ISI
TOTAL RETURN
U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Edward S. Hyman Carl W. Vogt, Esq.
Chairman Director
Richard T. Hale R. Alan Medaugh
Vice Chairman President
Charles W. Cole, Jr. Nancy Lazar
Director Vice President
James J. Cunnane Carrie L. Butler
Director Vice President
John F. Kroeger Margaret M. Beeler
Director Assistant Vice President
Louis E. Levy Keith C. Reilly
Director Assistant Vice President
Eugene J. McDonald Amy M. Olmert
Director Secretary
Rebecca W. Rimel Joseph A. Finelli
Director Treasurer
Truman T. Semans 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.
INVESTMENT ADVISOR
ISI Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
SHAREHOLDER SERVICING AGENT
Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
(800) 882-8585
DISTRIBUTOR
ISI Group Inc.
717 Fifth Avenue
New York, NY10022
(800) 955-7175
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A CLASS OF TOTAL RETURN
U.S. TREASURY FUND, INC.)
TREASURIES
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
INVESTMENT ADVISOR'S REPORT
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 Target Rate 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.
U.S. TREASURY HISTORICAL YIELD CURVES
[CHART APPEARS HERE - SEE PLOT POINTS BELOW]
U.S. Treasury U.S. 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 ISI's Economic Outlook that follows this letter
for more details.
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
1
<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%
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 - PLOT POINTS BELOW]
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
2
<PAGE>
ECONOMIC OUTLOOK (CONCLUDED)
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
[CHART APPEARS HERE - PLOT POINTS BELOW]
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
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.
3
<PAGE>
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
Fund's currently effective 4.45% maximum sales charge.
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
% Return with
Periods ended 3/31/98: Sales Charge
- ----------------------------------------------------
One Year 9.19%
- ----------------------------------------------------
Five Years 6.18%
- ----------------------------------------------------
Since Inception (8/10/88) 8.21%
- ----------------------------------------------------
These 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.
----------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the ISI Funds, including
charges and expenses, obtain a prospectus from your investment representative or
directly from the Fund at 1-800-955-7175. Read it carefully before you invest.
----------------------------------
4
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
STATEMENT OF NET ASSETS
APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
MATURITY PAR VALUE
INTEREST RATE 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>
5
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
APRIL 30, 1998
(UNAUDITED)
MARKET
VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
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
======
- --------------------------------------------------------------------------------
* Yield as of April 30, 1998.
**Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
6
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<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>
See Notes to Financial Statements.
7
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, 1998 ENDED
(UNAUDITED) OCTOBER 31, 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)
Distribution 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
============ ============
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FINANCIAL HIGHLIGHTS--ISI CLASS AND FLAG INVESTORS CLASS A SHARES (FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1998(2) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning
of period $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35 $ 10.47
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.25 0.55 0.56 0.57 0.51 0.62
Net realized and unrealized
gain/(loss) on investments 0.12 0.30 (0.23) 1.04 (1.16) 1.12
-------- -------- -------- -------- -------- --------
Total from Investment
Operations 0.37 0.85 0.33 1.61 (0.65) 1.74
LESS DISTRIBUTIONS:
Dividends from net investment
income and short-term gains (0.32) (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 (0.32) (0.64) (0.69) (0.64) (1.48) (0.86)
-------- -------- -------- -------- -------- --------
Net asset value at end of period $ 10.09 $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35
======== ======== ======== ======== ======== ========
TOTAL RETURN 3.69% 9.00% 3.44% 18.09% (6.22)% 17.33%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.84%(1) 0.83% 0.81% 0.80% 0.77% 0.77%
Net investment income 5.09%(1) 5.62% 5.69% 5.94% 4.98% 5.21%
SUPPLEMENTAL DATA:
Net assets at end of period (000):
Flag Class A Shares $118,546 $122,229 $143,791 $164,206 $175,149 $224,790
ISI Class Shares $166,594 $171,074 $193,486 $206,615 $200,309 $232,103
Portfolio turnover rate 89% 92% 199% 194% 68% 249%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) Unaudited.
See Notes to Financial Statements.
9
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FINANCIAL HIGHLIGHTS--FLAG INVESTORS CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE PERIOD
PERIOD ENDED YEAR ENDED MAY 28, 1996(1)
APRIL 30, OCTOBER 31, THROUGH
1998(3) 1997 OCTOBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at 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.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. 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:
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.
REPURCHASE AGREEMENTS -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement
is a short-term investment in which the Fund buys a debt security that the
broker agrees to repurchase at a set time and price. The third party, which
is the broker's custodial bank, holds the collateral in a separate account
until the repurchase agreement matures. The agreement ensures that the
collateral's market value, including any accrued interest, is sufficient if
the broker defaults. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral declines or
if the broker enters into an insolvency proceeding.
FEDERAL INCOME TAXES -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. 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
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
from most, if not all, federal income and excise taxes. As a result, the
Fund has made no provisions for federal income taxes.
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.
B. 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 New York 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. ("ISIGroup"), 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 ICCDistributors, Inc. ("ICCDistributors"), 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
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$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.
C. CAPITAL SHARE TRANSACTIONS -- The Fund is authorized to issue up to 100
million shares of $.001 par value capital stock (44 million ISI Class, 44
million Flag Investors Class A, 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:
ISI CLASS OF SHARES $624,162
Flag Investors Class A Shares 9,153
Flag Investors Class B Shares 873,053
Transactions in shares of the Fund were as follows:
ISI CLASS SHARES
----------------------------
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1998 1997
------------ ------------
Shares sold 655,451 2,043,599
Shares issued to share-
holders on reinvest-
ment 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)
============ ============
FLAG INVESTORS CLASS A SHARES
-----------------------------
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1998 1997
------------- ------------
Shares sold 426,490 490,187
Shares issued to share-
holders on reinvest-
ment 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)
============ ============
FLAG INVESTORS CLASS B SHARES
-----------------------------
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1998 1997
------------- -----------
Shares sold 123,507 85,484
Shares issued to share-
holders on reinvest-
ment 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
=========== ==========
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
D. 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.
On 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.
E. NET ASSETS -- 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
============
F. 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.
14
<PAGE>
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