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Previous: TOTAL RETURN U S TREASURY FUND INC, N-30D, 2000-01-03 |
Next: BROKEN HILL PROPRIETARY CO LTD, 6-K, 2000-01-03 |
ISI
Total Return
U.S. Treasury Fund Shares
Directors and Officers
James J. Cunnane Carrie L. Butler
Director Vice President
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
Investment Objective
A mutual fund designed to provide a high level of total return with relative
stability of principal as well as the secondary objective of high current income
consistent with an investment in securities issued by the United States
Treasury.
Investment Advisor
ISI Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
Shareholder Servicing Agent
Investment Company Capital Corp.
P.O. Box 219426
Kansas City, MO 64121-9426
(800) 882-8585
Distributor
ISI Group Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
(GRAPHIC APPEARS HERE)
ANNUAL REPORT
October 31, 1999
<PAGE>
Investment Advisor's Report
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 5.
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
Source: Bloomberg, Inc.
In this volatile environment, the Fund's maturity has been managed, 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 the table at the top of
the next column for details.
Value of Treasuries
The budget surplus for this and last fiscal year has reduced the
outstanding volume of Treasuries.
TOTAL RETURN COMPARISON
10/98-10/99 10/93-10/99
Trust 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) These figures assume the reinvestment of dividends and capital gains
distribution but exclude the impact of any sales charge.
(2) Source: Lehman Brothers
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 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 22, 1999
1
<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 worldwide central bank tightening action. Please see the forecast table
below.
ISI ECONOMIC FORECAST
<TABLE>
<CAPTION>
99:1Q 99:2Q 99:3Q 99:4Q* 00:1Q* 00:2Q*
<S><C>
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%
</TABLE>
*Estimated.
**A more accurate cost of living barometer then the CPI.
***End of quarter.
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
2
<PAGE>
Economic Outlook for 2000 (continued)
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.
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 at the top of the next column.
OECD LEADING INDICATOR 3 MONTH % A.R. SEPTEMBER 5.6%
(GRAPHIC APPEARS HERE)
OECD LEADING INDICATOR
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
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
3
<PAGE>
Economic Outlook for 2000 (concluded)
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.
4
<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 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.
AVERAGE ANNUAL TOTAL RETURN*
% Return with
Periods ended 10/31/99: Sales Charge
One Year (8.15)
Five Years 6.59
Ten Year 6.85
Since Inception (8/10/88) 7.44
CHANGE IN VALUE OF A $10,000 INVESTMENT*
(GRAPHIC APPEARS HERE)
ISI Total Return U.S. Treasury Fund $22,377
Lehman Bros. Intermediate Treasury Index $21,379
Lehman Bros. Treasury Index $24,403
Lehman Bros. Long Term Treasury Index $31,392
8/10/88 9,555 10,000 10,000 10,000
10/88 9,852 10,313 10,407 10,685
10/89 11,021 11,388 11,676 12,493
10/90 11,178 12,266 12,345 12,592
10/91 12,954 13,889 14,140 14,876
10/92 14,116 15,268 15,608 16,593
10/93 16,564 16,685 17,659 20,526
10/94 15,534 16,400 16,871 18,143
10/95 18,344 18,329 19,464 23,016
10/96 18,975 19,359 20,449 23,810
10/97 20,682 20,766 22,210 26,815
10/98 22,231 22,793 24,780 31,189
10/99 22,377 21,379 24,403 31,392
* 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 distributions and
include the Fund's 4.45% 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 14.6 years.
5
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Statement of Net Assets October 31, 1999
Maturity Par Market
Interest Rate Date (000) Value
- ------------------------------------------------------------------------------
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%
(Cost $286,936,165) ** 264,179,458
Other Assets in Excess of Liabilities-- 0.8% 2,237,847
------------
Net Assets-- 100.0% $266,417,305
============
6
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Statement of Net Assets (concluded) October 31, 1999
Net Asset Value and Redemption Price Per:
ISI Class Share
($151,531,577 / 16,199,531 shares outstanding) $9.35
======
Flag Investors Class A Share
($114,885,728 / 12,281,815 shares outstanding) $9.35
======
Maximum Offering Price Per:
ISI Class Share
($9.35 / 0.9555) $9.79
======
Flag Investors Class A Share
($9.35 / 0.955) $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.
7
<PAGE>
Total Return U.S. Treasury Fund, Inc.
<TABLE>
<CAPTION>
Statement of Operations For the Year Ended October 31, 1999
<S><C>
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)
============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Total Return U.S. Treasury Fund, Inc.
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:
ISI Class Shares (11,554,616) (10,498,284)
Flag Investors Class A Shares (8,710,017) (7,541,487)
Flag Investors Class B Shares (186,679) (119,476)
Net realized long-term gains:
ISI Class Shares (2,770,396) --
Flag Investors Class A Shares (2,005,712) --
Flag Investors Class B Shares (68,070) --
------------ ------------
Total distributions (25,295,490) (18,159,247)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE3):
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.
9
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Financial Highlights--ISI and Flag Investors Class A Shares
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
For the Years Ended October 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value at beginning of year $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.64 0.51 0.55 0.56 0.57
Net realized and unrealized gain/(loss)
on investments (1.03) 0.71 0.30 (0.23) 1.04
-------- -------- -------- -------- --------
Total from Investment Operations (0.39) 1.22 0.85 0.33 1.61
Less Distributions:
Net investment income and
short-term gains (0.71) (0.64) (0.55) (0.65) (0.64)
Tax return of capital distribution -- -- (0.08) -- --
Distribution in excess of
net investment income -- -- (0.01) (0.04) --
Net realized long-term gains (0.17) -- -- -- --
-------- -------- -------- -------- --------
Total distributions (0.88) (0.64) (0.64) (0.69) (0.64)
-------- -------- -------- -------- --------
Net asset value at end of year $ 9.35 $ 10.62 $ 10.04 $ 9.83 $ 10.19
======== ======== ======== ======== ========
Total Return(1) (3.82)% 12.50% 9.00% 3.44% 18.09%
Ratios to Average Daily Net Assets:
Expenses 0.81% 0.85% 0.83% 0.81% 0.80%
Net investment income 4.68% 4.98% 5.62% 5.69% 5.94%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares $114,886 $122,785 $122,229 $143,791 $164,206
ISI Class Shares $151,532 $171,336 $171,074 $193,486 $206,615
Portfolio turnover rate 77% 179% 92% 199% 194%
</TABLE>
(1) Total return excludes the effect of sales charge.
See Notes to Financial Statements.
10
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Financial Highlights--Flag Investors Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period For the Period
November 1, 1998 June 20, 1996(2)
through For the Years Ended through
May 14,(1) October 31, October 31,
1999 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 (Note A):
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.
11
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies -- Total Return U.S. Treasury Fund, Inc.
(the "Fund"), which was organized as a Maryland Corporation on June 3, 1988
and 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 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:
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.
Repurchase Agreements -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement is
a short-term investment in which the Fund buys a debt security that the
broker agrees to repurchase at a set time and price. The third party, which
is the broker's custodial bank, holds the collateral in a separate account
until the repurchase agreement matures. The agreement ensures that the
collateral's market value, including any accrued interest, is sufficient if
the broker defaults. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral declines or
if the broker enters into an insolvency proceeding.
Federal Income Taxes -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and gains
that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially all
of its taxable net investment income and net real-
12
<PAGE>
Notes to Financial Statements (continued)
ized 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.
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.
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, 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 0.05% of the Fund's gross income. Effective June 1, 1999 the fee is
calculated based on the combined assets under management for the four mutual
funds for which ISI is the investment advisor. This fee 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, 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 based on 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. For the year
ended October 31, 1999, distribution fees aggregated $725,346. ISI Group's
fee was $403,641
13
<PAGE>
Notes to Financial Statements (continued)
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.
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 thousand Flag Investors Class D and 6.5
million undesignated). Transactions in shares of the Fund were as follows:
ISI Class Shares
------------------------------------
For the For the
Year Ended Year Ended
October 31, October 31,
1999 1998
------------- -------------
Shares sold 1,446,867 1,567,913
Shares issued to share-
holders on reinvest-
ment 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)
=========== ============
Flag Investors Class A Shares
------------------------------------
For the For the
Year Ended Year Ended
October 31, October 31,
1999 1998
------------- -------------
Shares sold 2,468,335 1,422,232
Shares issued to share-
holders on reinvest-
ment 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)
=========== ============
14
<PAGE>
Notes to Financial Statements (concluded)
Flag Investors Class B Shares(1)
----------------------------------------
For the For the
Year Ended YearEnded
October 31, October 31,
1999 1998
---------------- ---------------
Shares sold 394,876 313,798
Shares issued to share-
holders on reinvest-
ment 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
=========== ==========
- ----------
(1) Converted to Class A shares May 14, 1999.
D. Investment Transactions-- Excluding short-term obligations, purchases of
investment securities aggregated $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.
E. Net Assets -- On October 31, 1999, net assets consisted of:
Paid-in capital:
ISI Class Shares $166,392,385
Flag Investors Class A Shares 123,541,290
Distribution 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
============
F. 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.
G. 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 this income may be
exempt from taxation at the state level. Consult your tax advisor for state
specific information.
15
<PAGE>
Independent Auditor's 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
16
<PAGE>
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<PAGE>
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<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 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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