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Previous: WARBURG PINCUS CAPITAL APPRECIATION FUND, 497, 2000-01-03 |
Next: TOTAL RETURN U S TREASURY FUND INC, N-30D, 2000-01-03 |
(GRAPHIC APPEARS HERE)
(Flag Investors Logo)
Total Return
U.S. Treasury Fund
Shares
Annual Report
October 31, 1999
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
During a year of rising interest rates, the Fund recorded a total
return of -3.82%. Since its inception on August 10, 1988, the Fund has posted a
cumulative total return of 134.22%, which translates into an average annual
total return of 7.9%. These figures assume the reinvestment of dividends and
capital gain distributions, but exclude the impact of any sales charge. Please
review Additional Performance Information on page 7.
Review of Rates and Portfolio Management
Over the last six years, long Treasury interest rates have been
volatile, but have only marginally changed on a net basis. During last year,
interest rates moved up appreciably. Please see chart below.
30-YEAR MUNICIPAL AAA GENERAL OBLIGATIONS YIELDS
(GRAPHIC APPEARS HERE)
Date Yield
10/30/98 4.8
11/6/98 4.88
11/13/98 4.87
11/20/98 4.84
11/27/98 4.84
12/4/98 4.82
12/11/98 4.8
12/18/98 4.82
12/25/98 4.88
1/1/99 4.86
1/8/99 4.92
1/15/99 4.89
1/22/99 4.84
1/29/99 4.81
2/5/99 4.86
2/12/99 4.87
2/19/99 4.88
2/26/99 4.94
3/5/99 4.99
3/12/99 4.97
3/19/99 4.94
3/26/99 4.97
4/2/99 4.99
4/9/99 4.96
4/16/99 4.96
4/23/99 4.98
4/30/99 4.97
5/7/99 5.02
5/14/99 5.07
5/21/99 5.06
5/28/99 5.08
6/4/99 5.11
6/11/99 5.2
6/18/99 5.2
6/25/99 5.28
7/2/99 5.27
7/9/99 5.27
7/16/99 5.2
7/23/99 5.22
7/30/99 5.28
8/6/99 5.4
8/13/99 5.49
8/20/99 5.59
8/27/99 5.51
9/3/99 5.51
9/10/99 5.54
9/17/99 5.58
9/24/99 5.59
10/1/99 5.67
10/8/99 5.71
10/15/99 5.79
10/22/99 5.84
10/29/99 5.86
In this volatile environment, the Fund's maturity has been managed as
we seek to enhance its total return. Over the last year, a higher level of
reserves than normal has moderated the negative impact of rising rates. Over the
full cycle, active management has helped the Fund outperform static maturity
Treasury portfolios as measured by Lehman Brothers. Please see table below for
details.
Total Return Comparison
10/98-10/99 10/93-10/99
Total Return U.S. Treasury Fund(1) -3.82% 7.58%
5 year Treasury Index(2) -2.36% 5.91%
10 year Treasury Index(2) -6.42% 5.64%
30 year Treasury Index(2) -11.38% 4.96%
(1) Past performance is not an indicator of future results. Investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. These figures
assume the reinvestment of dividends and capital gains distribution but
exclude the impact of any sales charge.
(2) Source: Lehman Brothers
1
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
Value of Treasuries
The budget surplus for this and last fiscal year has reduced the
outstanding volume of Treasuries. Going forward, ISI expects a growing budget
surplus which will further reduce Treasury issuance. It may also mean the
Treasury enters the secondary market to buy back some of its older issues that
do not come due for a number of years. In addition to this favorable supply
picture for Treasuries, credit quality spreads are modestly narrower than those
of last October, giving Treasuries good relative value along with a growing
scarcity. Please see the table below.
Yield Spread vs. 10-Year Treasury Bonds*
10-Year Maturity 10/31/98 10/31/99
AAA Corporate Industrial +70 BP +68 BP
A Corporate Industrial +123 BP +115 BP
*Source: Bloomberg, Inc.
ISI expects bond interest rates to decline after the early seasonal
burst of economic activity. Please see ISI's economic outlook that follows this
letter for more details.
We would like to welcome our new investors to the Fund and thank those
who have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
R. ALAN MEDAUGH
President
November 19, 1999
2
<PAGE>
ECONOMIC OUTLOOK FOR 2000
Overview
The strong economic performance in the U.S. and a tight labor market
caused the Federal Reserve to raise rates at its November Open Market Committee
Meeting. A surging stock market which added $1 trillion to the U.S. stock
market's value in the three weeks preceding the meeting probably also played a
role in the decision. The Federal Reserve is unlikely to raise rates at its late
December meeting because of Y2K concerns. The U.S. economy appears to be slowing
but much of the quarter's performance depends on Christmas. To gauge the
market's direction, we are watching five fundamental indicators:
1) Money Growth
2) Unemployment Claims
3) Stock Prices
4) ISI Company Surveys
5) Commodity Prices
Conveniently, the first letter of each of the above spell out MUSIC.
The global economies are growing briskly in large part due to
expanding world trade. In reaction to stronger growth the Central banks around
the world are reversing their year ago financial crisis driven easings. In
November, 1999 we counted 20 Central Bank interest rate increases contrasted to
18 easings October, 1998. We expect the Federal Reserve to raise short term
rates again during the first quarter of 2000. The tightening will counter the
seasonal strength in the U.S. economy. During this quarter and next we expect
long term rates to stay at these high levels as the market assesses the impact
of world wide central bank tightening action. Please see the forecast table
below.
ISI Economic Forecast
99:1Q 99:2Q 99:3Q 99:4Q* 00:1Q* 00:2Q*
Nominal GDP 5.7% 3.3% 5.8% 4.5% 5.5% 4.5%
GDP Deflator** 1.9% 1.4% 0.9% 1.5% 1.5% 1.5%
Real GDP 3.7% 1.9% 4.8% 3.0% 4.0% 3.0%
30 Year Bond Yields*** 5.6% 6.0% 6.1% 6.2% 6.2% 5.8%
Fed Funds Rate*** 4.7% 5.0% 5.3% 5.5% 5.7% 5.7%
*Estimated.
**A more accurate cost of living barometer than the CPI.
***End of Quarter.
3
<PAGE>
ECONOMIC OUTLOOK FOR 2000
The U.S. Economy
Over the past six weeks, our company surveys of front-end activity
have posted another downleg. For example, our retailers survey, which rolled
over in July, now has weekly readings below 40 for the past six weeks (very
soft). Another front-end indicator, our auto dealers survey, which peaked in
September, declined in October and declined further in the first half of
November. In contrast, back-end (mfg) activity has continued to firm. As the
chart below indicates, on balance so far the economy overall hasn't slowed
enough to take pressure off labor markets, but overall it is slowing.
ISI CO. SURVEYS OVERALL AVERAGE
(GRAPHIC APPEARS HERE)
[GROWTH IS SLOWING-hand written]
7-Nov-97 49.68
14-Nov-97 49.58
21-Nov-97 49.64
28-Nov-97 48.61
5-Dec-97 48.16
12-Dec-97 47.27
19-Dec-97 45.76
26-Dec-97 45.48
2-Jan-98 45.11
9-Jan-98 46.04
16-Jan-98 47.60
23-Jan-98 48.25
30-Jan-98 49.34
6-Feb-98 50.47
13-Feb-98 50.83
20-Feb-98 51.65
27-Feb-98 52.39
6-Mar-98 52.91
13-Mar-98 52.82
20-Mar-98 52.89
27-Mar-98 52.83
3-Apr-98 53.01
10-Apr-98 53.99
17-Apr-98 54.76
24-Apr-98 55.72
1-May-98 55.39
8-May-98 55.77
15-May-98 55.51
22-May-98 55.50
29-May-98 55.76
5-Jun-98 55.61
12-Jun-98 55.14
19-Jun-98 53.79
26-Jun-98 52.58
3-Jul-98 51.87
10-Jul-98 51.17
17-Jul-98 51.08
24-Jul-98 50.94
31-Jul-98 50.30
7-Aug-98 51.35
14-Aug-98 50.99
21-Aug-98 50.60
28-Aug-98 50.41
4-Sep-98 49.79
11-Sep-98 50.69
18-Sep-98 50.98
25-Sep-98 50.73
2-Oct-98 49.63
9-Oct-98 49.46
16-Oct-98 49.69
23-Oct-98 48.91
30-Oct-98 48.70
6-Nov-98 47.20
13-Nov-98 46.27
20-Nov-98 46.61
27-Nov-98 46.76
4-Dec-98 47.11
11-Dec-98 47.33
18-Dec-98 47.25
25-Dec-98 47.29
1-Jan-99 47.92
8-Jan-99 48.91
15-Jan-99 50.07
22-Jan-99 50.85
29-Jan-99 51.41
5-Feb-99 51.97
12-Feb-99 51.98
19-Feb-99 52.65
26-Feb-99 52.58
5-Mar-99 51.87
12-Mar-99 52.09
19-Mar-99 52.28
26-Mar-99 52.90
2-Apr-99 53.80
9-Apr-99 54.46
16-Apr-99 54.21
23-Apr-99 53.78
30-Apr-99 53.97
7-May-99 54.15
14-May-99 54.74
21-May-99 55.00
28-May-99 55.05
4-Jun-99 54.98
11-Jun-99 54.98
18-Jun-99 55.19
25-Jun-99 54.18
2-Jul-99 53.51
9-Jul-99 53.18
16-Jul-99 52.38
23-Jul-99 52.13
30-Jul-99 52.52
6-Aug-99 52.52
13-Aug-99 52.30
20-Aug-99 52.44
27-Aug-99 51.33
3-Sep-99 50.52
10-Sep-99 50.78
17-Sep-99 50.84
24-Sep-99 51.61
1-Oct-99 51.81
8-Oct-99 51.58
15-Oct-99 50.79
22-Oct-99 50.03
29-Oct-99 49.17
5-Nov-99 48.23
12-Nov-99 48.06
The U.S. economy has performed well at the start of the last four
years due to tax refunds, increased bonus payments and home mortgage
refinancing. Good wage gains, larger tax refunds and corporate earnings bonus
payments will likely power another first quarter spurt. In anticipation of that,
lumber prices have reaccelerated. The extent of the seasonal strength will
influence the Federal Reserve and the bond market early next year. ISI's Company
Surveys are likely to be a good early indicator of the extent of this strength.
4
<PAGE>
The Global Economy
Outside the U.S., the recovery since the height of the financial
crisis last Fall has been dramatic. Recently, the growth surge has decelerated
but growth remains at a high rate. Please see South Korea Real Gross Domestic
Product (GDP) below for reference.
SOUTH KOREA REAL GDP Q/Q % A.R. 99: 3RD QUARTER 9.6%
(GRAPHIC APPEARS HERE)
Q/Q % A.R.
3/31/94 8.1
6/30/94 6
9/30/94 7.6
12/31/94 14.6
3/31/95 10.1
6/30/95 6.9
9/30/95 7
12/31/95 3.8
3/31/96 11.1
6/30/96 5.7
9/30/96 4.7
12/31/96 5.4
3/31/97 4.3
6/30/97 10.7
9/30/97 0.8
12/31/97 -1
3/31/98 -21.4
6/30/98 -5.7
9/30/98 1
12/31/98 7.3
3/31/99 16.7
6/30/99 15.4
9/30/99 9.6
The developed world has also experienced a growth recovery since last
Fall as can be seen by the OECD (Organization of Economically Developed
Countries) leading indicator.
OECD LEADING INDICATOR 3 MONTH % A.R. SEPTEMBER 5.6%
(GRAPHIC APPEARS HERE)
3 Mo.% A.R.
Jan-93 4.93
Feb-93 4.04
Mar-93 2.88
Apr-93 1.61
May-93 1.83
Jun-93 1.18
Jul-93 2.02
Aug-93 2.89
Sep-93 5.89
Oct-93 7.12
Nov-93 8.67
Dec-93 9.29
Jan-94 10.34
Feb-94 9.88
Mar-94 7.88
Apr-94 5.62
May-94 3.35
Jun-94 3.09
Jul-94 4.09
Aug-94 5.43
Sep-94 6.20
Oct-94 5.61
Nov-94 5.20
Dec-94 3.52
Jan-95 1.80
Feb-95 -1.73
Mar-95 -3.89
Apr-95 -4.46
May-95 -2.09
Jun-95 1.04
Jul-95 3.42
Aug-95 3.88
Sep-95 2.81
Oct-95 1.10
Nov-95 1.52
Dec-95 2.13
Jan-96 2.96
Feb-96 1.99
Mar-96 2.05
Apr-96 2.19
May-96 3.86
Jun-96 3.87
Jul-96 4.16
Aug-96 4.24
Sep-96 4.90
Oct-96 5.05
Nov-96 4.36
Dec-96 4.45
Jan-97 5.29
Feb-97 6.98
Mar-97 6.29
Apr-97 4.01
May-97 3.42
Jun-97 4.95
Jul-97 7.11
Aug-97 7.16
Sep-97 6.12
Oct-97 4.53
Nov-97 1.69
Dec-97 -0.45
Jan-98 -0.55
Feb-98 0.43
Mar-98 2.57
Apr-98 1.69
May-98 0.69
Jun-98 -1.07
Jul-98 -0.80
Aug-98 -1.57
Sep-98 -3.58
Oct-98 -3.51
Nov-98 -0.96
Dec-98 4.40
Jan-99 7.17
Feb-99 7.53
Mar-99 5.02
Apr-99 3.94
May-99 3.01
Jun-99 5.08
Jul-99 6.05
Aug-99 7.61
Sep-99 5.61
5
<PAGE>
ECONOMIC OUTLOOK FOR 2000 (CONCLUDED)
This recent deceleration seen on the last two charts may be extended
but because of the strength in the world stock markets the level of growth is
apt to remain fairly high.
DJ WORLD STOCKS NOVEMBER 12 231.5
(GRAPHIC APPEARS HERE)
[UPSIDE BREAKOUT FOR WORLD STOCKS-hand written]
DJ WORLD
STOCKS
1-Jan-97 147.57
2-Jan-97 146.37
3-Jan-97 147.19
6-Jan-97 147.92
7-Jan-97 147.98
8-Jan-97 147.24
9-Jan-97 147.01
10-Jan-97 146.22
13-Jan-97 147.39
14-Jan-97 148.4
15-Jan-97 148.77
16-Jan-97 149.31
17-Jan-97 149.43
20-Jan-97 148.68
21-Jan-97 148.71
22-Jan-97 149.35
23-Jan-97 148.71
24-Jan-97 147.36
27-Jan-97 145.82
28-Jan-97 146.13
29-Jan-97 146.59
30-Jan-97 147.63
31-Jan-97 148.67
3-Feb-97 148.71
4-Feb-97 148.85
5-Feb-97 147.99
6-Feb-97 147.84
7-Feb-97 148.87
10-Feb-97 149.12
11-Feb-97 149.02
12-Feb-97 150.34
13-Feb-97 151.64
14-Feb-97 151.48
17-Feb-97 151.31
18-Feb-97 151.82
19-Feb-97 151.41
20-Feb-97 151.6
21-Feb-97 151.47
24-Feb-97 152.63
25-Feb-97 153.41
26-Feb-97 152.05
27-Feb-97 151.38
28-Feb-97 150.22
3-Mar-97 150.01
4-Mar-97 149.98
5-Mar-97 150.95
6-Mar-97 150.85
7-Mar-97 151.35
10-Mar-97 152.63
11-Mar-97 152.69
12-Mar-97 151.59
13-Mar-97 149.23
14-Mar-97 149.81
17-Mar-97 149.43
18-Mar-97 149.31
19-Mar-97 148.95
20-Mar-97 147.6
21-Mar-97 148.56
24-Mar-97 148.74
25-Mar-97 149.29
26-Mar-97 149.93
27-Mar-97 148.65
28-Mar-97 148.31
31-Mar-97 146.71
1-Apr-97 146.15
2-Apr-97 144.97
3-Apr-97 144.88
4-Apr-97 144.97
7-Apr-97 145.17
8-Apr-97 145.62
9-Apr-97 144.86
10-Apr-97 144.5
11-Apr-97 142.65
14-Apr-97 142.28
15-Apr-97 144.17
16-Apr-97 145.31
17-Apr-97 145.57
18-Apr-97 146.36
21-Apr-97 146.53
22-Apr-97 147.32
23-Apr-97 147.98
24-Apr-97 147.78
25-Apr-97 146.49
28-Apr-97 146.88
29-Apr-97 149.34
30-Apr-97 150.7
1-May-97 151.04
2-May-97 152.76
5-May-97 154.64
6-May-97 155.93
7-May-97 154.71
8-May-97 155.63
9-May-97 157.12
12-May-97 158.73
13-May-97 159.13
14-May-97 160.02
15-May-97 160.45
16-May-97 159.84
19-May-97 159.92
20-May-97 161.41
21-May-97 160.77
22-May-97 159.68
23-May-97 161.42
26-May-97 161.55
27-May-97 161.17
28-May-97 161.33
29-May-97 160.82
30-May-97 160.26
2-Jun-97 160.5
3-Jun-97 160.81
4-Jun-97 160.54
5-Jun-97 161.14
6-Jun-97 162.98
9-Jun-97 163.92
10-Jun-97 164.42
11-Jun-97 164.99
12-Jun-97 165.95
13-Jun-97 167.11
16-Jun-97 167.89
17-Jun-97 167.5
18-Jun-97 166.76
19-Jun-97 167.88
20-Jun-97 168
23-Jun-97 166.69
24-Jun-97 168.04
25-Jun-97 168.77
26-Jun-97 168.68
27-Jun-97 167.98
30-Jun-97 167.53
1-Jul-97 168.18
2-Jul-97 169.82
3-Jul-97 171.88
4-Jul-97 171.44
7-Jul-97 171.45
8-Jul-97 171.68
9-Jul-97 170.93
10-Jul-97 171.28
11-Jul-97 171.42
14-Jul-97 172.36
15-Jul-97 172.31
16-Jul-97 174.5
17-Jul-97 174.15
18-Jul-97 172.01
21-Jul-97 170.87
22-Jul-97 173.18
23-Jul-97 174.17
24-Jul-97 174.05
25-Jul-97 173.77
28-Jul-97 173.36
29-Jul-97 173.55
30-Jul-97 174.87
31-Jul-97 175.17
1-Aug-97 173.4
4-Aug-97 172.84
5-Aug-97 172.54
6-Aug-97 174.26
7-Aug-97 173.87
8-Aug-97 173.1
11-Aug-97 171.45
12-Aug-97 170.86
13-Aug-97 170.28
14-Aug-97 170.05
15-Aug-97 167.94
18-Aug-97 167.67
19-Aug-97 169.2
20-Aug-97 171.18
21-Aug-97 170.21
22-Aug-97 168.44
25-Aug-97 168.11
26-Aug-97 167.61
27-Aug-97 167.06
28-Aug-97 166.38
29-Aug-97 164.56
1-Sep-97 164.15
2-Sep-97 167.1
3-Sep-97 168.67
4-Sep-97 168.64
5-Sep-97 169.41
8-Sep-97 169.54
9-Sep-97 170.24
10-Sep-97 168.42
11-Sep-97 166.78
12-Sep-97 167.18
15-Sep-97 167.65
16-Sep-97 169.84
17-Sep-97 169.93
18-Sep-97 170.62
19-Sep-97 171.06
22-Sep-97 172.06
23-Sep-97 171.64
24-Sep-97 172.43
25-Sep-97 171.92
26-Sep-97 172.39
29-Sep-97 173.06
30-Sep-97 173.18
1-Oct-97 173.94
2-Oct-97 173.98
3-Oct-97 175.17
6-Oct-97 175.82
7-Oct-97 176.46
8-Oct-97 175.99
9-Oct-97 174.51
10-Oct-97 174.18
13-Oct-97 174.31
14-Oct-97 174.42
15-Oct-97 173.86
16-Oct-97 173.49
17-Oct-97 171.16
20-Oct-97 171.44
21-Oct-97 173.04
22-Oct-97 172.68
23-Oct-97 168.6
24-Oct-97 167.74
27-Oct-97 160
28-Oct-97 160.86
29-Oct-97 164.22
30-Oct-97 161.64
31-Oct-97 162.9
3-Nov-97 166.16
4-Nov-97 166.4
5-Nov-97 166.66
6-Nov-97 165.69
7-Nov-97 162.64
10-Nov-97 162.09
11-Nov-97 162.22
12-Nov-97 159.02
13-Nov-97 160
14-Nov-97 160.71
17-Nov-97 164.78
18-Nov-97 164.41
19-Nov-97 163.42
20-Nov-97 165.57
21-Nov-97 167.36
24-Nov-97 165.04
25-Nov-97 163.61
26-Nov-97 164.01
27-Nov-97 164.69
28-Nov-97 165.18
1-Dec-97 167.8
2-Dec-97 167.83
3-Dec-97 168.07
4-Dec-97 167.82
5-Dec-97 168.9
8-Dec-97 168.9
9-Dec-97 168.61
10-Dec-97 167.38
11-Dec-97 164.72
12-Dec-97 163.91
15-Dec-97 164.48
16-Dec-97 165.69
17-Dec-97 167.24
18-Dec-97 165.9
19-Dec-97 163.08
22-Dec-97 162.72
23-Dec-97 161.97
24-Dec-97 161.46
25-Dec-97 161.46
26-Dec-97 161.92
29-Dec-97 164.33
30-Dec-97 166.76
31-Dec-97 166.63
1-Jan-98 166.63
2-Jan-98 166.98
5-Jan-98 166.96
6-Jan-98 165.06
7-Jan-98 164.97
8-Jan-98 163.44
9-Jan-98 159.73
12-Jan-98 158.51
13-Jan-98 160.95
14-Jan-98 162.5
15-Jan-98 161.94
16-Jan-98 164.63
19-Jan-98 165.93
20-Jan-98 167.57
21-Jan-98 167.38
22-Jan-98 166.31
23-Jan-98 166.78
26-Jan-98 167.07
27-Jan-98 169.01
28-Jan-98 169.95
29-Jan-98 170.47
30-Jan-98 170
2-Feb-98 173.6
3-Feb-98 174.78
4-Feb-98 175.19
5-Feb-98 175.59
6-Feb-98 176.13
9-Feb-98 176.11
10-Feb-98 177.43
11-Feb-98 177.63
12-Feb-98 177.29
13-Feb-98 176.36
16-Feb-98 176.21
17-Feb-98 176.95
18-Feb-98 177.98
19-Feb-98 177.76
20-Feb-98 177.89
23-Feb-98 178.72
24-Feb-98 177.64
25-Feb-98 179.3
26-Feb-98 180.78
27-Feb-98 181.64
2-Mar-98 182.87
3-Mar-98 182.93
4-Mar-98 181.55
5-Mar-98 179
6-Mar-98 182.1
9-Mar-98 182.15
10-Mar-98 183.54
11-Mar-98 183.79
12-Mar-98 183.79
13-Mar-98 185.23
16-Mar-98 185.87
17-Mar-98 186.7
18-Mar-98 186.37
19-Mar-98 186.95
20-Mar-98 188.36
23-Mar-98 188.53
24-Mar-98 189.63
25-Mar-98 190.05
26-Mar-98 190.1
27-Mar-98 189.53
30-Mar-98 187.99
31-Mar-98 188.95
1-Apr-98 189.39
2-Apr-98 190.04
3-Apr-98 190.33
6-Apr-98 191.56
7-Apr-98 190.44
8-Apr-98 190.77
9-Apr-98 191.67
10-Apr-98 192.17
13-Apr-98 191.86
14-Apr-98 193.47
15-Apr-98 193.8
16-Apr-98 191.45
17-Apr-98 192.26
20-Apr-98 192.85
21-Apr-98 193.41
22-Apr-98 193.33
23-Apr-98 191.68
24-Apr-98 190.23
27-Apr-98 185.82
28-Apr-98 186.52
29-Apr-98 187.12
30-Apr-98 190.29
1-May-98 191.67
4-May-98 192.71
5-May-98 191.81
6-May-98 190.28
7-May-98 188.28
8-May-98 189.75
11-May-98 190.51
12-May-98 190.5
13-May-98 190.58
14-May-98 190.37
15-May-98 189.24
18-May-98 187.72
19-May-98 188.98
20-May-98 190.72
21-May-98 193.53
22-May-98 193.07
25-May-98 193.2
26-May-98 191.61
27-May-98 189.37
28-May-98 189.78
29-May-98 189.26
1-Jun-98 188.36
2-Jun-98 189.28
3-Jun-98 188.92
4-Jun-98 189.63
5-Jun-98 191.55
8-Jun-98 191.99
9-Jun-98 192.2
10-Jun-98 190.3
11-Jun-98 186.95
12-Jun-98 186.06
15-Jun-98 182.42
16-Jun-98 184.21
17-Jun-98 188.69
18-Jun-98 188.72
19-Jun-98 188.07
22-Jun-98 187.44
23-Jun-98 188.95
24-Jun-98 190.35
25-Jun-98 190.89
26-Jun-98 190.83
29-Jun-98 192.04
30-Jun-98 192.34
1-Jul-98 195
2-Jul-98 194.77
3-Jul-98 194.77
6-Jul-98 196.2
7-Jul-98 196.62
8-Jul-98 197.88
9-Jul-98 196.29
10-Jul-98 196.18
13-Jul-98 197.28
14-Jul-98 199.35
15-Jul-98 199.78
16-Jul-98 201.11
17-Jul-98 202.28
20-Jul-98 202.37
21-Jul-98 199.86
22-Jul-98 197.94
23-Jul-98 195.35
24-Jul-98 195.17
27-Jul-98 193.89
28-Jul-98 192.81
29-Jul-98 191.86
30-Jul-98 193.93
31-Jul-98 191.48
3-Aug-98 189.21
4-Aug-98 185.55
5-Aug-98 184.99
6-Aug-98 184.73
7-Aug-98 185.09
10-Aug-98 183.05
11-Aug-98 179.07
12-Aug-98 181.36
13-Aug-98 180.06
14-Aug-98 179.15
17-Aug-98 180.55
18-Aug-98 184.15
19-Aug-98 184.7
20-Aug-98 183.54
21-Aug-98 179.95
24-Aug-98 180.38
25-Aug-98 181.82
26-Aug-98 178.91
27-Aug-98 172.75
28-Aug-98 171
31-Aug-98 164.75
1-Sep-98 167.6
2-Sep-98 168.75
3-Sep-98 167.49
4-Sep-98 167.14
7-Sep-98 169.57
8-Sep-98 174.57
9-Sep-98 171.68
10-Sep-98 167.88
11-Sep-98 169.61
14-Sep-98 173.21
15-Sep-98 173.68
16-Sep-98 175.05
17-Sep-98 170.23
18-Sep-98 169.72
21-Sep-98 167.54
22-Sep-98 169.48
23-Sep-98 174.36
24-Sep-98 172.62
25-Sep-98 171.27
28-Sep-98 172.89
29-Sep-98 172.86
30-Sep-98 168.06
1-Oct-98 162.65
2-Oct-98 162.94
5-Oct-98 160.37
6-Oct-98 162.95
7-Oct-98 163.87
8-Oct-98 160.36
9-Oct-98 163.52
12-Oct-98 167.88
13-Oct-98 167.56
14-Oct-98 169.22
15-Oct-98 174.44
16-Oct-98 177.14
19-Oct-98 177.58
20-Oct-98 179.45
21-Oct-98 179.27
22-Oct-98 180.16
23-Oct-98 179.26
26-Oct-98 178.65
27-Oct-98 179.83
28-Oct-98 178.89
29-Oct-98 181.16
30-Oct-98 183.65
2-Nov-98 186.9
3-Nov-98 186.42
4-Nov-98 188.98
5-Nov-98 189.15
6-Nov-98 189.26
9-Nov-98 186.93
10-Nov-98 185.92
11-Nov-98 186.36
12-Nov-98 185.16
13-Nov-98 185.99
16-Nov-98 188.95
17-Nov-98 189.02
18-Nov-98 189.36
19-Nov-98 191.18
20-Nov-98 193.61
23-Nov-98 196.67
24-Nov-98 196.24
25-Nov-98 196.21
26-Nov-98 197.47
27-Nov-98 197.69
30-Nov-98 193.81
1-Dec-98 192.94
2-Dec-98 193.05
3-Dec-98 191.72
4-Dec-98 193.68
7-Dec-98 194.62
8-Dec-98 194.82
9-Dec-98 195.61
10-Dec-98 194.27
11-Dec-98 193.23
14-Dec-98 190.47
15-Dec-98 191.97
16-Dec-98 192.37
17-Dec-98 194.83
18-Dec-98 195.91
21-Dec-98 198.76
22-Dec-98 198.39
23-Dec-98 201.53
24-Dec-98 200.85
25-Dec-98 200.85
28-Dec-98 201.69
29-Dec-98 203.6
30-Dec-98 202.23
31-Dec-98 202.79
1-Jan-99 202.79
4-Jan-99 204.61
5-Jan-99 206.31
6-Jan-99 209.81
7-Jan-99 209.96
8-Jan-99 209.8
11-Jan-99 208.08
12-Jan-99 204.46
13-Jan-99 201.43
14-Jan-99 199.74
15-Jan-99 203.01
18-Jan-99 204.96
19-Jan-99 205.37
20-Jan-99 206.95
21-Jan-99 204.27
22-Jan-99 201.22
25-Jan-99 201.98
26-Jan-99 204.09
27-Jan-99 203.14
28-Jan-99 204.93
29-Jan-99 206.68
1-Feb-99 206.81
2-Feb-99 206.09
3-Feb-99 205.77
4-Feb-99 203.99
5-Feb-99 202.2
8-Feb-99 202.19
9-Feb-99 198.29
10-Feb-99 198.39
11-Feb-99 201.51
12-Feb-99 200.56
15-Feb-99 200.38
16-Feb-99 200.93
17-Feb-99 198.88
18-Feb-99 200.01
19-Feb-99 199.43
22-Feb-99 203.05
23-Feb-99 203.76
24-Feb-99 202.72
25-Feb-99 201.46
26-Feb-99 200.54
1-Mar-99 198.9
2-Mar-99 197.82
3-Mar-99 197.22
4-Mar-99 198.99
5-Mar-99 203.67
8-Mar-99 204.73
9-Mar-99 205.2
10-Mar-99 206.9
11-Mar-99 209.16
12-Mar-99 208.65
15-Mar-99 210.09
16-Mar-99 211.77
17-Mar-99 210.26
18-Mar-99 210.95
19-Mar-99 210.71
22-Mar-99 209.88
23-Mar-99 205.73
24-Mar-99 204.97
25-Mar-99 208.07
26-Mar-99 206.76
29-Mar-99 209.74
30-Mar-99 208.84
31-Mar-99 208.48
1-Apr-99 209.71
2-Apr-99 209.87
5-Apr-99 211.79
6-Apr-99 213.35
7-Apr-99 214.18
8-Apr-99 216.23
9-Apr-99 217.01
12-Apr-99 217.54
13-Apr-99 217.8
14-Apr-99 216.38
15-Apr-99 215.16
16-Apr-99 215.46
19-Apr-99 213.54
20-Apr-99 212.87
21-Apr-99 215.16
22-Apr-99 218.26
23-Apr-99 218.34
26-Apr-99 219.14
27-Apr-99 220.75
28-Apr-99 219.62
29-Apr-99 218.39
30-Apr-99 217.8
3-May-99 219.57
4-May-99 218.02
5-May-99 218.94
6-May-99 218.46
7-May-99 218.64
10-May-99 218.62
11-May-99 219.32
12-May-99 219.54
13-May-99 219.99
14-May-99 215.96
17-May-99 214.25
18-May-99 214.51
19-May-99 215.39
20-May-99 215.19
21-May-99 214.3
24-May-99 212.28
25-May-99 209.26
26-May-99 210.25
27-May-99 208
28-May-99 209.45
31-May-99 209.74
1-Jun-99 209.67
2-Jun-99 209.77
3-Jun-99 210.38
4-Jun-99 213.25
7-Jun-99 214.9
8-Jun-99 214.69
9-Jun-99 215.03
10-Jun-99 213.69
11-Jun-99 214.21
14-Jun-99 212.64
15-Jun-99 213.41
16-Jun-99 216.16
17-Jun-99 218.01
18-Jun-99 218.55
21-Jun-99 219.86
22-Jun-99 218.64
23-Jun-99 217.39
24-Jun-99 215.51
25-Jun-99 215.23
28-Jun-99 216.47
29-Jun-99 218.27
30-Jun-99 220.02
1-Jul-99 222.04
2-Jul-99 223.8
5-Jul-99 225.16
6-Jul-99 224.53
7-Jul-99 224.54
8-Jul-99 224.05
9-Jul-99 224.62
12-Jul-99 224.43
13-Jul-99 223.22
14-Jul-99 224.31
15-Jul-99 226.2
16-Jul-99 226.59
19-Jul-99 226.81
20-Jul-99 223.25
21-Jul-99 223.16
22-Jul-99 220.46
23-Jul-99 218.74
26-Jul-99 217.61
27-Jul-99 219.42
28-Jul-99 220.65
29-Jul-99 218.05
30-Jul-99 218.34
2-Aug-99 217.98
3-Aug-99 217.33
4-Aug-99 215.95
5-Aug-99 214.43
6-Aug-99 213.09
9-Aug-99 212.92
10-Aug-99 210.51
11-Aug-99 212.16
12-Aug-99 213.73
13-Aug-99 216.67
16-Aug-99 218.07
17-Aug-99 219.05
18-Aug-99 218.82
19-Aug-99 217.97
20-Aug-99 220.48
23-Aug-99 223.06
24-Aug-99 223.47
25-Aug-99 224.89
26-Aug-99 222.93
27-Aug-99 221.77
30-Aug-99 220.21
31-Aug-99 218.52
1-Sep-99 220.95
2-Sep-99 219.31
3-Sep-99 223.41
6-Sep-99 224.26
7-Sep-99 222.93
8-Sep-99 222.14
9-Sep-99 223.94
10-Sep-99 223.47
13-Sep-99 223.32
14-Sep-99 221.97
15-Sep-99 220.43
16-Sep-99 219.11
17-Sep-99 220.58
20-Sep-99 220.61
21-Sep-99 218.76
22-Sep-99 217.38
23-Sep-99 215.76
24-Sep-99 213.49
27-Sep-99 214.36
28-Sep-99 214.45
29-Sep-99 213.12
30-Sep-99 215.46
1-Oct-99 215.79
4-Oct-99 218.45
5-Oct-99 218.55
6-Oct-99 220.53
7-Oct-99 221.01
8-Oct-99 222.16
11-Oct-99 222.52
12-Oct-99 221
13-Oct-99 217.47
14-Oct-99 216.73
15-Oct-99 212.92
18-Oct-99 211.29
19-Oct-99 213.57
20-Oct-99 216.06
21-Oct-99 215.66
22-Oct-99 217.98
25-Oct-99 217.55
26-Oct-99 216.97
27-Oct-99 217.09
28-Oct-99 221.82
29-Oct-99 226.02
1-Nov-99 225.32
2-Nov-99 225.09
3-Nov-99 225.72
4-Nov-99 226.87
5-Nov-99 227.8
8-Nov-99 228.17
9-Nov-99 227.74
10-Nov-99 229.58
11-Nov-99 230.64
12-Nov-99 231.51
Inflation
The bond market is concerned about high growth because it opens the
door to inflation. So far, as was sighted by the Federal Reserve in the press
release accompanying its rate increase, productivity has held off price
increases. The price competitive environment facing most companies has required
them to hold down costs. Technology investment and cost cutting mergers have
been at the heart of the company response. Manufacturers' Productivity is at a
record level having increased for most of the 1990's.
U.S. MFG. PRODUCTIVITY 4 YEAR % A.R. 99: 3RD QUARTER 4.5%
(GRAPHIC APPEARS HERE)
U.S. MFG PRODUCTIVITY
4 Yr.% A.R.
Mar-55 3.2
Jun-55 3.5
Sep-55 3.8
Dec-55 3.4
Mar-56 2.7
Jun-56 2.7
Sep-56 2.2
Dec-56 1.8
Mar-57 2.1
Jun-57 2.0
Sep-57 2.1
Dec-57 1.9
Mar-58 1.6
Jun-58 1.6
Sep-58 2.0
Dec-58 2.0
Mar-59 2.1
Jun-59 2.2
Sep-59 1.3
Dec-59 1.5
Mar-60 2.8
Jun-60 2.5
Sep-60 2.5
Dec-60 2.3
Mar-61 1.9
Jun-61 2.5
Sep-61 2.6
Dec-61 3.4
Mar-62 3.9
Jun-62 3.2
Sep-62 2.7
Dec-62 2.6
Mar-63 2.3
Jun-63 2.4
Sep-63 3.2
Dec-63 3.4
Mar-64 2.7
Jun-64 3.2
Sep-64 3.3
Dec-64 3.4
Mar-65 3.8
Jun-65 3.4
Sep-65 3.0
Dec-65 2.5
Mar-66 2.4
Jun-66 2.7
Sep-66 2.6
Dec-66 2.7
Mar-67 2.6
Jun-67 2.5
Sep-67 2.7
Dec-67 2.9
Mar-68 2.7
Jun-68 2.6
Sep-68 2.5
Dec-68 2.6
Mar-69 2.7
Jun-69 2.3
Sep-69 2.4
Dec-69 2.5
Mar-70 2.1
Jun-70 2.4
Sep-70 2.7
Dec-70 2.8
Mar-71 3.2
Jun-71 3.3
Sep-71 3.4
Dec-71 3.2
Mar-72 3.4
Jun-72 3.3
Sep-72 3.6
Dec-72 3.7
Mar-73 3.5
Jun-73 3.6
Sep-73 3.7
Dec-73 3.4
Mar-74 3.3
Jun-74 3.3
Sep-74 3.1
Dec-74 3.0
Mar-75 2.4
Jun-75 2.6
Sep-75 3.0
Dec-75 2.7
Mar-76 2.5
Jun-76 2.6
Sep-76 2.8
Dec-76 2.7
Mar-77 3.0
Jun-77 3.2
Sep-77 3.1
Dec-77 3.3
Mar-78 3.7
Jun-78 3.5
Sep-78 3.4
Dec-78 3.2
Mar-79 2.9
Jun-79 2.4
Sep-79 1.5
Dec-79 1.4
Mar-80 1.4
Jun-80 1.1
Sep-80 0.9
Dec-80 0.9
Mar-81 0.4
Jun-81 0.3
Sep-81 0.3
Dec-81 0.3
Mar-82 1.0
Jun-82 1.4
Sep-82 1.6
Dec-82 1.5
Mar-83 2.0
Jun-83 2.1
Sep-83 2.7
Dec-83 2.6
Mar-84 2.9
Jun-84 3.2
Sep-84 3.5
Dec-84 3.2
Mar-85 3.5
Jun-85 3.9
Sep-85 4.0
Dec-85 4.2
Mar-86 4.1
Jun-86 3.6
Sep-86 3.4
Dec-86 3.8
Mar-87 3.6
Jun-87 3.7
Sep-87 3.5
Dec-87 3.6
Mar-88 3.3
Jun-88 3.3
Sep-88 3.1
Dec-88 3.2
Mar-89 2.9
Jun-89 2.4
Sep-89 2.0
Dec-89 2.0
Mar-90 1.9
Jun-90 1.7
Sep-90 2.0
Dec-90 1.7
Mar-91 1.6
Jun-91 1.5
Sep-91 1.9
Dec-91 2.0
Mar-92 2.3
Jun-92 2.5
Sep-92 2.6
Dec-92 2.7
Mar-93 2.9
Jun-93 2.9
Sep-93 3.1
Dec-93 3.2
Mar-94 3.1
Jun-94 3.3
Sep-94 3.0
Dec-94 3.2
Mar-95 3.7
Jun-95 3.7
Sep-95 3.4
Dec-95 3.4
Mar-96 3.3
Jun-96 3.3
Sep-96 3.3
Dec-96 3.3
Mar-97 3.4
Jun-97 3.7
Sep-97 4.3
Dec-97 4.3
Mar-98 4.1
Jun-98 4.0
Sep-98 4.2
Dec-98 4.3
Mar-99 4.4
Jun-99 4.4
Sep-99 4.5
The recent increase in oil prices will test the pricing restraint of
companies. The weekly ISI pricing power surveys for retail and manufacturing
companies should help detect any change in this market sensitive indicator.
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. To
further assist in this evaluation, the Securities and Exchange Commission (SEC)
requires that we include, on an annual basis, a line graph comparing the
performance of the Fund to that of an appropriate market index. This graph
measures the growth of a $10,000 hypothetical investment from the inception date
of the Fund through the end of the most recent fiscal year-end. The SEC also
requires that we report the Fund's total return according to a standardized
formula, for various time periods through the end of the most recent calendar
quarter.
Both the line graph and the SEC standardized total return figures
include the impact of the Fund's maximum initial sales charge. Returns would be
higher for investors who qualified for a lower initial sales charge.
While the graphs and the total return figures are required by SEC
rules, such comparisons are of limited utility since the total return of the
Fund's classes are adjusted for sales charges and expenses while the total
return of the indices are not. In fact, if you wished to replicate the total
return of these indices, you would have to purchase the securities they
represent, an effort that would require a considerable amount of money and would
incur expenses that are not reflected in the index results.
The SEC total return figures may differ from total return figures in
the shareholder letter because the time periods may be different and 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. 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
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Class A Shares(1)
August 10, 1988 - October 31, 1999
(GRAPHIC APPEARS HERE)
<TABLE>
<CAPTION>
Treasury Fund Class A Lehman Intermediate Lehman Treasury Index Lehman Long-Term Index
<S><C>
8/88 9,550 10,000 10,000 10,000
10/88 9,846 10,313 10,407 10,685
10/89 11,015 11,388 11,676 12,493
10/90 11,173 12,266 12,345 12,592
10/91 12,948 13,889 14,140 14,876
10/92 14,109 15,268 15,608 16,593
10/93 16,555 16,685 17,659 20,526
10/94 15,526 16,400 16,871 18,143
10/95 18,334 18,329 19,464 23,016
10/96 18,965 19,359 20,449 23,810
10/97 20,671 20,766 22,210 26,815
10/98 22,208 22,793 24,780 31,189
10/99 22,365 21,379 24,403 31,392
</TABLE>
Average Annual Total Return (1)
Periods Ended 10/31/99 1 Year 5 Years 10 Years Since Inception(2)
Class A Shares (8.15)% 6.59 % 6.85% 7.44 %
(1) Past performance is not an indicator of future results. Investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. These figures
assume the reinvestment of dividends and capital gain distributions and
include the Fund's 4.50% maximum sales charge. The Lehman Brothers indices
listed above are unmanaged. The Intermediate Index and the Long-Term Index
reflect the performance of U.S. Treasury securities in their respective
sectors. The Treasury Index is more of a general index in that it reflects
the performance of all public obligations and does not focus on any one
particular segment. Management is not aware of any single index that is
truly representative of the Fund since its active maturity management policy
allows the manager to adjust the weighted average maturity throughout each
U.S. Treasury sector. Currently, the Fund's weighted average maturity is
approximately 11.6 years.
(2) 8/10/88.
8
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Statement of Net Assets October 31, 1999
<TABLE>
<CAPTION>
Par
Interest Rate Maturity Date (000) Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
U.S. Treasury Bonds - 66.8%
10.375% 11/15/12 $24,250 $ 30,206,406
8.875 2/15/19 29,500 37,040,938
8.125 8/15/19 40,000 47,081,240
8.500 2/15/20 41,000 50,026,396
8.125 8/15/21 11,400 13,525,028
-------------
Total U.S. Treasury Bonds
(Cost $196,550,228) 177,880,008
-------------
Zero Coupon U.S. Treasury Bonds (STRIPS)(1) - 8.3%
6.63%* 5/15/17 69,500 22,159,450
-------------
Total Zero Coupon U.S. Treasury Bonds (STRIPS)(1)
(Cost $26,245,937) 22,159,450
-------------
Repurchase Agreements - 24.1%
Goldman Sachs & Co., 5.10% Dated 10/29/99, to be repurchased on 11/1/99,
collateralized by U.S. Treasury Bonds with a market value of
$21,808,185.
(Cost $21,380,000) 21,380 21,380,000
J.P. Morgan Securities Inc., 5.10%
Dated 10/29/99, to be repurchased on 11/1/99, collateralized by U.S.
Treasury Bonds with a market value of $21,808,185.
(Cost $21,380,000) 21,380 21,380,000
Morgan Stanley & Co., 5.16%
Dated 10/29/99, to be repurchased on 11/1/99, collateralized by U.S.
Treasury Bonds with a market value of $21,893,911.
(Cost$21,380,000) 21,380 21,380,000
-------------
Total Repurchase Agreements
(Cost $64,140,000) 64,140,000
-------------
Total Investments - 99.2% 264,179,458
(Cost $286,936,165)**
Other Assets in Excess of Liabilities - 0.8 2,237,847
-------------
Net Assets - 100.0% $ 266,417,305
=============
</TABLE>
9
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Statement of Net Assets (concluded) October 31, 1999
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($114,885,728 / 12,281,815 shares outstanding) $ 9.35
======
ISI Class Share
($151,531,577 / 16,199,531 shares outstanding) $ 9.35
======
Maximum Offering Price Per:
Flag Investors Class A Share
($9.35 / 0.955) $ 9.79
======
ISI Class Share
($9.35 / 0.9555) $ 9.79
======
- --------------------
* Yield as of October 31,1999.
** Aggregate cost for federal tax purposes is $287,138,994.
(1) Separate Trading of Registered Interest and Principal of Securities.
See Notes to Financial Statements.
10
<PAGE>
This page intentionally left blank.
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Statement of Operations
For the
Year Ended
October 31,
- -----------------------------------------------------------------------------
1999
Investment Income:
Interest $ 15,704,266
------------
Expenses:
Investment advisory fee 753,740
Distribution fee 725,346
Administration fee 311,100
Transfer agent fee 159,452
Professional fees 101,403
Accounting fee 82,957
Custodian fee 56,382
Registration fees 46,985
Printing and postage 35,523
Miscellaneous 40,582
------------
Total expenses 2,313,470
------------
Net investment income 13,390,796
------------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 4,648,128
Change in unrealized appreciation/depreciation
on investments (29,808,640)
------------
Net loss on investments (25,160,512)
------------
Net decrease in net assets resulting from operations $(11,769,716)
============
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended October 31,
1999 1998
<S><C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 13,390,796 $ 14,588,210
Net realized gain from security transactions 4,648,128 13,531,220
Change in unrealized appreciation/
depreciation on investments (29,808,640) 6,533,717
------------ ------------
Net increase/(decrease) in net assets
resulting from operations (11,769,716) 34,653,147
------------ ------------
Dividends to Shareholders from:
Net investment income and short-term gains:
Flag Investors Class A Shares (8,710,017) (7,541,487)
Flag Investors Class B Shares (186,679) (119,476)
ISI Class Shares (11,554,616) (10,498,284)
------------ ------------
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 (25,295,490) (18,159,247)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 42,387,220 34,205,451
Value of shares issued in
reinvestment of dividends 17,749,854 11,075,840
Cost of shares repurchased (54,663,606) (57,907,621)
------------ ------------
Increase/(decrease) in net assets derived
from capital share transactions 5,473,468 (12,626,330)
------------ ------------
Total increase/(decrease) in net assets (31,591,738) 3,867,570
Net Assets:
Beginning of year 298,009,043 294,141,473
------------ ------------
End of year including distributions in excess
of net investment income of $(556,835)
and $(1,490,713), respectively $266,417,305 $298,009,043
============ ============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each year)
For the Year Ended
October 31,
- -------------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of year $ 10.62
--------
Income from Investment Operations:
Net investment income 0.64
Net realized and unrealized gain/(loss) on investments (1.03)
--------
Total from Investment Operations (0.39)
Less Distributions:
Distributions from net investment income
and short-term gains (0.71)
Tax return of capital distribution --
Distributions in excess of net investment income --
Net realized long-term gains (0.17)
--------
Total distributions (0.88)
--------
Net asset value at end of year $ 9.35
========
Total Return(1) (3.82)%
Ratios to Average Daily Net Assets:
Expenses 0.81%
Net investment income 4.68%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares $114,886
ISI Class Shares $151,532
Portfolio turnover rate 77%
- ----------
(1) Total return excludes the effect of sales charge.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
For the Years Ended October 31,
1998 1997 1996 1995
$ 10.04 $ 9.83 $ 10.19 $ 9.22
-------- -------- -------- --------
0.51 0.55 0.56 0.57
0.71 0.30 (0.23) 1.04
-------- -------- -------- --------
1.22 0.85 0.33 1.61
(0.64) (0.55) (0.65) (0.64)
-- (0.08) -- --
-- (0.01) (0.04) --
-- -- -- --
-------- -------- -------- --------
(0.64) (0.64) (0.69) (0.64)
-------- -------- -------- --------
$ 10.62 $ 10.04 $ 9.83 $ 10.19
======== ======== ======== ========
12.50% 9.00% 3.44% 18.09%
0.85% 0.83% 0.81% 0.80%
4.98% 5.62% 5.69% 5.94%
$122,785 $122,229 $143,791 $164,206
$171,336 $171,074 $193,486 $206,615
179% 92% 199% 194%
See Notes to Financial Statements.
15
<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>
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)
</TABLE>
- ------------
(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.
See Notes to Financial Statements.
16
<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 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 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. 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. The Fund values short-term obligations with maturities of
60 days or less at amortized cost which approximates fair market
value.
17
<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 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 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.
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
18
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
NOTE 2--continued
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 year ended October 31,
1999, ISI's advisory fee was $753,740 of which $60,952 was payable at the end of
the year.
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Deutsche Bank, AG, is the Fund's administrator. As compensation for its
administrative services, the Fund paid ICC an annual fee based on the Fund's
average daily net assets. This fee was 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 paid ICC 0.50% of
the Fund's gross income. Effective June 1, 1999 the fee is calculated daily
based on the combined assets under management for the four mutual funds for
which ISI is the investment advisor. This fee is calculated and paid monthly at
the following annual rates: 0.20% of the first $75 million, 0.15% of the next
$75 million, 0.10% of the next $75 million, 0.05% of the next 275 million, and
0.03% of the amount over $500 million. For the year ended October 31, 1999,
ICC's administration fee was $311,100 of which $22,160 was payable at the end of
the year.
Certain officers and directors of the Fund are also officers or
directors of ISI or ICC.
ICC also provides accounting services to the fund for which the Fund
pays ICC an annual fee that is calculated daily and paid monthly from the Fund's
average daily net assets. For the year ended October 31, 1999, ICC's fee was
$82,957 of which $6,780 was payable at the end of the year.
ICC also provides transfer agency services to the Fund for which the
Fund pays ICC a per account fee that is calculated and paid monthly. For the
year ended October 31, 1999, ICC's fee was $159,452 of which $9,455 was payable
at the end of the year.
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.
19
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Notes to Financial Statements (continued)
NOTE 2--concluded
ICC Distributors, Inc. ("ICC Distributors") a member of the Forum
Financial Group of Companies, provides distribution services for the Flag
Investors Classes of the Fund for which ICC Distributors is paid an annual fee
that is calculated daily and paid monthly at an annual rate equal to 0.25% of
the Flag Investors Class A Shares' average daily net assets. For the year ended
October 31, 1999, distribution fees aggregated $725,346. ISI Group's fee was
$403,641 of which $32,019 was payable at the end of the year. ICC Distributor's
fee was $321,705 of which $24,359 was payable at the end of the year.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
October 31, 1999 was $35,727, and the accrued liability was $42,887.
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
thousand Flag Investors Class D and 6.5 million undesignated). Transactions
shares of the Fund were as follows:
<TABLE>
<CAPTION>
Flag Investors Class A Shares
----------------------------------------------
For the For the
Year Ended Year Ended
October 31, 1999 October 31, 1998
------------------- -------------------
<S><C>
Shares sold 2,468,335 1,422,232
Shares issued to shareholders on
reinvestment of dividends 718,480 418,958
Shares repurchased (3,016,885) (2,454,224)
Conversion of shares from Class B 545,490 --
----------- -----------
Net increase/(decrease) in shares
outstanding 715,420 (613,034)
=========== ===========
Proceeds from sale of shares $24,540,826 $14,837,317
Value of reinvested dividends 7,196,033 4,289,957
Cost of shares repurchased (29,260,245) (25,308,085)
Conversion of shares from Class B 5,578,323 --
----------- -----------
Net increase/(decrease) from capital
share transactions $ 8,054,937 $(6,180,811)
=========== ===========
</TABLE>
20
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
NOTE 3--concluded
<TABLE>
<CAPTION>
Flag Investors Class B Shares(1)
-----------------------------------------
For the For the
Year Ended Year Ended
October 31, 1999 October 31, 1998
---------------- ----------------
<S><C>
Shares sold 394,876 313,798
Shares issued to shareholders on
reinvestment of dividends 17,702 5,893
Shares repurchased (232,994) (37,386)
Conversion of shares to Class A (545,490) --
----------- ----------
Net increase/decrease in shares
outstanding (365,906) 282,305
=========== ==========
Proceeds from sale of shares $ 4,030,932 $3,234,727
Value of reinvested dividends 181,819 60,838
Cost of shares repurchased (2,355,421) (385,163)
Conversion of shares to Class A (5,578,323) --
----------- ----------
Net increase/decrease from capital
share transactions $(3,720,993) $2,910,402
=========== ==========
</TABLE>
- -----------
(1) Converted to Class A Shares May 14, 1999.
<TABLE>
<CAPTION>
ISI Class Shares
-----------------------------------------
For the For the
Year Ended Year Ended
October 31, 1999 October 31, 1998
----------------- -----------------
<S><C>
Shares sold 1,446,867 1,567,913
Shares issued to shareholders on
reinvestment of dividends 983,017 656,907
Shares repurchased (2,351,273) (3,140,348)
----------- ------------
Net increase/(decrease) in shares
outstanding 78,611 (915,528)
=========== ============
Proceeds from sale of shares $13,815,462 $ 16,133,407
Value of reinvested dividends 10,372,002 6,725,045
Cost of shares repurchased (23,047,940) (32,214,373)
----------- ------------
Net increase/(decrease) from capital
share transactions $ 1,139,524 $ (9,355,921)
=========== ============
</TABLE>
21
<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
aggre gated $172,326,323 and sales of investment securities aggregated
$217,783,338 for the year ended October 31, 1999.
On October 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $0 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $22,756,707.
NOTE 5--Net Assets
On October 31, 1999, net assets consisted of:
<TABLE>
<S><C>
Paid-in capital
Flag Investors Class A Shares $123,541,290
ISI Class Shares 166,392,385
Distributions in excess of net investment income (556,835)
Accumulated distributions in excess of capital gain on investments (202,828)
Unrealized depreciation of investments (22,756,707)
------------
$266,417,305
============
</TABLE>
NOTE 6--Federal Income Tax Information
Generally accepted accounting principles require that certain
components of net assets be reclassified to reflect permanent differences
between financial reporting and tax purposes. Accordingly, permanent book/tax
differences related to the tax treatment of short-term capital gains of
$5,756,920 have been reclassified from net investment income to the accumulated
net realized gain from security transactions. These reclassifications have no
effect on net assets or net asset values per share.
NOTE 7--Personal Income Tax Information (unaudited)
The amount of long-term capital gain paid for the fiscal year ended
October 31, 1999 was $8,217,006.
Of the ordinary distributions made during the fiscal year ended October
31, 1999, 67.8% has been derived from investments in U.S. Government and Agency
Obligations. All or a portion of the distributions from the income may be
exempt from taxation at the state level. Consult your tax advisor for state
specific information.
22
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Independent Auditors' Report
The Board of Directors and Shareholders
Total Return U.S. Treasury Fund, Inc.:
We have audited the statement of net assets of the Total Return U.S.
Treasury Fund, Inc. as of October 31, 1999, the related statements of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Total Return U.S. Treasury Fund, Inc. as of October 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 3, 1999
23
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
Directors and Officers
EDWARD S. HYMAN
Chairman
JOSEPH R. HARDIMAN MARGARET M. BEELER
Director Assistant Vice President
LOUIS E. LEVY KEITH C. REILLY
Director Assistant Vice President
CARL W. VOGT, ESQ. AMY M. OLMERT
Director Secretary
R. ALAN MEDAUGH CHARLES A. RIZZO
President Treasurer
NANCY LAZAR DANIEL O. HIRSCH
Vice President Assistant Secretary
CARRIE L. BUTLER
Vice President
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.
24
<PAGE>
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 APPEARS HERE)
(FLAG INVESTORS LOGO)
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
Balanced
Flag Investors Value Builder Fund
Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Brown Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
www.flaginvestors.com
Distributed by:
ICC Distributors, Inc.
TRANN (12/99)
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