[GRAPHIC OMITTED]
TOTAL RETURN
U.S. TREASURY FUND
SHARES
Semi-Annual Report
April 30, 2000
<PAGE>
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to report on the progress of your Fund for the period ended
April 30, 2000. For the first six months of the fiscal year, the Fund recorded a
total return of 4.24%. Since its inception on August 10, 1988, the Fund has
produced a cumulative total return of 144.13%, which translates into an average
annual total return of 7.9%. These figures assume the reinvestment of dividends
and capital gain distributions and exclude the impact of any sales charge.
PORTFOLIO MANAGEMENT
The Treasury is in the process of paying down its debt through a
combination of reduced issuance and the repurchase of older high coupon bonds.
The Fund has invested in high coupon issues to take advantage of the Treasury
buy back action. These issues have recently outperformed other Treasuries.
Please see below as an example of yield spread change during the last six
months.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
10/29/00 50.06
49
11/12/99 45
42
45
12/3/99 43
41
46
12/24/99 42
39
31
1/14/00 23
14
0.83
2/4/00 4.57
-7.08
-10.35
2/25/00 0.44
-6.63
-0.01
3/17/00 -1.41
-0.31
4.49
4/7/00 4.21
12.58
4.35
4/28/00 0.67
Six months ago the high coupon long treasuries had a yield 50 basis points
higher than 10-year Treasuries. At the end of April, the yields were the same.
At this point there is likely to be some additional relative appreciation for
the long issue, but as the buy backs go on, the Fund is likely to invest in the
ten-year maturity area, selling its long maturities and reducing cash reserves.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
--------------------------------------------------------------------------------
Our fundamental analysis of the economy indicates that strong growth will
persist into the second quarter keeping pressure on interest rates. The long
duration implications of the Fund's successful use of the buy back segment of
the Treasury market has been balanced by maintaining a high degree of short term
reserves. At the end of April the Fund had about 26% in short term investments.
ISI is looking for the right opportunity to reinvest in the ten-year maturity
range. Please see our Economic Outlook report that follows this letter for more
details.
We would like to welcome our new investors to the Fund and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/S/ SIGNATURE
R. Alan Medaugh
President
May 5, 2000>
2
<PAGE>
ECONOMIC OUTLOOK FOR 2000
--------------------------------------------------------------------------------
OVERVIEW
Currently, we see more negatives than positives for bonds. In establishing
our position on bonds, we look at three perspectives: 1) fundamentals, 2)
sentiment, and 3) technicals. Currently, we believe the fundamentals and
technicals are negative, while sentiment is positive. This mix puts us cautious
on bonds. We are watching the "fundamentals" for a possible change, given that
our company surveys last week predicted a slow down in the economy, money growth
is slowing and commodity prices have weakened. But strong growth reports have
been dominant so far. First quarter nominal growth was reported last week to be
running at an 8.1% annual rate. Inflation readings have also picked up. The
Employment Cost Index, a report closely watched by the Federal Reserve, jumped
to a 4.3% annual rate for the first quarter. The pick-up in inflation has gained
consumer attention according to the University of Michigan Inflation Expectation
report. Inflation expectations are up 100 basis points in the last year,
implying future pressure on wage demands. We expect the Federal Reserve will
increase the Federal Funds rate by 50 basis points in two 25 basis point moves
at the May and June meetings.
U.S. ECONOMY
Over the last five years a distinct economic growth pattern has persisted,
with the first quarter of the year strong relative to the fourth quarter of the
preceding year as illustrated in the chart below. For seasonal strength to
continue for five years means the forces behind the growth are accelerating
faster than the Bureau of Labor Statistics can adjust its seasonal models. We
believe the keys to this first quarter growth are accelerating tax refunds,
rising bonus payments and home mortgage refinancing windfalls.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
12/31/95 2.6
3/31/96 3.3
12/31/96 2.9
3/31/97 4.4
12/31/97 3.3
3/31/98 5.8
12/31/98 4.6
3/31/99 6.5
12/31/99 5.9
3/31/00 7.5
3
<PAGE>
ECONOMIC OUTLOOK FOR 2000 (CONCLUDED)
--------------------------------------------------------------------------------
The question is what's next. It would seem that the first quarter
acceleration story suggests growth slows in the second quarter. However, that
has not been the case. In the past four years, second quarter consumer spending
has accelerated half the time. This year there is a special stimulus: the repeal
of the Social Security earnings test for workers aged 65 to 69. This will
provide roughly a $1.4 billion tax cut for the second quarter, or almost $6
billion at an annual rate. So, it is likely that this year may see growth
persist at a higher rate into the second quarter. As a result, the Federal
Reserve will be forced to continue with its increases in short rates.
In the second half of 2000, we expect the Federal Reserve rate increases
along with those of other Central Banks will begin to dampen growth. Also
pointing to lower growth, money supply growth, which leads retail sales, has
rolled over in the last month. Equity prices have also been flat for the last
four months while exhibiting day to day volatility. This behavior is likely to
reduce consumer confidence. ISI sees a slow down developing from these factors.
FINANCIAL MARKETS
Strong growth in 1999 and a change in Federal Reserve policy pushed
interest rates up from 4.65% to 6.44% on 10-year U.S. Treasuries. After an early
2000 rally, strong growth and a hawkish Federal Reserve have again moved rates
higher. The stock market has also played a role in raising rates. The resulting
long-term build up of consumer balance sheet wealth has stimulated spending,
helping bolster economic growth. A year-end 1999 money growth acceleration to
head off any Y2K problems most likely exacerbated the performance of the
speculative part of the equity market such as the NASDAQ. The recent reversal of
the money acceleration seemed to have produced a sizeable drop in the same
speculative stock sector. As a result, price volatility has become an important
feature in the financial markets.
Looking ahead, we expect growth to slow in the second half of 2000. This is
likely to cap the Federal Reserve's interest rate increases and begin to lower
long-term bond yields.
4
<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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include the Fund's total return according to a standardized formula.
The SEC standardized total return figures include the impact of the maximum
4.5% initial sales charge for the Class A Shares. Returns would be higher for
Class A Shares investors who qualified for a lower initial sales charge.
AVERAGE ANNUAL TOTAL RETURN 1
Periods Ended 4/30/00 1 Year 5 Years 10 Years Since Inception*
Class AShares (2.39)% 6.06% 7.76% 7.47%
--------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. Since investment
return and principal value will fluctuate, an investor's shares may be worth
more or less than their original cost when redeemed.
* Inception date: 8/10/88.
The SEC total return figures may differ from total return figures in the
shareholder letter because the SEC figures include the impact of sales charges
while the total return figures in the shareholder letter do not. Any performance
figures shown are for the full period indicated.
These figures assume the reinvestment of dividends and capital gain
distributions.
5
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Par
Interest Rate Maturity Date (000) Value
------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY BONDS - 70.1%
--------------------------------------------------------------------------------
<S> <C> <C> <C>
10.375% 11/15/12 $24,250 $ 29,539,531
8.875 2/15/19 29,500 37,732,358
8.125 8/15/19 35,000 42,060,165
8.500 2/15/20 41,000 51,109,083
8.125 8/15/21 11,400 13,843,875
------------
Total U.S. Treasury Bonds
(Cost $188,897,720) ....................................... 174,285,012
------------
--------------------------------------------------------------------------------
ZERO COUPON U.S. TREASURY BONDS (STRIPS)1 - 2.8%
--------------------------------------------------------------------------------
6.245%* 5/15/17 19,500 6,850,292
------------
Total Zero Coupon U.S. Treasury Bonds (STRIPS)1
(Cost $7,598,893) ......................................... 6,850,292
------------
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 26.1%
--------------------------------------------------------------------------------
Goldman Sachs & Co., 5.63%
Dated 4/28/00, to be repurchased on
5/1/00, collateralized by U.S. Treasury
Notes with a market value of $22,054,683.
(Cost $21,622,000) ................................. 21,622 21,622,000
J.P. Morgan Securities, Inc., 5.70%
Dated 4/28/00, to be repurchased on
5/1/00, collateralized by U.S.
Treasury Notes with a market value of $22,053,968.
(Cost $21,621,000) ................................. 21,621 21,621,000
Morgan Stanley &Co., 5.68%
Dated 4/28/00, to be repurchased on
5/1/00, collateralized by U.S.
Treasury Notes with a market value of $22,162,315.
(Cost $21,621,000) ................................. 21,621 21,621,000
------------
Total Repurchase Agreements
(Cost $64,864,000) ........................................ 64,864,000
------------
TOTAL INVESTMENTS -- 99.0%
(Cost $261,360,613) .......................................... 245,999,304
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0% ...................... 2,442,164
------------
NET ASSETS -- 100.0% ............................................... $248,441,468
------------
------------
</TABLE>
6
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) APRIL 30, 2000
--------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER:
Flag Investors Class A Share
($107,227,390 / 11,375,726 shares outstanding) ............... $ 9.43
------
------
ISI Class Share
($141,214,078 / 14,982,918 shares outstanding) ............... $ 9.43
------
------
MAXIMUM OFFERING PRICE PER:
Flag Investors Class A Share
($9.43 / 0.955) .............................................. $ 9.87
------
------
ISI Class Share
($9.43 / 0.9555) ............................................. $ 9.87
------
------
--------------------
* Yield as of April 30, 2000.
1 Separate trading of registered interest and principal of securities.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six
Months Ended
April 30,
--------------------------------------------------------------------------------
2000 1
Investment Income:
Interest ................................................. $ 7,440,736
-----------
Expenses:
Investment advisory fee .................................. 342,194
Distribution fee ......................................... 316,252
Administration fee ....................................... 126,260
Transfer agent fee ....................................... 43,022
Accounting fee ........................................... 38,921
Custodian fee ............................................ 28,114
Professional fees ........................................ 26,428
Registration fees ........................................ 22,439
Printing and postage ..................................... 17,470
Miscellaneous ............................................ 2,069
-----------
Total expenses .................................. 963,169
-----------
Net investment income ....................................... 6,477,567
-----------
Realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions ............. (3,511,978)
Change in unrealized appreciation/depreciation
on investments ........................................ 7,395,398
-----------
Net gain on investments .................................. 3,883,420
-----------
Net increase in net assets resulting from operations ........ $10,360,987
-----------
-----------
---------------
1 Unaudited.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
-----------------------------------------------------------------------------------
2000 1 1999
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ........................... $ 6,477,567 $ 13,390,796
Net realized gain/(loss) from
security transactions ........................ (3,511,978) 4,648,128
Change in unrealized appreciation/
depreciation on investments .................. 7,395,398 (29,808,640)
------------- ------------
Net increase/(decrease) in net assets
resulting from operations .................... 10,360,987 (11,769,716)
------------- ------------
Dividends to Shareholders from:
Net investment income and short-term gains:
Flag Investors Class A Shares ................ (3,730,213) (8,710,017)
Flag Investors Class B Shares ................ -- (186,679)
ISI Class Shares ............................. (4,926,629) (11,554,616)
------------- ------------
Net realized long-term gains:
Flag Investors Class A Shares ................ -- (2,005,712)
Flag Investors Class B Shares ................ -- (68,070)
ISI Class Shares ............................. -- (2,770,396)
------------- ------------
Total distributions ....................... (8,656,842) (25,295,490)
------------- ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares .................... 16,762,442 42,387,220
Value of shares issued in
reinvestment of dividends .................... 5,450,050 17,749,854
Cost of shares repurchased ...................... (41,892,474) (54,663,606)
------------- ------------
Increase/(decrease) in net assets derived
from capital share transactions .............. (19,679,982) 5,473,468
------------- ------------
Total decrease in net assets .................... (17,975,837) (31,591,738)
Net Assets:
Beginning of period ............................. 266,417,305 298,009,043
------------- ------------
End of period including distributions in excess
of net investment income of $556,835 for the
year ended October 31, 1999 .................. $248,441,468 $266,417,305
------------- ------------
------------- ------------
-----------------
<FN>
1 Unaudited.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- FLAG INVESTORS CLASS A
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
For the Six
Months Ended
April 30, For the Years Ended October 31,
-------------------------------------------------------------------------------------------------------------------------------
2000 2 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 9.35 $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.24 0.64 0.51 0.55 0.56 0.57
Net realized and unrealized gain/(loss) on investments 0.16 (1.03) 0.71 0.30 (0.23) 1.04
-------- -------- -------- -------- -------- --------
Total from Investment Operations ..................... 0.40 (0.39) 1.22 0.85 0.33 1.61
Less Distributions:
Distributions from net investment income
and short-term gains .............................. (0.32) (0.71) (0.64) (0.55) (0.65) (0.64)
Tax return of capital distribution ................... -- -- -- (0.08) -- --
Distributions in excess of net investment income ..... -- -- -- (0.01) (0.04) --
Net realized long-term gains ......................... -- (0.17) -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions .................................. (0.32) (0.88) (0.64) (0.64) (0.69) (0.64)
-------- -------- -------- -------- -------- --------
Net asset value at end of period ..................... $ 9.43 $ 9.35 $ 10.62 $ 10.04 9.83 $ 10.19
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total Return1 ........................................... 4.24% (3.82)% 12.50% 9.00% 3.44% 18.09%
Ratios to Average Daily Net Assets:
Expenses ............................................. 0.74%3 0.81% 0.85% 0.83% 0.81% 0.80%
Net investment income ................................ 4.97%3 4.68% 4.98% 5.62% 5.69% 5.94%
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares ..................... $107,227 $114,886 $122,785 $122,229 $143,791 $164,206
ISI Class Shares .................................. $141,214 $151,532 $171,336 $171,074 $193,486 $206,615
Portfolio turnover rate .............................. 5% 77% 179% 92% 199% 194%
------------
<FN>
1Total return excludes the effect of sales charge.
2 Unaudited.
3 Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
pages 10 and 11
<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 Period
November 1, 1998 June 20, 1996 2
through For the Years through
May 14, Ended October 31, October 31,
-------------------------------------------------------------------------------------------
1999 1 1998 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period ..................... $ 10.62 $ 10.03 $ 9.85 $ 10.00
-------- -------- -------- --------
Income from Investment
Operations:
Net investment income ............ 0.31 0.55 0.56 0.22
Net realized and unrealized
gain/(loss) on investments .... (0.70) 0.65 0.23 (0.15)
-------- -------- -------- --------
Total from Investment
Operations .................... (0.39) 1.20 0.79 0.07
Less Distributions:
Distributions from net
investment income and
short-term gains .............. (0.37) (0.61) (0.56) (0.22)
Tax return of capital
distribution .................. -- -- (0.04) --
Distributions in excess of net
investment income ............. -- -- (0.01) --
Net realized long-term gains ..... (0.17) -- -- --
-------- -------- -------- --------
Total distributions .............. (0.54) (0.61) (0.61) (0.22)
-------- -------- -------- --------
Net asset value at end
of period ..................... $ 9.69 $ 10.62 $ 10.03 $ 9.85
-------- -------- -------- --------
-------- -------- -------- --------
Total Return 3 ...................... (3.62)% 12.29% 8.49% 6.37%
Ratios to Average Daily Net Assets:
Expenses ......................... 1.24%4 1.20% 1.18% 1.40%4
Net investment income ............ 4.37%4 4.59% 5.24% 5.45%4
Supplemental Data:
Net assets at end
of period (000) ............... $ 129 $ 3,888 $ 838 $ 123
Portfolio turnover rate .......... 77%4 179% 92% 199%4
------------
<FN>
1 Class B Shares were converted to Class A Shares on May 14, 1999.
2 Commencement of operations.
3 Total return excludes the effect of sales charge.
4 Annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 began 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 two share classes: ISI Total Return U.S. Treasury Fund
Shares ("ISI Class Shares") and Flag Investors Total Return U.S. Treasury Fund
Class A Shares ("Flag Investors Class A Shares"), both of which began operations
August 10, 1988. Another class of shares, Flag Investors Total Return U.S.
Treasury Fund Class B Shares began operations June 20, 1996. The sale of the
Flag Investors Class B Shares was terminated and existing Flag Investors Class B
Shares were converted to Flag Investors Class A shares on May 14, 1999.
The ISI Class Shares have a 4.45% maximum front-end sales charge and the
Flag Investors Class A Shares have a 4.50% maximum front-end sales charge. The
classes have the same distribution fees.
When preparing the Fund's financial statements, management makes estimates
and assumptions in accordance with accounting principles generally accepted in
the United States. These estimates affect 1) the assets and liabilities that we
report at the date of the financial statements; 2) the contingent assets and
liabilities that we disclose at the date of the financial statements; and 3) the
revenues and expenses that we report for the period. These 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 not readily available, the Investment
Advisor determines a fair value using procedures that the Board of
Directors establishes and monitors. At April 30, 2000 there were no Board
Valued Securities. The Fund values short-term obligations with maturities
of 60 days or less at amortized cost which approximates fair market value.
13
<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 requires that the
collateral's market value, including any accrued interest, exceed the
broker's repurchase obligation. The Fund's access to the collateral may be
delayed or limited if the broker defaults 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 cost method for financial reporting and income tax
purposes to determine the gain or loss on 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, gains and common expenses are allocated to each
class based on its respective average net assets. Class specific expenses
are charged directly to each class. 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.
14
<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. 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. For the six months ended April
30, 2000, ISI's advisory fee was $342,194, of which $55,751 was payable at the
end of the period.
Investment Company Capital Corp. ("ICCC"), an indirect subsidiary of
Deutsche Bank AG, is the Fund's administrator. As compensation for its
administrative services, the Fund pays ICCC an annual fee based on the combined
assests of the ISI Funds that is calculated daily and paid monthly at the
following annual rates: 0.20% of the first $75 million, 0.15% of the next $75
million, 0.10% of the next $75 million, 0.05% of the next $275 million, and
0.03% of the amount over $500 million. For the six months ended April 30, 2000,
ICCC's administration fee was $126,260, of which $21,343 was payable at the end
of the period.
Certain officers and directors of the Fund are also officers or directors
of ISI or ICCC.
ICCC also provides accounting services to the Fund for which the Fund pays
ICCC an annual fee that is calculated daily and paid monthly from the Fund's
average daily net assets. For the six months ended April 30, 2000, ICCC's fee
was $38,921, of which $6,398 was payable at the end of the period.
ICCC also provides transfer agency services to the Fund for which the Fund
pays ICCC a per account fee that is calculated and paid monthly. For the six
months ended April 30, 2000, ICCC's fee was $43,022, of which $8,000 was payable
at the end of the period.
ISI Group, Inc. ("ISI Group"), which is affiliated with ISI, provides
distribution services for the ISI Class of the Fund for which ISI Group is paid
an annual fee that is calculated daily and paid monthly at an annual rate equal
to 0.25% of the ISI Class' average daily net assets.
15
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-- concluded
ICC Distributors, Inc. ("ICC Distributors") provides distribution services
for the Flag Investors Class of the Fund for which ICC Distributors is paid an
annual fee, pursuant to Rule 12b-1 that is calculated daily and paid monthly at
an annual rate equal to 0.25% of the Flag Investors Class A Shares' average
daily net assets. For the six months ended April 30, 2000, distribution fees
aggregated $316,252. ISI Group's fee was $179,944, of which $29,546 was payable
at the end of the period. ICC Distributor's fee was $136,308, of which $22,284
was payable at the end of the period.
NOTE 3 -- Capital Share Transactions
The Fund is authorized to issue up to 115 million shares of $.001 par value
capital stock (44 million Flag Investors Class A, 44 million ISI Class, 5
million Flag Investors Class B, 15 million Flag Investors Class C, 500,000 Flag
Investors Class D and 6.5 million undesignated). Transactions in shares of the
Fund were as follows:
Flag Investors Class A Shares
--------------------------------------
For the Six For the
Months Ended Year Ended
April 30, 20001 October 31, 1999
--------------------------------------
Shares sold ....................... 717,849 2,468,335
Shares issued to shareholders on
reinvestment of dividends ...... 249,745 718,480
Shares repurchased ................ (1,871,032) (3,016,885)
Conversion of shares from Class B . -- 545,490
------------- ------------
Net increase/(decrease) in shares
outstanding ..................... (903,438) 715,420
------------- ------------
------------- ------------
Proceeds from sale of shares ...... $ 6,704,560 $ 24,540,826
Value of reinvested dividends ..... 2,303,566 7,196,033
Cost of shares repurchased ........ (17,392,678) (29,260,245)
Conversion of shares from Class B . -- 5,578,323
------------- ------------
Net increase/(decrease) from capital
share transactions ............. $ (8,384,552) $ 8,054,937
------------- ------------
------------- ------------
----------------
1 Unaudited.
16
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
NOTE 3-- concluded
Flag Investors Class B Shares 1
-------------------------------
For the
Year Ended
October 31, 1999
------------------
Shares sold ................................ 394,876
Shares issued to shareholders on
reinvestment of dividends ............... 17,702
Shares repurchased ......................... (232,994)
Conversion of shares to Class A ............ (545,490)
-----------
Net decrease in shares
outstanding ............................. (365,906)
-----------
-----------
Proceeds from sale of shares ............... $ 4,030,932
Value of reinvested dividends .............. 181,819
Cost of shares repurchased ................. (2,355,421)
Conversion of shares to Class A ............ (5,578,323)
-----------
Net decrease from capital
share transactions ...................... $(3,720,993)
-----------
-----------
----------------
1 Converted to Class A Shares May 14, 1999.
ISI Class Shares
--------------------------------------
For the Six For the
Months Ended Year Ended
April 30, 2000 2 October 31, 1999
--------------------------------------
Shares sold ...................... 1,077,389 1,446,867
Shares issued to shareholders on
reinvestment of dividends ..... 338,261 983,017
Shares repurchased ............... (2,632,263) (2,351,273)
------------ -------------
Net increase/(decrease) in shares
outstanding .................... (1,216,613) 78,611
------------ -------------
------------ -------------
Proceeds from sale of shares ..... $ 10,057,882 $ 13,815,462
Value of reinvested dividends .... 3,146,484 10,372,002
Cost of shares repurchased ....... (24,499,795) (23,047,940)
------------ -------------
Net increase/(decrease) from capital
share transactions ............ $(11,295,429) $ 1,139,524
------------ -------------
------------ -------------
-----------------
1 Converted to Class A Shares May 14, 1999.
2 Unaudited.
17
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $31,656,082 and sales of investment securities aggregated $9,533,725
for the six months ended April 30, 2000.
On April 30, 2000, aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value was $15,361,309.
NOTE 5 -- Net Assets
On April 30, 2000, net assets consisted of:
Paid-in capital
Flag Investors Class A Shares ................................. $115,156,737
ISI Class Shares .............................................. 155,096,956
Distributions in excess of net investment income ................. (2,736,110)
Accumulated distributions in excess of capital gain on investments (3,714,806)
Unrealized appreciation/(depreciation) of investments ............ (15,361,309)
------------
$248,441,468
------------
------------
NOTE 6 -- Subsequent Event
Effective June 1, 1999 ICC's fees for providing administrative services to
the Fund were changed to the following schedule:
Combined Assets of ISI Funds Incremental Fee
---------------------------- ---------------
$0-$75,000,000 .20%
$75,000,000-$150,000,000 .15%
$150,000,000-$225,000,000 .10%
$225,000,000-$500,000,000 .05%
over $500,000,000 .03%
18
<PAGE>
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<PAGE>
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<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
EDWARD S. HYMAN
CHAIRMAN
R. ALAN MEDAUGH MARGARET M. BEELER
PRESIDENT ASSISTANT VICE PRESIDENT
JOSEPH R. HARDIMAN SUZANNE H. UGHETTA
DIRECTOR ASSISTANT VICE PRESIDENT
LOUIS E. LEVY KEITH C. REILLY
DIRECTOR ASSISTANT VICE PRESIDENT
CARL W. VOGT, ESQ. CHARLES A. RIZZO
DIRECTOR TREASURER
NANCY LAZAR FELICIA A. EMRY
VICE PRESIDENT SECRETARY
EDWARD J. VEILLEUX AMY M. OLMERT
VICE PRESIDENT ASSISTANT SECRETARY
CARRIE L. BUTLER DANIEL O. HIRSCH
VICE PRESIDENT ASSISTANT SECRETARY
INVESTMENT OBJECTIVE
A mutual fund designed to provide a high level of total return with relative
stability of principal and, secondarily, high current income consistent with an
investment in securities issued by the United States Treasury.
--------------------------------------------------------------------------------
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>
[GRAPHIC OMITTED]
DOMESTIC EQUITY
Communications Fund
Emerging Growth Fund
Equity Partners Fund
Real Estate Securities Fund
Top 50 U.S.
Value Builder Fund
INTERNATIONAL EQUITY
European Mid-Cap Fund
International Equity Fund
Japanese Equity Fund
Top 50 Asia
Top 50 Europe
Top 50 World
FIXED INCOME
Managed Municipal Fund Shares
Short-Intermediate Income Fund
Total Return U.S. Treasury Fund Shares
MONEY MARKET
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
Distributed by:
ICC DISTRIBUTORS, INC.
TRSA (6/00)
