at end of period (000) $1,953 $ 838 $ 123
Portfolio turnover rate 89% 92% 199%(2)
</TABLE>
- ----------
(1) Commencement of operations.
(2) Annualized.
(3) Unaudited.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies
Total Return U.S. Treasury Fund, Inc. (the "Fund"), which was organized as
a Maryland Corporation on June 3, 1988 and commenced operations August 10, 1988,
is registered under the Investment Company Act of 1940 as a diversified,
open-end investment management company. It is designed to provide a high level
of total return with relative stability of principal as well as the secondary
objective of high current income consistent with an investment in securities
issued by the United States Treasury.
The Fund consists of three share classes: ISI Total Return U.S. Treasury
Fund Shares ("ISI Class") and Flag Investors Total Return U.S. Treasury Fund
Class A Shares ("Flag Investors Class A"), which both commenced August 10, 1988,
and Flag Investors Total Return U.S. Treasury Fund Class B Shares ("Flag
Investors Class B"), which commenced June 20, 1996.
The ISI Class Shares have a 4.45% maximum front-end sales charge, the Flag
Investors Class A Shares have a 4.50% maximum front-end sales charge and the
Flag Investors Class B Shares have a 2.00% maximum contingent deferred sales
charge. The classes each have different distribution fees.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. Under certain circumstances, it is necessary to reclassify prior year
information in order to conform to the current year's presentation. The Fund's
significant accounting policies are:
A. SECURITY VALUATION -- The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported
for the day by an independent pricing source. If there are no sales or
the security is not traded on a listed exchange, the Fund values the
security at the average of the last bid and asked prices in the
over-the-counter market. When a market quotation is unavailable, the
Investment Advisor determines a fair value using procedures that the
Board of Directors establishes and monitors. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost.
15
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
B. REPURCHASE AGREEMENTS -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement matures.
The agreement ensures that the collateral's market value, including any
accrued interest, is sufficient if the broker defaults. The Fund's
access to the collateral may be delayed or limited if the broker
defaults and the value of the collateral declines or if the broker
enters into an insolvency proceeding.
C. FEDERAL INCOME TAXES -- The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER -- The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed. Interest
income is recorded on an accrual basis and includes the pro rata
scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated to
each class based on its respective average net assets. Class specific
expenses are charged directly to each class. Dividends from net
investment income are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. Distributions in
excess of net investment income are due to differing tax treatments of
dividends declared.
16
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
International Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor and Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Bankers Trust Corporation, is the Fund's administrator. As compensation for its
advisory services, the Fund pays ISI an annual fee based on the Fund's average
daily net assets. This fee is calculated daily and paid monthly at the following
annual rates: 0.20% of the first $100 million, 0.18% of the next $100 million,
0.16% of the next $100 million, 0.14% of the next $200 million and 0.12% of the
amount over $500 million. In addition, the Fund pays ISI 1.5% of the Fund's
gross income.
As compensation for its administrative services, the Fund pays ICC an
annual fee based on the Fund's average daily net assets. This fee is calculated
daily and paid monthly at the following annual rates: 0.10% of the first $100
million, 0.09% of the next $100 million, 0.08% of the next $100 million, 0.07%
of the next $200 million and 0.06% of the amount over $500 million. In addition,
the Fund pays ICC 0.50% of the Fund's gross income.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or administrator.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $41,636 for accounting services for the period ended
April 30, 1998.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $120,801 for
transfer agent services for the period ended April 30, 1998.
Effective September 22, 1997, Bankers Trust Corporation became the Fund's
custodian. Prior to September 22, 1997, PNC Bank served as the Fund's custodian.
For the six-month period ended April 30, 1998, the Fund accrued $20,705 in
custody expenses.
As compensation for providing distribution services for the ISI Class, the
Fund pays ISI Group Inc. ("ISI Group"), which is affiliated with ISI, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the ISI Class' average daily net assets. As compensation
for providing distribution services for the Flag Investors classes, the Fund
pays ICC
17
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
Distributors, Inc. ("ICC Distributors"), which is not related to ICC, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the Flag Investors Class A Shares' average daily net
assets and 0.60% (including a 0.25% shareholder servicing fee) of the Flag
Investors Class B Shares' average daily net assets. For the period ended April
30, 1998, distribution fees aggregated $365,449, of which $211,532 was
attributable to the ISI Class Shares, $150,289 was attributable to the Flag
Investors Class A Shares and $3,628 was attributable to the Flag Investors Class
B Shares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period ended
April 30, 1998 was $9,336, and the accrued liability was $35,048.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 100 million shares of $.001 par value
capital stock (44 million Flag Investors Class A, 44 million ISI Class, 5
million Flag Investors Class B, 500,000 Flag Investors Class D and 6.5 million
undesignated).
The liability for dividends payable at April 30, 1998 was as follows:
Flag Investors Class A Shares $624,162
Flag Investors Class B Shares 9,153
ISI Class Shares 873,053
Transactions in shares of the Fund were as follows:
Flag Investors Class A Shares
---------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 October 31, 1997
-------------- ----------------
Shares sold 426,490 490,187
Shares issued to shareholders on
reinvestment of dividends 213,349 499,834
Shares redeemed (1,066,143) (3,438,672)
------------ ------------
Net decrease in shares outstanding (426,304) (2,448,651)
============ ============
Proceeds from sale of shares $ 4,347,343 $ 4,746,207
Reinvested dividends 2,160,740 4,867,694
Net asset value of shares redeemed (10,796,602) (33,514,991)
------------ ------------
Net decrease from capital share
transactions $ (4,288,519) $(23,901,090)
============ ============
18
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
NOTE 3--concluded
Flag Investors Class B Shares
---------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 October 31, 1997
-------------- ----------------
Shares sold 123,507 85,484
Shares issued to shareholders on
reinvestment of dividends 1,573 982
Shares redeemed (15,147) (15,359)
---------- -----------
Net increase in shares outstanding 109,933 71,107
========== ===========
Proceeds from sale of shares $1,253,959 $ 833,099
Reinvested dividends 15,924 9,591
Net asset value of shares redeemed (155,114) (150,979)
---------- -----------
Net increase from capital share
transactions $1,114,769 $ 691,711
========== ===========
ISI Class Shares
---------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 October 31, 1997
-------------- ----------------
Shares sold 655,451 2,043,599
Shares issued to shareholders on
reinvestment of dividends 339,654 865,140
Shares redeemed (1,533,978) (3,510,096)
------------ ------------
Net decrease in shares outstanding (538,873) (601,357)
============ ============
Proceeds from sale of shares $ 6,647,871 $ 20,394,040
Reinvested dividends 3,439,831 8,518,116
Net asset value of shares redeemed (15,581,117) (34,725,846)
------------ ------------
Net decrease from capital share
transactions $ (5,493,415) $ (5,813,690)
============ ============
19
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $230,210,075 and $234,333,673, respectively, for the
period ended April 30, 1998.
At April 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$1,008,688 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $2,734,221.
NOTE 5--Net Asset
At April 30, 1998, net assets consisted of:
Paid-in Capital:
Flag Investors Class A Shares $117,620,851
Flag Investors Class B Shares 1,925,359
ISI Class Shares 169,115,366
Undistributed net investment income (3,351,950)
Accumulated net realized gain from security transactions 3,509,642
Unrealized depreciation of investments (1,725,533)
------------
$287,093,735
============
NOTE 6--Tax Capital Loss Carryforward
On April 30, 1998, there was a tax capital loss carryforward of $2,143,673,
which expires in 2005. This carryforward will be used to offset any future net
capital gains.
20
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
EDWARD S. HYMAN
Chairman
RICHARD T. HALE R. ALAN MEDAUGH
Vice Chairman President
JAMES J. CUNNANE NANCY LAZAR
Director Vice President
JOHN F. KROEGER CARRIE L. BUTLER
Director Vice President
LOUIS E. LEVY MARGARET M. BEELER
Director Assistant Vice President
EUGENE J. MCDONALD KEITH C. REILLY
Director Assistant Vice President
REBECCA W. RIMEL AMY M. OLMERT
Director Secretary
TRUMAN T. SEMANS JOSEPH A. FINELLI
Director Treasurer
CARL W. VOGT, ESQ. SCOTT J. LIOTTA
Director Assistant Secretary
INVESTMENT OBJECTIVE
A mutual fund designed to provide a high level of total return with relative
stability of principal as well as the secondary objective of high current income
consistent with an investment in securities issued by the United States
Treasury.
21
<PAGE>
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<PAGE>
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<PAGE>
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- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
- --------------------------------------------------------------------------------
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
EQUITY INCOME
Flag Investors Real Estate Securities Fund
Flag Investors Communications Fund
(formerly Flag Investors Telephone Income Fund)
BALANCED
Flag Investors Value Builder Fund
INCOME
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
TAX-FREE INCOME
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
CURRENT INCOME
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
