ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
TOTAL RETURN
US TREASURY
FUND SHARES
(A CLASS OF TOTAL RETURN
US TREASURY FUND, INC.)
[GRAPHIC OMITTED]
ANNUAL REPORT
OCTOBER 31, 2000
<PAGE>
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INVESTMENT ADVISOR'S REPORT
--------------------------------------------------------------------------------
During a year of falling interest rates, the Fund recorded a total return
of 9.49%. From the Fund's inception on August 10, 1988 through October 31, 2000,
the Fund has posted a cumulative total return of 156.42%, which translates into
an average annual total return of 8.01%. These figures assume the reinvestment
of dividend and capital gain distributions, but exclude the impact of any sales
charge. Please review the additional performance information that follows this
letter and ISI's Economic Outlook.
REVIEW OF RATES AND PORTFOLIO MANAGEMENT
Rates fell during last year because the Federal Reserve hiked short-term
interest rates and that slowed the economy. Political gridlock in Washington
also held back spending so the Federal Government budget surplus boomed. We
expect the same kind of gridlock that resulted in lower Treasury rates next
year. ISI will be following Washington politics closely to make sure a 1980's
style solution, (ie, a lot of spending for each party's program), doesn't
emerge. The year's movement of long-term Treasury interest rates is shown in the
chart below.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
US NONFINANCIAL CORP DEBT AS A % OF GDP (3/31/60-6/30/00)-2000: Q2 46.40%
31-Mar-60 27.4
30-Jun-60 28
30-Sep-60 28
31-Dec-60 29
31-Mar-61 28.8
30-Jun-61 28.6
30-Sep-61 28.2
31-Dec-61 28.4
31-Mar-62 27.9
30-Jun-62 28.2
30-Sep-62 28.2
31-Dec-62 28.8
31-Mar-63 28.6
30-Jun-63 28.7
30-Sep-63 28.3
31-Dec-63 28.9
31-Mar-64 28.4
30-Jun-64 28.6
30-Sep-64 28.5
31-Dec-64 29.2
31-Mar-65 29
30-Jun-65 29.3
30-Sep-65 29.1
31-Dec-65 29.2
31-Mar-66 29
30-Jun-66 29.9
30-Sep-66 29.9
31-Dec-66 30.2
31-Mar-67 30.5
30-Jun-67 31.2
30-Sep-67 31.1
31-Dec-67 31.8
31-Mar-68 31.1
30-Jun-68 31.2
30-Sep-68 31.3
31-Dec-68 32
31-Mar-69 31.9
30-Jun-69 32.6
30-Sep-69 32.6
31-Dec-69 33.4
31-Mar-70 33.6
30-Jun-70 34.3
30-Sep-70 34.2
31-Dec-70 34.8
31-Mar-71 33.9
30-Jun-71 34.1
30-Sep-71 34.1
31-Dec-71 34.3
31-Mar-72 33.9
30-Jun-72 33.8
30-Sep-72 33.5
31-Dec-72 33.6
31-Mar-73 33.3
30-Jun-73 33.6
30-Sep-73 34.3
31-Dec-73 34.6
31-Mar-74 35.1
30-Jun-74 35.5
30-Sep-74 35.6
31-Dec-74 35.7
31-Mar-75 35.6
30-Jun-75 35.2
30-Sep-75 34.1
31-Dec-75 33.6
31-Mar-76 32.6
30-Jun-76 32.8
30-Sep-76 32.6
31-Dec-76 32.6
31-Mar-77 32.5
30-Jun-77 32.3
30-Sep-77 32
31-Dec-77 32.6
31-Mar-78 32.9
30-Jun-78 32.1
30-Sep-78 31.7
31-Dec-78 31.5
31-Mar-79 31.7
30-Jun-79 32
30-Sep-79 31.8
31-Dec-79 31.7
31-Mar-80 31.8
30-Jun-80 31.9
30-Sep-80 31.7
31-Dec-80 31.2
31-Mar-81 30.4
30-Jun-81 31.3
30-Sep-81 31.5
31-Dec-81 32.1
31-Mar-82 33.2
30-Jun-82 33.5
30-Sep-82 33.8
31-Dec-82 33.7
31-Mar-83 33.9
30-Jun-83 33.5
30-Sep-83 33.3
31-Dec-83 33.3
31-Mar-84 33.4
30-Jun-84 34
30-Sep-84 34.4
31-Dec-84 35.6
31-Mar-85 35.6
30-Jun-85 36
30-Sep-85 36
31-Dec-85 37.3
31-Mar-86 37.9
30-Jun-86 38.8
30-Sep-86 39.1
31-Dec-86 40.4
31-Mar-87 40.7
30-Jun-87 40.8
30-Sep-87 40.8
31-Dec-87 41.1
31-Mar-88 41.7
30-Jun-88 42
30-Sep-88 41.9
31-Dec-88 42.2
31-Mar-89 42.4
30-Jun-89 42.9
30-Sep-89 42.8
31-Dec-89 43
31-Mar-90 42.8
30-Jun-90 42.8
30-Sep-90 42.9
31-Dec-90 43.1
31-Mar-91 42.7
30-Jun-91 42.4
30-Sep-91 41.6
31-Dec-91 40.6
31-Mar-92 40.3
30-Jun-92 39.9
30-Sep-92 39.4
31-Dec-92 38.9
31-Mar-93 38.7
30-Jun-93 38.6
30-Sep-93 38.3
31-Dec-93 37.8
31-Mar-94 38
30-Jun-94 37.8
30-Sep-94 37.6
31-Dec-94 37.4
31-Mar-95 38
30-Jun-95 38.8
30-Sep-95 38.8
31-Dec-95 38.9
31-Mar-96 39
30-Jun-96 39.3
30-Sep-96 39.3
31-Dec-96 38.9
31-Mar-97 39
30-Jun-97 39.1
30-Sep-97 39.1
31-Dec-97 39.8
31-Mar-98 40.5
30-Jun-98 41.6
30-Sep-98 41.9
31-Dec-98 42.2
31-Mar-99 43.6
30-Jun-99 44.3
30-Sep-99 45
31-Dec-99 45
31-Mar-00 45.7
30-Jun-00 46.4
----------------------
*Source: Data Resources Incorporated
A key to the Fund's good performance was maintaining a long average
maturity. During the year the Fund's average maturity was a relatively long 12.7
years. The Fund emphasized issues that were most likely to be bought back by the
Treasury.
VALUE OF TREASURIES
ISI expects the economy to slow. Further, we think a hard landing is more
likely than a soft one. So far, as the slowdown has begun to emerge, Treasury
issues have outperformed corporate issues. We believe they seem likely to
perform even better going forward. One of the major factors at work is the
leveraging that has taken place in the private sector. This high debt burden
becomes more difficult to support if revenue slows, as is typical in a hard
landing. For a sense of the extent of the leveraging, please see the chart below
which covers corporate debt as a percentage of the economy, on a quarterly
basis.
ISI expects Treasury interest rates to decline next year. Please see ISI's
economic outlook that follows this letter for more details.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
30 YEAR US TREASURY YIELD*
10/29/99 6.163
11/05/99 6.056
11/12/99 6.036
11/19/99 6.162
11/26/99 6.232
12/03/99 6.252
12/10/99 6.166
12/17/99 6.374
12/24/99 6.486
12/31/99 6.477
01/07/00 6.546
01/14/00 6.697
01/21/00 6.694
01/28/00 6.452
02/04/00 6.271
02/11/00 6.269
02/18/00 6.157
02/25/00 6.129
03/03/00 6.131
03/10/00 6.176
03/17/00 6
03/24/00 5.986
03/31/00 5.828
04/07/00 5.709
04/14/00 5.776
04/21/00 5.827
04/28/00 5.96
05/05/00 6.188
05/12/00 6.201
05/19/00 6.206
05/26/00 6.059
06/02/00 5.945
06/09/00 5.895
06/16/00 5.869
06/23/00 6.041
06/30/00 5.896
07/07/00 5.869
07/14/00 5.876
07/21/00 5.789
07/28/00 5.785
08/04/00 5.708
08/11/00 5.706
08/18/00 5.69
08/25/00 5.669
09/01/00 5.661
09/08/00 5.7
09/15/00 5.9
09/22/00 5.913
09/29/00 5.885
10/06/00 5.837
10/13/00 5.804
10/20/00 5.727
10/27/00 5.741
------------------
*Source: Bloomberg
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
November 22, 2000
1
<PAGE>
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ECONOMIC OUTLOOK FOR 2001 -- AS OF OCTOBER 31, 2000
--------------------------------------------------------------------------------
OVERVIEW
ISI expects Treasury and high quality Municipal bond interest rates to
decrease over the next year producing capital gains for long maturity issues.
The major reason is slowing US and global growth. Since 1996, swings in consumer
spending have become sensitive to swings in stock prices. In this light, perhaps
the most important recent economic development is the weakness in stock prices.
Week by week, it is becoming clearer that both US and foreign growth rates are
slowing. The forces that are associated with this slowdown also tend to indicate
the pace of future growth. So we feel further slowing is likely. For example,
the correlation between growth and oil has been that oil leads the economy by 12
months. The correlation is a negative one (ie, higher oil prices reduce economic
growth). Likewise, for the seven largest industrialized countries, the US,
Japan,GreatBritain, France,Germany, Italy and Canada (the G-7), interest rate
changes have led the economy also by 12 months. For example, G7 short rates hit
a low in early 1999 and G7 industrial production gains peaked a year later.
Recently, G7 short rates hit a new high, suggesting that the weakest G7
industrial production readings won't be seen until at least this time next year.
The global technology slowdown, which is starting to unfold and starting to slow
global growth, is for some months likely to feed on itself, as well as feed on
and reinforce the global slowdown.
To be sure, there are positives for growth including world trade, consumer
confidence, and fiscal stimulus. However, these positives are losing to the
forces outlined above. There are also a host of other forces including a zero
savings rate, an unusually large number (given a booming economy) of company
earnings warnings (ie, Kmart, Office Depot, Dell and Disney), a rising level of
corporate bankruptcies and a slowing in bank lending. There is now political
uncertainty, in the US, which may hurt the economy to the extent it hurts the
stock market.
THE US ECONOMY
Evidence of slower US growth includes ISI's company surveys, unemployment
claims (which recently hit a two-year high), scrap steel prices (hit a 14-year
low) (See graph below), and computer chip prices hit a record low (down 56% in
just 17 weeks). In addition, stock analysts' fourth quarter estimates for S&P
500 operating earnings have shed 4.2 points since the start of the quarter from
15.6% to 11.4%, the sharpest drop since 1998's weak third quarter. At this
year's fourth quarter pace of estimates cuts, the final result would end up
around 5%, down significantly from the optimism of few months ago.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SCRAP STEEL PRICE*
31-Jan-85 93
128-Feb-85 95
29-Mar-85 90
30-Apr-85 84
31-May-85 70
28-Jun-85 67
31-Jul-85 75
30-Aug-85 83
30-Sep-85 80
31-Oct-85 74
29-Nov-85 80
31-Dec-85 85
31-Jan-86 83
28-Feb-86 80
31-Mar-86 75
30-Apr-86 72
30-May-86 70
30-Jun-86 70
31-Jul-86 70
29-Aug-86 74
30-Sep-86 71
31-Oct-86 71
28-Nov-86 71
31-Dec-86 73
30-Jan-87 75
27-Feb-87 79
31-Mar-87 75
30-Apr-87 77
29-May-87 80
30-Jun-87 83.5
31-Jul-87 84.5
31-Aug-87 92.5
30-Sep-87 117.5
30-Oct-87 121
30-Nov-87 109
31-Dec-87 100
1-Feb-88 121.5
29-Feb-88 119
31-Mar-88 119
29-Apr-88 118
31-May-88 113
30-Jun-88 117.5
29-Jul-88 122.5
31-Aug-88 120
30-Sep-88 125
31-Oct-88 125
30-Nov-88 113
30-Dec-88 113
31-Jan-89 121.5
28-Feb-89 123
31-Mar-89 115.5
28-Apr-89 120
31-May-89 118
30-Jun-89 114.5
31-Jul-89 109
31-Aug-89 109
29-Sep-89 106.5
31-Oct-89 98
30-Nov-89 98.5
29-Dec-89 106.5
31-Jan-90 103.5
28-Feb-90 103.5
30-Mar-90 106.5
30-Apr-90 111.5
31-May-90 118
29-Jun-90 114.5
31-Jul-90 119.5
31-Aug-90 118
28-Sep-90 115.5
31-Oct-90 110.5
30-Nov-90 107
31-Dec-90 106
31-Jan-91 104.5
28-Feb-91 104
29-Mar-91 102
30-Apr-91 95
31-May-91 95
28-Jun-91 89
31-Jul-91 94
30-Aug-91 94
30-Sep-91 97
31-Oct-91 94
29-Nov-91 94
31-Dec-91 94
31-Jan-92 89.5
28-Feb-92 89.5
31-Mar-92 89.5
30-Apr-92 94
29-May-92 92
30-Jun-92 90
31-Jul-92 88.5
31-Aug-92 86.5
30-Sep-92 90.5
30-Oct-92 89.5
30-Nov-92 89
31-Dec-92 92.5
29-Jan-93 99.5
26-Feb-93 109.5
31-Mar-93 108.5
30-Apr-93 106.5
31-May-93 106.5
30-Jun-93 115
30-Jul-93 118.5
31-Aug-93 112.5
30-Sep-93 112.5
29-Oct-93 131.5
30-Nov-93 137.5
31-Dec-93 139.5
31-Jan-94 139.5
28-Feb-94 139.5
31-Mar-94 139.5
29-Apr-94 135
31-May-94 122.5
30-Jun-94 111.5
29-Jul-94 117.5
31-Aug-94 134.5
30-Sep-94 134.5
31-Oct-94 133.5
30-Nov-94 140
30-Dec-94 144
31-Jan-95 147
28-Feb-95 142.5
31-Mar-95 137.5
28-Apr-95 137.5
31-May-95 141.5
30-Jun-95 140.5
31-Jul-95 140.5
31-Aug-95 146.5
29-Sep-95 143.5
31-Oct-95 138.5
30-Nov-95 134.5
29-Dec-95 135
31-Jan-96 144.5
29-Feb-96 144.5
29-Mar-96 139
30-Apr-96 139.5
31-May-96 141.5
28-Jun-96 138.5
31-Jul-96 134
30-Aug-96 136.5
30-Sep-96 136.5
31-Oct-96 126.5
29-Nov-96 116.5
31-Dec-96 116.5
31-Jan-97 131
28-Feb-97 146
31-Mar-97 136.5
30-Apr-97 133.5
30-May-97 134.5
30-Jun-97 138.5
31-Jul-97 143.5
29-Aug-97 146.5
30-Sep-97 137.5
31-Oct-97 139.5
28-Nov-97 143.5
31-Dec-97 143.5
30-Jan-98 145.5
27-Feb-98 140
31-Mar-98 135.5
30-Apr-98 133.5
29-May-98 135.5
30-Jun-98 135.5
31-Jul-98 130.5
31-Aug-98 120.5
30-Sep-98 107.5
30-Oct-98 84.5
30-Nov-98 78.5
31-Dec-98 76.5
1-Jan-99 76.5
29-Jan-99 91.5
26-Feb-99 101.5
31-Mar-99 90.5
30-Apr-99 90.5
31-May-99 100.5
30-Jun-99 104.5
30-Jul-99 100.5
31-Aug-99 106.5
30-Sep-99 106.5
29-Oct-99 106.5
30-Nov-99 113.5
31-Dec-99 120.5
31-Jan-00 120.5
29-Feb-00 110.5
31-Mar-00 110.5
28-Apr-00 108.5
31-May-00 101.5
30-Jun-00 93.5
31-Jul-00 91.5
31-Aug-00 92.5
29-Sep-00 92.5
31-Oct-00 79.5
----------------------
*Source: Data Resources Incorporated
2
<PAGE>
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ECONOMIC OUTLOOK FOR 2001 (CONCLUDED)
--------------------------------------------------------------------------------
POLITICS
The election gave neither party a mandate. From a legislation-passing point
of view, the House and Senate are deadlocked. Political gridlock seems the most
likely result. The bond market enjoyed many aspects of the 1990's gridlock,
especially the budget surplus outcome. The markets seem to be emphasizing the
positive aspects of a political standoff. It is possible that the result could
also be a something-for-everyone budget. The spending surge and tax cuts that
resulted during the 1980's gridlock could be the precedent for a big budget
outcome in 2001 and beyond. Politics has the ability to both help and hurt
interest rates in the coming year.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GLOBAL STRENGTH/WEAKNESS 1 (1/2/95-11/13/00)
THIRTEEN WEEK AVERAGE
2 JAN 95 13.2
9 JAN 95 12.5
16 JAN 95 11.4
23 JAN 95 10.5
30 JAN 95 9.5
6 FEB 95 9.3
13 FEB 95 9.4
20 FEB 95 9.8
27 FEB 95 11.2
6 MAR 95 10.5
13 MAR 95 9.2
20 MAR 95 9.7
27 MAR 95 10.3
3 APR 95 8.7
10 APR 95 9.2
17 APR 95 8.5
24 APR 95 7.4
1 MAY 95 7.2
8 MAY 95 5.2
15 MAY 95 4.4
22 MAY 95 1.8
29 MAY 95 -1.4
5 JUN 95 -3.5
12 JUN 95 -3.5
19 JUN 95 -3.8
26 JUN 95 -3.1
3 JUL 95 -3.9
10 JUL 95 -3.8
17 JUL 95 -2.8
24 JUL 95 -3.6
31 JUL 95 -4.8
7 AUG 95 -4.5
14 AUG 95 -3.8
21 AUG 95 -2.7
28 AUG 95 -2.5
4 SEP 95 -1.3
11 SEP 95 -0.6
18 SEP 95 -1
25 SEP 95 -2.7
2 OCT 95 -2.6
9 OCT 95 -4.8
16 OCT 95 -5.3
23 OCT 95 -5.5
30 OCT 95 -5.6
6 NOV 95 -4.5
13 NOV 95 -5.5
20 NOV 95 -6.2
27 NOV 95 -5.5
4 DEC 95 -6.3
11 DEC 95 -7.5
18 DEC 95 -8.1
25 DEC 95 -6.3
1 JAN 96 -5.8
8 JAN 96 -4.8
15 JAN 96 -5.8
22 JAN 96 -6.5
29 JAN 96 -6.1
5 FEB 96 -5.9
12 FEB 96 -7
19 FEB 96 -5.2
26 FEB 96 -4.2
4 MAR 96 -2.8
11 MAR 96 -3.1
18 MAR 96 -3.6
25 MAR 96 -5.5
1 APR 96 -6.8
8 APR 96 -6.7
15 APR 96 -5.4
22 APR 96 -4.5
29 APR 96 -3.9
6 MAY 96 -3.6
13 MAY 96 -2.6
20 MAY 96 -4.3
27 MAY 96 -3.2
3 JUN 96 -3.8
10 JUN 96 -2
17 JUN 96 -1.5
24 JUN 96 -0.8
1 JUL 96 -0.6
8 JUL 96 -0.2
15 JUL 96 -0.1
22 JUL 96 -0.2
29 JUL 96 -1.8
5 AUG 96 -2.8
12 AUG 96 -3
19 AUG 96 -2.7
26 AUG 96 -2.7
2 SEP 96 -3.2
9 SEP 96 -0.9
16 SEP 96 -0.8
23 SEP 96 -0.1
30 SEP 96 0.2
7 OCT 96 0.5
14 OCT 96 -0.2
21 OCT 96 0.3
28 OCT 96 2.2
4 NOV 96 2.5
11 NOV 96 2.8
18 NOV 96 4.8
25 NOV 96 5.9
2 DEC 96 8.1
9 DEC 96 5.8
16 DEC 96 5.9
23 DEC 96 5.2
30 DEC 96 6.9
6 JAN 97 6.2
13 JAN 97 6.6
20 JAN 97 6.5
27 JAN 97 6.1
3 FEB 97 5.8
10 FEB 97 7.5
17 FEB 97 7.3
24 FEB 97 5.2
3 MAR 97 6
10 MAR 97 6
17 MAR 97 8
24 MAR 97 9.4
31 MAR 97 9.1
7 APR 97 9.4
14 APR 97 8.2
21 APR 97 7.9
28 APR 97 6.9
5 MAY 97 5.4
12 MAY 97 4.5
19 MAY 97 2.8
26 MAY 97 2.9
2 JUN 97 1.2
9 JUN 97 0.6
16 JUN 97 -0.9
23 JUN 97 -1.8
30 JUN 97 -2.2
7 JUL 97 -1.8
14 JUL 97 0.8
21 JUL 97 0.8
28 JUL 97 3.8
4 AUG 97 6.9
11 AUG 97 8.7
18 AUG 97 9.4
25 AUG 97 10.4
1 SEP 97 12.5
8 SEP 97 12.8
15 SEP 97 13.2
22 SEP 97 13.2
29 SEP 97 14.2
6 OCT 97 14.1
13 OCT 97 14.7
20 OCT 97 14.5
27 OCT 97 12.3
3 NOV 97 10.2
10 NOV 97 9.8
17 NOV 97 9.4
24 NOV 97 8.7
1 DEC 97 6.7
8 DEC 97 6.5
15 DEC 97 6.3
22 DEC 97 5.3
29 DEC 97 3.3
5 JAN 98 1.9
12 JAN 98 0.2
19 JAN 98 2.3
26 JAN 98 2.8
2 FEB 98 2.1
9 FEB 98 1.2
16 FEB 98 -0.4
23 FEB 98 -1.7
2 MAR 98 -1
9 MAR 98 -1.7
16 MAR 98 -2
23 MAR 98 -2.9
30 MAR 98 -1.8
6 APR 98 -2.1
13 APR 98 -1.4
20 APR 98 -3.4
27 APR 98 -3.2
4 MAY 98 -1.4
11 MAY 98 -1.5
18 MAY 98 -0.5
25 MAY 98 -1.5
1 JUN 98 -3.5
8 JUN 98 -2.5
15 JUN 98 -4.9
22 JUN 98 -6.2
29 JUN 98 -7.7
6 JUL 98 -8.9
13 JUL 98 -10.2
20 JUL 98 -10.8
27 JUL 98 -11.5
3 AUG 98 -12.1
10 AUG 98 -12.5
17 AUG 98 -13.6
24 AUG 98 -12.8
31 AUG 98 -12.7
7 SEP 98 -14.5
14 SEP 98 -10.8
21 SEP 98 -9.2
28 SEP 98 -8.5
5 OCT 98 -8.9
12 OCT 98 -8.8
19 OCT 98 -9
26 OCT 98 -9.7
2 NOV 98 -10.5
9 NOV 98 -11.5
16 NOV 98 -10.5
23 NOV 98 -11.5
30 NOV 98 -11.5
7 DEC 98 -11.5
14 DEC 98 -13.7
21 DEC 98 -11.8
28 DEC 98 -12
4 JAN 99 -9
11 JAN 99 -7.2
18 JAN 99 -5.8
25 JAN 99 -4.6
1 FEB 99 -2.2
8 FEB 99 1.2
15 FEB 99 1.3
22 FEB 99 2.1
1 MAR 99 3.9
8 MAR 99 5.6
15 MAR 99 7
22 MAR 99 5
29 MAR 99 6.1
5 APR 99 5.8
12 APR 99 5.8
19 APR 99 5.8
26 APR 99 7.2
3 MAY 99 8.2
10 MAY 99 6.8
17 MAY 99 7.1
24 MAY 99 9.8
31 MAY 99 7.8
7 JUN 99 8.2
14 JUN 99 8.9
21 JUN 99 10.2
28 JUN 99 10.2
5 JUL 99 11.8
12 JUL 99 12.6
19 JUL 99 12.8
26 JUL 99 13.5
2 AUG 99 13.5
9 AUG 99 14.5
16 AUG 99 16.2
23 AUG 99 14.9
30 AUG 99 15.6
6 SEP 99 15.2
13 SEP 99 14.9
20 SEP 99 14.9
27 SEP 99 16.4
4 OCT 99 16.4
11 OCT 99 16.8
18 OCT 99 17.3
25 OCT 99 16.4
1 NOV 99 14.1
8 NOV 99 11.7
15 NOV 99 11.6
22 NOV 99 11.3
29 NOV 99 12.6
6 DEC 99 12.5
13 DEC 99 14.3
20 DEC 99 15.2
27 DEC 99 16
3 JAN 0 16.9
10 JAN 0 16.3
17 JAN 0 17.9
24 JAN 0 18.8
31 JAN 0 18.8
7 FEB 0 20.4
14 FEB 0 21.3
21 FEB 0 23
28 FEB 0 23.8
6 MAR 0 27
13 MAR 0 27.2
20 MAR 0 27.1
27 MAR 0 27.3
3 APR 0 26.1
10 APR 0 26.6
17 APR 0 25.2
24 APR 0 24.2
1 MAY 0 23.8
8 MAY 0 23.5
15 MAY 0 21.7
22 MAY 0 22.2
29 MAY 0 20.1
5 JUN 0 15
12 JUN 0 13.1
19 JUN 0 12.5
26 JUN 0 10.4
3 JUL 0 10.3
10 JUL 0 9.5
17 JUL 0 8
24 JUL 0 7.9
31 JUL 0 9.6
7 AUG 0 9.2
14 AUG 0 9.5
21 AUG 0 8
28 AUG 0 8.5
4 SEP 0 8.2
11 SEP 0 8.5
18 SEP 0 7.8
25 SEP 0 6.4
2 OCT 0 8.2
9 OCT 0 6.8
16 OCT 0 7.9
23 OCT 0 7.4
30 OCT 0 5.5
6 NOV 0 3.6
13 NOV 0 1.8
THE GLOBAL ECONOMY
ISI keeps tabs on the world growth picture by surveying economic reports
from 35 countries, and labeling each report as a sign of strength or weakness.
It clearly declined in recent weeks. Please see the chart on the bottom of
column one.
Recent evidence of slower growth abroad includes weaker German
manufacturing orders, a downgrade of Korean growth prospects, slower Japanese
money growth, and more deflation for Japan's domestic Wholesale Price Index.
Another overall indicator, the world Leading Economic Indicator (LEI) for
September 2000, is now up just 2.1% year-to-year, well down from its late-1999
peak of 5.8%. The world LEI leads G7 activity by roughly six-months.
INFLATION
With global growth slowing and a number of US inflation indicators rolling
over, odds are inflation is headed lower, particularly if oil has peaked.
Manufacturing unit labor costs were down a stunning 0.6% month-to-month in
September and 3.0% year-to-year (September-September). Consumer inflation
expectations have slowed from a peak of 3.2% to 2.8% in November (University of
Michigan Inflation Expectation survey). In addition, the trade weighted dollar
has remained firm, and gold has continued to trade below $270/ounce.
3
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. 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 Fund's inception date 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 fiscal year.
Both the line graph and the SEC standardized total return figures include
the impact of the 4.45% maximum initial sales charge for the ISI Shares. Returns
would be higher for ISI Shares 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 is
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 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.
AVERAGE ANNUAL TOTAL RETURN1
----------------------------------------
% Return with
Periods ended 10/31/00: Sales Charge
----------------------- -------------
One Year 4.62
Five Years 5.00
Ten Years 7.67
Since Inception (8/10/88) 7.61
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CHANGE IN VALUE OF A $10,000 INVESTMENT
ISI Total Return Lehman Bros. Lehman Bros. Lehman Bros.
Intermediate Treasury Long-Term
8/10/88 9555 10000 10000 10000
10/88 9852 10313 10407 10685
10/89 11021 11388 11676 12493
10/90 11178 12266 12345 12592
10/91 12954 13889 14140 14876
10/92 14116 15268 15608 16593
10/93 16564 16685 17659 20526
10/94 15534 16400 16871 18143
10/95 18344 18329 19464 23016
10/96 18975 19359 20449 23810
10/97 20682 20766 22210 26815
10/98 22231 22793 24780 31189
10/99 22377 21379 24403 31392
10/00 24501 24276 21369 27400
--------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE 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 dividend and capital gain distributions and include the
Fund's maximum 4.45% sales charge. The Lehman Brothers indices listed above
are unmanaged and do not reflect expenses, which have been deducted from the
Fund's returns. 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
US Treasury sector. Currently, the Fund's weighted average maturity is
approximately 12.97 years.
2 The Lehman Brothers Long-Term Treasury Index and the Lehman Brothers
Intermediate Treasury Index reflect the performance of US Treasury
securities in their respective sectors. Benchmark returns are for the period
beginning August 31, 1988.
3 The LehmanB rothers 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. Benchmark returns are for the period beginning
August 31, 1988.
4
<PAGE>
--------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
<TABLE>
<CAPTION>
INTEREST MATURITY PAR MARKET
RATE DATE (000) VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
US TREASURY BONDS -- 73.72%
10.375% 11/15/12 $28,750 $ 35,825,202
8.875% 2/15/19 36,500 47,957,569
8.125% 8/15/19 35,000 43,225,000
8.50% 2/15/20 41,000 52,512,021
------------
TOTAL US TREASURY BONDS
(Cost $187,940,425) 179,519,792
------------
ZERO COUPON US TREASURY BONDS (STRIPS) -- 2.99%
6.065%* 5/15/17 19,500 7,271,024
------------
TOTAL ZERO COUPON US TREASURY BONDS
(STRIPS) (Cost $7,812,128) 7,271,024
------------
REPURCHASE AGREEMENTS -- 22.17%
Goldman Sachs & Co., 6.50%
Dated 10/31/00, to be repurchased on 11/01/00, collateralized by US
Treasury Note with a par value of $26,850,000, coupon rate of 6.375%, due
6/30/02, with a market value of
$27,538,105 (Cost $26,998,000) 26,998,000
J.P. Morgan Securities Inc., 6.45%
Dated 10/31/00, to be repurchased on 11/01/00, collateralized by US
Treasury Note with a par value of $27,408,494, coupon rate of 6.000%, due
9/30/02, with a market value of
$27,539,472 (Cost $26,999,000) 26,999,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $53,997,000) 53,997,000
------------
TOTAL INVESTMENTS -- 98.88%
(Cost $249,749,553)** 240,787,816
------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- 1.12% 2,735,824
------------
NET ASSETS -- 100.0% $243,523,640
============
</TABLE>
--------------------------------------------------------------------------------
* Yield as of October 31, 2000.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31, 2000
------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $249,749,553) $240,787,816
Cash 813
Receivable for shares of beneficial interest subscribed 214,991
Dividend and interest receivable 3,415,668
Prepaid expenses and other 116,166
------------
Total assets 244,535,454
------------
LIABILITIES:
Payable for shares of beneficial interest redeemed 160,002
Dividend Payable 503,260
Accrued expenses and other 348,552
------------
Total liabilities 1,011,814
------------
Net assets $243,523,640
------------
COMPOSITION OF NET ASSETS:
Paid-in capital $257,309,837
Distributions in excess of net investment income (538,989)
Accumulated net realized loss from investment transactions (4,285,471)
Net unrealized depreciation on investments (8,961,737)
------------
Net assets $243,523,640
------------
NET ASSET VALUE PER SHARE:
ISI Shares ($136,727,481 / 14,281,795 shares) $9.57
======
Flag Investors Class A Shares ($106,796,159 / 11,156,964 shares) $9.57
======
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($9.57 / 0.9555) $10.02
======
Flag Investors Class A Shares ($9.57 / 0.955) $10.02
======
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
-------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
OCTOBER 31, 2000
---------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $14,787,042
-----------
EXPENSES:
Investment advisory fee 681,254
Distribution fees:
ISI Shares 355,063
Flag Investors Class A Shares 270,423
Administration fee 249,914
Transfer agent fee 229,429
Accounting fees 77,608
Professional fees 58,147
Shareholder reporting fees 56,580
Custody fees 56,536
Registration and directors' fees 11,484
Miscellaneous 3,799
-----------
Total expenses 2,050,237
-----------
Net investment income 12,736,805
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions (4,082,643)
Change in unrealized appreciation/depreciation of investments 13,794,970
-----------
Net gain on investments 9,712,327
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,449,132
===========
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
--------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 12,736,805 $ 13,390,796
Net realized gain (loss) from securities transactions (4,082,643) 4,648,128
Change in unrealized appreciation/depreciation on investments 13,794,970 (29,808,640)
------------ ------------
Net increase (decrease) in net assets resulting from operations 22,449,132 (11,769,716)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income and short-term gains:
ISI Shares (7,204,336) (11,554,616)
Flag Investors Class A Shares (5,483,969) (8,710,017)
Flag Investors Class B Shares -- (186,679)
Net realized long-term gains:
ISI Shares -- (2,770,396)
Flag Investors Class A Shares -- (2,005,712)
Flag Investors Class B Shares -- (68,070)
------------ ------------
Return of Capital:
ISI Shares (2,415,888) --
Flag Investors Class A Shares (1,838,984) --
Flag Investors Class B Shares -- --
------------ ------------
Total distributions (16,943,177) (25,295,490)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE3):
Proceeds from sale of shares 30,423,355 42,387,220
Value of shares issued in reinvestment of dividends 10,582,386 17,749,854
Cost of shares repurchased (69,405,361) (54,663,606)
------------ ------------
Increase (decrease) in net assets derived
from capital share transactions (28,399,620) 5,473,468
------------ ------------
Total decrease in net assets (22,893,665) (31,591,738)
NET ASSETS:
Beginning of year 266,417,305 298,009,043
------------ ------------
End of year including distributions in excess of
net investment income of $(538,989) and
$(556,835), respectively $243,523,640 $266,417,305
============ ============
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE>
--------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHTLIGHTS -- ISI SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $ 9.35 $ 10.62 $ 10.04 $ 9.83 $ 10.19
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50 0.64 0.51 0.55 0.56
Net realized and unrealized gain (loss)
on investments 0.38 (1.03) 0.71 0.30 (0.23)
-------- -------- -------- -------- --------
Total from Investment Operations 0.88 (0.39) 1.22 0.85 0.33
LESS DISTRIBUTIONS:
Net investment income and
short-term gains (0.50) (0.71) (0.64) (0.55) (0.65)
Tax return of capital distribution -- -- -- (0.08) --
Distribution in excess of
net investment income (0.16) -- -- (0.01) (0.04)
Net realized long-term gains -- (0.17) -- -- --
-------- -------- -------- -------- --------
Total distributions (0.66) (0.88) (0.64) (0.64) (0.69)
-------- -------- -------- -------- --------
Net asset value at end of year $ 9.57 $ 9.35 $ 10.62 $ 10.04 $ 9.83
======== ======== ======== ======== ========
TOTAL RETURN1 9.49% (3.82)% 12.50% 9.00% 3.44%
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses 0.82% 0.81% 0.85% 0.83% 0.81%
Net investment income 5.10% 4.68% 4.98% 5.62% 5.69%
SUPPLEMENTAL DATA:
Net assets at end of year (000s):
ISI Shares $136,728 $151,532 $171,336 $171,074 $193,486
Flag Investors Class A Shares $106,796 $114,886 $122,785 $122,229 $143,791
Portfolio turnover rate 15% 77% 179% 92% 199%
</TABLE>
--------------------------------------------------------------------------------
1 Total return excludes the effect of sales charge.
See Notes to Financial Statements.
9
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- Total Return US
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 management investment 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 US Treasury Fund
Shares ("ISI Shares") and Flag Investors Total Return US 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 US Treasury Fund Class B Shares, began operations June 20, 1996. The
sale of 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 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 to comply 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:
VALUATION OF SECURITIES -- 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 security's
fair value is determined using procedures that the Board of Directors
establishes and monitors. At October 31, 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.
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.
10
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FEDERAL INCOME TAXES -- 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. The Fund has capital loss carryovers of $4,285,472
expiring October 31, 2008.
The Fund may periodically make reclassifications among certain of its
capital accounts as a result of differences in the characterization and
allocation of certain income and capital gains distributions determined
annually in accordance with federal tax regulations which may differ from
accounting principles generally accepted in the United States.
These book/tax differences are either temporary or permanent in nature. To
the extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the
period that the differences arise. Accordingly, permanent differences as of
October 31, 2000 have been primarily attributable to return of capital
distributions and have been reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
FUND INCOME (LOSS) GAINS (LOSSES) CAPITAL
------ -------------- -------------- --------
Total
Return US
Treasury $4,224,218 $-- $(4,224,218)
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER -- The
Fund uses the trade date to account for securities 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.
B. 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 year ended October 31, 2000, ISI's fee was $681,254, of
which $56,388 was payable at October 31, 2000.
11
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 assets 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 year ended
October 31, 2000, ICCC's fee was $249,914, of which $20,397 was payable at
October 31, 2000.
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 year ended October 31, 2000,
ICCC's fee was $77,608, of which $6,489 was payable at October 31, 2000.
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
year ended October 31, 2000, ICCC's fee was $229,429, of which $30,279 was
payable at October 31, 2000.
ISI Group, Inc. ("ISI Group"), which is affiliated with ISI, provides
distribution services for the ISI Shares 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. For the year
ended October 31, 2000, ISI's fee was $355,063, of which $29,016 was
payable at October 31, 2000.
ICC Distributors, Inc. ("ICC Distributors") provides distribution services
for the Flag Investors Class A Shares 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 year ended October 31, 2000,
ICC's fee was $270,423, of which $22,663 was payable at October 31, 2000.
C. CAPITAL SHARE TRANSACTIONS -- The Fund is authorized to issue up to 115
million shares of $.001 par value capital stock (44 million ISI Class, 44
million Flag Investors Class A, 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:
ISI SHARES
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
------------- ---------------
Shares sold 1,590,621 1,446,867
Shares issued to share-
holders on reinvest-
ment of dividends 648,505 983,017
Shares repurchased (4,156,862) (2,351,273)
------------ ------------
Net increase (decrease) in
shares outstanding (1,917,736) 78,611
============ ============
Proceeds from sale
of shares $ 14,908,307 $ 13,815,462
Value of reinvested
dividends 6,096,028 10,372,002
Cost of shares repurchased (38,931,807) (23,047,940)
------------ ------------
Net increase (decrease)
from capital share
transactions $(17,927,472) $ 1,139,524
============ ============
12
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
FLAG INVESTORS
CLASS A SHARES
----------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
------------- -----------
Shares sold 1,645,346 2,468,335
Shares issued to share-
holders on reinvest-
ment of dividends 477,259 718,480
Shares repurchased (3,247,456) (3,016,885)
Conversion of shares
from Class B -- 545,490
------------ ------------
Net increase (decrease) in
shares outstanding (1,124,851) 715,420
============ ============
Proceeds from sale
of shares $ 15,515,048 $ 24,540,826
Value of reinvested
dividends 4,486,358 7,196,033
Cost of shares
repurchased (30,473,554) (29,260,245)
Conversion of shares
from Class B -- 5,578,323
------------ ------------
Net increase (decrease)
from capital share
transactions $(10,472,148) $ 8,054,937
============ ============
FLAG INVESTORS
CLASS B SHARES1
---------------
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.
D. INVESTMENT TRANSACTIONS -- Excluding short-term obligations, purchases of
investment securities aggregated $27,474,116 and sales of investment
securities aggregated $48,965,766 for the year ended October 31, 2000.
On October 31, 2000, aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value was
$8,961,737.
13
<PAGE>
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
INVESTMENT ADVISOR'S REPORT (CONTINUED)
To the Board of Directors and Shareholders of ISI Total Return US Treasury Fund,
Inc.
We have audited the schedule of investments and the statement of assets and
liabilities of the ISI Total Return US Treasury Fund, Inc. (the "Fund"), as of
October 31, 2000, and the related statement of operations for the year then
ended, the statements of 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and 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, 2000 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
ISI Total Return US Treasury Fund, Inc. as of October 31, 2000, 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 the
five years then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 8, 2000
--------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED OCTOBER 31, 2000
--------------------------------------------------------------------------------
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
Of the net investment income distributions made during the fiscal year
ended October 31, 2000, 77.38% has been derived from investments in US
Government and Agency Obligations. All or a part of the distributions from this
income may be exempt from taxation at the state level. Consult your tax advisor
for state specific information.
14
<PAGE>
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the ISI Funds, including
charges and expenses, obtain a prospectus from your investment representative or
directly from the Fund at 1-800-955-7175. Read it carefully before you invest.
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<PAGE>
ISI
TOTAL RETURN
US TREASURY FUND SHARES
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DIRECTORS AND OFFICERS
Edward S. Hyman
CHAIRMAN
R. Alan Medaugh
PRESIDENT
Joseph R. Hardiman
DIRECTOR
Louis E. Levy
DIRECTOR
Carl W. Vogt, Esq.
DIRECTOR
Nancy Lazar
VICE PRESIDENT
Edward J. Veilleux
VICE PRESIDENT
Carrie L. Butler
VICE PRESIDENT
Margaret M. Beeler
ASSISTANT VICE PRESIDENT
Keith C. Reilly
ASSISTANT VICE PRESIDENT
Charles A. Rizzo
TREASURER
Felicia A.Emry
SECRETARY
Amy M. Olmert
ASSISTANT SECRETARY
Daniel O. Hirsch
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.
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INVESTMENT ADVISOR
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ISI, Inc.
535 Madison Avenue, 30th Floor
New York, NY 10022
(800) 955-7175
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SHAREHOLDER SERVICING AGENT
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Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
(800) 882-8585
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DISTRIBUTOR
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ISI Group, Inc.
535 Madison Avenue, 30th Floor
New York, NY 10022
(800) 955-7175
